Late yesterday afternoon, Dave McClure sent an email to all 500startup founders and mentors. It went like this:
“Hey you! If you are an accredited investor, show you love a member of 500startups by investing a small amount. Trust me even $5 or $10k can make a huge difference and you should do it.”
After reading what Dave has said in person many, many times, I smiled and went back to watching Glee. (Ricky Martin was on! That man has amazing teeth.)
Over the course of the next several hours, there was quite a debate about if it was right to expect mentors to invest in the member companies of the accelerators in which they are mentoring.
I remember a conversation I had with David Cohen of Techstars. He asked me, as a mentor, what did I expect in return. I said, a nice meal where I learned more about how the program was doing, and what the incoming class looked like. Quizzically, he asked if I expected equity in the companies in which I mentored.
“Expect? No. If the founder believes I have value to provide past Techstars, then I am happy to discuss it with them.” I replied.
There is a fine line in the world of accelerators, and part of the problem lies in how people define the roles of folks circling about, and part of the problem lies in the motivations of those same folks.
So, before we dive into that, lets pretend to be legal-like, and lay down some definitions.
Company: a company that is a member of the current class of an accelerator. Specifically, they have given up some amount of equity in return for some amount of cash and access to the program and network provided by the accelerator.
Mentor: a person who provides time, expertise and connections to a Company and is pre-selected and filtered by the accelerator. Generally, there is no remuneration by the accelerator for providing these services to its member Companies.
Advisor: a person who provides, time, expertise and connections to a startup (who may or may not be a Company) and is NOT pre-selected and filtered by the accelerator. Usually there is a form of payment in terms of equity or cash.
Investor: a person or institution that provides cash in return for equity in a startup.
Usually the progression of roles are that someone is a Mentor to a company, then becomes an Advisor or Investor, but that is not required or (usually) expected.
An Investor can (sometimes) serve as an Advisor, but usually once money enters the mix has very different goals than a Mentor and/or Advisor who is not an Investor.
Sigh. See the confusion?
Companies that enter accelerators do it for two reasons: raising money and building a network. Yes, there are immediate benefits to the insane amount of time spent working accelerating your business; and the mentorship is great in terms of getting feedback and direction (although “mentor whiplash” is real, and I have seen many founder get crushed by it.)
Companies select mentors often based on the ability of that mentor to help the startup achieve their goal of raising money or building a network. Therefore, its often easiest if the mentor invests money (creating a positive signal given their closeness to the project), and convinces their network to also invest. (The “hot” startups often don’t need mentors to invest, and often, unfortunately, are dicks about creating space in their rounds or bringing mentors on as advisors because they are drunk with attention.)
Long winded…but that should put us on the same footing.
So, here is the question. Should mentors feel a requirement to invest?
I strongly believe that if people become mentors because they are interested in increasing deal flow and perhaps “getting in early” on a promising Company, then those people are dicks, and should not be part of the accelerator ecosystem as Mentors (as Advisors or Investors, sure…)
If an accelerator is too heavy handed with their expectation that mentors become investors, then, frankly, that accelerator is scummy. At best. (To be fair, this was not what Dave was doing. He was being very passionate about two things he is fanatical about: the companies he invests in, and the importance of angel investing to a startup ecosystem.)
Every time I get asked to be a mentor for a program, they ask if I expect something. I always say the same thing: “I expect the companies that take full advantage of the program to achieve their goals more readily than those that come in with messed up expectations. Im happy if the companies I work with crush it. And if all I get out of that is a “hey dude, thanks” email, Im cool with that.”
I’m also very particular about the startups and founders I get passionate about, because I want them to succeed and will do whatever I can to help that happen. This is not unique to me, in fact, most of the mentors that I meet that completely blow me away have similar goals in mind.
As a mentor should I invest in the companies I mentor?
Yes. I should.
[side note: One shouldn't/can't invest in a ventured backed company -- one that issues shares -- unless you are "accredited," or in rare cases "sophisticated." Accredited means you have a net worth over $1mm and sophisticated is that you don't have a net worth of more than $1mm, but you understand all the risks, etc. If you are a company that is accepting investments from unaccredited, non sophisticated investors, you are creating a potentially huge problem later down the line in due diligence for a merger, acquisition or IPO.]
It is really that simple. Folks that want to become mentors do it because they want to see the companies succeed, and one way to help the company succeed is by investing in them.
What if that amount is nominal? $5k, $10k?
Its still meaningful in both signaling other investors that the company is worthy of larger investment, and shows the founder that you weren’t just spending time out of obligation, but out of excitement and support.
But here is where it gets tricky…investors should not mentor. Mentors should invest. When being a mentor, the values and goals of the mentor mentality should supersede the goals and desires of the investor. Take off your investor hat when determining which companies to work with, and equally important, companies take off your “I need investment” hat when selecting mentors.
One of the things I like about 500startups being a fund and accelerator with a really blurry line between the two is that all the companies that are in the accelerator start on equal footing. Some of the other accelerators that have a fund associated (loosely or otherwise) create a different dynamic because of it. I also like that the “Sith Lord” of 500startups is so passionate about getting all of his companies funding.
What I don’t like is that the basic premise of the accelerator and the mentor/advisor/investor has gotten so screwed up that in the end, the companies are hurt by their inexperience with dealing with each type. It is imperative for the accelerator to educate their companies on the roles and expectations of mentors, advisors and investors, and for mentors to mentor, advisors to advise and investors to invest. The clearer the role definitions the more value the company gets from the accelerator and the startup ecosystem is continually improved.
Subscribe to this blog's RSS feed
I’ve gone back and forth on writing this post. First, I should apologize about the profanity in the title.
Wait, no I shouldn’t.
Entrepreneurs are the most hopeful people on the planet. They all start something with the hope that it will be “the next Facebook” or will be as important as Netscape, or maybe will become a billion dollar company with minimal social value like Groupon.
We believe in ourselves so much, that when someone else doesn’t believe in us, we are flabbergasted.
So entrepreneurs apologize. They apologize for broken code; they apologize for bad UI; they apologize for getting funded (or not). They apologize for screwing users (accidentally) and then for being slow to correct it.
Stop apologizing; start being honest.
We color numbers, and listen to investors way too much.
Entrepreneurs are pussies.
Its the same with products and features. Time and time again, I will talk with an entrepreneur about his product, and he will continue to extoll how awesome a feature or product is.
“How many people are using it?”
“Well, we are in beta, so not many, but its going to be huge!”
“You’ve been in beta for a year. How many people are using it?”
“Have you seen how well designed it is! Apple will totally feature our app because of its design!”
“Stop being a pussy. Kill the stupid feature.”
We hang on to things too long, we continue to employ folks that add no value, or worse are roadblocks because we don’t want to fire someone who has done so much for the company.
Entrepreneurs confuse activity for achievement. Working hard is not working well. We drink tons of Red Bull, stay up late, write missives on our blogs (wait…I resemble that remark!) or develop a cool side project that kinda is something that we might use at some point in the future.
Just stop it.
Its your company. Its your time, and future, and blood, sweat and tears. Its time for you, as an entrepreneur to stop apologizing for the short comings of your product (which may appear as shit taking about other startups. Yeah, I know, and you know that your “critique” of other startups is only a defensive mechanism to make you feel better about your companies short comings.)
Own it. Your company is your company. Not your investors, or friends, or users or Techcrunch’s.
Own your decisions. They are your’s to make. Make them and live with the consequences.
Own your future. Find what makes your business tick and focus on that and only that. Everything else is distraction.
And, most importantly, stop being a pussy.
Well that title removes any chance that Business Week, Inc, Forbes, etc will pick it up, and that other than Brad Feld and Mark Suster, no one will reblog/retweet/etc, so we can speak plainly.
(Just making sure…)
The past few weeks have been really interesting at Graphicly. We have achieved product/market fit, our new product launch has been overwhelming, and there is a clear direction and focus in the company. Revenue is doubling week over week, and our internal mantra has gotten equally clear.
“You are either building, selling or leaving.”
So much has be made of “vanity metrics” and our apparent love affair with them. As entrepreneurs, we are told by the media, investors, and other entrepreneurs that whats cool isn’t $1 million but $1 billion. That Instagram is AMAZING and their 15million plus users are the reason why.
How can we not buy into the importance of vanity metrics, when it seems that the ONLY THING THAT PEOPLE CARE ABOUT is vanity metrics?
For a company to be successful there are literally only two functions the company has to perfect. Building and Selling. Thats it. Metrics and analytics are only the score card, the reporting mechanism to determine if what you are building will sell, and what you are selling is worth building.
Last rant on this point: Find a metric that is truly indicative of what makes your business go. It may be a vanity metric like page views, or something more interesting like reads/user, photo filters per session, or times my mom shares my baby pictures on Facebook. Find it and love it. Throw out all other charts and graphs. Put ONE FUCKING SLIDE in your board deck/presentation and tell your shareholders if that number is going up or down and why. Any other metric just makes it easier for your investors and employees to tell their friends why the company they are a part of is cool in a dumbed down fashion so others can understand. But DONT CARE about those numbers.
Care ONLY about the metric that proves that you are building something worth selling, and selling something worth building.
Now, about sales.
Both Brad and Mark have written about Grinfucking. Its an epidemic. No one wants to be the bad guy. The working stiff dreams of being involved in that super cool startup with the sick lounge. When he gets pitched by that startup founder in the flannel shirt and Warby Parker glasses, Toms shoes and Charity:Water rubber bracelet on a cool new technology and he doesn’t understand it, then he is full of FEAR THAT HE IS AN IDIOT.
Which makes the awful, awful truth that the prospect will never say no.
Your goal as an untested, unknown founder, who has a product to sell that NO ONE CARES about is to find what about your product makes your users lives better. Read that again. Thats not a feature. Thats not a price. Thats a feeling. Better is a feeling. Sell the feeling.
For enterprise its 99% of the time that you are making your prospect look good to his/her boss. Thats it. Focus on that.
For consumer its 99% of the ego or time. People want to be part of something amazing, or want something to help them become amazing. At Graphicly, we consider our “Content Empowerment Platform” an easy button for authors and publishers. They want their stories seen. We make it so. Its amazing and it helps each one of them show the world how amazing they are. It makes their lives better. It makes them happy. (I hope.)
Instagram makes people happy. Its not the number of users, but the amount of engagement that is what makes them awesome.
Stop getting excited by the “maybes” and “lets have another meeting” responses you get to your product. IT MEANS YOUR PRODUCT SUCKS.
Budgets, approvals, etc are all excuses as to why they don’t want to buy, but don’t want to say no.
If it takes more than a simple presentation of your value to a prospect to get to a verbal yes, YOUR PRODUCT SUCKS. (Ok, maybe you SUCK as a salesperson. But sales isn’t hard if you are a founder. You are just making it hard.)
Get to an answer.
Build, Sell or Leave. It IS THAT EASY.
Finally, about revenue.
In todays funding climate, if you are not thinking about your business in terms of speed to self-sustaining revenue, you are a moron. Seed rounds are, and will continue to be, relatively easy to raise (sub $1mm). Series A investors are now looking for real businesses with real potential. Call it a crunch, call it Jennifer, doesn’t FUCKING MATTER if you don’t have a real business, because you will be called DEAD.
Have a real path to revenue. Test that path immediately. Ensure that its a real path, with the real ability to simplify sales, and go that way. You never want to get in the car, see the path you need to travel, press on the gas and find the tank empty without a gas station in sight.
Just Fucking sell. Your company depends on it.