Category: Venture capital

Expa Labs – Some Lessons Learned

With the first group of Expa Labs companies moving on to the next phase in their development and the application period for the next Expa Labs group now open, I wanted to take a step back to share some of the lessons I learned from working with each of the companies in our first group. The platform and learnings Expa has built by launching companies over the past three years was foundation on which Expa Labs was built. We didn’t set out to create “another” incubator program — we wanted to make something more entrepreneur-friendly, that valued company creation over all else. We didn’t want to rely on what others had done, instead coming up with a set of Founder First Principles gathered from interviews, discussions, and founder conversations with people who have created products, managed teams, been through programs and more.

When Expa announced our new $100M fund in March, 2016, it was to continue our mission of creating new companies, but also use our learnings to form the Expa Labs program. Starting from only a mention in the NYTimes to companies funded and starting work two months later is a testament to the work ethic of my colleagues at Expa. A lot of naysayers and folks said creating and putting into motion a program like this wasn’t possible, but we did it. And though Expa Labs will evolve over time, I am very proud of what we accomplished in the first version of our program.

Now that the inaugural program is over and I’ve had some time to reflect on the experience, I wanted to share some lessons learned;

“Coachability” Matters

Before the Expa Labs experience, the founder attributes I would most often cite almost sound cliche´ at this point; technical abilities, executional excellence, vision, ability to attract world class talent, etc…. What I didn’t have on my list was “coachable.” Though some might argue this isn’t necessarily a trait to look for, I think it’s essential. I worked with teams who, from the beginning, showed they could take feedback well and incorporate it into their thinking. There is a fine line between “I’m right” and “here are some facts” and teams that are coachable can make a big difference. They also know how to filter feedback from lots of people to make an informed, data-driven decision. Their vision may be directionally right — but tactically wrong — and it takes a strong team to change the course.

Ship it earlier

There’s an old expression that says “If you are not embarrassed by your first version you didn’t launch early enough” and it’s absolutely true. Shipping early provides many good lessons. Nobody knows what will happen — despite the loudest pontificators. Launching also quiets the naysayers — nothing speaks louder than actions. This lesson comes into play because whether you are a B2C company or a B2B enterprise company. Nothing gives you better feedback and usage patterns like a live production environment with real customers. Even if you have 10 beta users, it’s better than sitting around inside with limited info and lots of ideas.

Startup knowledge looks like an equalizer

Remember those old stereo equalizers that controlled all the audio settings? Startup knowledge is a lot like that — some entrepreneurs are very high in certain areas while others are very low. As head of Expa Labs, my job is to get everyone to at least a level set — so folks can tackle most problems with information and knowledge to create a solution. It is amazing how much information is out there about starting up a company, entrepreneurship, and almost any topic around starting a business — and yet the knowledge gap is large. Some founders are well informed about the details surrounding financing terms and definitions, while others are new to the topics. Others have deep technical knowledge about building and scaling systems, but have little to no information around hiring and HR policies. Nobody can be expected to know everything about every topic and that is where Expa comes in: We provide resources, experience, and a level set of knowledge in the areas where gaps might exist. My goal is to either fill in the knowledge gaps where I can, or pair founders with the right people.

Plans Change

I can’t say this any more directly: plans change. It reminds me of the famous Mike Tyson quote: ”everybody has a plan until they get punched in the face” and it’s true. The two types of plan changes I struggle with (but shouldn’t) are when a timeline changes and when a product launch changes the plan. Both are totally reasonable, should be expected, and yet remain difficult. For me the lesson is go with the flow a little more and let things change. Change, after all, is the only constant when building a company.

Fundraising is hard

Ok so this isn’t a lesson I discovered or needed to learn, but it’s a good reminder. Naveen Selvadurai, one of the Partners at Expa, has a great expression for founders; “it’s only going to get harder” which is funny and true. From the moment a team is funded they should be focusing on how to keep the business alive with the only thing that can guarantee it — cash in the bank. At the end of the Expa Labs program we also send out a “first look” to the LPs of Expa, which is a way for them to see the progress and status of each company and have the option to reach out if they want to get more involved or invest directly. There are no guarantees but it’s a great way to use the Expa network.

Learning never stops

I truly learned something new from every team, and I hope they learned from me. My applied knowledge from experiences and situations made sense, but I also added to my own toolkit as each company launched/built/iterated/shipped during their time in Expa Labs. I realized many things of my career convictions are now in flux — for example what worked in sales in 2014 may not be the case for 2016.

The end of a program isn’t “The End”

In conclusion I want to say thank you to the Expa Labs 2016 teams; DoveTale, Listen, Radar (NY) and NINAYO, Promote, and Chalet. I loved working (and still working!) with all of you. While the program is “officially” over, it’s only the beginning for you, with some difficult, frustrating, absolutely fun and satisfying moments ahead of you. You are now a part of the Expa family, and I am excited about what the future holds for each of your companies.

We have officially opened up applications for Expa Labs, and planning on more than doubling the size of the program. We have also introduced a new investment tier $250,000 for 10% equity along with the previous $500,000 for 20% equity. Applications are now open through March 31st 2017.

In addition to expanding the size of the program, we are now open to accepting companies from anywhere, that can work in the US. This means if you are in a city outside of one of our core locations, you can apply and potentially get into the program and work from where you are located.

With our offices in NY and SF, and now a Partner operating out of Vancouver our goals of growth and working with more entrepreneurs from more places is happening. If you are interested in learning more please checkout Expa Labs.

The Right Time + The Right Team + The Right Technology

Team Time Technology

 

I have been working with a number of early stage teams going through various stages of fundraising and using this diagram to help explain my thoughts on some of the questions they will come up against.  This is certainly not all inclusive, but it helps me outline the key points that I think must be overcome by an early stage team to convince an outside party to invest their capital in their company.  Many of the questions and comments I have seen happen in pitches fit into this venn diagram.  The best example I have of this is looking at what happened with YouTube; it came about at the right time, with the right team, and the right technology. However one of the only things they could control was the team – assembling the right people to take advantage of market conditions.

The Right Time
Starting a business at the right time is almost completely outside of someones control.  There are multiple macro/micro economic factors that can contribute to success or failure.  However, I say almost as there are indicators that can be used to see if an idea has a shot at working – either something that has failed in the past, or something completely novel whose time has come.  In the case of YouTube there were countless other examples of online video providers, some during the dot com boom, that didn’t quite make it.  Why not?  Well, for starters I don’t believe there was the ubiquity of broadband that existed in 2004-2005.  If you had a video site in years past with a dial-up service there was no video compression system in place yet that would bring quality and convenience that people needed to actually use and browse a site effectively.  There was also no hardware to make small videos at the same pace as the mid 2000’s.  Think about the explosion of digital video recorders (remember Flip cams?) that happened right around the time of YouTube launch.  Using the Flip example (launched in 2006) there was suddenly a very affordable digital video camera that you could instantly connect via USB.  The next logical progression of this video content explosion was a place to put it – enter YouTube.

The questions associated with this circle for me are;

  1. Why is now the time this Company will succeed? (vs. 5 years ago or 5 years from now)
  2. Is the market ready?
  3. Are customers ready?
  4. Are there enough buyers/sellers today?
  5. Is there some special moment happening that makes this the right time to exist?
  6. What external factors could help/kill/affect what your roadmap looks like for the next 6 months?

The Right Team
I believe that the first 10 people at any startup will make or break the Company.  I know this is a strong statement as people change roles all the time, and I need to get my thoughts fully written down on it, but it has been my experience thus far.  The first set of folks usually set the culture and cadence of the entire operation.  If you look at most early stage companies there are usually a few people that make a 10X difference in the early days and end up leading the teams and departments later on.  This is not always the case but when a core founding team departs an organization it is hard to understand how the heart and soul of a company isn’t gone too.  If this happens years later and there are new leaders in place, this can be the right time for them to leave and its actually a good thing for a Company.

Digressing back to my example, YouTube was founded by 3 early PayPal founders that experienced a real existing pain; there was no place to share and view videos online for recent events.  Whether you believe the dinner party story or the news events story (more here) doesn’t matter – the reality is that there was no place to house and share video online and this team was well poised to find the solution.

The questions associated with this circle are things like;

  1. Why this team?
  2. If someone else got $XXM, could they assemble a better team? Do what you are doing faster/slower? why/why not?
  3. What makes this team well positioned to succeed in this market over competitor X, Y, Z?
  4. Who is missing from this lineup?
  5. Who are the next 5 hires you are going to make if this funding comes through?
  6. How are you going to compete for talent against X, Y, Z?
  7. How are you going to retain this group?

The Right Technology
This is a contentious circle for some as some investors rely on the tenacity and vision of the founders over technical abilities.  In my experience being brought up around a thesis of having strong technical co-founders its hard to get away from.  Aside from the abilities of the people, the real question here is around the state of the technology being used and many external factors.  Coming back to my YouTube example there were again strong external factors that were beyond the founders control that made its success possible.  The first is that there was an explosion browser based video players that were found in almost all computers – Adobe Flash.  Say what you will about the players today (they are on the severe decline), around the time of YouTube it was incredible.  With most systems having the player, YouTube was able ride on the coattails of a ubiquitous player that could handle and stream video on most big platforms.  Previously used for interactive and complicated websites, the Flash player for video was perfect.  People could get video buffering in the background with their broadband connection and see basically “live” video without the previous problems of downloading and dealing with codecs and corrupted files.  The technology used here matters as there are tons of carcasses of online video companies from the dot com boom that didn’t survive as they didn’t have the right technology in place.

The questions associated with this circle are things like;

  1. Is this Company using the right technology to solve this problem?
  2. Is the world well equipped for this technology to be brought to market? (Flash/YouTube example)
  3. Do you have in house technical talent, or is the technology somewhere else?
  4. What is the defensibility of this technology?
  5. What breakthroughs are you waiting for? Holding you back? Are you driving?

This is certainly not meant as an all encompassing series of VC questions, but it helps me wrap my head around where a Company is based on their answers.  The center of this venn diagram defines for me that this is something worth taking a look at.

The State of US Tech Funding

The folks at Andreesen Horowitz and Benedict Evans put together this great presentation on The State of US Tech Funding.  It is embedded below and a lot of it rings true for what I am seeing.

 

I also agree strongly with Slide 39, that more smaller rounds are happening
Smaller Rounds
With the companies I advise, I have seen more of them raising a higher quantity of rounds at the so called “seed” stage.  The synonyms and nomenclature behind these rounds are also changing.  What was before a seed round is now a friends and family round.  Some even call these activities genesys rounds, or pre-seed deals.  Whatever the language, they are happening more frequently at smaller amounts – to my knowledge.
I also agree that while creating and scaling a software business is getting cheaper, reaching a larger online market is a growing challenge.  There are more SaaS tools and mobile marketing programs to use to “make it easier” but these end up adding to the burn of these Companies.  I jokingly referred to this trend as a re-distribution of funding via expensed $20, $50, and $100+ monthly SaaS plans happening between each company (no, thats not really happening but it is on a very small scale).
Great presentation to dive into to get a nice comparison between now and then, and to form your own opinion.

The startup accelerator application process

One piece of advice I have found helpful to new founders is going through the application process for startup programs.  Whether an accelerator, incubator, launch, or other flavor of program helpful to early stage startups – almost all of the application processes are incredibly helpful.  The goal of course is to have ready and willing founders ready to join the program, but not everyone should.  I will leave the why vs. why not to another post, but the application process itself can help founders get on the same page and outline the vision for their company.

The obvious programs that are top of mind for me are; YCombinator ApplicationTechStars Application500 Startups Accelerator Program, there are hundreds that have similar application questions

Questions this from YCombinator:

Ycombinator questions

Some questions I am paraphrasing that I ask during my mentor sessions that I find are helpful to founders

Who is on the management team right now?

How long have you been focussing on revenue?

What happens if you do not get into this program?

Who own the company and the breakdown of the ownership right now?

What are some of the challenges you have faced that are still unresolved?

What is the headline for your product launch in consumer/trade/enterprise?

…and the list continues.

These things make people think about things in a way that is structured and organized, and forces founders to come together.

Sometimes its easy to brush aside the more mundane and boring questions that really help define the vision for a business.  The application plays the “bad cop” in this scenario and lets the team focus on what is most important which is coming together and making sure they are on the same page for the future of their business.

 

Google Social Search and your neighborhood connections

Google introduced the idea of Social Search back in October 2009, but I just recently started seeing instances of it in the wild.  I think this is a social version of backrub and only the beginning.

The way it is shown is at the bottom of search results:

Results from people in your social circle for google social search – BETA – My social circle – My social content

SERPs then show pictures of your connections, how you are connected to them, and hopefully relevant content they have written or linked to.

Digging in further you can start to see how Google sees you and your social graph, and going further to the Google Social Circle area (link should work for you) shows you a “neighborhood” of social connections.

It says the following;

This is the network of connections Google uses to identify relevant social search results. It is based on a combination of the following:
  • Direct connections from your Google chat buddies and contacts (28)
  • Direct connections from links listed on your Google profile (215) such as Twitter and FriendFeed
  • Secondary connections (1667) that are publicly associated with your direct connections

This is the network of connections Google uses to identify relevant social search results. It is based on a combination of the following:
Direct connections from your Google chat buddies and contacts (28)Direct connections from links listed on your Google profile (215) such as Twitter and FriendFeedSecondary connections (1667) that are publicly associated with your direct connections

and looks something like this:

This is interesting for a few reasons.  The first is that it exposes the connections Google believes you have.  The second is that it shows the content it thinks those connections contribute to.  The sources are listed clearly as Twitter, Friendfeed, Chat, and Contacts.  This relationship matching is quite impressive and shows that Google Social search is actually matching my contacts with their content, then searching and matching those results back into my search streams.

Earlier this week I got a chance to hear Clay Shirky speak about a concept that is quite obvious to many looking at the micro social media space, but in a new way.   His thesis was around the fact that the most important person in the universe is YOU and the people with close ties are close to the center of the universe (friends) but not quite at the center.

I cannot express his thoughts in the same eloquent way, but my general takeaway was as follows.  Your general social circle, or neighborhood is only so big.  Your secondary neighborhood is some order of magnitude larger.  Your tertiary neighborhood is probably an order of magnitude larger than the 2nd.  This means that by association, you may have a million or so connections that you are indirectly connected with.  These connections are not real in the “friend” sense, but certainly are real in the “I am influenced by what they are thinkingreadingdoing sense” as there is a high probability of correlation between activities.  Some of this is serendipity, but some of it is because of similar social connections and friendships.  He is interested in movie category X, and therefore I have some probability to be interested in the same category X.

How does this translate to being important for Google Social Search?

By looking at the people I interact with Google is building a beachhead on knowing and understanding my neighborhoods.  They know the first tier neighborhood by chat conversations, Twitter messaging, and links.  They know the second tier neighborhood from those friends connections and crawling the content they produce mapping its importance back to me.  Finally, they grasp the third tier (which is perhaps the largest) by connecting tiers 1 + 2, and looking to their outlying friends connections and content.

I believe that Google believes in the thesis that you are located at the center of the universe, and uses these galaxies of connections (or neighborhoods as Clay and sociologists call them) to help you and provide value in search results.

This same information could then be leveraged to provide a better taste menu of content without having to sort through filters, categories, and keywords you are interested in following.  The power of knowing what my friends are reading and gauging my interest is a problem that needs solving.  The constant banter about “too much information” and “information overload” can be quelled by a smarter, yet automatic, filter for content that could be helpful or interesting to you.

The inputs are very clear signal using time, quantity, content, and proximity to influence the taste menu.

If I havn’t spoken to someone in awhile, emailed with them, @replied them, then the connection fades.  On the contrary, if I have chatted with them, emailed, clicked through to their content, and interacted with them that is an indicator that the connection is stronger.  This example does not take sentiment into account, but I think that is fine.  Even if you have constant disagreement with someone – interactions show interest in a category therefore can be signal for the social search content that gets shown back to you.

The other interesting connection, and the reason why I use the phrase galaxies instead of neighborhoods, is the web content Google now knows I am associated with.  In an area called Social Content, Google identifies websites that I am affiliated with.  It is really a natural language association of “back rub” Googles original search thesis of links, but it works.  For example it takes sites I link out to and makes them “connections” simply implying that there is a correlation between the site websites.  Although it misses some of the sites I am a part of, it certainly captures the majority – all using the signal of reciprocal linking and content to make the judgement call.

I think that Social Search is in its nascent stages, and we will continue to see neighborhoods and galaxies of connections uses to create better taste menus.  I think consumer reaction to such a display of connections and friend mapping will be met with initial disdain and privacy concerns, but then people will realize that Google is just providing an organized view of your publicly available interactions.

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Unnecessary Animations (and features)

I finally got around to installing Windows 7 in my laptop a few weeks ago (had to reformat – always fun)

After installing it and getting back up and running I have noticed some unnecessary animations in menus and windows. After doing some research for how to turn them off, do you know what they are called? Unnecessary animations. Yes, seriously.

Below is a screen shot:

How can you build a feature and literally call it unnecessary?

By the way the full path to this area is:
Control PanelEase of AccessEase of Access CenterUse the computer without a display

Wow.

This also got me thinking about unnecessary features in products and software in general. The example above is just a sample of what is out there. By way of the “less is more” mantra I try to put things I see through a filter of what the bare essentials are for a service or product.

By having “also have that” features, you can dilute the core values and reason people will use your service.

A lot of folks think that it is necessary to mention that they “have that too” when compared to a competitor or another contender in the same space, when in reality it is more about what people are using vs. what they could be using.

An example of this is with messaging, forums, and discussion software. Feature bloat can quickly become apparent in many of these solutions when in reality people just want one vertical solution. By strapping on additional complexities and features you actually dilute the core value of the product.

When a product does everything it also does nothing.

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The Spawn of Craiglist – A Visualization

My colleague and friend Andrew Parker did a great visualization mapping startups over Craigslist categories they competes in. You should click through and read his thoughts.

First, it is incredible that around 30 companies are actively attacking these categories, whether directly or indirectly, on Craigslist – more if you dig deeper and include competitors within each set.

Second, some of these companies have been competing in the space for a long time such as Indeed.com (USV portfolio co.), Elance.com, and LegalZoom.com while others are very new such as Listia.com, TeachStreet.com, and AirBnB.com

I think you will continue to see small niche categories getting full blown solutions and entrants to markets that would otherwise not be possible in the past. This is due in large part to lower cost of capital to get started, lower production and development timelines, and the fragmentation of attention as people are willing to go to the best possible solution vs. a one size fits all portal.

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Pattern Recognition

Last year I was providing an update about what I do, what I work on, and how I add value to the firm I work for, and my overall job description. In a long winded explanation to my friend Andrew Weissman, he stopped me and clarified what I do in a single phrase; pattern recognition.

This concise explanation of providing value has stuck with me. This means being category, niche, topic, and genre agnostic and combining a number of factors both tangible and not, into how I view companies, individuals, and projects. Since early stage investing means the product or idea changes dramatically over time, having a clear thesis and honed pattern recognition is helpful. I take no credit for this as it was developed and matured over time by Brad, Fred, and Albert and even lives online at the USV Our Focus page. It is an organic and dynamic thesis that has changed, and continues to adapt.

Much like experience, you have to live through certain things to get it, see things from many angles to understand it, and the more real cases you see, the more experience you get. There is no shortcut or way around this fact. I learn more about this process every day from my friend and colleague Andrew Parker. Andrew has honed his own pattern recognition skills that come from his world view. In a clear and concise conversation I can understand how he views a product or service and we can constructively debate the pros and cons. It is helpful not only in building up my own pattern recognition, but also in thinking through and clarifying points I may not have thought about.

When I first joined Union Square Ventures my goal was to optimize the partners time. I now add pattern recognition to the always on optimizations I try to provide.

Phin Barnes is a friend and Principal at First Round Capital, and summarized this value add nicely;

Different from a partner I also try to decide if I think a specific partner will share my view and if together, we can build passion for the business across the investment team. Each week I participate in pitches with the partnership and spend time talking to them about the deals they are reviewing. I dig into the questions they ask and understand each business that they are evaluating and what is driving their point of view on each investment decision. When I read a plan or meet with an entrepreneur, I usually know how each partner will react to the pitch, what areas they will be excited about and the concerns they will have about the model, the market and the team.

Phin goes on to describe junior VC people as gatekeepers, which I agree with. In some ways a junior VC extends the bandwidth of the partners and optimally helps them do more, faster.

The best way for me to separate the signal from the noise is to develop and work on pattern recognition.

There when you need it, not when you don’t (Google Attachments)

I have been describing Google as the hidden social network that is there when you need it and not when you don’t. These utilities pop up when you need them most; picture storage, email, chat, video chat, phone, etc…

By productizing these applications and launching them, Google would be doing a disservice to its customers and confusing the marketplace. Rather than launch a new “product” or put it into labs, they market test in current attention streams.

Examples include; introducing chat into Gmail, Integrating Picasa with Google Accounts, Integrating Google Analytics and Adsense, Adding a URL shortner to Feedburner…hopefully you get the idea.

The latest example of this can be seen in what some call the Google Drive or GDrive making it possible to attach files to Google Docs.

This is a feature that is also a standalone launch. If you are uploading files to Google Docs and keeping them private, it is essentially an online locker for storage, which is in a round about way a Google online storage drive.

My point is that with the identity that is your Google Account you now have yet another feature added. The network effects of this move are clear in that you are less likely to go somewhere else to put your files if Google has permeated into the rest of your online existence. Looking at the large number of competitors that are out there in this space gives some vindication, pause, and apprehension in my mind. In some ways these services can be seen as more mainstream as many people did not know storing something “in the cloud” was even possible – and choice helps the consumer. In other ways, it becomes difficult to fight large identity incumbent.

By continuing to release features under current product offerings, Google can drive many users to a new service and do a live customer development process right in front of all of our eyes. They are doing this today with Google Wave.

The features you need most are appearing when you need them, not when you don’t. That is what makes today’s “social networks” the real “networks” of tomorrow.

Start Today

A lot of folks are providing top ten lists for the year and even the decade. I am skipping those on my blog and ending off the year a simple statement; start today.

You don’t need a resolution, a mission statement, or the perfect set of people to accomplish what you want to do. You don’t need a set amount of money in the bank, the right time at your job or life, or even for whatever event is going on right now to pass. You don’t need permission, you don’t need official approval, and you certainly don’t need a book telling you what to do. You probably do not need a course or how-to guide, a newsletter, or video series. You don’t need the perfect background, you don’t need the perfect business plan (man how that will change over time!), you don’t need a 3 year projection or budget. You most likely don’t need the amount of money you think you do. You don’t need to incorporate, you don’t need business cards, you don’t need a “website tonight”, and you don’t need to max out your credit card. Heck, you don’t even have to wait for the new year – pledge to start 12/31/09!

The biggest psychological hurdle in doing something is always the first step. If yesterday you were “going to start something” then tomorrow you should simply start saying “I started something.” Try it out and see how it feels – you will be amazed at what happens next.

There is no big difference between saying you are going to do something in the future, and they saying you are doing something today, but the psychological hurdle is tremendous.

Everyone has a different first step, but the best way to begin is to start today.