I've got a great deal for you...
It requires you to set up the operation from scratch in every city--and it probably only works in cities.
There is a ton of regulatory risk.
Right now the market is pretty much only high net worth individuals.
Oh... You only invest in scalable businesses? Sorry, I didn't realize. I'll keep that in mind for next time.
Congrats, you passed on Uber.
And you know what--if "scalability" was an important criteria for you, and you wanted businesses where all you had to do was write a bit of code and people started paying you software margins all along the way, you would have rightfully passed. You would have also passed on Fitbit, Nest, Tesla, SpaceX, Blue Apron, Makerbot and a whole host of other things.
At least you would have done Slack.
Yet, as cash friendly as Slack could be--where it could easily have Kickstarter or Craigslist-like cashflow to cap table like ratios, it is still raising hundreds of millions of dollars. So does it really matter if it's being spent on developers or factories. Dollars are still dollars. Look how much Twitter and Facebook raised before exit.
Seems to me that every deal is a tradeoff. Retail stores may not have the same margin or viral growth, but what they spend to build a store is what they don't spend in customer acquisition dollars that Blue Apron spends. What Canary spends to build a product they make back in a clear path to revenue that Pinterest may or may not ever see. They certainly don't make as much per customer as Canary does.
To me, I care about whether something is unit profitable, whether the market is big enough, and whether your business gets easier or harder to run the more business you do. Even in retail, managing more stores is hard, but you also have enough revenues to justify a layer of management expertise that makes your business easier to run. You've got more customer awareness as well. Marketing the 10th Soul Cycle location is easier than marketing the first.
So what's really the definition of scalability these days?
In the last two days, I've had three different conversations with people who were asking me what I do with the people who want to grab coffee when the mutual benefit isn't immediately mutual. Don't get me wrong--these are people who are all extremely generous with their time--and that's probably why more people reach out to them. You have a useful meeting with someone and then they tell someone else it was useful, and so on, and so on...
Unfortunately, you only have so many hours in the day--well, the working day, anyway. You do, however, do other things--things that not everyone might be interested in, but if they *really* wanted to meet with you, they'd do.
I'm talking about volunteering.
A lot of people in the tech and startup community volunteer their time to various non-profits--things that always need more help. It's too easy for someone to ask you for coffee. What if you responded with "happy to connect up, why don't you meet me at this soup kitchen Thursday morning?"
Actually, it would be fantastic for you to give them an address and make it a place that hands out breakfast to the homeless or something.
"Oh, did you think *we* were having breakfast? Oh, no, I meant we'll be giving other people breakfast."
Anyone that doesn't stick around for that isn't the kind of person you'd want to meet up with anyway.
For me, it's volunteering to help give the public a free kayaking experience. I co-founded the Brooklyn Bridge Park Boathouse. Our paddlers are mostly local, diverse, working class or lower income--basically anyone who lives within walking distance of the park that isn't going to be paying to kayak in the Hamptons this summer. It's a group of people whose lives involve a lot of waiting on line for stuff undoubtedly, and who can't pay their way around the process. We provide an empowering but safe experience to a lot of people who may not have ever been on the water or who believed themselves capable of paddling their own kayak around on their own.
I'm there during the summer almost every Saturday. If anyone wants to come down to volunteer with us, they can sign up here, and just tweet at me to see when I'll be there. As long as you realize that we're both there to ensure public safety first, and to help people have a good paddling experience, then I'm happy to talk about venture, startups, NYC, etc.
What's your volunteer thing that you can get those would be coffee buyers at?
I was chatting with a friend about going to work for startup companies, and told her that career development really came down to two simple things:
1. Do you know what you do?
Do you offer a clear deliverable, best suited for a particular segment of customers or clients, that aligns with their near term goals?
In other words, do you "do marketing" or do you "help seed and Series A backed companies test and optimize their marketing content, deploy it across multiple channels, and analyze the customer acquisition analytics to create a plan to scale future marketing budgets?"
In the latter case, if someone said, "We're thinking of putting a little bit of money to work to figure out where we should be marketing and to prove to future investors that we can spend money wisely to grow," then you'd be the exact right fit for that.
Sometimes, figuring out what you do means doing a lot of interviews to figure out what people's needs are, so you can tailor the message and understand that the product you're delivering--you--is what the market wants.
2. Do other people know what you do?
Here's a trackable metric: How many people know enough about your work to make a great client intro and can tell the client exactly what they need you for?
Growing that number over time will result in direct leads to more work opportunities.
You can do that by creating thought leadership content on sites like Medium, or writing for other professional publications.
You should be a leader among the relevant professional Meetup groups, perhaps organizing one yourself.
Curating a newsletter of helpful professional content, occasionally adding your own perspective will help.
Also reaching out to a wide range of potential customers and connectors to customers with free help is also a way to get people hooked on your professional talents. You've just got to figure out what kind of free help is manageable at scale. Maybe it's a lunchtime seminar for the portfolio companies of a VC. Maybe it's quick user research feedback on the front page of their site.
The other key to this is whether or not other people have seen what you do and how you do it. I have a lot of smart friends that tell me they have a certain skill, but honestly, I've never seen it. I've never seen a presentation of theirs, and they've never commented intelligently to be on their craft. I really can't be sure that they wouldn't succeed if I made a work recommendation for them.
You've got to know specifically what you're offering, and so does everyone else.
I recently met up with an investor who I'm not totally sure is a fit for my second fund, so it was important to me that I was upfront about all the reasons why he shouldn't come in. The last thing you want as either a founder or even a VC is to have an investor get stuck with you when you're not on the same page about expectations.
So here's all the reasons I told him he shouldn't be in:
1) Fund investing is boring. Let's be clear. You trust me with your money and I get to do the fun part--working with founders. For most funds, you get a quarterly statement that isn't fun at all, and then you get to go to a once a year meeting. The meeting is nicely done, but it's just that one meeting.
Now, granted I've tried hard to change that. More updates, more casual events, more exposure to portfolio companies, co-investing, etc., but you're still not pulling the trigger yourself. Being in a fund is not the same thing as angel investing.
Of course, angel investing for most people isn't very fun past the first year. Writing checks is plenty fun, but when you realize that you probably aren't very good at it, these companies need lots of help, and you realize you missed out on the best ones because no one knew who you are, I guess fun is relative.
2) The payback time is forever. It takes a really long time for a company to go from zero to being worth hundreds of millions, if not billions of dollars, and to *exit*. These are six, seven, eight year runs or sometimes even longer. Imagine that's the case in the deals you do out of the fund in year one. Now, in year two, the same thing happens, and year three and year four, etc, etc. You could wind up getting distribution checks from a fund you invested in a dozen years ago. Hopefully, the fund gets some nice wins early and you start to get your money back, but when you're in a venture fund, you're in for a really long haul. Think kids college tuition money.
3) You don't really know what you've got until the money is in the bank. On paper valuations are kind of meaningless. Just because the next biggest fool pays X for preferred shares, creating an implicit valuation for all the shares, doesn't mean you can either get out of it at that price or that you can be sure of the exit price. Just put your money in and hope for the best. Check your bank account in 10 years.
4) Money is a commodity. You've invested in a product company where the product is money--and largely the person who wins the deal is the first person to show up and pay the highest price. That doesn't sound like a really defensible business does it? Now, in the early stage, not a lot of people are willing to show up for two people and a roll of duct tape, so when you're first, you're really first, and there are good deals to be had--but other than that, you're really not getting any great deals.
If your fund is in Uber, than it doesn't matter. It doesn't matter if you grossly overpay. You'll still make a ton of money--but if you're not in a few select deals, or in them super early before other people knew your thing was a thing, it's hard to win.
5) There's very little salvage value if things don't work out. When you buy a building, if you overpay for it, it's still a building. Maybe the neighborhood doesn't improve as fast as you think, but at least you've still got something, and there's some rent coming in.
When you back a founding team and their first product hits a wall, there's not usually any IP that is worth anything to anyone. It's basically going to be a zero--and half of these early stage deals are going to wind up being a pile of flaming worthless paper.
Granted, it's the other half--or more realistically the other 10% that really drives all the value, but you could realistically lose half your money in a fund. Generally, it doesn't happen that you lose *all* of your money in a fund. I've only even heard of that happening twice. You have to be pretty bad at this to bet on 30 early stage companies at single digit valuations and going zero for thirty. As an angel doing a deal a year, you're much more likely to go oh-for, but in a diversified pool, at worst you'll probably only lose half your shirt.
6) VCs are along for the ride. There's little control in these deals that an investor can exercise. It's very difficult to force an exit, to affect strategy, and if you have to replace a team early, things have really hit the fan.
Yeah, so you really don't want in this. Trust me.
Every other day, some startup is raising some ludicrous amount of money at some outlandish valuation. It feels like the mother of all pissing contests and tech journalists seem all too willing to play along.
Is it really going to make or break your career if you're the first to Uber's Series H round, the one between the $60 billion valuation and the $90 billion valuation.
I'll bet they're all chomping at the bit to be the first to announce the $100 billion valuation, because, you know, PSYCHOLOGICALLY SATISFYING ROUND NUMBERS!
Could you imagine what public market news would look like if every trade was covered like this?
On Wednesday of last week, Apple gained $15 billion of market cap. For those of you keeping score, that's a whole Snapchat... in a day.
Sort of positions the venture valuation pissing contest directly into the wind, doesn't it?
You know what I find a lot more interesting? When someone writes about a company for the first time.
I'd rather hear about a new company, have it's merits and pitfalls thoughtfully debated and it's potential impact pondered than discuss, yet again, how much some company might be worth based on a small amount of preferred private stock trading hands.
What would startup journalism look like if you couldn't write about new fundings?
What if everything you read was about things being built? Or stories of entrepreneurs and how they built awesome stuff?
Oh, and there would be no VC profiles unless something they backed got bought or went public. Then you could write the story about how they won the deal or picked it when no else else did.
It's June today. Why don't we just try it out for a month?