Juventas Fugit –

I’ve had the privilege of working in venture capital for the past few years, starting at a very young age with little mentorship in the beginning. As a result I made a ton of mistakes – and learned a great deal making them.  Below are a few of the more important lessons I wish someone had told me on my first day:

1. Don’t be a generalist (focus on a space you care about).  Don’t be afraid to limit the scope of what you’re willing to spend time looking at. I’ve actually found that the more specific I was about my area of interest, the more deal-flow I would see in a given space (e.g. education). The logic is simple: when I see a good deal, I want to send it to friends. But when every one of the 100 VCs I know has told me to send them stuff I like in ‘mobile,’ who do I send it to? I can’t send it to all of them, so I end up sending it to (a) the guy I saw last week that’s top of mind, and (b) the person who told me they’re super passionate about that specific space.  There are plenty of startups in spaces you care about – focus on those. 
2. Say no quickly. Early on I had this misguided notion that every deal we were sent we had to deeply examine, and I would therefore spend far too much time researching and sorting each out in my mind. Just because something looks like a good deal doesn’t mean it should be pursued.   If you aren’t really passionate about the space – or haven’t taken the time to truly understand it on your own –, don’t waste an entrepreneurs time with weeks or months of due diligence. They have a business to run.  I try to say no in the first meeting (or even before that) to most of the stuff we’re sent, while pointing them in the right direction and providing a few thoughts if I know something about the space.  I’ve found that the best entrepreneurs will come back and try to prove you wrong (and tenacity is a very good sign).
3. Make sure you can really add value. If you can’t add value (beyond recruiting) on an ongoing basis, you won’t stay relevant to the team and will be out of the loop – even if you’re on the board. (Side lesson: the most important decisions are made before and after board meetings). Stay a part of the conversation and in the know by making sure that you’re constantly engaged with the team and helping out. This is another reason why it’s important to be specific in your investment screening – if you care about the space you will have an easier time staying actively involved.
4. Invest in teams with an ‘unfair advantage.’ Because of simple web languages, an abundance of APIs, and open-source content, it’s easier than ever to build a web product quickly.  The teams you want to invest in are those who have an ‘unfair advantage’ in two areas: (1) in their deep understanding of the space – the competitors, partners, and customers –, having lived/worked in it for years, and (2) in their *proven* ability to build beautiful products people love. A deep understanding of the space provides them with not only the knowledge to navigate it but the right relationships to sell into it. This understanding, combined with an ability to craft great products, makes for a huge competitive advantage. It’s easy to build a product, but difficult to build one that the right people will care about enough to pay for.
5. Invest in (technical) novelty. I don’t believe venture capital dollars should go to companies that are building a ‘me too’ concept for a different geographic region or demographic (see the Founders Fund Manifesto for more on this). Invest in big ideas that will really pave a new path and radically change the world in a positive way, and in technology that took more than a weekend to build.  There’s no problem with simplicity, but generally it takes a while to get an idea right for a specific space. It’s not about the pure technical complexity of a product, but rather the fact that the team has slaved away on it long enough to know exactly what features and technology is required to solve the core of the pain-point for their target demographic. In most cases there’s a pretty strong correlation between the time it took to build the product and how long before you see serious competition.
6. Don’t be pressured into closing fast. It always takes a few in person get-togethers for people to show their true colors. Make sure you have enough time to really get to know the entrepreneur (see this post by Mark Suster), and to do your homework. Generally there’s no way that you’re going to have time to properly reference check and diligence a person and concept if the deal is closing in a week. I make this clear to entrepreneurs upfront, and its one reason why I frequently say no fast.
7. Involve your partners early and often. I’m a pretty independent person, and in the beginning I lost a few great opportunities because I worked alone and tried to present my partners with a pretty package at the end, only to be met with a lack of excitement or confusion.  Don’t expect your partners to jump the moment you show them a deal. Make sure they ‘get it’ early and often, and don’t assume they’ve read the due diligence and understand the intricacies. Most importantly, figure out what your partners are looking for. Ask what they need to see for it to be a rockstar in their eyes.
8. Manage Entrepreneurs’ Expectations. All too often my excitement would translate into mixed communication with an entrepreneur, and a misguided notion that it was a done deal. Make sure they’re aware that it’s a partnership decision, and that you speak for yourself, not others.
9. Make sure your vision of the product is the same as the entrepreneurs. And that they have a strong vision to begin with. Coming from the entrepreneurship world, I tend to have a very ‘big vision’ way of looking at things, and sometimes get caught up in my own ideas for where something can go. Make sure you’re not projecting your vision onto their startup, and that you’re on the same page.
10. Don’t screw entrepreneurs. Keep deals simple, and give founder friendly terms. (It will come back to bite you – trust me).

I’ve officially joined the Enterproid team this week, and I could not be more excited. I’ve worked closely with the founders over the past year since our investment, and have just been blown away. The technology is impressive, and the guys are among the brightest I’ve ever worked with. (Comcast, Qualcomm, & Google Ventures agree.)

While I’m moving back to the light side, I will remain a partner of BOLDstart Ventures (so please keep sending opportunities my way!), continuing to work with Eliot and Ed, who have both been awesome mentors for the past few years. I’m totally committed to continuing to actively support our entrepreneurs – I am, as always, still happy to hop on a call or meet up at any time to help out. Several of the projects I will be working on for Enterproid will be highly relevant to other mobile startups (more on this soon), and should enable me to provide a lot more of that elusive venture capital ‘value-add’ to the companies we work with.

Those who know me well know that I love to build, and that since putting my last startup project on hold to join the venture world I’ve been eager to get my hands dirty again. I strongly believe that to be a great venture capitalist you need to deeply understand what it’s like to work at and start a venture yourself. I’m hoping that Enterproid will be the first of several opportunities to make myself a better investor, and a better entrepreneur.

There’s no reason why 30 students should sit in a classroom and be lectured on the same thing at the same time at the same pace when everyone learns differently. There’s no reason why the tens of thousands of algebra classes are each being reinvented right now across the country by teachers of variable skill levels. There’s no reason why college students should go into hundreds of thousands of dollars of debt for courses and a diploma that may not take them where they want to go. And there’s no reason why teachers should waste time conveying materials that can easily be found online, when instead they could be inspiring students to be curious, discover themselves, and apply what they learn.

Despite how huge the education market is (estimated at $750b in the US alone), many VCs are afraid to invest in ed-tech because there was a lot of ‘road kill’ in the space after the dot-com bust. But much has changed in the past decade: the addressable market has expanded dramatically (10x more people are online, have 10x as fast connections, and are connected at least 10x as much), and we’ve recently seen a proliferation of internet-enabled mobile devices, data storage and processing innovations, and the spread of open source content that have brought about great efficiencies in content distribution, consumption, and production.

The importance of the Internet in changing education is more relevant than ever: we continue to move from a manufacturing-based economy to a knowledge-based economy at a rapid pace, yet our school system is still stuck in the Industrial Revolution. 

There are a great diversity of opportunities to innovate in the education realm. On the learning side, we need to create new ways to make it:

1. Fun. All physics lessons should be as fun as Angry Birds.
2. Ubiquitous. I should be able learn anywhere and everywhere, taking full courses on my iPhone or any other device.
3. Adaptive / Customized. Machines should learn how I learn and teach in a way that works best for me.  

And on the accreditation side we need to find ways to get people credit (/certified) for practical skills they enjoy in a much faster, cheaper, and more accessible way than is provided by the accreditation bodies who hold a monopoly on the education system today.

I’m not arguing that we should try to overhaul the current system and force schools to adopt new technology and ideas, but rather that if we create compelling learning and teaching products outside of the school system we can push change from the outside, in.

Some Inspiration:

• Fred Wilson and Brad Burnham on hacking education (especially the comments)
• Khan Academy (watch the videos!)
• Sir Ken Robinson & Jane McGonigal’s TED talks
• A Mathematician’s Lament (PDF)
• Turning Learning Right Side Up
• And many others (ask me!)

While angel investors and early-stage venture capitalists invest pre-revenue or sometimes even pre-product, university admissions officers are the true early-stage investors: they invest pre-idea! When you think about it, it’s actually striking how similar admissions officers are to VCs: they invest in people, they (the university) hope for large returns in the future (by way of donations), it’s an expensive investment on both sides, and a stamp of approval and access to the network of a cream of the crop ‘investor’ is highly valuable.

As much as I bash universities for not providing the right educational experience for students and allowing enough room for experimentation – most of my learning definitely happened outside of the classroom –, there is no denying that my Harvard diploma has opened doors that would have been a lot harder to maneuver into without. That stamp of approval – similar to an investment from Kleiner or Sequoia – has made it a lot easier for people to have faith in me at a young age.  And of course, my peer-group at the universities I’ve attended has also been a huge factor in my success. 

Are universities paying enough attention to who they hire as admissions officers? Probably not: it’s not exactly the most prestigious and sought-after employment position, and I’m sure it does not pay anywhere near what a venture firm pays. As a result, the people they hire are not anything like the world-changing rock stars they should aspire to admit. A similar argument can, should, and has been made for teachers, but this seems like a much easier issue for universities to fix - an issue that directly affects their top line.

When I say ‘fix,’ I mean universities should hire admissions offers good enough to identify passion, creativity, tenacity, and a big vision, without simply relying on easily-gamed, non-representative indicators like GPAs, standardized test scores, club memberships, and application essays. Wake up, Harvard - you’re hiring poor investors and it’s going to hurt when you’re the last one in the room to figure that out.

I’m often asked, “I have a bunch of great ideas about X, but how do I start a company?” I’m sure many books have been published on the subject, but the answer is quite simple: just build. An MBA - or any degree - is definitely not required. Now, some people are not meant to start companies, but if you have a great passion for changing the status quo and are willing to sacrifice A TON to get there – really – here’s how:

1. Start building a product. You can plan all you want, but no one reads business plans. Your product should speak for itself, and those who understand the space you’re building in will know when they see something great. If it’s not great, iterate until it is. (Usually that’s when people outside of your family start using it. The industry jargon is “achieving product/market fit”).
2. Spend as much time as you can learning about the space you’re building in and experiencing the pain you’re solving for while you’re building the product.  Talk to potential customers, partners, and other companies in the space.  The better you understand the pain, the better and more focused your product will be. The best test for how well your product solves a real need is how much someone will actually pay for it (or some part of it).
3. If you can’t build it yourself, find someone who can, or learn to do it yourself. I’ve seen many great companies where the person with the initial idea was not technical (a coder/builder). If you decide to go looking, find one as fast as you can, and make that person your partner. Outsourcing the initial product development generally does not work. Why? Because you can’t sit next to the person and collaboratively iterate at 3am until you reach product/market fit. Also, you want that person to be as hungry for success as you are.
4. If your ambition is to build something huge and you need capital to do it, launch your product and iterate until you have measurable traction – defined as users, growth, and engagement –, then pitch an Angel/VC for financing. You can pitch me here. Most professional investors will not be interested until you can demonstrate that what you have is interesting to your customers.  Many companies can grow into big successes without raising any venture capital at all.  If you can achieve this, more power to you, because venture capital is some of the most expensive capital available.

And that’s it. The sooner you start, the better. There’s really no downside for someone a few years out of college to do something like this. And it will probably be the greatest learning experience of your life.

I’m reminded constantly that Penny Black is very much a startup - that happens to be in the business of investing in startups.  We launched on a shoe-string budget, we work all hours of the day and night, and are very, very passionate about offering the best “service” we can, to both our entrepreneurs, and our investors.

I certainly have the entrepreneurial bug, and the constant fear that things might not go as planned, which serves to make me work harder to ensure that we’re making the right investments, and that we’re supporting our CEOs in every way possible.  Venture capital is a fun and very rewarding space to be creating a company within, though it is definitely not any easier just because we’re “the ones with the capital.” Of course this isn’t the case for every VC, but given our age and relative experience - the need to prove ourselves - the startup analogy fits perfectly.

And I believe that it works to the benefit of our startup teams as well. We’re in the trenches with them, and are willing to put in that extra effort - burning the candle at both ends - to make sure they’re a success.      

One of the most common themes I’ve noticed when talking to entrepreneurs is how quick they jump into product features and capabilities when asked what their idea is or does.  I have certainly fallen into this trap myself many times when (knowingly or unknowingly) pitching to investors.

The problem is that unless the investor understands on a very basic level what you’re trying to accomplish, all other explanation comes off as gibberish. The conversation inevitably ends up sounding to the investor like, “blah blah blah raising at a $10mm pre-money blah blah blah blah.” Suffice to say the conversation usually doesn’t end well.

Once the core objective is understood, everything else becomes clear, and most functionality becomes obvious.  So the question I usually ask when someone pitches me an idea is, “what’s the process your customer goes through when using your product?” This question forces an explanation of the core utility of the product, and not what it might be used it for.

Often, in pitching one of my own startups, A Dozen Trees, I would catch myself rambling on about the positive externalities on a company’s top-line associated with the tracking and reporting of social impact - before I realized that the person I was talking to wasn’t paying attention.  Through trial and error I saw that the most effective way to pitch was to start with just one line: “We’re helping small businesses give more efficiently and effectively.”  Then I would pause, and let them acknowledge the issue before moving onto a follow up line that simply laid out how it would work: “We do this by 1) helping the small businesses find the most relevant and impactful nonprofit, 2) managing the giving on an ongoing basis, and then 3) tracking and reporting on their donations in a form that they can easily and clearly show to their customers.”  Then if the person continued to show interest and/or ask questions, I would go into all the gritty details.

If you happen to have a computer in front of you when pitching, and can demo the product before going into details, even better.  (The MightyMeeting blog has a great post that highlights the importance of this, among other things.) The hesitation with focusing on the core is that you narrow the potential audience. But that’s ok. You can’t please everyone, and you shouldn’t waste your time on those that don’t care. So get down to the core as quickly as you can, and focus on the process.

I’ve noticed that most VCs apply a “thematic” or sector-focused approach to their investing, because in theory it allows for deeper knowledge of a given space, and by extension an ability to pick the winners in that space with greater accuracy.  I don’t have decades of experience in any specific field (except perhaps in causing headaches for teachers and my parents), so defining an area of focus for myself is difficult, and at the moment entirely dependent on where my network is strongest.

Given a desire to begin to specialize in new areas of interest, I’ve recently been thinking about four interlocking themes that I’d like to spend some time getting to know better:

1. True Mobility. Today many of us take for granted the fact that most of the data we use and manipulate on a daily basis now fits in our pocket. As time goes on, the amount of data we’re able to interact with on the go will exponentially increase, reducing the need for stationary and physical hardware.  Your phone (/pocket device) will soon be the conduit for just about everything: medical records, virtual currency, your office, etc.  You’ll be able to wirelessly link your phone to any machine to provide a secure conduit to access the cloud or other local apps. Many of these technologies already exist in one form or another today, but their distribution and functionality will continue to expand as startups attempt to meet a growing demand for mobile consumption.

2. Information Overload. A significant chuck of my day is spent sorting, sifting, reading, and deleting data, whether that be emails, blog articles, advertisements, or market reports.  It’s distracting at best, and a serious drain on productivity and efficiency at worst.  And the amount of data I will continue to consume on a daily basis is certainly not decreasing.  Solutions like OtherInbox and Gist are beginning to address this growing problem, but significant innovation in this space is going to be necessary in the coming years to help us deal with the increasing openness and speed of data flow.

3. Security in the Cloud. As a rapidly expanding amount of our data is stored in central locations in the cloud, innovation on methods of protecting that data from deletion and theft are going to be increasingly important. Security companies are disadvantaged in that they must be reactive and attempt to “guard the fort” from creative adversaries who in many cases have nothing to lose.  Startups are needed to create new methods of processing and storing data that, among other things, decentralize the data and make it more difficult to target.

4. Technology Exchange. There are many technologies we use every day that would greatly improve the lives of those in third world countries, who are dependent on less stable infrastructure, and there are many innovations that have been created specifically for those countries that could greatly benefit us.  Examples include the recent advances in mobile communications networks, mobile banking, drug delivery, and renewable, low-cost energy production.  I’m very interested in seeing what this space has to offer over the next few years.

…So investors generally work with people they like. (A great comment from Naval on Venture Hacks.)

The past year at Penny Black, a new venture capital firm in New York, has been a fantastic and eye-opening experience. As I learn more and more about the VC side of the table, however, one thing that continues to nag at me is the difficulty in learning what makes a good startup investment in a sea of great ideas and great entrepreneurs.

It doesn’t help that the traditional exit horizon (when you learn if you have succeeded or failed) for a venture capital investment is generally 3 to 5, or even 7 to 9 years, making it very difficult to quickly learn from your mistakes. My only consolation is that it seems like this issue plagues much of the venture capital world, as evidenced by the poor returns the industry has faced over the past decade.

I can see many reasons for this: a broader asymmetry of information in young companies, a lack of data in new markets, and the fact that there are too many variables and not enough hard numbers in startup companies. I’m not complaining though - if you were able to make a science out of venture capital, the profession largely wouldn’t exist, at least not in its current form.

Though lately I feel like due diligence on a startup is similar to trying to define pi – you keep getting endlessly closer to an answer with more and more data and research, until finally you’re forced to make a simple gut decision.

Given this, if you want to be funded I’m convinced that it’s most important to just be a generally nice and friendly person. Everything else is simply signaling.