5. Remember: when people tell you something’s wrong or doesn’t work for them, they are almost always right. When they tell you exactly what they think is wrong and how to fix it, they are almost always wrong.
I love it! Generalising beyond writing, I would say trust what people have to say about feelings, but be careful with their predictions. Diagnoses sit somewhere in middle. We all know our own feelings, and don’t go wrong there very often, but if a subject is of great interest to us, as for example our company or it’s market might be, then most well meaning attempts to help will fall short because the would be helper has less understanding than we do. We must always be ready for people to call us on our blind spots though.
8. The main rule of writing is that if you do it with enough assurance and confidence, you’re allowed to do whatever you like. (That may be a rule for life as well as for writing. But it’s definitely true for writing.) So write your story as it needs to be written. Write it honestly, and tell it as best you can. I’m not sure that there are any other rules. Not ones that matter.
This I like because self-confidence is an entrepreneur’s greatest asset. That said I don’t think this applies totally to startups, which have to operate within the limits of commercial feasibility. The penultimate sentence is as important as the first though. Honest confidence is extremely powerful. When dishonesty creeps in confidence can quickly become arrogance.
It’s good to see UK shoppers turning to their phones to shop more than the rest of the western world because UK companies will innovate faster on mobile as a result. We already produce more than our fair share of ecommerce giants and so long as the UK shopper keeps adopting new technology faster than Europeans and Americans we will most likely keep doing so.
I just saw this chart in a Morgan Stanley investor note with the subtitle eCommerce Hits it’s Stride. Firstly it’s good to see that top investment banks continue to see a lot of growth ahead in eCommerce, but more exciting is the notion that an inflection point is coming towards the end of this decade. If that’s true then growth for ecommerce businesses will peak around 2020. Company valuations are highly geared to growth, so we can expect them to peak around the same time. That makes 2015 a great time to be investing in eCommerce startups.
Jason Calacanis just published a good post on the changing definitions of Seed, Series A, and Series B investment. I’m going to quote his definitions in full:
2004 definition
— Pre-funding: You talk about your idea & write a business plan.
— Seed Round: You build a prototype of your product.
— A Round: The funding necessary to launch your product.
— B Round: The funding necessary to get product traction.
— C Round: The funding necessary to scale your product.
2014 definition
— Pre-funding: You build a prototype of your product.
— Seed Round: The funding necessary to launch your product.
— A Round: The funding necessary to get product traction.
— B Round: The funding necessary to scale your product.
2015 definition
— Pre-funding: You talk about your idea, you build a prototype & launch an MVP.
— Seed Round: The funding necessary to get product traction.
— A Round: The funding necessary to scale your product.
— B Round: The funding necessary to get founder liquidity, build groovy headquarters, and make competitors give up (or not start in the first place).
You’ve seen the pattern here, what used to be Series C is now Series A, what used to be Series B is now seed, and what used to be Series A is now ‘Pre-funding’. All this is being driven by increased capital efficiency. In 2004 it took until Series C to scale your product because it took a lot of money. Now you can do that with Series A. (There has been some inflation in round sizes, but the main story is definitely capital efficiency).
In his post Jason goes on to give advice to founders and angel investors and talk about his incubator The Launch Incubator and the consistent theme is that there is no support for pre-launch companies anymore. Founders who can’t launch an MVP will struggle to get funded, angels shouldn’t invest in pre-prototype companies, and The Launch Incubator is looking for companies with an MVP to take into their 12 week programme.
I think this leaves a massive opportunity to support founders who are pre-launch. There are lots of great entrepreneurs with big ideas that don’t have the technical talent to build a prototype or MVP. Investing at that stage is tricky because the company needs to quickly and cheaply build product and get traction, but the key is having the people in-house who can help the founder make that happen. That’s what we do at Forward Partners.
I was scheduled to give the embedded presentation in one minutes time to the London School of Economics SU Alternative Invesments Conference but they are running late, which gives me a chance to put it online. You saw it here first
This will be the second time in a week that I’ve presented to an audience of students. It’s good to see such a high level of interest in startups and venture.
I just came across a post that Hunter Walk wrote last May titled Five Mistakes New VCs Make. Number three is a peach, and isn’t just restricted to new investors:
3. Imagining You Can “Fix” a Team/Product/Market
New VCs, especially those with an operating background, can see a company for what they want it to be rather than what it is. They use their own brain to fill in the blanks on an opportunity versus really understanding how the founders think. They see that the product is a little raw but imagine that if they invest and spend a few hours a week with the team, it’ll be okay because they can fix it!
Perhaps the most common flavour of this mistake is investing in a company with a fantastic market opportunity and a team they don’t fully believe in. It’s especially easy for thesis based investors to make this mistake when they find a company that perfectly fits their thesis. The usually secret plan is then to fix the the team with a couple of key hires.
In reality the only person who can fix a company is the person who is running it. Investors can help, and I certainly like to think that we do, but the key is that the founder knows the gaps and solicits assistance. If that’s happening then what we have is a company working to overcome it’s challenges and there isn’t really anything to fix.
There’s a good piece up on Forbes today which offers the following advice about choosing board members:
Look for integrity and communication skills
Do due diligence, and then do some more
Make sure they are committed
Don’t expect everything from one person
That’s all good advice, and you can read the post for more detail (linked above). There’s more good stuff on the subject here too.
One thing that I think is important which doesn’t get mentioned very often is to make sure you think the same way about strategy. You want challenge, which means you don’t want board members who think in exactly the same way as you do, but you don’t want them to think too differently either. It’s likely that you will hit a fork in the road at some point and if you come to a different conclusion to your board member then you may have an issue. It’s hard for a board to function well when there are fundamental disagreements over strategy.
I always advise talking through future scenarios as a way to gauge whether disagreements in the future are likely.
We’re walking personality machines but computers beat us at our own game
Michal Kosinski, Computer Science Professor at Stanford
Kosinski wrote these words in a paper which describes a study which found that computers processing Facebook likes are better at predicting personality than subjects’ colleagues, family, and sometimes even than the subjects themselves.
The study itself was not terribly complicated going on. Kosinski, Wouyou and Stillwell correlated answers to a personality test with Facebook Likes and used that to predict the personality traits of others.
Something interesting came out though, which is that computers were more intelligent than humans in a narrow but significant domain. The key to success was data – both access and ability to process – and computers will have increasingly more of these as time passes.
Ray Kurzweil and others have predicted that computers will comprehensively pass the Turing Test at some point in the next decade and this study offers a glimpse of how that might happen.
Over the last couple of days a lot of people have been linking to Jerry Neuman’s great essay on the history of venture capital. It’s US focused, starting when the venture industry started in the 1970s and analysing all the up and down cycles of investment and returns since then. It’s a long read, but highly recommended if you are a student of the industry.
What follows from here leads on from what I see as Neuman’s two main conclusions:
when investors stop taking risks returns plummet
the best returns have come from taking market risk rather than technology risk
That chimes with my experience. When I’ve seen VCs go after ‘safe’ 3x deals rather than chase 10x deals it hasn’t worked because the success rate doesn’t go up enough to compensate for the reduced returns, and investing in technology is difficult because it’s hard to ascertain whether progress is being made and it’s too easy to invest good money after bad.
You may now be thinking that venture should be about taking technology risk, but when you look at history that’s not been the case. Neuman discusses this in a bit of detail, but the headline is that the majority of great venture winners took market risk not technology risk. When VCs invested in Apple the technology already worked they just didn’t know if anyone wanted computers. Similarly with Google and another search engine, or Facebook and another social network, and so on. If this feels counter-intuitive it’s because as an industry we are guilty of romanticising the idea of big technology bets, I think because they sound more exciting than bets on new markets.
Neuman doesn’t go into this, but perhaps the defining feature of startup financing over the last decade is that it’s become much cheaper to assess market risk. That’s partly because of declining costs and partly because we’ve developed new and better techniques. I’ve written about both these developments at length on this blog before so won’t go into them now but the end result is that companies can now eliminate a lot of risk from their business plans and hence generate a lot of value for shareholders with their first £250-500k investment. That’s why we choose to play at these very early stages.
I just watched a great Ted talk by Julian Treasure on how to speak so people will listen. It’s embedded below so you can watch the whole thing (highly recommended) but the takeaways so you can remember easily after watching are seven ‘deadly sins’ to avoid:
gossip
judging
negativity
complaining
excuses
lying
dogmatism
and for things to do more of:
be honest (clear and straight)
be authentic
have integrity (be your word)
have love for the listener (genuinely wish them well)
Listening to the talk and thinking about them whilst writing out these lists the truth of them is self-evident to me (which is not to say that I could have come up with them myself). I see myself and others tuning out when people commit the deadly sins and responding well to people who are honest, authentic and who have love for the listener. Especially this last point.
Making this personal, as an investor I have to make decisions on investments everyday and that can easily slip into judging. Certainly that happens to me more than it should. It’s a nuanced point, but after listening to Julian it’s clear to me that we should try to make investment decisions without passing judgement, particularly on anything that could be construed as personal. I’m going to work hard to do that.
The other point for me is to have more love for the listener. Since my sojourn to India eighteen months ago I’ve been slowly understanding that beyond being a good thing in and of itself having greater love for the world is a way (possibly the best way) to deliver personal happiness and increased impact. Consciously wishing the best for people I’m talking with is an easy way to get started on that journey. You could even call it a happiness hack.
