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
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 was the last week of Mentor Madness at Techstars Boston, and for the most part, everyone was breathing a sigh of relief. Usually investors are the last ones to participate, so despite being near the end, you still have to on your game. That also meant that Workshops began; Workshops are often lead by mentors on topics in their area of expertise, and generally follow the focus of the program: Build Team, Build Product, Growth.
This week we had two:
- Customer Interviewing: this was a detailed presentation of how to set up customer interviews, the right questions to ask, and the questions to avoid, with an example interview done in the middle. Super useful.
- The Power of the Network: a summary of how to leverage the Techstars network, and the associated tools, which include LinkedIn. Again, super useful, and Techstars does a great job of utilizing their network in general. While the opinions I've received on the topic are obviously biased, many would argue it's the most valuable network for entrepreneurs globally.
So, we'll start with those.
I think this is probably one of the most overlooked skills in the entire of entrepreneurship. Not only can customer interviews help chart your product development, sales strategy, and basically every consumer-related aspect of your business, but this is where you can find out if your startup idea is worth something in the first place.
The key takeaways:
- Surveys can serve as validation tools, and that's about it.
- Be as vague as possible to start - don't tell them what industry you're in, even remotely what your startup does.
- Good interviewing is good listening - you want them to tell stories.
- Stay away from 'shallow' (yes/no) questions.
- Avoid "have you ever had ____ problem".
- Always go for more "tell me about the challenges you've had with _____" (ex. note-taking).
- Interviews should be conducted with two people, one who is clearly in charge and one who is taking notes - can enter conversation occasionally by asking "do you mind if I ask a question?".
- You always want to dig deeper and get the stories; good follow-up questions include things like "why?" and "how often does this happen?".
- Wait for the other person to speak and elaborate themselves - using silence is important.
- Get people to demonstrate their stories and experiences if possible - you can then ask questions based on the demonstration.
- Approach interview as "how can I disprove my core assumptions?" - don't be married to your value proposition.
- Try and find the current way this person is solving your problem.
- Can source interview people from Craigslist, Taskrabbit - you should be getting valuable information after 2 or 3 if you're doing it right, and you shouldn't have a problem filling more than 45 minutes.
Power of the Network - Techstars & Otherwise
While some of this workshop spoke about how to best leverage the Techstars network specifically, there was a lot to be gained from the LinkedIn and general networking advice:
- Spend 10 minutes every day responding to points of contact (on LinkedIn) - congratulate people on new jobs, introduce them to someone you know in their new city, comment on their post, etc. (Go to My Network > Connections to see updates).
- Publish blog posts on LinkedIn - particularly if you post elsewhere too; it's a great way to show off your skills to people, and to dictate your own specialties and positioning.
- Little-used feature - you can keep notes that are private to you on first-level connections - just look at their profile and you'll see the option below their header.
- Use Conspire to get introductions. Look for lowest number of people in pathway, not necessarily strongest.
- Go to My Network > Connections > Settings to integrate with other services.
- University affiliation is a great way to turn a conversation from cold to warm, and is underutilized; check out the Advanced Search in detail.
- Use My Network > Find Alumni to source talent, or VCs/investors.
- Search former employees of a certain company to get intelligence and background information.
- Look at who has viewed your profile - if you don't have the right people viewing it, change your profile.
- Use your skill endorsements as a gauge for how other people view your skill set and expertise.
- Look at who is the most-viewed in your network - they have the highest social influence and capital; utilize this.
I won't say much about the Founder Stories this week, since they were so personal and emotional. That being said, they did really drive home a few key points for me:
- There is more to life than startups, or career success, or pretty much anything except family and loved ones. Never lose perspective.
- Desperation is a great motivator; use it as a tool (and by this, I mean implement it artificially whenever possible).
- The arguments against immigrants in any country are stupid. From an economic standpoint, they create disproportionate value. Aside from that, see point 1 - these are all people seeking the same things as you are.
- Obstacles are just that - obstacles. And yours are probably much less daunting than many that many, many, other people have faced and overcome. In other words, if you think your life is hard, it probably isn't.
- People are amazingly resilient.
I'll use the opportunity to point back to one of my favorite articles from Paul Graham, titled Life Is Short.
The end of Mentor Madness is a net positive for me, and I'll probably dedicate a separate post or two to the whole process. In the meantime, you can refer to Deb McGargle's post about it.
Cofounder conflict was the reason I recently left the startup I'd spent 11 months of my life building, which you can read about here. I've heard, asked and read about how to select a cofounder, and usually the advice comes down to two things:
- Only found with people you've known for a long time (professionally or otherwise), who you know you work well with (ie. friends).
- Don't found with friends, as this can cause conflict down the road.
I think the answer is a combination of both.
My First Cofounder Experience
When I was in my last year of university, and had started to explore entrepreneurship, I was looking for cofounders. The problem was, I didn't really know any. Those that I'd spent time working with in school were all mechanical engineers. My roommates were in the sciences, or other engineers. My friends were from class - mechanical engineers.
I was looking for the typical startup team: hipster, hacker, hustler (though I think these terms are almost cliché now, and I dislike using them).
Being a mechanical engineer, at the time I hadn't really figured out my role - hustler I guess? Anyway, I had the ideas, and knew I could pitch and solve problems, so I wanted to lead a team.
Eventually, I founded with a friend who I'd met through social events for scholarship students who was working on his CS degree, and we searched for a graphic designer. Eventually we found one, and she was actually great. But the result of that team? We had different priorities, and both the other members went off to work. We still remain great friends, but our startup didn't go anywhere.
So what were the problems with that team? Well, we had zero experience. Or very little anyway. And our goals and expectations weren't aligned. I'd built up some personal runway from summer jobs, while one of our cofounders had student debt to pay off, and the other wanted some experience working. We ignored this to start, but our future was doomed from the beginning.
My Second Cofounder Experience
While you can read the details here, my second cofounder experience didn't work out either.
This time I founded with a team that, on paper, had great complimentary skills, and way more experience. Early on, we agreed on general areas of responsibility, which were based both on our interests and our perceived strengths, which were essentially based on our resumes. We hadn't worked together before, but we got to know each other a little bit, and everyone seemed pleasant.
In the end, our responsibilities started to overlap, we had different expectations for the level of work we produced and the attention to detail, and the trust that is essential for good partnerships began to deteriorate. The result was discomfort for other team members, and ultimately I stepped away when there was disagreement about rearranging roles.
Who's a Good Cofounder?
So who do I suggest you found with?
Found with friends, but be prepared to lose them.
What is essential for a good founding team?
Trust and respect
Confidence in the abilities of each other
Personalities that blend well
Complimentary skill sets
To truly evaluate most of these characteristics, you're going to have to spend some significant time with each other. In my case, some of the current friends I would consider founding with are old hockey teammates, or longtime friends. I wouldn't consider someone I just met as a cofounder, regardless of their pedigree. Employees you can fire - it's much more difficult with cofounders.
So why do you have to be prepared to lose them? Because at some point, you may need to make a decision that is best for the company, and that might mean something bad for them. Like being removed. If you can't separate your business judgement from your ties as a friend, you'll be screwed. It's happened to me. If they're really that great a friend, then they will understand anyway.
Finding Your Cofounder
So you're like me 18 months ago, and you want to found a company, but you don't have any potential cofounders. How do you find them?
An unfortunate truth for a young wannabe founder: you can't just find them. You're going to have to put some time in. The time you spend building a great network and getting to know cofounders is going to be much more valuable than starting with someone you don't know, and then ending up killing the company a few months later.
Step one: put yourself in a position where you are working with a bunch of other like-minded people.
For me, this breakthrough came with The Founder Institute. 50 of us started, and only 14 finished, most of them founders of their own companies. So how did that help me? Well, I found my cofounder there, and while it didn't work out, you're immediately in a group of 50 people who are interested in entrepreneurship, which is a start. Second, these people didn't all drop out at once - they dropped out over time, and during the process, you get to work with them, see their work habits and abilities, and generally get to know each other. The reverse is true as well - people will be much more likely to want to found with you when you demonstrate your value. I was great at pitching during The Founder Institute - this impressed a lot of people, and got them past the fact that I was a young guy with seemingly little experience.
Other areas to get this type of experience? For students or recent grads, try The Next 36. Try getting a job with a startup company near you (http://www.builtin.com/). Try getting a job as an analyst or an intern at a local accelerator or venture capital firm (in Montreal, try FounderFuel or Real Ventures). You will immediately be exposed to people interested in entrepreneurship and get to demonstrate your value to them, and evaluate their value too.
Step two: network like crazy.
There are a million (okay, not quite) meetups and events centered around tech and startups in cities worldwide. Need a technical cofounder? Go to the Ruby meetup and try to make friends. Need a marketing guy? Go to the digital marketing meetup. Go to Startup Open House. The key here is that these are relationships you are going to cultivate over time - don't expect to immediately find your cofounder. And make sure you follow up with these people. Go out for coffee occasionally, stay in touch, go to more networking events together, maybe even go out for a beer (or five).
Step three: reach into your past.
Though most of the friends I graduated with were getting the same degree as I was, some of my old friends from home, or those that I grew up playing sports with, and generally those who were old friends, graduated with complimentary degrees. Some of them had even expressed interest in entrepreneurship. When you're a year or two out of school, you should have plenty of friends around your age who have graduated from university, but are maybe in a different location, or already working. Reach out and see what they're up to. Eventually tell them what you're up to, and see if they've ever thought about entrepreneurship. Again, make sure to follow up. Ambitious young professionals, particularly if you are (or were) friends, will move cities for a great opportunity (ie. your future startup together).
Don't forget: you're going to have to put some time into this. If you're still in university, and thinking about what you'll be doing afterwards, that's even better! You can be all ready by the time you graduate. The same rules apply to you as above, you can just look in some different places as well - go to the CS events and hackathons, and find those that are interested in starting a company after graduating. Go to the business competitions and find the marketing and sales people who are interested in really developing that product they sold to judges in the pitch competition. Hackathons are also a great opportunity to work together and get to know each other
Startup Weekends are another hackathon-like experience which you can use to get to know other people interested in entrepreneurship, or evaluate how your potential cofounders work.
Here's a great link summarizing a bunch of resources for entrepreneurs in Montreal which you can use to help you, and Google can help you if you're in other cities.
Don't forget: found with friends, but be prepared to lose them.