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Entrepreneurship

Tips for Entrepreneurs from a First Year VC

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A close friend of mine likes to joke about how entrepreneurs & operators who become venture capitalists are “trading in their blue light sabers for red ones” – it’s a funny analogy…naturally, comparing investors to Sith Lords seems to fit pretty well some days.

But the benefit of switching from one side to the other is that perspective can sometimes be illuminated. After nearly 20 years of operating at places like Mozilla, Reactivity, Trilogy & Apple, I still tend to think like an entrepreneur myself, so some of the assumptions of life inside a VC are maybe a little more obvious to me than folks who have been around longer.

So here are some observations about my first year of VC life, and then some of the ways that being on the “inside” has changed the way I think that entrepreneurs should think about approaching investors – things I wish I had understood myself when I was pitching.

A Year of Observations about VC Life 

Life as a VC is a sea of meetings. Really, it is a lot of meetings. Most of them are single meetings, with no follow-ups. Most don’t result in an investment in a company at all. In 2011 I had first meetings with just over 350 companies, plus another 100 more as parts of business plan judging and demo days. Those meetings resulted in just four investments for me (Tumblr, Dropbox, Clearslide and Citrus Lane) plus a handful of seed investments.

That’s a massive “bias-to-no” for any profession – 99% or so. It’s a tough negative bias, and every investor I know is affected by it in some way. But that one percent is like a lightning strike: those meetings can form the basis for some of the most interesting and meaningful work you’ll ever do.

High fidelity communication is impossible. Because so many meetings are one-offs like I described, it’s very hard to communicate effectively. As an operator, you get good at being direct with the people you work with – or you fail.

In the context of a startup, relationships are developed over a period of months or years, so that candor can be better understood and more nuanced, resulting in communications that are efficient and effective, without hurt feelings from misunderstandings.

Venture meetings aren’t like that. They’re incredibly overloaded: you’re trying to have a really good communication about who you are, what you’ve built, and how you want to grow. And you’re trying to do it in what is very often an extremely emotionally significant context of someone putting everything at risk to change the world. All with no existing relationship context to fall back on.

As an investor, I feel that a situation like that deserves my fullest possible attention, and my best questions about and suggestions for the business. But since we’ve never interacted before, there’s the danger of seeming too harsh in cases like that – we don’t have the shared context, vocabulary and trust frameworks in place that you do in longer term relationships. I think that’s why so many investors are often vague or non-responsive in their interactions afterwards – something I’ve tried very hard to avoid, although with imperfect success so far.

Timing is everything, and everyone is multi-tasking. This applies to both the startup and the investor I’ve found – because each has their own set of work going, and any number of competing projects and priorities. The right thing coming by at the wrong time can be as challenging as an investment that just isn’t a natural fit. Life as a VC has different patterns and rhythms than life for operators – the nature of VC work is that you’ve got multiple companies and entrepreneurs you’re working with all the time, plus a constant stream of new folks to meet, and often in wildly different domains.

This means constant context switching, and there are times when excellent entrepreneurs and startups come through when it’s just hard or impossible to take focus from existing or in process investments. That creates a severe asymmetry: as an entrepreneur, you’re thinking about one thing (broadly defined as your startup), deeply,all the time, while investors that you’re talking with are trying to juggle many at once.

Venture firms and partners are idiosyncratic and highly personal. When I raised money for my own startup, I didn’t know much about how to think about approaching VCs. I knew folks at various firms, and mostly went to talk with those who I knew and then went through their process over the subsequent several weeks. I figured that VCs were all mostly similar to each other.

I’ll say candidly that in my case, I was extremely lucky when that “strategy” worked – my investors were Mitch Kapor and Peter Fenton when they were both at Accel Partners – they were incredibly great for us, and I’ve had fantastically productive relationships with both for more than a decade now. But at some level it was really just dumb luck. I could easily have found a firm and partners who wouldn’t have worked.

Every firm has different culture: some are collaborative, others more solo practices; a small few (including Greylock) consist of former or current entrepreneurs, other firms consist of people who have been investors most of their careers; some are progressive, some are conservative. And even in partnerships, everyone there is different. Different in interests, skills, capabilities, stage in life, and temperament, at the very least.

But here’s the thing: meeting with an amazing entrepreneur can change your whole year. 

That’s why you do it. To find people to change the world with. I’ve been very lucky this year to work with some incredible entrepreneurs and teams, not just limited to the companies we were able to invest in. And that’s what we’re all looking for: not just the opportunity to make great investments, but the chance to work with people who are setting out to make the world the way they want it. There’s no more optimistic and hopeful endeavor, and it’s 100% addictive.

Suggestions on Interacting with VCs

Given that context on what it’s like to be on the inside of a VC firm, here are some things I wish I had understood when I pitched myself.

  1. Be human; be yourself. Be prepared and have a pitch, but be willing to go off script. Talk about the parts of what you’re doing that are the most exciting to you! And in general, it’s probably best not to just jump into a PowerPoint deck. Take a few minutes to introduce yourself, and hear a bit from who you’re seeing. Don’t get too informal, of course – you’re still in a business context – but try to interact in as authentic a working style as you can.
  2. Seek out investors who lean forward, who engage, who ask you tough questions. Tough questions aren’t always fun, but they’re ultimately what makes your company better.
  3. You should ask questions, too, particularly to understand how the investor thinks about businesses like yours. I personally love getting questions and like a spirited debate. Helps us get to know each other.
  4. Be resilient. A “no” from a few partners or firms doesn’t mean you won’t get funded. As mentioned above, a lot of times it’s context.
  5. Be persistent. A “no” on this round doesn’t mean that an investor won’t be better, or more able to work on your company in the next round.
  6. Remember that relationships are progressions. Don’t read too much into any particular interaction. Some investors ask a bunch of questions in first meetings. Some listen more and engage more as the process goes on. Everyone is different. When in doubt about what they’re thinking, ask!
  7. Above all, don’t think of fundraising as a transaction to get finished and move onto the next thing. It is important to get the funding you need, but you’ll live with your investor for the life of your startup (and really beyond, relationship-wise). Think about it like the balancing act when you’re trying both to attract and evaluate an all-star member of your team.

Your mileage may vary, of course. But hopefully this bit of context will make the difference for you between just a pitch meeting and the start of a world-changing new relationship.

This article was written by John Lilly, a partner at Greylock Partners. Prior to Greylock, John was CEO of Mozilla, makers of Firefox. In addition to leading Greylock’s investments in Tumblr, Dropbox, Clearslide and Citrus Lane, he’s also on the boards of directors of Mozilla and Code for America. He has written articles for Pandodaily, as well as maintains his own blog.

Entrepreneurship

Is There A Coworking Space Bubble?

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An annual growth rate of nearly 100%, almost five years in a row? More than 60 coworking spaces in a city like Berlin? Are these the characteristics of a bubble? Nope, these are characteristics of a lasting change in our world of work, which has been further catalyzed by the recent economic crises in many countries. But what makes this change different to a bubble? We’ve summarized some arguments of why the coworking movement is based on a sustainable change. However, that doesn’t mean it’s an easy job to open a good working coworking space.

Five reasons why the growth of coworking spaces is based on organic and sustainable growth: 

1. Coworking spaces invest their own money and create real wealth

Already, there is a convincing argument supporting why coworking spaces are not developing in a bubble: the fact that they create real wealth.

Whether referring to the dotcom bubble a decade ago or the real estate crisis in Spain or the United States, the crisis originated in a glut of cheap money, in an environment in which the sender and the recipient were unacquainted. From funds and banks, money flowed in steady streams to investments which offered little resistance and the most promising returns – which only a little while later turned into delusions and ruined investments.

Redistributed risks create illusions. Those people who distributed the money rarely wore the risk of investment decisions. The risk was mainly taken by small shareholders or people who bought parts of those investments. This was because either both parties’ (better) judgement was drowned out by the noise of the market, or because shareholders were unaware of the risk, and were at the mercy of banks and funds for reliable information.

Another fundamental condition for the creation of bubbles are the sheer amounts of money that flow from various locations globally and are concentrated, by comparison, in much fewer places.

Most coworking spaces, however, receive their funding from local or nearby sources and do not operate within this financial system. In fact, the founders mainly inject the bulk of the required investment, and turn to friends or relatives for additional support. They wear the full brunt of the risks that are involved in small-time investment.

They have access to much more information, because it is their own project, rather than a foreign one thousands of miles away. This also includes failures and mistakes that are encountered along the way, but the risk is less redistributed, thereby decreasing the probability of failures.

2. Labor market changes demand on certain office types lastingly

Most users of coworking spaces are self-employed. The proportion of employees is also on the rise, in many cases simply because they work for small companies that increasingly opt to conduct their business in coworking spaces rather than in traditional offices. The industry of almost all coworkers fall within the Internet-based creative industries.

With flexibilisation of work markets, new mobile technologies that are changing work patterns, and the increase of external services purchasing from large and medium-sized enterprises (outsourcing), the labor market has changed radically in many parts of the world.

The long-term financial and emotional security of becoming an employee no longer exists, especially for younger generations of workers. Bigger companies are quicker to fire than hire, and precarious short-term contracts are on the rise. Promising options on the labor market are more often recuded to freelancer careers and starting your own company.

And that’s possible with less money to invest. All you need is a laptop, a brain and a good network. For years, the number of independent workers and small businesses has been growing worldwide – particularly in internet-based creative industries. Anyone who has sufficient specialized skills and the willingness to take risks may adapt more quickly to market conditions if they own a small business or are self employed; more so than if they were to work in a dependent position in an equally volatile market.

Coworking spaces provide an environment in which to do this. Once they have joined a (suitable) coworking space, these factors become apparent to coworkers, who will remain in their space for years to come.

Furthermore, independent workers rarely fire themselves in crises, and even small companies are less likely to give their employees the boot – compared to their large counterparts. This combination enables more sustainable business models – and less business models à la Groupon.

3. Coworking spaces don’t live on crises

Global economic growth is waning while the number of coworking spaces is continually growing. Do coworking spaces thus benefit from this crisis?

The current crises accelerate the formation and growth of coworking spaces, because they offer solutions and space for the resulting problems. Coworking spaces are therefore not a result of a crisis, but the product of change that pre-dates their existence. A crisis is simply the most visible expression of change.

The first coworking spaces emerged in the late 1990s; the movement’s strong growth started six years ago – before the onset of economic downturns in many countries.

4. Coworking spaces depend on the needs of their members

Most coworking spaces are rarely full. Does this mean they are unsuccessful? On average, only half of all desks are occupied. But the average occupancy rate of 50% refers only to a specific date.

In fact, coworking spaces generally serve more members than they can seat at any given time, since members do not use the spaces simultaneously. Coworking spaces are places for independents who want to work on flexible terms. Smaller spaces rely more on permanent members. Larger spaces can respond more flexibilty to the working hours of its members, and, can rent desks several times over.

If a coworking space is always overcrowded or totally empty, the purpose of said space would be defeated. Firstly, it is rather impossible to work in an overcrowded room. Second, it’s impossible to cowork in an empty room. Given the nature of flexible memberships, a coworking space only can survive if they fit the needs of their members. Members would otherwise be quick to leave, and membership would be much more transient.

5. The coworking market is far from saturation

Less than 2% of all self-employed – and even fewer employees – currently work in coworking spaces. Reporting on coworking may increase, but inflated reporting on the coworking movement in the mainstream media is still far away.

Coverage of coworking space are most likely to be found in the career or local sections in larger publications – front cover coverage remains the dream of many space operators. This is because the whole coworking movement can’t be photographed in one picture. What appears to be a disadvantage, however, is actually a beneficial truth: niche coverage allows the industry to grow organically, and avoid over inflation.

Conclusion

Coworking spaces don’t operate in parallel universes – like the financial market. Demand and supply are almost exclusively organic and operate in the real world economy.

For the same reason, there is no guarantee that opening a coworking spaces will be automaticly successful. Anyone who fails to learn how to deal with potential customers in their market, or is unfamiliar with how coworking communities function, will have a difficult time of making one work. In the same way that business people in other industries will fail if they do not understand their market.

Those who simply tack on the word ‘coworking’ to their space’s facade will need to work harder. The structure of most coworking spaces is based on real work, calculated risk, and real-world supply and demand.

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About the Author

This article was produced by Deskmag. Deskmag is the magazine about the new type of work and their places, how they look, how they function, how they could be improved and how we work in them. They especially focus on coworking spaces which are home to the new breed of independent workers and small companies. see more.

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Callum Connects

Dextre Teh, Founder of Rebirth Academy

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Dextre Teh is a consultant and marketing guru, helping F&B businesses to tighten their operations and grow their businesses.

What’s your story?
I help frustrated F&B business owners stuck in day to day operation transform from a glorified operator into a real business owner. I’m a 27 year old Singaporean second generation restaurant owner and a F&B business consultant. Entering the industry at 13 years old, I have always been obsessed with operations and systemisation. At the age of 25, I joined the insurance industry and earned a six figure yearly income. However, I left the high pay behind because it was not my passion and returned to the F&B industry. Now I help other F&B companies to tighten operations and grow their businesses with my consulting and marketing services.

What excites you most about your industry?
The food. I’m a big lover of food and even have a YouTube show on food in development. But that aside, it is really about impacting people through food. Creating moments and memories for people, be it a dating couple or families or friends. Providing that refuge from the daily grind of life. So in educating my consulting clients and training their staff to provide a better experience for their customers, I aim to shift the industry in the direction of creating memories instead of just selling food.

What’s your connection to Asia?
I was born and bred in Singapore. I love the culture, the food and travelling in Asia.

Favourite city in Asia for business and why?
Singapore hands down. The environment here is built for businesses to thrive. The government is pro business and the infrastructure is built around supporting business growth. Not to mention the numerous amount of grants available in helping people start and even grow business. If I’m not mistaken, the Singaporean government is the only government in the world that offers grants to home grown businesses for overseas expansion.

What’s the best piece of advice you ever received?
Learning to do things you do not intend to master is a BIG mistake in business. Focus on what you are good at and pay others to do the rest.

Many business owners including myself are so overwhelmed by the 10,000 things that they feel they need to do everyday. We try to do everything ourselves because we think it saves us money. The only thing that, that does for us is overload our schedules and give us mediocre results. Instead we should focus on what we do best and bring in support for the rest.

Who inspires you?
Christopher M Duncan.

At 29, Chris has built multiple 7 figure businesses. He opened me to the possibility of building a business on the thing that I loved and gave me a blueprint of how to do it. He also showed me that being young doesn’t mean you cannot do great things.

Imran Mohammad and Fazil Musa
They are my mentors and inspire me every single day to pursue my dreams, to focus on celebrating life and enjoying the process of getting to where I want to be.

What have you just learnt recently that blew you away?
Time is always more expensive than money. Money, you can earn over and over again but time, once you spend it, will never come back.

If you had your time again, what would you do differently?
I am a firm believer that your experiences shape who you are. I am grateful for every single moment of my life be it the highs or the lows, the successes and the failures because all these experiences have led me to become the person I am and brought me to the place that I’m at so I will probably do things the same way as everything was perfect in its time.

How do you unwind?
Chilling out in a live music bar with a drink in hand, listening to my favourite live band, 53A. Other than that I’m big on retail therapy, buying cool and geeky stuff.

Favourite Asian destination for relaxation? Why?
Bangkok. It feels like a home away from home where the cost of living is relatively low, the food is good and the people are friendly.

Everyone in business should read this book:
Everything you know about business is wrong by Alastair Dryburgh. It is a book that challenges commonly accepted business “truths” and inspires you to go against the grain, think different, take risks and stand your ground in the face of the challenges that will come your way as a business owner.

Shameless plug for your business:
I’m the creator of the world’s first Chilli Crab Challenge. It gained viral celebrity earlier this year with 3 major newspaper features and more than a dozen blog and online publications featuring it in the span of two weeks. In the span of the two weeks, the campaign reached well over a million people in exposure without a single cent spent in ads.

Now I help F&B companies to tighten operations, increase profits and grow their businesses with my consulting and marketing services. Chilli Crab Challenge (https://www.chillicrab.com/nationalday)

How can people connect with you?
You can connect with me on Facebook (www.facebook.com/djtehkh) or visit www.rebirthacademy.sg for more information or book a 10 minute call with me @ www.tinyurl.com/dexclar

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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