Meeting with busy people

Soon after moving to San Francisco, I got a meeting with a great investor. I was new to the tech world and he was nice enough to make time to meet. He asked me a few times:

“How could I help?”
I started noticing a theme. A lot of other people that I met would ask that question as well.  Considering how high profile some of these people are, the generosity of time was really surprising. But, when I think about it more, while it’s true that they were willing to help, they were also asking: 
"Why did you ask me to meet?"
The why is important. These are extremely busy people. Many run their own companies or are investors, busy with their funds. They’re happy to meet, but want to meet for a specific reason. They don't have time to just hang out with everyone that reaches out. Here are some things to think about when you're getting a meeting:
1. Think about why you want to meet before getting an introduction.

2. Explain why you want to meet in the introduction. 

3. Create a list of questions you’d like to ask before the meeting. 

4. When you start the meeting, reaffirm why you asked to meet. 

5. Stay focused. There's an infinite number of things you could talk about; if you try to discuss it all, you'll both come away confused.

6. Know that building a good relationship is more important than any question you might ask. 

7. When you hit the allotted time, which is usually a half hour or an hour, say you want to be sensitive of their time and bring the meeting to a close. 
There's a great upside to using their time well: they’ll be willing to meet with you again. 

How to hustle and launch in 3 weeks: The FOBO Backstory

In 3 weeks, the founders of Yardsale built and launched the first version of FOBO (Free or Best Offer).  A lot of startups talk about launching fast and iterating, but sometimes you see a company doing it extremely well. Just watching this team execute, I felt like there were lessons worth writing about.

How FOBO works: everyone has something that you'd like to give away or sell, but don't have time to research and optimize price, deal with dozens of emails, and coordinate pickup, or ship the item, in the case of eBay. You post it on FOBO and they instantly price it (using a catelog of eBay historical sales) and they guarantee that your item will sell in 97 minutes.

My take: I have things I'd like to get rid of, but I'm too busy to post and negotiate for things on Craigslist. Some of the things are really valuable, so I'd love the option of at least making some money on it.

Here are the things that impressed me about their execution:

1) The founders built the first version 3 weeks. They didn't spend weeks debating color gradients. They know that gradients won't create product / market fit, so they're focused on the things that matter. In fact, they found out fast that many of their original assumptions were wrong (which is the case for most first versions of products), but since they built it in 3 weeks, they had plenty of time to iterate.

2) They forced every new feature to fit in a 2-day spec. So, they avoided long (and dangerous) development cycles. The version that you’re seeing launched on TechCrunch is version 262.

3) They didn’t launch with payments. They manually sent all payments via paypal.

4) They used old code whenever possible and built everyone on Parse. With no back end coding they just focused on user facing functionality. 

5) The founders did everything they can to make sure their initial users are happy. Ryan (one of the founders) listed his personal cell phone number in the app and all newsletters. When I reported a bug and then didn't reply, they contacted me several times, sometimes over text, until the bug was fixed. (He's a friend, so he has my number).  

5) It's a two sided marketplace and they're doing everything they can to seed the marketplace with buyers and sellers. The founders offered to come over and help me post things. They're also buying and selling products themselves.

6) They have a revenue model. In the event you sell something, they take 15%, which is completely reasonable. They're building a real business immediately into the product. I'm glad they're not telling users that they'll get paid on the credit card fees at volume. Ryan just told me that they’ve paid for rent with it several times over.

7) It's hard to put my finger on it, but there's something really creative and compelling about the product. It makes me think about how Twitter and Vine took off. I find myself checking FOBO daily to see what's available.

I think it can be valuable to write about companies after they're multi-million dollar companies, but sometimes, it's interesting to see how a team operates to get initial product market fit.

If you'd like to try it out, go to fobo.net! 

Comments on Hacker News. 


10 Places to Source Investor Meetings

I met up with someone who had raised over five million dollars with almost zero effort. He sent off a few emails with the terms that he wanted and the investors agreed. The round was done. It was incredible to see. 

When you think it over, it makes sense. Over the years, this person has build a large network and significant credibility in Silicon Valley. He also made his previous investors a lot of money with a successful exit. He's a known commodity. 

For the rest of us, we need introductions. New founders could try to meet investors for months or even years and not make any progress raising a round. Here's a quick post on how to source introductions. These people spend their personal capital by making an introduction. They may say they're not comfortable doing it yet - so be gracious and keep building. 

Here's where you can source introductions: 

1. Advisors
They know your company better than anyone else. The kind of person you want as an advisor is also likely to be trusted by the startup ecosystem. Our advisors, Zach Coelious and Garry Tan, have been incredibly helpful. 

2. Founders who have raised previously
If you know people who have raised previously, they are a great source of introductions, since their investors have chosen to invest in them. Note that they spend their personal capital on you, so ask judiciously. 

3. Angel list 
I haven't used them, but I hear they can be helpful, especially if the team decides to promote you.

4. Accelerators
The people who run accelerators take an unknown commodity, you, and then put their reputation behind you. It's like having an advisor, but at scale. 

5. Current investors
As soon as someone invests, you can start asking for introductions. Investors often invest together as they trust each other's judgement.

6. Investors you have pitched, but who are on the fence
This is one that takes a little more nuance, since it's a negative signal to get an introduction from someone who's passed. You need to be reasonably confident that this isn't a likely pass and seems relatively likely they could become an investor. At the end of a meeting, you can ask, I appreciate the time you've taken to meet. Since you now know a lot about our company, who do you think could be especially helpful? Then, you can ask them for an introduction to those people. If you can turn 1 meeting into 3 more, you can quickly add more pitches to your funnel. As one piece of etiquette, you should always be willing to take money from someone who gives you an introduction. 

7. Inbound interest
If your company has been around for a while, you may have gotten to know investors casually. When you decide to raise, you can reach out to them. The great thing about these investors is that you already know them. There isn't the uncertainty of both raising money and meeting someone for the first time. 

8. Investors that passed previously
I especially like those investors who have passed and articulated why they passed. You can reach out to these people and explain your progress. This is yet another reason to handle rejection well (see "Treat investors well when fundraising").

9. "Cold" meetings and emails
This is in contrast to 'warm' introductions you get from other people. I've had less success with these, but you can get meetings this way. It's just time consuming, hard and unlikely you can get the volume of meetings you need to raise. 

10. Move to a tech hub
This one may sound controversial, but moving to a tech hub, like Silicon Valley, can significantly increase your chance of raising a round. There is a huge density of investors here. It's a lot harder to become part of this ecosystem when you're far away. It can be done - it’s just harder. 

For various reasons, some investors will choose not to invest in you. It may have nothing to do with you: perhaps they're at the end of their fund, in the middle of raising a new fund, or focusing on a specific investment category. That's why it's important to have enough conversations in the funnel, so some will convert.  



Why the Jobs Act is great for Angel List (it's not what you think)

When you raise from angel investors, they need to be 'accredited' investors. That means they make $200,000 / year or have over $1 million in net worth. If you have a spouse, that's $300,000 / year. [1]

Previously, the investor would just have to self-represent as an angel investor. There was no obligation on the company to investigate or confirm their claims. 

Under the new law, it's now the company's obligation to verify that someone is an accredited investor. One way to do that is to ask for an investor's tax returns. Not only is that difficult to ask, it will increase the time to raise, plus the due diligence process, which also increases legal fees. Imagine getting the tax returns from 20 people while trying to close your round. Naval, CEO of Angel List, has a great post on the implications of the Jobs Act. 

Note, you can chose to keep your fundraising private, which allows you do to verify accreditation the old way. However, it's now unclear if events like Demo Day, a post on Facebook or other pitch events would count as 'general solicitation'. You don't want to run afoul of the SEC.

These regulations will significantly increase the value of platforms like AngelList, which is now offering verify all investors on its platform for free. Even if you don't need AngelList to source investors, I can imagine a future where you visit their site to verify whether an investor is accredited. That is an incredible value add. If they decide to keep the information on who's accredited private, I could imagine another company offering accreditation verification. 

In the meantime, founders outside of fundraising platforms will have some extra confusion, diligence and process when they raise and there will be another reason to use a company like AngelList. Hopefully the SEC sorts this out. 

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[1] SEC rules on accredited investors: http://www.sec.gov/answers/accred.htm

Handshake Agreements

In Silicon Valley, you can make verbal agreements representing tens of thousands, hundreds of thousands or even millions of dollars. Before you sign a document or transfer money, you can have an extremely high level of confidence that the investor will follow through with the investment. These are called 'commitments.'

There are a few reasons why commitments work well here:

  • Reputation is important. Usually the best companies can choose their investors, so founders tend to pick those with the best reputation. [1] For those who invest often, there's an incentive to protect your reputation and follow through. 
  • Standardized terms. Terms have become fairly standard in startup investing in the Valley.  Especially for seed rounds, which narrow down the area of agreement to the amount invested, the price of the round and the potential discount. [2] 

A founder and investor could disagree over whether they actually committed. This is the main risk of handshake agreements. Paul Graham recently wrote a post suggesting how the handshake agreement process should work, which minimizes that risk. [3] You can see the email above that we started using for commitments. It worked great. 

With that said, being highly confident that someone will invest isn't the same as the actual investment; it's not your money until it's in the bank. As one example, Modista had $600k in commitments; they were hit with a patent lawsuit and none of their investors followed through with the investment. [4] During the financial crisis in 2008, many investors withdrew their commitments. That was just 5 years ago. Commitments work, but they are never the same as an actual investment. 

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[1] When Dropbox raised their $250m round, they were able to pick the investors they wanted the most. This would also apply to other companies that are high in demand. It helps for an investor to have a great reputation to be able to participate in these deals. Someone without a good reputation wouldn't be invited to invest: http://dealbook.nytimes.com/2011/10/18/dropbox-confirms-250-million-investment/?_r=0

[2] For seed rounds, convertible notes are relatively standard. There are also standardized series A docs, which are still more complex than a convertible note. In that scenario, you sign a term sheet with general terms and then refine the details afterward. 

[3] Paul Graham has a helpful post about the commitment process: http://ycombinator.com/hdp.html

[4] Modista was sued by Like.com before they collected their commitments: http://www.k9ventures.com/blog/2011/04/27/modista/  

Treat investors well when fundraising

When I went out and raised the first time, there was a company that had raised just before us. I didn't know the company, but apparently they pushed potential investors very hard. They had a mentality that you were in or out, which turned a lot of investors off, even the ones that ultimately invested. Regardless, they were in high demand and closed their round quickly. When we raised, I found myself having to explain that we were different, that we were looking for investors that would be long term partners.

There's a moment in time when your company may be in demand. For whatever reason, a lot of investors want to invest in your company. Sometimes I hear about founders treating potential investors too harshly.

Being a 'hot' company is transient, yet your presence in the valley is long term. How you behave as a founder during your fundraising process will dictate how you'll be treated as a founder in the future. You have years ahead of you where you'll be in a building phase, where you may need your investors' help. You may also go out and raise again in your career as a founder, whether on follow on rounds or with a new company. Besides, closing a round on the terms you like isn't incompatible with observing etiquette and treating your investors well.

The only founders that can afford to not treat their investors well are the ones that are doing so well, so consistently, that they won't need help and will be in high demand regardless. There are a very few number of founders that would fall under that category and many of them didn't know in advance that they would be that type of founder. Even then, it's not worth it. Some of our investors have become great friends and have become a tremendous source of advice. I'd rather live in that world and I imagine that if most founders gave it some thought, they would too.

When fundraising, consolidate meetings in San Francisco and the Peninsula

Some founders have been asking me about fundraising, so I thought I'd start writing about the tips I've collected from other founders.  Some of the best advice I received were procedural. This one was from Jude. 

If you're raising in the Bay Area, you know that it takes about an hour to go between San Francisco and the Peninsula (Menlo Park, Palo Alto, Mountain View). If you have to drive up and down multiple times in one day, you won't be able to have as many pitches. 

To the extent possible, make sure all of your meetings are in the south or in the north in any given day. When I look back I my calendar, this allowed me to have 5+ meetings per day during the fundraising process. 

"If you live in the future…"

Building a great company is about predicting the future. You build something people want now and predict they'll continue to want it in the future. 

There's something Garry Tan sometimes says: he starts a sentence with "if you live in the future…" and completes it with a prediction about how the future will look.

Things that seem unlikely to happen tomorrow, but could happen years from now, start to seem plausible. 

Steve Jobs might have said, if you live in the future, the file system will be less important. He built iOS devices to not have a central file system. [1]  

Drew Houston might have said, if you live in the future, you will have a file system that's accessible anywhere, from every device. He built Dropbox.

Elon Musk might have said, if you live in the future, cars will  be electric. He built Tesla.

Dean Kamen might have said, if you live in the future, you won't drive short distances. He built Segway.

Bill Gates might have said, if you live in the future, there will be a computer on every desk. He built Microsoft.

While seemingly simple statements, they produce high stakes decisions. You bet your company or product on it. It creates focus. 

I think the minimum viable product has made us so effective at thinking short term that we spend less time thinking long term. We talk to customers and iterate daily. But, we may forget about this future world in which our products exist. 

Before you build, it's worth making a guess about the future, even if it seems obvious. Don't think about switching costs, moats and other barriers to entry. Just think, if you live in the future, what does it look like? When you see it, that's what you should build.

Comments on Hacker News: https://news.ycombinator.com/item?id=5799838

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[1] Steve Jobs discussing the file system in 2005: