you didnt just say that did you?
Actually, I did. And I hear it from entrepreneurs at least twice a week.
But its not true.
Over the past couple of weeks, along with reading two great articles on venture: Francisco Dao over on PandoDaily talking about the talent economy and Joe Stump’s great post on whether you should raise money or not, I have had no less than 6 conversations with various entrepreneurs whose companies are in the process of raising money.
Its easy to view VCs as opportunistic, money driven old white men who see the vast amount of product and company ideas coming out of the brains of nubile hackers and hustlers as fertile ground. They trade money for equity. As soon as the going gets tough, they focus on the companies in their portfolio that are doing well, they invest only in companies that are talked about on Techcrunch, blah blah blah.
Is that true? For some, yes. Does it make VCs dicks? no.
Its important that as an entrepreneur if you decide to raise money (and I counsel most founders to not raise money for as long as they can) that you understand the dynamic of how venture works. Francisco says it best:
In Silicon Valley, we take venture capital for granted but few people realize what a fundamental shift it represented in the relationship between capital and labor. Since the dawn of capitalism and the industrial revolution, the balance of power has overwhelmingly favored those who controlled the capital. Labor, and all talent associated with it, was beholden to those who owned the factories. The introduction of venture capital essentially reversed these roles with capital now chasing talent. It is difficult to understate what a dramatic change this was. Instead of capital (the means of production) acquiring talent, Silicon Valley runs on the basis of talent acquiring capital.
As the talent, you hold the power. Initially, the only power the VC wields is saving you from living in a box and stealing wifi from the Starbucks on the corner, and by selling a piece of your business to venture firm, you are required to do only one thing: build your business as fast and as big as you can, so that in some reasonable time frame (say, around 5 years), you can experience a liquidity event that makes the initial investment worthwhile for the VC.
And thats when the perception of the VC as a dick arises. Now, the VC’s job is to get you to not think small. To provide insight, connections, and even direction, to push you to grow your company fast. (This is sometimes the same deal with angels, but most often not).
Now, many VCs reading this post, will start disagreeing with that point, while many entrepreneurs will agree.
Its this fundamental disconnect in perception that is the primary reason for friction between VCs and entrepreneurs, even in a successful business.
Brad Feld, a VC, who’s method I believe in, was quoted in a Boston Globe article about Google Ventures:
“VCs love to talk about the ‘value they add’ while trying to exercise control over companies from the top down…’’
Do I believe that VCs are dicks? That their goals are not in-line with the goals of the founders?
I believe that its imperative for the entrepreneur to understand the dynamics of the VC/CEO relationship and define it early on in the lifecycle of the business. Its your business after all. You hire everyone — including your investors — so have the same high bar for everyone involved in the business.
For young entrepreneurs, there are three distinct moments of joy when starting a company: 1) getting other people to believe in your vision and come work with you; 2) getting people to give you money; 3) your first user.
In each case ill-defined communication interaction will make you believe this:
1) your employees are dicks;
2) your investors are dicks;
3) your users are dicks.
When, in truth, you are the dick.
Understand and own every stage of your business and the people the business engages. It may not guarantee success, but it will remove you as the reason for its failure.
In startupland, which is full of Hackers and Hustlers, the Hacker spends their effort on excluding potential issues, features, product paths, partners, technologies, etc., while the Hustler focuses on including, well, everyone.
Its in the DNA of the Hustler to work towards getting a ‘yes.’ Its what drives them. Getting users, investors, partners and the like to say yes to their vision and passion is the penultimate effort for a Hustler.
For most, it creates the appearance of a lack of focus (for some) and a complete lack of focus (for others).
This is the primary rub between Hackers and Hustlers and the #1 reason that founders divorce. Hackers demand focus. Hustlers demand ‘yeses,’ which, by definition, require a high level of flexibility which leads to a lack of focus.
I am a Hustler. Yes, a Hustler with a capital H. And because of that, my #1 fault is my apparent inability to realize when I am being unfocused.
I love the word yes. Who doesnt?
Yes means work. Yes means shifting priorities. Yes means roadmap adjustments. Yes means late nights and frustration. Yes means a loss of faith.
I hate the word no. Passionately hate it. It doesn’t compute. How can we become a better company because people are saying no. When I raised my Series A, 37 potential investors said no.
That’s more than enough no to last me a lifetime.
About eight months ago, I realized this very dynamic. To help a Hacker be successful, they need the space to focus on problems and solutions, and to do that, everything that is not core to that mission has to be thrown away.
The Hustler has to learn to say no, and by doing that gives the Hacker the ability to build awesome things, because they arent spending time in meetings or thinking about how to “just make it work,” or make “that deal that is going to make the company” work.
They are just building.
Eight months ago, I started to force myself to say No multiple times per day. I started with my dogs. And, yes, those punks didnt listen, but at least I learned I could say the word and not feel bad.
Then I took our product roadmap, and every time an idea or potential deal was brought to the table, I weighed it against that roadmap, and as a default, I said No.
No. Not right now. And the quality of our product and the speed at which it was developed – and more importantly, the ease at which its selling – has accelerated.
The power of no.
Saying no for the Hustler is a learned skill. It seems like a simple thing, but its really the antithesis of a Hustler’s core value.
Does that mean a Hacker should learn to say yes?
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.