This week was the last "normal" week in Techstars, before the pitch practice madness begins. The final week was full of workshops, with the last workshop on Friday, and the topics varied from selling techniques, to common VC (venture capital) pitch mistakes, to PR (public relations) strategy.Read More
Customer acquisition is usually the foremost topic on a founder's mind. This week was full of workshops, focused on various aspects of this topic. We also heard one of the most powerful Founder Stories of the program.Read More
After dipping briefly following Mentor Madness (at least in feel), the pace here has started to noticeably increase again. That mostly means founders and teams have less time for distractions, and are putting in even longer hours than usual. New product is being shipped, and more time is being dedicated to fundraising and sales, in preparation for Demo Day. As such, the focus this week was mostly on product development, and putting more pressure on growth.Read More
While I didn't get to reflect on Techstars during the last couple weeks as much as I would have liked, given that I was traveling back to Montreal and Nova Scotia on the weekends, last week was yet another week full of learning. And while the title of this post is Fundraising, we aren't really there yet. But the workshops at Techstars were focused here this week, and they were so good they deserved the title.
We had fewer sponsors this week, which let all of us (including Associates) really get into our work, and we had another couple great workshops and Founder Stories.
This workshop, while perhaps not the most interesting of topics, was very useful. The workshop focused on modeling different investment and cap table scenarios and the resulting equity distributions. The bottom lines:
- You need to understand in detail all the implications all term sheets you consider, including the future consequences with your likely fundraising milestones.
- Beware taking a lot of convertible notes - this can kill you down the road.
- Pre-money vs. post-money has major implications for every deal you do, but make sure you know all the different situations it applies, as they're often wider than most people think.
- The combination of employee equity pools, equity guarantees (for things like accelerators), and high amounts of capped convertible debt can spell disaster for founders, so make sure you don't end up in this situation.
- The investors you're dealing with have done this a hundred times; get a mentor and/or lawyer who is equal to the task and has your best interests in mind.
The bottom line here is that with a few small mistakes in interpretation, you can end up with very little equity. Don't take fundraising of any kind trivially.
This workshop was given by David Cohen, and was the single best resource I've ever been exposed to on closing an investor. I'm still trying to find some public resources to share since it's so good, but for now here are some tips (keep in mind this is based on Techstars companies only):
- You should have an amount of money to raise as your target (call it 'T'), and should 'know' that you can exceed this target. In other words, the overask is the killer in fundraising.
- If you have a demo day coming up, you should be aiming to have at least 1/3 of T committed going in.
- Ask investors you have developed relationship with to "help you" by committing early.
- Don't ask them to lead, just to commit.
- Make it safe for them to commit (ie. no cheque required).
- "Soft commit": agreement to invest specific amount of money with specific, well understood conditions.
- Example of one condition: "I can't commit without the valuation." "Will you commit, assuming the valuation is ultimately acceptable to you?" - provide the "out".
- Practice active listening to get to commitment.
- Your job is to remove concern, not solve it.
- Once condition is mentioned, write it down, repeat, ask if you got it right, ask what else.
- Your goal is an exhaustive list of conditions under which they will invest.
- Ask clearly for the commitment at the end:
- "So, assuming [condition 1], [condition 2], [condition 3] are met, I understand you are willing to commit $[___]."
- Ask if you can use their name when talking with other investors.
- Enjoy having your lead investor!
Okay, so it's not quite that simple. But the active listening, and removing concerns was a huge revelation for me. Everyone will tell you that once you have a lead investor, things become considerably easier, as investors like to invest with others, but this is the best methodology I've ever seen for getting the soft commit you need to get other investors on board. Enjoy!
While the details of this story, as with all Founder Stories, are kept among those who are present when they are told, this was one of the more amazing stories. Tom Leighton from Akamai, a company which has been through a bunch of ups and downs on all sides of the business, from the valuation to the leadership, shared his story with us, and some of the most amazing takeaways I got were based on Tom himself:
- Being humble, kind, and extremely successful are not mutually exclusive. To the contrary, I think that a disproportionate number of great entrepreneurs are good people, and Tom is a great example of that.
- Leadership and the ability to be a CEO can be learned; the caveat is that it might take time. Tom himself was with the company for many years before stepping into the role.
- Culture and hiring is extremely important to the company; on the topic of navigating crisis, breaking bad news, or other general obstacles for the ups and downs of a startup company are often a non-issue when you have a great team made of great people.
- You have to be lucky to be good, and good to be lucky. This old cliché holds true for most aspects of life - but you need to always be positioned to take advantage of opportunities that come your way. Often they can be the break you need to get ahead, or to keep the company alive period.
If you're more interested in the story, check out this book:
- No Better Time: The Brief, Remarkable Life of Danny Lewin, the Genius Who Transformed the Internet - Molly Raskin
Airplanes & Productivity
I flew home this past weekend for a funeral, which while obviously a sad occasion, provided me some much-needed reading time during my flights. I was once again reminded how valuable carving out undisturbed time to read and learn can be. During one ninety-minute flight, and the last three quarters of a book (Traction, in this case), I had the best ideation session of the past several weeks (maybe even months), and no doubt it was the lack of distractions aside from my book, notepad and pen.
Whenever you can, make sure to escape somewhere to take some time to read and think. And don't just hope it happens - schedule it in your day.
The books I finished recently:
- Traction: A Startup Guide to Getting Customers
- The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers
Until next week!
This week at Techstars finally marked the end of Mentor Madness (hence the Mentor Madness hangover), and it was a relief for many teams. I don't think I've seen the office quieter, or more productive, than Monday, the first day without scheduled mentor meetings. That said, teams continue to meet with mentors they liked, some often for their fourth or fifth meetings. The Founder Stories and Workshops this week provided some brilliant content, which you can read about below.
Techstars Sponsor Visits
Though the formal Mentor Madness period ended, sponsors began sending their startup teams, and the personnel on these teams also fit the mentor role. Many have backgrounds in either starting companies or funding them via venture capital, and their experience shows.
While sometimes visiting with sponsors is optional, I've personally seen it be extremely valuable for more than one team over the past several weeks, and I would recommend always visiting with sponsors if given the chance.
The reason: some will be non-technical while others will be technical, meaning you can send different people, and typically only one or two sponsors visit at a time, meaning that you will likely only have half an hour of your day occupied. Based on the opportunities and connections many can offer (think customer introductions, hugely valuable perks, investor introductions), the potential for return is high for the time committed.
This week, in addition to the usual Founder Stories from within Techstars, we had a special guest courtesy of a sponsor, from a local startup.
While the industry wasn't one I was generally familiar with, there were some great takeaways:
- As a founder, you have to make progress every day.
- Raising a seed round is based on any one of three things: product, team and traction.
- Traction has a wide scope - things like customer interviews count.
- Seed fundraising mistakes: talking to big VC firms.
- Instead, talk to large angels.
- To get your valuation for your seed round, talk to people who have done similar size seed rounds recently.
- Getting investment from people you actually like should be a high priority - if investor meetings go badly, think about whether it's because of the person.
- Set personal meetings (like lunch) with investors to first check the fit, and make that one of the early interactions before you approach fundraising with that person.
Our own Founder Stories tend to be more personal, and this week was no exception. We had two very different perspectives and styles of stories, so I've broken the lessons from each in two:
From the first:
- Most obstacles just really aren't that big; whether it's moving countries, changing locations because of someone you love, or someone you've lost, it's all possible.
- The corollary to the above is that most obstacles we see are self-imposed. The barrier to accomplishing something is often within ourselves and the perceived obstacles, rather than reality.
- Businesses that are a result of your past, and/or tied strongly to your own life, are often the most powerful.
- The corollary here is that when telling the story of your business, it is much easier to make an emotional connection when the story is your own.
- Your story can be a recruiting tool. If you've experienced it, others likely have to; who are these people and how do you find them?
From the second:
- Switching study or career paths isn't something you should be afraid of.
- When thinking about which areas interest you, consider your interests outside of formal study - how can they be tied to formal studies or careers?
- Getting funded by your parents, living at home, and doing whatever you can to make your business succeed, is okay (personally, this resonated a lot for me).
- Great products take a long time to develop.
- The path to product/market fit is often a long one.
- Cofounder relationships are precious, and like real relationships, can be ugly when they finish; make sure to think and proceed carefully when considering who you found with.
This workshop forever changed the way I will conduct hiring.
- Gut instinct is only good for those who you shouldn't hire.
- The best predictor for success is previous behavior, NOT previous experience.
- "The average hard & productivity costs of a bad hire is 15x base salary" - Who, Geoff Smart & Randy Street
- You need a scorecard for hiring based on three things: behaviors, competencies, and outcomes. Hire for what you want the person to accomplish in THIS job, at THIS time.
- For behaviors, always ask "Tell me about a time in your career when you _____".
- Six behavioral essentials: grit, rigor, impact, teamwork, ownership, curiosity, polish.
- Competencies: technical, cultural.
- Outcomes: 3-8 specific examples of what a person must get done.
- CEOs: you are full-time recruiters. You should always be asking other people who they think is talented, and start relationships with these people.
- Selection process: filter [resumes], screen [with a call], interview [with multiple teams, for several hours], decide, reference.
- Use TORQ (Threat of a Reference Check) in questions (ie. "When I ask your old boss about ___, what would they say about ____").
- Look for STAR answers (Situation or Task, Action taken, Result).
- You should be listening more than talking during most of the interview (the end is for selling your company).
- A key interview might take 90+ minutes; make use of the scale and grade people.
- You should have multiple interview teams; only ask references once you've decided to hire.
- As usual: hire slow, fire fast.
Again, this was a transformative workshop; everyone here will probably hire like this for the rest of their careers.
Exploring Cofounder Conflict & Being Fierce
While this didn't provide the crazy mind shift that the first workshop did, it explored some issues that often aren't in entrepreneurship, mostly on the topic of emotional stability and overall happiness. The following were the main points for me:
- In general, make an effort to ask your cofounder(s) and coworkers "How are you?" and truly listen to the answer. Schedule a meeting if necessary. You should be looking to find out where they are in their personal and work life. Use a red/yellow/green scale if need be, and it's up to the person whether they elaborate.
- If you have an issue, use ONFR: Observation, Feeling, Need, Request:
- O: I noticed _______.
- F: That makes me feel ______.
- N: We need to agree on ______.
- R: Next time please ______.
- Try and get your whole team asking themselves the following, as they relate to both their work and personal lives:
- What are you not saying that needs to be said?
- What are you not hearing that's being said?
- What are you saying that's not being heard?
Emotional and overall stability is key for a person or team to function long-term. There is often a particularly masochistic culture in entrepreneurship as it relates to work-life balance, or whatever you like to call it. Regardless of the balance, make sure you know where both you and your team are on these issues.
The focus this week is definitely shifting. Despite still being busy with sponsor visits and events, there has clearly been a move back towards fast progress, and it will be fun to watch (and participate in) over the next few weeks. This also marked the end of the first half of the program. I expect the second half to be much different, though no less interesting.
Why Does A Startup Fail?
What are the biggest reasons for startup failure? Market? Product? Sales ability?
To some extent, all of them. One of the biggest reasons for a startup failing (and least talked about) is cofounder disputes or the wrong team. Don't believe me? Just look at these statistics or listen to Paul Graham.
I recently dealt with this problem, and that's the reason I left my startup - an unsolvable conflict between founders.
So how did I get myself into this situation?
The Founder Institute
In February 2015, I was starting The Founder Institute (FI). I'd just admitted that the startup I was working on - instead of graduate school - wasn't going to work, and I wasn't the most confident. But, I was enthusiastic, and when I got to the first FI meeting and met someone else with a similar idea, 10 years experience, and the resume to match, along with an experienced technical friend, I was all but sold.
I wasn't completely impulsive, of course, and over the next several weeks, we consulted on some of the FI assignments, met several times, and went out to play some pool and generally get to know one another. Both potential cofounders were friendly, enjoyable social company and generally pleasant. We didn't share the first same language, country of birth, or upbringing, and a variety of other traits, but bringing some diversity to a startup is never a bad idea...is it?
We continued to work together on the FI assignments, and agreed to develop a company together. I no longer had to worry about how we were going to develop an MVP (Minimum Viable Product) and FI assignments could be a joint effort, reducing some of the workload.
In May 2015 we officially incorporated, and signing our stock restriction agreements sealed the deal. I was now a 1/3 owner in the new company.
Things were generally groovy...in July 2015 we officially graduated from The Founder Institute, as one of 12 companies, and 2 of 14 individuals (our third member wasn't officially in FI).
At graduation/demo night, I let my cofounder pitch; I had the highest pitch ratings of the cohort, but trying to be better at delegating responsibilities (I'm generally a control freak), I let my cofounder pitch. Unfortunately, accentuated by the fact he had a migraine that day, it didn't go exceptionally well. Many asked me afterwards why I didn't pitch, and I wish I had. But, not a big deal, lesson learned.
Life After Founder Institute
We all took some time off, working remotely through most of August, and then coming back to Montreal in early September. This time, I brought along a friend who I'd been keeping updated on our progress, and he had agreed to join the company as a late founder.
Work generally progressed well through the following months. We met on Sundays as a team to plan our weekly sprint, and sometimes three of us would work together at the coworking space where we kept a couple desks through the week. Our lead technical cofounder still had his job, which he would later leave in December.
Our product kept getting better, until the point where it was fully functional. I was dealing primarily with our marketing, which included developing our stand for the InterDrone conference in Las Vegas in September, maintaining our social media and blog, and generating and sending out our press releases. I was also generally leading the product development priorities, doing graphic design for our mockups and revisions, and getting our sales process going. New to sales, this consisted of targeted cold calling in the early stages, and eventually progressed to a volume-based cold email system which automated follow-ups and brought in early-adopter prospects.
I also consulted a bit on strategy, though generally I tried to leave strategy and financing (loans, accelerator applications, accounting, etc.), as well as partnership acquisition, to my cofounder.
The Turning Point
As we worked more and more together, there began to be some conflict. Now, don't get me wrong, there is always conflict within a team of any kind, and even more so within startup teams. But for me, this wasn't the right kind of conflict - it was based on what I perceived as missed details, or poor interpretations (stemming from lack of understanding, I think) of our market and customers. I got nervous when we talked to customers or potential investors (basically, anyone important) about the company, because I was worried about what might be said or how questions might be answered.
Early December, I'd been discussing this issue with some friends and mentors, on the way to a pitch in Ottawa for what turned out to be a very perceptive, major Canadian angel investor. I'd put up the team slide and spoken two sentences, when he cut me off and said something along the lines of "I've seen too many companies fail because a lead cofounder is too theoretical or sciency-y. Tell me why this isn't the case with you guys" (paraphrasing). Of course I responded that we balanced each other's personalities, blah, blah, blah, but really, I was thinking "if this guy can pick up on this when I'm the only one in the room, how on earth are we going to fund raise with the whole team there?".
So, I decided to check in with our third team member. During our end-of-year review, I asked him whether he thought there were any issues within the team or how we might work better. The only comment? "I find the overlapping of responsibilities between you and our cofounder strange - I think we need to resolve this".
By this point, I'd consulted with several of my personal mentors, who were also familiar with my cofounder. The consensus: something needs to change, otherwise it's obviously not going to work.
The problem? I didn't feel there was another role in which this person would fit.
So, during late December, I met both one-on-one with this cofounder, and then as a group of three cofounders. The discussion centered around where I felt the problems were, with examples, in the hope that I could convince this person to step down. Did I really expect that result? No. It takes a very realistic and humble person to face their own strengths and weaknesses and step away from something they created. Realistically, I highly doubt that in the reverse situation I would be able to accept it. It could also be that I was wrong (but obviously I don't think so).
Ultimately, the situation was untenable, and I believed that if not faced now, we were going to face the issue in several months when we needed to fundraise (and with our business model that was inevitable). Do I regret the experience? Definitely not. We gained a bunch of experience, and the partnership got me farther, quicker, than I would have been capable of otherwise. Will I be more careful in the future? Definitely.
A testament to the character of my cofounders: despite our (very) frank discussions about results and work that had been done by each of us, we all remain on friendly terms.
So how do I suggest young (or old) founders find cofounders? Read about that here.