There were some really fun/good replies to this tweet that was referring to how recently funded startups but super expensive chairs. The one reply that stood out to me was a link to this post written by Tren Griffin on Things [He’s] Learned From Fred Wilson. #5 on that post talks about how expensive equity capital and the importance of not spending it on expensive toys for your company. He adds another way of looking at this, through a Buffet-ian lens. I have highlighted it below. Overall, the paragraph resembles a similar conclusion, from a personal perspective, I came to a few weeks ago.
Being somebody who’s curious in general, likes to tinker, and always wanting to play with the newest things I end up messing around with a lot of new software, apps, hardware, and gadgets. In general, I think this is super valuable, especially if you want to make build products/make investments as the earliest stages since a lot of new things starts as toys or not mainstream, by definition. Most of those things are usually just time-consuming and cost a marginal amount of money from your personal cash flow except for gadgets. The latest gadgets *usually* don’t end up being the significantly more product than the gadget that they are replacing: the newest iPhone, newest MacBook, Camera, drone, GoPro, wearable, you get the idea… So instead, what I’m experimenting with is: If I think I would’ve bought this item before doing this experiment, I’m going to buy the equity into that company instead. If the stock is not publicly traded, I’m going to buy an adjacent/related stock that is. Not just applying this to gadgets but any ancillary spending that’s not food & transport. If I do need to make the purchase, I’m going to try and match the spend with an equity purchase. Also, if a spend a LOT of time on the service, that to warrants buying equity in the service. In the two months, I’ve bought a few shares of AAPL, TWTR, TSM, LULU, JWN, FIT, SQ, ZEN
The most obvious outcome is that I, likely, own assets that don’t depreciate as fast as the goods I would’ve otherwise. I hope to god that is true because if that isn’t true that would really suck.
Also, I’ve never really traded public equities before this but I think I’ll learn some things about the company and how others (public/bigger funds) thinks about these stocks since their motivation is obviously very different from mine. The reason for my purchase was just intent to buy/interact with their goods and its possible that good products/services (I like) ≠ good businesses (the world values). Looking at things retrospectively should also allow me to build a better filter for instances, in the future, that need independent thinking. I may also be able to evaluate what kind of returns some of the toys/services built by public market companies, that I interact with, have. It’ll also, over time, let me track what structural changes have happened in the industries they operate in .
Again, the main motivation here isn’t extraordinary financial returns because this would be too easy of a way to make money, and anything that is easy has its advantages to competed away as Howard Marks writes here. Additionally, in his words this is a classic example of first-order thinking. I do want to use this as a way to spend less, and skim over annual filings to become familiar before deep diving in the future.
Disclaimer: I am not giving you investment advice of any sort. This is just an experiment I am doing for myself.
In the world of startups and entrepreneurship, we, almost religiously, believe that if we work hard, work with talented people, and get traction, then we’ll come out “victorious”. Given the general optimistic nature of being a founder, when looking forward, we tend to brush the uncertainty under the rug and assume that outcomes are fully in our control. So, when things don’t play out how we imagined it would, we are often left in despair and confusion. It makes it harder to wake up the next day and need to ask ourselves, “How could this happen to me (yes, it’s personal) when things were looking all up and to the right?” I’ve particularly gone through this exact cycle more than once and each time I learn from it. A place where I like to draw inspiration about how others deal with this is by watching elite sportsmen and sportswoman compete. They train their entire lives for something that might last from 10 seconds to a couple of hours. Even though you can be the best and do everything right, you sometimes still don’t win. Yet, you have to pick yourself up, deal with it and go at it again.
Last September, I had the opportunity of spending a few hours with a family friend who had been in the banking industry for over twenty years. I think I met him a once growing up but this particular trip to New York allowed me to spend quality one-on-one time with him. He shared lots of good advice and it was a pleasure to sit across from such a knowledgeable, yet humble, individual. I tried to absorb everything. However, there was one thing he said that resonated with me more than anything else, “People almost always leave companies because of their managers. Remember that in your entrepreneurial endeavours.”
I think this is especially true when working in a startup environment and can be extended to; “People almost always join and leave companies because of their managers”. In the case of early-stage companies, managers are more often than not the founders themselves. In the early days, there’s not too much certainty. However, there is one constant day in and day out: the people you’re working with and for. I think this early founder-employee fit evolves into the culture. Culture is upheld the strongest by the founders/leadership and is maintained as a common thread through the company. This not only attracts but also helps retain talent. This invariably helps a company become better.
It’s why VC’s spend time digging into a founder’s ability recruit. It’ll give them a taste of what’s to come. Accordingly, being on a founding team of a company, it’ll be up to us to attract (and keep) the best people. You cannot rely solely on press, metrics, etc when it comes to recruiting in the earliest days. It is quite literally up to you.
I think founders can approach it from a personal brand standpoint; twitter/personal blogs, and or from a technical depth standpoint; technical talks/papers published/previous technical execution, Either way there’s a need to do what’s most authentic to who you are since its most likely to be convincing to somebody looking to join you. Some of this does seem obvious, but I think it is something that needs to actively be done. However, sometimes it can be overdone and doesn’t seem authentic. Plus, people tend to get weary of people who are too charming/smooth. Similarly, its why it makes sense to ask to spend some time with founders before joining a company, should it small enough (<50). You’ll most likely get a taste of what lies ahead.
I’m going to spend some time looking for stories from the first few employees at some today’s larger startups/tech companies. It could give insight into what convinced them to join in the earliest days. I’m curious to see what sold them.
This family friend recently passed away and I write this post in his memory. I hope to not only have the stamina and fitness to climb to Everest Base Camp in my late 40’s like he did but also carry valuable lessons like these that he shared with me.
Assumption: Basic product/market fit, in one’s own eyes, and a need to hire. If not, there should be a focus on getting a point where hiring is necessary.
Two night ago, I attended the 2nd UCLA Student + Alumni Entrepreneurs Dinner. Last time I was here, a year ago, the event was my baby at Bruin Entrepreneurs for which we had raised some money from, the ever supporting, UCLA VC Fund, to host! The only difference was this year, I was back as an alumni*. A good reminder of how far we’ve come, I’ve come, and it encouraged me to write about what we built over the last couple years when I was on campus. Some of you may find nothing new or groundbreaking here, but if you’re interested in my perspective or have thoughts and comments about it, that’d be awesome!
Also, groups on other campuses’ such as BASES @ Stanford, MPowered @ UMich, Harvard Ventures @ Harvard, CORE @ Columbia, Founders @ UIUC, Spark @ USC* have all built amazing ecosystems. I learned a lot from their work and you might be able to as well. I’m going to write another post on how they + campus focused funds have made it possibly the best time to start something when in college.
Earlier today, I tried to sell a few textbooks that had been lying on my desk to see if I could make a few bucks for them before I move up to Mountain View. The process turned out to be harder than I expected.
Given, the incentives of the system don’t encourage reselling of books at anywhere close to retail prices along with the variability in the condition of the books – I shouldn’t have expected this market to be anywhere close to efficient. I must’ve at least spend $200 on these books combined – yet I couldn’t get more than $30 (15%) back.
Option 1: Selling it back to the college. At UCLA, there’s a portal where you can see the value of the book should there are at all be any interest in purchasing it back (presumably to resell at a big markup the next year). Unfortunately, there weren’t looking to buy back most of the books.
School Bookstore – At UCLA – https://shop.uclastore.com/t-buyback_inquiry.aspx
Price: Low, Guarantee: Low, Difficulty: Low
Option 2: Selling to other students – primarily through Facebook groups. The good thing is that these are walled market places with relative price insensitivity during the first 2 weeks of every quarter. During the rest of the time the demand is essentially zero. You must be willing to wait for the first two weeks of a quarter or right before it to find a buyer (though you may still not find one). This buy is likely to pay somewhere between 50-75% the price. However it is high touch. This is the best option if you have time on your hands.
Price: High, Guarantee: Low, Difficulty: High
Option 3: Book Finders. So I knew Amazon did trade-ins and as did Chegg. However, I stumbled upon Book finder which turned out to be the best option. It quickly surveys a bunch of trade-in options at the national level and find you the highest *low* price 😛 However, if you include the price of shipping – most books don’t become worth shipping since you need to buy the packaging….
Book Finders – http://www.bookfinder.com/buyback
Price: Low, Guarantee: Medium, Difficulty: Low
Funnily enough in college, I was trialling classes for the soon-to-form entrepreneurship minor at UCLA and took a class titled `Business Plan Development taught at the Anderson School of Business. For the class we proposed building something called Textbook Crawler. Good ‘ol days. You can view what our final presentation looked like here.
Option 4: Donate to your local library. They will usually accept most of the books you intend on donating, however I did find out that the Beverly Hills Library doesn’t accept text books. This also happened to be personally very satisfying for me.
Santa Monica Library –
Price: Zero, Guarantee: High, Difficulty: Medium
In the last year, I have been quite lucky to have had the opportunity to spend time being on the VC side and the startup side. Particularly, learning about the other side when not being in that role! However, while it is definitely too early to say that I can view things from both sides of the table, this opportunity has lead me to having a greater amount of empathy for both roles. One particular part of the system that I found myself thinking most about was around “passing”. Specifically, investors passing on entrepreneurs/their companies. If you are an entrepreneur passing on investors, kudos to you for being in that position.
Getting passed on is the default in the system; however, you may get passed on at different points of the funnel system  for seed funding. Every investor has their own process but based on what I’ve heard/ see/read, I’ve attached some numbers that I think are not too far off from reality with respect to drop-offs. Depending on when the drop off happens, your take away should be quite different IMO.
An immediate takeaway is that investors spend a large chunk of their time on reading decks and/or listening and meeting with entrepreneurs whom they are going to pass on. So when we went out to fundraise, I knew there would be passes and lots of them, particularly since the funding environment was not so hot and space has a pretty big graveyard. Having been on the VC side and getting to see this first hand, it allowed me to take passes in a non-personal way. Just for the record – every single pass still came with a little bit of pain. Diagram 1 illustrates the different points you might get dropped off by an investor and how best to move in my humble opinion.
1. You need to get the investor’s attention to get passed on. So go get ’em, cause you miss 100% of the shots you don’t take!
2. About half the companies that VCs first encounter for an Introduction, they’re not going to spend any more time with. At this point, if you get passed on, it makes sense to just say thank you for their time and move on. It is unlikely that you will receive any feedback given the sheer volume of companies they see at this point – respect that! Also, as a friend who is an early stage VC points out, “The shitty thing about early-stage investing is that there isn’t always a reason. The reason can be super obscure. Like maybe a VC saw a company in this space 2 years ago, and it failed. So now they are hesitant to look at others”. The good thing is that these people will likely pass early, like right now at stage 2.
3. While there is a pretty high chance you will make it to the Diligence I part, there is a pretty high chance that you will not make it any further. If you do not make it any further, it could mean a few things:
- The opportunity is not big enough
- The VCs do not believe in the same future that you believe in/ timing
- Timing is too early
- There needed to be more traction
- The VCs do not think you/your team is right for this business or this business is not right for you/your team (This one is personal and usually is not ever relayed back as feedback, but there is a high chance that this is the case.)
It would definitely be worth asking for feedback at this point & keeping a log of that feedback. They passed based on a certain set of information you provided them with and conclusions they drew from there. If there is something they see as obvious, it would be worth it to get their feedback. While you might get generic stuff like “we don’t think you can sell this to enough people to make a big business”, it’s definitely worth not dismissing it at a first glance. There could potentially be a problem that you would need to focus on first to solve, and it is possible that other VCs have the same concern. It might make sense to delve deeper to see if you do indeed run into these challenges and how you can take them on!
4. Now Diligence II is the most interesting part of the process IMO. At this point, your team may think they are close to getting a term sheet and your investor is excited about you as well. (You haven’t been dropped off like the other 90%. ) The investors are taking you/your thesis pretty seriously. If you get passed on at this point, IMO it comes down to one of two reasons:
- A red flag showed up that they cannot look past
- While everything is looking good, there is not one die-hard reason on why they should commit
I think that receiving feedback at this point is the most valuable. The investors have spent a good amount of time thinking and researching about what you’re up to, so get them to share their thoughts if they have decided to pass. It will help you build a better business 🙂 Also, it makes them more likely to help you out in the future either with this company, your next company, or your friends’ company. The investors that did give us feedback at this point had critical points and were the most likely candidates for us to send future updates regarding, lean on for potential help, and send more deals 🙂 Also, my personal thesis is that these investors are most likely to be helpful on whichever cap tables they are on.
5. Once you get the Term Sheet, the next move is in your hands! GG.
A point to keep in mind is that usually after an investor passes, there’s almost nothing you can do to change that and hence use the feedback constructively. Eric Peckham, an early stage investor and friend, echoes this point from speaking with other VCs over time; “many investors don’t give feedback – even though they might want to because they know it’s helpful – is that founders frequently use the feedback as ammunition to push back against the pass. They send counter-arguments to the weaknesses you raise and think they can still make you change your mind.”
- Entrepreneurs: No matter who you are, you are going to get passed on. So use that opportunity to ASK for feedback – period. It does not matter if you agree with it or not, there is a chance you will learn something from it which will only help you in the long run
- Investors: If you took a potential investment all the way where you spent more than an hour with them, please allocate at least a couple minutes to give them useful feedback. We are all better for it!
If you disagree with everything I have said here, I would love to hear your thoughts in the comments or at email@example.com!
 – Funnels at some existing venture firms: Homebrew, I will update you with more when I find the links!