Skip to content

A Little of This and a Little of That: Constructing a Startup Board

November 8, 2013

Brad Svrluga

I caught up the other day with a friend (I’ll call him Rob, to protect the innocent) and successful West Coast founder who recently sold his first company. It was a good outcome, though not spectacular. He got a taste of success, made a few bucks, learned a boatload, and like any great entrepreneur, that was enough to leave him desperately hungry to go out and win big the next time. When he does, I hope I’ll have a chance to back him.

This was the first time we’ve had a chance to speak in detail about the transaction, and also the first time he’d been able to really stop and take a long view back at what the prior few years had meant and what he’d learned from them. In the course of our discussion, I asked him how his VC syndicate had worked out for him.

His only financing came from two large firms and a batch of angels. The angels were pretty insignificant and not involved in the business. The two VCs were on his board of directors and more involved.

In general, he was happy enough with his investors and the way they treated him through the process. However, he also said very clearly that he did not get anything close to what he hoped from his board, and the whole experience has taught him a lot about how to construct an investor syndicate for his next company. With the benefit of his less than satisfying experience, he had developed a very simple framework that we discussed and which I found pretty compelling.

He said, simply, that there were three things you needed to get from your investors. After some debate, we finally landed on the following prioritized order for them:

  • Domain expertise
  • Comfort with your investment stage
  • Operating experience

Explained simply:

  • Domain expertise can mean both relationships and experience in the vertical sector in which you operate, or experience with and knowledge of the business model which you apply. We debated which of the two is more important, but ultimately decided that it’s an interplay of the two that matters, and it’s impossible to pick one over the other.
  • Stage expertise is one that entrepreneurs frequently fail to focus on. This is about the alignment of your investors with the level of entropy and chaos that will exist in your company given its stage.
  • Operating experience is what it sounds like, and it doesn’t matter all that much in his mind where it comes from, as long as it is a vaguely similar tech sector and, most importantly, the investor has experience operating in a random, chaotic environment where managers are hiring and firing at a rapid pace and key decisions are made before the first cup of coffee and then changed three times by lunch.

board mtg cartoonAs Rob reflected on his experience, he understood that the investor and board struggles he’d had were a result of holes on his board vis a vis this framework. He had raised money from terrific, brand name firms, for sure. But for his  seed stage, two-sided marketplace business, he ended up with partners on the board who had between them zero marketplace experience, zero operating experience, and only one of whom was truly comfortable with the vagaries and uncertainties of seed stage deals. So while his initial fundraising press release looked sexy, and his cap table was impressive, his board ended up decidedly ill-equipped to satisfy Rob’s hopes and needs.

I’ve thought a lot about board and syndicate construction in the past, but I think Rob’s framework brings a really simple, elegant view to this incredibly important area that I will actively apply in the future. I’ve been on some 30 boards in my career as a VC, and I’ve seen really functional ones and  desperately dysfunctional ones. And when I think back through them all using this framework, it proves a remarkably effective predictor of board performance.

The only overlay I would add is that the framework is also dependent on the relative strength of personalities. If the loudest voice and otherwise most influential board member (this might be a result of experience, dollars invested in the company, or just sheer force of personality) is critically off the mark on any of the above, that can bring a board down on its own.

Rob & I discussed a bit how to practically apply this to future syndicates. While we agreed that it’s of course ideal to have a board full of individuals who are a match on each of the three dimensions, that’s rarely going to be possible. We agreed on two more practical rules of thumb. First, it is absolutely essential that a board, in aggregate, checks each of the three boxes. And second, it is by far preferable to get two of those boxes checked by each member of your board – folks who check only one of the three are just going to miss the point too often.

Of course, sometimes companies don’t have the luxury of a range of options. Sometimes you take the money you can get. However, I would suggest that if you are sophisticated enough to apply this framework to your discussions with each and every prospective investor, asking questions to qualify them on each of the three dimensions, you’ll end up impressing investors with your diligence and on the margin attracting a better group.

Good luck.



The Circle of Life: Our New Investment in MakeSpace

October 2, 2013

Brad Svrluga

People love to complain about the constant moving around of talent within StartupLand.

It can indeed be frustrating…in competitive labor markets people are always looking for the new, shinier, more exciting thing, and sometimes it feels like loyalty and commitment is a concept that is no more relevant today than dot matrix printing.

But that mobility of talent is merely the other edge of the sword of company formation and growth, as every great new idea is hatched by someone who seconds before that eureka moment was doing something else. Every great co-founder and every critical early employee comes from doing great things somewhere else.

At the end of the day, this mobility of talent is a critical enabler of this ecosystem that drives our economy. Last week I had a series of reminders of that.

First, I learned that the VP of Engineering at one of our best performing companies was leaving. I originally was astonished that he would leave this awesome company where he played such a key role. Then I found out he was joining a good friend as co-founder of a new company that already had VC backing secured. The circle of entrepreneurial life continues. As a gear in the engine of innovation, I’d be kind of a hypocrite to criticize that choice, wouldn’t I?

Then later that day I had a great conversation w/ a new friend – Guy Livingstone, who is a co-founder of ToughMudder. (If you don’t know what ToughMudder is, go check it out. It’s a fascinating business and one of the fastest growing and most wildly financially successful startups you’ve come across in a long time. All built on precisely $0 of venture capital. Nice.).

ToughMudder has gotten to the point where it’s started to spin off talent who go on to form new companies. As Guy was speaking about the phenomenon, I was surprised to hear him speak not of frustration at losing some key talent, but rather describe it as one of the most satisfying elements of his experience as a co-founder. He spoke with genuine pride of the talent of this group of newly minted entrepreneurs, and said he was excited to invest with some of them and partner with them as they build. How’s that for embracing the circle of life?



Trust me…This guy’s gonna kill it.

Finally, and most significantly, a great new company called MakeSpace launched last week. If you want to know the MakeSpace story, go read Mark Suster’s great post from last Wednesday. We’re thrilled to join Mark as seed investors in MakeSpace and think it’s an ingenious model that will become an important business.

But for me, it’s much more than that. This investment was a very personal one, because of one of the MakeSpace co-founders, Rahul Gandhi.

I hired Rahul in late 2010 as an Associate at High Peaks. Rahul was a talented guy who was absolutely determined to get into the venture business. 2010 was probably one of the worst years in history to try to get a VC gig. A talented guy with a great background in banking and then big tech company corporate development, Rahul had graduated from Columbia Business School in May 2010 and turned down every non-VC opportunity that came along. He knew what he wanted, and was determined to hold out. This is not a guy with a trust fund to fall back on as he ran his process – Rahul needed to work. So he scrapped together some consulting opportunities, made a few bucks, and then walked into our office one day and all but insisted (in his unbelievably gracious way) that we let him start working for us. For free.

Seemed like a pretty good deal, so we did. And in about 6 weeks he made himself absolutely indispensable. So we hired him for real, and over the course of the next 32 months he busted his ass like nobody I’ve ever seen. He very quickly distinguished himself as hands down the hardest worker, the best attitude, the most helpful colleague I’ve ever had the pleasure of working with.

And over the course of those 32 months of absolutely killing himself for our firm, Rahul simultaneously became one of the most well-connected, respected, and just flat out best liked guys in the NYC tech scene.

He made an enormous impact on our firm, bringing in some terrific deals, connecting us with fantastic new people, and overall helping us raise the profile of the firm. I heard at least three times/week something along the lines of “man, what a great guy Rahul is!” I regularly told people that he was actually the most important person in the firm.

Then in June he told me that the MakeSpace opportunity had presented itself. In classic Rahul fashion, he got poached out of his own incredibly effective due diligence process. He had done such an amazing job of nurturing our firm’s relationship with co-founder Sam Rosen, and brought such insight to Sam through his work in helping him shape the business, that Sam finally (and very intelligently!) woke up and said “hey, I want you over here on this side of the table with me.” Could there be any more powerful statement of the effectiveness and value of a VC’s work with a company than that?

For me, it was a total kick to the gut. For about a day I thought he was insane, and I felt a little deserted.

But I quickly came to see things the way Guy sees them with his ToughMudder colleagues. Rahul had passion for this idea. He had a chance to be a co-founder at an exciting and well-backed opportunity. He had learned and grown a boatload in his time as a VC. But could I honestly tell him he would learn more over the next few years staying with us than jumping over with Sam? No way.

So I didn’t try that hard to talk him out of it, and ultimately I’m thrilled to see Rahul spreading his entrepreneurial wings further. I’m also thrilled for High Peaks to be a major shareholder. Trust me, buying a piece of whatever Rahul Gandhi is doing is a very good bet. While we had been doing our work and were interested in the business before Rahul decided to join, when he committed to joining, we stopped our work. Because in this business, it’s all about the people who make it happen. And we knew that with Rahul and Sam, we had a team for whom failure simply was not an option. I had seen it firsthand.

So I write this today to celebrate the launch of MakeSpace and the launch of Rahul & Sam’s entrepreneurial journey. But more than anything, I write it to celebrate the startup circle of life. This is an ecosystem built on talent, and great talent moves to great opportunities. As founders and investors, we need to acknowledge and celebrate that reality and, like Guy, look at it as an opportunity rather than a threat.

The Myth of the Startup COO

July 17, 2013

Brad Svrluga


Startup CEO & COO? An impractical two-headed monster

I just read a terrific post from Ben Horowitz that he wrote a couple weeks back about the fallacy of Shared Command in companies. I couldn’t agree more with his points about the essential nature of a singular decision-maker in start-ups, especially. There are so many challenges that every startup faces – adding ambiguous reporting and authority structures to the mix never helps.

While there will always be examples of powerful exceptions, if you’re looking for models of what’s likely to happen with shared leadership, surely Blackberry/RIM is far more instructive than Workday.

An argument against shared command structures is not new territory, of course. Yet we still frequently see startups who try to manage via co-CEOs. When I see that, I always dig in hard as to why this pair thinks they’ll be different. To this day I still have not invested in co-CEOs. I have, however, twice invested in teams where the transition from co- to a singular CEO evolved through the financing process. One of them has been a smashing success, the other was unsuccessful.

The failing of the second case is a great exemplar of a related challenge in startupland – the myth of the startup COO. In this instance, the co-CEOs changed to a CEO and a COO. But nothing functionally changed – they were sharing command.

When I meet an early-stage startup – say a company with fewer than 15-20 people – with a COO, it’s always a pink, if not a red flag. If there’s both a CEO and a President, that’s even worse.

In a real, grownup company, Chief Operating Officer is a title given to someone who sits between the CEO and some substantial portion of the functional areas of the company. At a tech company, you might see all the non Tech/Product functions report to a COO. Sometimes it’s everything other than Sales. In other cases, though less commonly, it’s all of the functional areas. Whatever the structure, the role is a result of the scale and complexity of the company, and it is intended to free the CEO from having too many direct reports.

When I see a COO at an 8 person start-up, it’s generally a title given to a co-founder who isn’t quite sure what they’re good at or what functions they are going to own. And 19 times out of 20, it’s a title that doesn’t make any sense.

Lord knows the CEO of an 8 person company doesn’t need to be insulated from managing his direct reports. If that founder/CEO isn’t intimately involved with and aware of every element of the company then he’s probably not doing his job. As that CEO, if you think you’re going to attract top notch functional heads into an early stage company and have them not report directly to you, you’re kidding yourself. Any high caliber VP Product or VP Sales or VP anything at an early-stage company wants to report to the CEO. I’ve seen companies with premature COOs get this feedback directly when they’ve tried to recruit senior executive talent beneath one of these pseudo-COO’s. It just doesn’t work.

So why do startups repeatedly end up with this structure? The most common underlying reason, in my experience, is it’s a title to give the non-technical, non-CEO co-founder.

Imagine this scenario: Sally and Bob are a pair of brilliant, 32 year old McKinsey consultants. Their friend Steve is a coder extraordinaire. Together these three have come up with a world-beating startup idea, and they’re all quitting their jobs to build the business.

Sally and Bob could just as easily be Goldman i-bankers, freshly minted Stanford MBAs, Associates at big VC firms, or a variety of other things. The point is they are very smart and creative, great at thinking about businesses and markets, but they possess few real, hard skills that are required in building startups.

For Sally, that’s not going to be a problem, because for one reason or another it was decided that she would be the CEO. Steve is all set, too – he’s clearly our CTO. So what is Bob going to do? Head of Product? No experience. VP Sales? No experience. CFO? We hardly need one of those yet.

Lacking any clear role and title, the founding team makes the rational choice to call Bob COO. It’s a big, fancy, ambiguous title. And in the early days it’s going to seem like a logical title as Bob’s going to be a utility player – some biz dev, some sales, some product, some finance. And he’s going to a terrific job at it because he’s super smart, a hustler, and a fast learner.

Fast forward a bit and the team has launched a product, it’s getting a bunch of traction, and it’s time to really build out the team. Suddenly, Bob is in a tricky spot. As Sally hires a VP Sales, a VP Marketing, and whatever other functional heads she needs, Bob’s portfolio is going to get whittled away, bit-by-bit. His McKinsey background doesn’t qualify him for any of these roles, and instead of focusing early, studying, and getting good at one of the, he clung to his generalist COO title too long.

I’ve seen this scenario play itself out several ways from this point. Sometimes Bob clings to the title and everything he once owned. When that happens, Bob is eventually pushed out of the company as those new rockstar functional heads insist to Sally that he’s getting in the way and they can’t work with him.

In other instances I’ve seen Bob suddenly decide he’s going to go deep and learn and own one of these roles. But at this point it’s too late. The company needs a star running sales, not a guy 18 months removed from his MBA who’s never carried a sales bag in his life. So Bob flails for awhile, but things are starting to move too fast for him to get it figured out, and he fails.

The COO role that Bob clung to, that made him feel great for so long because he had a fancy title, ultimately was his undoing. He fails at the point where the company needs much more than his utility role, yet isn’t big enough for a COO, and Bob’s not skilled enough to be anything but.

The painfully ironic thing here is that Sally is doing just great, despite coming to the table with no more relevant skills than Bob did when they co-founded the company. But that’s OK – CEO is a general management role. It’s about strategy and vision, hiring great people, and raising money. And those are all things that blindingly smart ex-McKinsey types can frequently do quite well.

So how to avoid Bob’s fate?

When I meet a founding team like Sally, Bob & Steve, I push very hard on just what Bob is going to do. And I tell him I don’t buy that the COO thing works.

In my mind, there’s only one reliable path for him to take, and that is to check your ego at the door, hustle like hell at playing the generalist early-days utility role, and simultaneously pick one specific functional area to learn and study and prepare to own. With some time, if he gets focused early enough, he’s got a shot at growing into a role leading that function. And if he doesn’t grow all the way there, he’s at least going to learn enough that when a VP is hired over his head, if Bob is humble and practical, the VP will want to keep him around as a contributor on that team.

Sure, there will be exceptions to all of this. I’ve seen a couple, but they’re definitively exceptions.

If you’re the non-CEO, generalist co-founder, I encourage you to get realistic early and structure your role in the company for success. Betting on being the exception is all too likely to lead you to instead being the rule – an unfortunate separation from your company before it reaches the promised land. And wouldn’t you rather be on the ship in a smaller role when it gets there than have been cast off a hundred miles out to sea?

Damn That Was Scary! Reflections on the Irrelevance of VCs & the Fallibility of Technology

May 1, 2013

Brad Svrluga

It’s only Wednesday, but it’s been a week of lessons, with two powerful ones forcibly reconfirmed for me this week:

  1. I was reminded that no technology is perfect
  2. I was confronted yet again with the day-to-day irrelevance of my job as a VC, at least as it relates to anything critical getting done in the world. 

I had a pretty crappy day on Monday. I got to the airport plenty early for a flight to San Francisco, where I had a few days of meetings. I had felt just a tiny bit queasy in the ride to the airport, but no big deal. I cleared security, got to my gate, and then started falling apart at a pretty rapid rate. I couldn’t stand up, I was losing circulation to my extremities, I was shivering as though I was standing naked in a blizzard, and my abdomen felt like it was about to explode.

I signaled to a gate attendant and told him that I would not be able to get on the flight. He asked me if I wanted him to get me an EMT. I declined, thinking, “if I were at home right now I’d just be crawling into bed, right?” But it got worse, and there was nowhere else I could go. He made the decision for me, calling the medics. They checked my vitals – low pulse, high blood pressure, blue fingers. Not good. Get an ambulance here fast. They gave me an EKG on the spot. Didn’t seem alarmed by the result.

I left the airport not by walking down the jetway onto an airplane, but by getting strapped to a stretcher and taking an elevator ride to the tarmac and a waiting ambulance.


My view on the tarmac

In the ambulance, another EKG, this one with allegedly more sophisticated equipment. The data looked not too troubling, but this device also had a software algorithm that automatically draws a conclusion from the data. The algorithm said: TROUBLE. The EMT looked down at me and said “OK, we’re gonna speed up now, and the sirens are gonna come on. I don’t think it’s really bad, but we’ve got to get you to a tier one cardiac trauma center. And here, chew these four aspirin while I get an IV into you.”

Ummm….OK??!!!  I’m 40, eat pretty well, have lower than normal blood pressure and cholesterol, work out religiously 4-6 times/week, and have never had a serious medical issue in my life. WTF is going on?

10 minutes later I’m wheeled into the ER, and moments later the aspirin and the apple I’d eaten 90 minutes before come violently back up. I’m shivering uncontrollably, feel like someone has put my entire GI tract in a vice, and nobody seems to know what’s going on.

Fast forward 8 hours and I’m discharged. After a boatload of tests, there’s apparently nothing seriously wrong and the symptoms are breaking. No heart issues, brief concern about a gall bladder issue is dismissed, it’s not my appendix. Nothing they can nail with certainty. Ultimately, the conclusion is I caught a very, very nasty, very, very fast acting virus. Trust me, this is a virus you do not want to meet.

After some emails went out canceling all my meetings for a couple days, I spent the bulk of yesterday resting and recovering. By noon today I was back in the saddle, for the most part. And now, as I think back over the past few days, I’m struck by the two things I mentioned above:

  1. The inherently imperfect nature of technology, at least as it relates to medicine
  2. The relative irrelevance of our roles as VCs

#1 is pretty straightforward: I had what ultimately proved to be a very painful but not actually serious situation. Humans in the field checked my vitals and did basic diagnostic procedures and did not think I was having a heart attack. They looked at the raw data from the EKG and all their training said the same thing. They sent the data ahead to the hospital while we were driving, and a doctor there concluded the same thing. But the software said I was in trouble. So we drove 80mph with sirens blaring.

Of course, there’s no penalty for caution, with the exception I suppose of some added costs to our healthcare system. But this was not the first time that I’ve seen automated technology fail in a medical setting – my first born son ended up in the neonatal intensive care unit for the first week of his life, and over the course of that week we saw a number of false alarms from the supposedly infallible machines. 

Bottom line, there are places in life where technology and human analysis are both essential, and medicine is certainly one of them. We can send robots to mine rocks on Mars, but we’re not going to have robots as EMTs and ER attending physicians anytime soon. Driverless ambulances? Sure. But let’s keep the woman in back with me a human.

As for #2, I was unannounced out of commission for 48 hours. I’ve got 12 companies that I’m responsible for in our portfolio. Each one of those companies is moving ahead at 110mph on their own super aggressive timeline. Pluck a key senior manager out of any of those companies unannounced for 48 hours and some sh@# is going to hit the fan.

I disappeared for 48 hours though and I’m not sure anyone noticed. Sure, it was a relatively quiet couple of days in that none of our companies were dealing with a crisis of any sort. But still, the nature of what we do as VCs is such that this type of disappearance can occur largely without notice. And that’s for me, someone whose reputation is that of a pretty seriously engaged, hands-on VC.

It’s a healthy reminder to me and my peers in the venture business about our role in the ecosystem we’re a part of. It’s easy for us to feel like we’re awfully important at times, but experiences like mine this week are good reminders that we’re nowhere close to the most important players in the game. The truly important players are the ones whose absence for a few days would’ve caused some trouble.

In the end, it leaves me reflecting fondly on just how fortunate I am to be here. In a macro sense, a good health scare really does make you appreciate what you do have – your health, your family, your own unique flavor of existence.

And more professionally specific, it’s good for all of us to be reminded just where we sit in the world. I feel truly blessed to be able to play a role in the technology ecosystem that is driving so much of what’s exciting and important in our country and the global economy. But I know I’m at best an occasional facilitator, or, by way of the cash I can inject, an oil man for a very small collection of companies trying to make a difference.

Regardless, it’s good to be alive, and a pleasure to be in this business. But be careful how much you rely on that damn technology…

Start in the Bullpen: The Key to Landing Your Perfect Investor

March 26, 2013

Brad Svrluga

MarianoWe’ve got a few companies going through very important financing processes right now. Fortunately, these are really strong busiensses with great prospects. There should be no question as to whether or not they are successful in raising the money they need to finance their businesses.

But as we all know, raising the money is at best 49% of the battle. Who writes the check, and on what terms, will each have enormous impact on every shareholder’s long term prospects.

Raising money is an area that we tend to get pretty actively involved with our portolio companies. Unlike most of what these companies do, it’s an area we actually have some genuine expertise! And like just about everything else, this is a process that needs to be managed strategically, with clear focus and goals.

As a rule, entrepreneurs tend to do a very good job of identifying their best financing prospects. They know who the top firms are in their space. They focus on partners who have reputations for being great to work with, have portfolios full of relevant, comparable companies, and networks that can be helpful. Left to their own devices, our companies will generally identify a great list of top prospects.

And then they do the one thing that’s almost certain to screw up their chances with those prospects.

They hurry out and schedule meetings with them.

But what could be wrong with that? You think strategically about your optimal investor, you come up with a thoughtfully prioritized list of candidates, and then you schedule meetings to work your way through those top priorities, perhaps developing a list of second and third tier candidates to move onto if the first tier guys don’t work out.

Running a financing process this way would be like asking Mariano Rivera to go from a cold seat in the dugout straight onto the mound to pitch the ninth inning of a playoff game without first spending some time in the bullpen. Even Mariano, the greatest relief pitcher in the history of baseball, just wouldn’t be ready.

Trust me, I’ve made this mistake myself. I’ve raised money several times as both a VC and a CEO.  I’ve had the fortune of being able to get meetings with the ‘perfect’ investor. And I’ve rushed naively into those meetings.

The good news is, you tend to learn a lot from your top prospects. The best investors are very good at poking holes in your strategy, sussing out your weaknesses, and pointing out missed opportunities. I’ve always found myself rushing back to the office after these meetings, scrambling to update my thinking, my story, and my materials on the basis of that feedback.

The bad news is that I had to get that feedback from my very best prospects. And in the process of poking holes in my business, they likely concluded that there were, in fact, too many holes in my business. Even when the story was pretty solid, I was still new at delivering the pitch, so it never came across as well as I would’ve wanted. So my best prospects said no, leaving me to move onto the second tier, now with a vastly improved story.

I always advocate the following approach. It may seem a bit overthought, but financing is a complex sales process like any other, and needs careful management to optimize the results. In fact, the following approach can apply to just about any sales process you might be confronted with.

Identify and prioritize your prospects, separating them into three tiers. Then do your best to schedule meetings in the following sequence:

    1. Have a single meeting very early on with a low priority, Tier 3 prospect. This is your absolutely zero consequences dress rehearsal. You need one you can burn. And with no consequences, you can feel comfortable experimenting with ways of delivering your story that you’re not quite sure will work.
    2. Then schedule 3-6 meetings with Tier 2 prospects. These should be firms and partners with whom, ultimately, you would be happy to work. Included in this group should definitely be some folks with deep domain expertise in your sector. People who will, with great authority, pick apart the details of your go to market strategy and likely have some good ideas for how to improve it. The point of these meetings is to impress some folks you’d like to work with while also taking a real beating. Make sure you leave plenty of time in your schedule here for rethinking and reworking your story and materials. If you’re listening and learning, you’ll want to have a different story for Wednesday’s meetings than you used on Tuesday.
    3. With the polish that comes from those learnings, now hit your top prospects. You should be very good at the pitch by now. You will have fielded 90+% of the zinger questions that are going to come your way, and you’ll be ready for them the second time around. The story will be tight, and you will be confident.
    4. Finally, revert to the balance of your Tier 2’s. Hopefully you’ll be able to get some additional interest from great potential partners here, and that will help to keep pressure on your top prospects, who are ahead in the process, but not by much. Finding ways to keep the whole process moving along is always critical.
    5. And of course, if all else fails, you’ve then got a really refined story with which to approach the remainder of Tier 3. Here’s hoping you never get there.

It sounds pretty simple, but it’s amazing how hard it is to stick to this discipline. When somebody offers a warm introduction to your dream partner tomorrow, it’s hard to say no, I need to wait.

Just remember Mariano. He’d never go to the mound needing that crucial strikeout without first getting in a good bullpen session. If you think you don’t need the same thing, you’re kidding yourself.

The Dead Simple Secret to Startup Success: Ask for the Order

March 5, 2013

Brad Svrluga


Some of NYC’s finest take a break at the Hunter Mt summit before heading down to grab another ride-and-pitch at Peak Pitch 2013

We had our annual Peak Pitch event last Friday at Hunter Mountain, a couple hours north of New York. Peak Pitch is our take on a mashup of business plan speed dating/elevator pitching and a day of skiing.

This year we had fifty VCs and angel investors and 70 entrepreneurs gather for the day at Hunter. The format goes like this: everyone wears a colored ski bib – investors wear gold, entrepreneurs wear blue. The mountain gives us one of their chair lifts for the day – a 7 minute ride to some pretty basic skiing (making sure the event is accessible to as many people as possible). In the lift line, you pair up with a bib of the opposite color, ride to the top, and the entrepreneur has a captive audience for 7 minutes to make his pitch. Get off the chair, ski down, find a new bib of the opposite color, rinse, repeat.

We give each investor a wad of “Peak Pitch Bucks” at the beginning of the day, and they allocate their Bucks throughout the day to reward the best pitches. At the end we tally up the Bucks, and the entrepreneur with the most is the winner.

This was our seventh annual event, and it’s been an absolute blast every time. The event is mostly about the networking value – it’s a rare thing to bring together such a big group of quality people, away from their normal work environment, where everyone can relax a bit. It’s a special day. As one notable (and colorful) NYC VC said to me Friday afternoon, “It’s just great to get all these Type A’s out of the office and in an environment where they can loosen their sphincters a bit.”

As I drove away from this year’s event, I was struck by the consistency of one truth that has held, year in and year out. I don’t think there’s ever been a runaway best business at Peak Pitch. But we’ve had a number of runaway winners. And the winning formula is the same ever single time.

This year the winning entrepreneur, in a landslide, was Brendan Burns of 1000 Museums. Brendan is a talented and experienced entrepreneur, and 1000 Museums is a fantastic concept that is having some great success. He was a very worthy winner.

But was he landslide worthy? No way. Brendan was without question amongst the best, but this was a very talented room, and should in no way have been a landslide.

So why the runaway victory?

As I explained to a handful of other investors over a beer at the end of the day, in seven years of running this event, there is one clear variable that predicts the winner every time. Brendan’s victory this year was no different.

What’s the secret to success? It’s dead simple, it’s a secret that applies broadly to startup success, and it’s also the Golden Rule of selling:

Ask. For. The. Order.

What Brendan did this year is the same thing that every other Peak Pitch champion in the past has done. He combined a great business with an effective pitch, and he topped it off with some hustle and the willingness to do what every single investor in attendance would full on expect him to do – after giving his pitch, he asked each investor for some of her Peak Pitch Bucks.

I rode lifts with 21 entrepreneurs on Friday (I didn’t get to ride with Brendan). How many of them asked for the order?


That’s right – 21 entrepreneurs who were there to try to win a contest and get the attention of prospective investors had me alone on a wind-blown chairlift for 7 minutes and not a single one of them did anything other than tell me their story. We’d get to the top of the lift and I’d say “Cool, thanks for the pitch. I’ll see you at the end of the day,” and ski away.

21 out of 21 let me get away without even as much as a “Hey, wait!” And 21 out of 21 came into the lodge at the end of the day, while Bucks were still circulating as investors made their final decisions as to who would get their votes, and chose not to corner me there and ask.

Ask for the order, people!

It’s a fundamental principal of sales, but it’s also a fundamental principal of all things entrepreneurial.

Whether you’re selling your product, pitching for financing, recruiting a star developer, or managing a team member, if you’re not asking for the order, you are irresponsibly adding a ton of unnecessary risk into the situation.

Believe it or not, people don’t actually get out of bed in the morning wondering what they can do for you. You’ve got to ask for what you want. Let the target in each of those situations know exactly why you’re there and what you’re hoping to accomplish. Make sure they know you want them. Tell them how much it means to you and what a great thing it will be for them if they say yes.

Ask for the order.

This game of building startups is god damn hard. There are elements of building any company that the entrepreneur simply has to will into being. Don’t make it harder on yourself than it needs to be.

Ask for the order.

Sure, you can’t be a bull in a China shop about it. And there are times when certain prospects need to be subtly massaged and engaged in a more nuanced sale. But in my experience entrepreneurs err way too far on the cautious side of the sale.

Think about this: We’ve run Peak Pitch seven times. That’s several hundred entrepreneurs in total. But I’d guess only 5% of them have ever asked for the order. And with all due respect to Brendan and the other winners, the singularly most promising business idea has not once won, in my opinion. Because they’ve never asked for the order.

Which goes to show you – as important as great ideas, great product execution, and great go to market strategies are, you’ll never win without great sales skills up and down your organization.

Please, people. Ask for the order.

The Search is Over – Welcoming Ben Sun

February 2, 2013

Brad Svrluga

ben-sunLast April, I set out on a high stakes and very public quest to bring a new partner into our firm, High Peaks Venture Partners. Today I am thrilled to announce that that search is over and Ben Sun has joined us as a Venture Partner.

[The full story of that search and what I learned from it was published by Business Insider here.]

Ben is a lot of things, but most importantly to me, he is a remarkable combination of intellectual curiosity, analytical rigor, empathetic relationship-builder, and creative innovator.

You can get Ben’s story from him directly here, but by way of CV he is a seasoned operator, having founded and led Community Connect, a successful social network/digital media business, from its founding in 1996 to its sale to publicly-traded Radio One in 2008. He’s got all the scars and lessons learned you would imagine from someone who piloted a single company through the heights of the internet bubble, the depths of the bust, and the re-imagination of Web 2.0.

Since selling Community Connect, he’s put together a pretty remarkable track record of success as an angel investor. Most notably, he was the founding seed investor and remains lead outside board member at Coupang, now one of the fastest growing ecommerce companies in the world.

Typical of Ben’s style, Coupang emerged from his deep investigation of a promising new market. Studying the dynamics that were leading to Groupon and Living Social’s early successes in the daily deal market back in 2009, he helped construct an alternative model for South Korea, a large market that he knew had the right dynamics to support a new model for ecommerce. He talked a friend into leaving Harvard Business School and helped him start the business. Just 3 years later, Coupang is at a $1 billion revenue run rate, solidly profitable, and was recently named in Business Insider’s Digital 100 as the 37th most valuable private tech company in the world.  They are well on their way to a huge outcome.

But more important than the successful outcomes of several of his investments or the gaudy financial metrics that characterize his aggregate portfolio is what I heard from the CEOs that he has backed. In short, this is a guy who has massive impact on the companies he partners with, and does so in a way that balances challenging mentorship, unwavering support, and deep, trusting commitment. Culturally, he’s precisely what I wanted to find in a partner. And not surprisingly, that style of operating has led to a large and committed network in NYC.

Intellectually, Ben is an investor who likes to deeply understand the markets he invests in. He works hard to develop an informed point of view and invest against what that point of view suggests. He has already had a very real impact on our thinking as a firm. Currently he’s spending a bunch of time working on some ecommerce models and tool companies that are informed by his recent experiences with Coupang and a handful of other ecommerce investments. As ecommerce continues to eat away at the retail world with ever-evolving models, we think there are a bunch of important technology opportunities that feed off and support that trend. Ben is leading our thinking on that front, as well as a few others.

In short, I consider this a huge win for High Peaks and a massively satisfying personal success. I get goose bumps thinking about the impact Ben will have on our continued evolution. If the first month of his working with us is any indication, it’s going to be a great ride. Sure, it’s still on the come, but it’s a very exciting place to start.

Openness and Transparency: Lessons from our CEOs

January 22, 2013

Brad Svrluga

Open, Come InLast week we hosted our first ever formal CEO Summit for our portfolio companies. We’ve done a number of less formal gatherings over the years, but this was the first time we had ever gathered everyone for a focused session with a structured agenda. Based on this one experience we’re all kicking ourselves for not having done it previously.

We spent a decent amount of time talking internally about what the right sort of content for this session was. We wanted to make sure that the group got a chance to both get to know each other better while also learning something valuable that would help them in their day-to-day lives back at the office. The concept that ultimately emerged, in keeping with the spirit of the times in which we live, was to crowd-source both agenda and content, and ask the group to teach each other something.

So we gathered last week in a room at the NYU business school – the High Peaks team plus 14 CEOs – for a few hours of startup management wisdom. We hear all the time from the teams we work with about the ingenious management tools that they have either created or picked up along the way – secrets to recruiting, running the hyper-efficient management team meeting, driving on-time product development, keeping a team focused on a truly shared vision, etc. We asked each CEO to come to the session with one pearl of wisdom that they had picked up along the way and “teach” a 10 minute lesson on it.

Based on the feedback we got from the group it worked spectacularly well. Not only did I get off the hook on having to come up with any content, but the CEOs got the benefit of a veritable buffet of startup management wisdom. There was some remarkable content, and I’ll be sharing the most valuable gems in the weeks to come (we videoed everything and are working on editing now, so you’ll get much of it direct from the CEOs).

As I reflected on the discussion at the end of the day, however, I was struck by an overarching theme that had wound its way through many of the talks. That theme, which I was slightly surprised (but delighted) to see coming through so strongly, was openness. And when I say openness, I mean openness of just about everything in the organization.

Maybe it’s a sign of my ever-advancing age, but the degree to which this group of hyper-talented managers had embraced full transparency and inclusiveness within their organizations was remarkable to see. I’ve spent a lot of time as a board member over the years trying to convince CEOs to open up. And when I was in the CEO seat myself I know I didn’t play it as openly as I should have. But here, with a collection of New York’s best and brightest, openness carried the day.

Not surprisingly, we heard a lot about creating a culture that expects direct, open, and honest feedback. This is a group that pulls no punches in that regard. They are creating open cultures of accountability, and they expect all players to contribute.

For many of the smaller companies, they start each and every day with a team huddle where everyone in the company reports quickly on what they’re working on, what their goals are, and what they’ve achieved in recent days (many of the larger co’s do this in groups). Be it a daily or weekly huddle, you can’t hide from the accountability that structure drives. And that kind of clarity on what the entire organization is focused on helps individual contributors understand where their work fits into the larger picture. It also exposes people to weaknesses in the organization and creates space for them to try to impact areas beyond their immediate responsibilities.

We also heard about full transparency around corporate goals and performance. In fact, for most of these CEOs, nearly everything they discuss with their boards is then freely shared with the entire company. By and large, they find full transparency around financial performance and success or failure in meeting their goals creates a more engaged and motivated team. The standard seems to be that the only numbers kept private are individual compensation details.

The fundraising process has been opened up and demystified by this bunch. These CEOs are talking to their teams about what’s working and what’s not when they’re out in the market talking to prospective investors. Not surprisingly, some good ideas come from that, and people like to know where the organization stands.

Recruitment is a complete team sport. The most progressive of the bunch are not only engaging the whole employee base to source talent but also seeking each team member’s input on every hire. A couple of the companies are so relentlessly focused on creating exceptional cultures that are driven by A+ players at every position that each new hire must be approved by the entire existing team. If any one person is not excited about a candidate (and the burden of proof is indeed excitement), they don’t get the job. Of course that’s a practice that will have to evolve as the company scales from a 15 to a 100 person company, but there will be ways to do that.

Many of these tools and techniques, like the collaborative hiring decisions, will not scale in their current form as these companies scale. There will no doubt be growing pains. But given the monumental nature of the challenges that these companies face – each is an under-resourced David slinging rocks at the Goliath of their market – I was quite proud to see this theme of openness emerge through nearly every discussion.

As has been written by many people before, being a startup CEO is an unbelievably lonely endeavor. So why make it any lonelier than it needs to be? I’m glad to see that the CEOs of our portfolio companies are opening things up and working with their teams to make it all a little bit easier, and a lot more successful.

Doing Well by Doing Good: PublicStuff and Amicus Founders Crack Forbes 30 Under 30 List

December 20, 2012

Brad Svrluga

LilyLiu SethBannonI wrote a post awhile back about the incredible advantages that accrue to startup companies whose businesses have compelling social missions.

At the time, I was focused on our investment in Flat World Knowledge, a company that continues to make waves in the higher education market with its disruptive model for shaking up the oh so Paleolithic higher ed textbook market. Flat World’s mission of open and affordable higher ed content continues to generate massive karma value, creating a tailwind around the company that aids in PR, recruiting, sales, and just about everything.

This week I’m particularly proud of two other socially impactful companies in our portfolio – PublicStuff and Amicus.

In particular, we’re thrilled that founders Lily Liu and Seth Bannon have each been recognized by Forbes on their 30 Under 30 list of Social Entrepreneurs. Particularly cool is the fact that what these companies are doing has been recognized as so socially impactful that Forbes chose to include them as 2 of only 10 for profit organizations included in a list that’s mostly 501c3 organizations.

PublicStuff has developed the leading platform for helping municipal governments connect with and interact with their citizens. Think of it as a mobile & social native version of the old 311 phone systems. Cities from Philadelphia, PA to Fontana, CA are lining up to take advantage of this category-defining platform.

Amicus is fast emerging as the leading social fundraising and advocacy platform for non-profits. By tapping into the social graphs of staff, volunteers, alumni, and friends of the non-profits they work with, Amicus supercharges the reach and effectiveness of fundraising and advocacy campaigns. Organizations like the NEA and Human Rights Campaign have massively scaled their volunteer outreach efforts through use of the Amicus platform.

A few weeks ago Seth and Lily each shared their stories at the annual meeting High Peaks’ investors. The room was blown away by the talents, missions, and passion of these two remarkable young entrepreneurs. And the group was unanimous in their shared pride to be associated with two companies that are doing so much good in their efforts to do well.

Check out these two young rockstars at this year’s Forbes 30 Under 30 list. And while you’re there, pay attention to the other 28, as well. If only we could replace everyone on Capitol Hill with these 30 plus 505 of their closest friends. I’m sure debates about Fiscal Cliffs and Debt Ceilings would pretty quickly fade away.


A Plea for Humility

December 5, 2012

Brad Svrluga

humility2We had our annual Limited Partner meeting last week (Limited Partners, or LPs, is the legal name for investors in venture capital funds). It was a terrific meeting. We had a bunch of exciting new news to talk about – 2012 has been pretty good to us. And as always, we spent a good deal of time talking about our challenges and failures.

As I reflect now on the feedback we got after the meeting, the theme I am most proud of is exemplified by this comment from an LP, “You guys are always straight with us. There’s always some bad news, and you don’t try to bury it. Instead, you talk about what you’ve learned from it.”

Indeed, in the venture industry, where we build portfolios of very risky bets, there is always bad news. As I structured the story for our meeting last week, I made sure we were (a) direct and honest about that news and (b) put it up front (I’ve always been a “gimme the bad news first” kind of guy).

This is, unfortunately, a very different approach than what I see from most entrepreneurs. In the hyper-competitive, high flying environment that has characterized the past couple years in StartupLand, it seems like everyone feels compelled to tell a story about their uninterrupted run of dramatic success. Entrepreneurs bend over backwards to tell revisionist tales of their history, burying the challenges and dead end strategies burn time and resources in nearly every startup.

I’m here to tell you that if you come to me spinning a tale of uninterrupted progress and positive developments, then I can be certain that you are doing one of two equally unappealing things:

      1. You’re in denial about your own reality, and aren’t focused as a CEO on understanding your failings and learning from them, or
      2. You know where you’ve made missteps, but you’re not the sort of person who believes that the best course in such conversations is to be direct and authentic in what you represent to potential partners.

The former is certainly a killer. If you are that blind to reality, you’ll never raise a dime from me, no matter how strong your successes have been. But the latter is equally bad – I just won’t enter relationships with people I can’t be open and honest with.

When VCs invest in startups, we are investing in the formation of a partnership between entrepreneur and investor. When from the get-go that partnership is characterized by the entrepreneur putting the best possible spin on every situation, things are doomed to get irretrievably challenged when times get tough.

What too many entrepreneurs fail to see is what a positive thing authenticity can be. Hiding these lessons learned (or worse, not reflecting on your failings enough to even see the lessons!) denies you the opportunity to trumpet something almost all investors appreciate – your lessons learned from hard knocks taken. The startup ecosystem is built on an understanding and even celebration of failure. So please, let us hear it.

When pitching your business, you can trust that I will listen to you the way my LPs listened to me. We both know that you’ve done a bunch of things wrong along the way. So let’s be honest about that and focus on what you’ve learned and how that is shaping your strategy moving ahead. Think of the difference in customer response between Steve Jobs’ handling of ‘Antennagate’ and Jawbone CEO Hosain Rahman’s handling of the failure of his UP product. How would you rather be perceived?

All the best CEOs I’ve worked with manage to delicately balance two seemingly conflicting things – an overwhelming confidence that often borders on arrogance, and a willingness to acknowledge mistakes, reflect on them, and move on having learned. Most of the bad ones have the former in spades. It’s how the latter gets carefully integrated into that confidence that becomes a real differentiator.

I try to embody that reflectiveness in how we manage our firm and our funds. I think it works, I think people respect us for it, and I think it gets people disproportionately on our side. And that’s a good thing, for we need all the help we can get.

As an entrepreneur, if you stick your neck out too far and cross the line into excessive confidence, rather than winning fans and creating empathy, you end up with a target on your neck. Then, when times get tough, people will take the first chance they get to swing an axe at you.

Unfortunately, Steve Jobs provides an example that seems to empower entrepreneurial arrogance. But there really, truly was only one Jobs. Do we need any more counter examples than Zuckerberg, Mason, and Pincus have provided us in the past year? Yes, they’ve built big businesses. But they’ve done so with a stubborn arrogance and failure to acknowledge failings that has made haters out of legions of otherwise satisfied customers. Their stock performances now reflect the reality of those armies of eager axe-swingers.

So as 2012 draws towards a close, with the financing environment’s chilling paralleling the seasonal turn here in the northeast, I’ll make a plea for humility and authenticity. We’re going to need it, as public and press sentiment starts to turn strongly against startup arrogance (see this powerful, but I think largely appropriate post from Dan Lyons this week).

When thinking about how you carry yourself as an entrepreneur, try taking a page out of Buddy Media CEO Mike Lazerow’s book. Mike carried himself thoughtfully and authentically through every phase of building his company. He earned the respect and admiration of nearly everyone he came in contact with (present company wholeheartedly included, through our work together as investors in Savored), and when he sold Buddy spectacularly this year to, he was unanimously applauded. And to top it all off, at the peak of his success and influence, he took the opportunity to share this with the world.

That’s the kind of guys we aspire to be, and the sort of entrepreneur we hope to back. Here’s hoping a slightly chillier environment on 2013 inspires a bit of a return to humility.

%d bloggers like this: