Does your team have what it takes to raise money?

A team of US Air Force (USAF) fire fighters from the 185th Civil Engineer Squadron (CES) spray water on a mock aircraft at the North Dakota Air National Guard (NDANG) Regional Training Site (RTS) in Fargo, North Dakota (ND). Photo Credit — SMSGT David H. Lipp, USAF

How do you know if you and your team have what it takes to raise capital from investors that aren’t family or friends?

As a founder, one of the most “black box” parts of speaking to an investor is determining what they’ll think of you and your team, after all, its the one variable of your company that’s the most frightening ‘judgement’ to come to terms with, as you can generally deflect any concerned opinions about product, business model, go-to-market, etc because you might have more insight than the investor, but on the completeness and capability of your team? That’s much harder to do.

From an investor’s point of view, however, it’s understandable why the ‘focus’ on teams. So many companies fail not because of the product, but because the team wasn’t able to pull together and deliver the right product, to the right customer at the right time. With a strong team, factors such as market timing can many times be overcome with a quality team that is nimble and reacts quickly to market changes. In some cases, Teams can also generate new ways of looking at heavily competed markets which seem impenetrable at first. Think about how a company like Tom’s Shoes shifted everyone into thinking about how a company can give back charitably whilst also generating profit and thus created a whole new brand/business-model category in highly competed sector that many to this day are trying to replicate. Therefore, the founding team is arguably the most important factor to consider when looking at either investing or joining a startup, as it’s this team that creates the ’nimbleness’ required to overcome the onslaught of ever-shifting market variables.

So if a management team is critical for the selection process of a company, what are the attributes that define an excellent team? A while ago I reviewed some variables of what can define a great team, in an effort to update those thoughts, I asked some of my VC friends (Andy from Uncork Capital, Rebecca from Union Square Ventures, Carl from Creandum, Hadley from Eniac, Andy Chung of AngelList/Tiny.VC) questions, which I’ve also taken the liberty to answer. Hopefully these answers provide you with some further insight into the black box of a great team.

What attributes do you look for in Founding teams?

Andy McLoughlin — (Uncork Capital — US/EU)

I think this depends on the type of business. I invest in a lot of vertical software companies where deep industry experience is an absolute must-have: selling software to slow-moving traditional customers needs the kind of insights that three smart grads from **pick a top tier university** simply won’t have. That’s one of the reasons I like these kinds of businesses — founder background can provide real defensibility. Given I also invest in developer tools and horizontal software platforms (think operational infrastructure, security, productivity, collaboration, future of work etc) where the product is the business, I need to be comfortable that the founding team can get a product to market without needing to hire a huge engineering team. This means at least one technical founder (more is always better) and someone with experience of taking a product to market. More than four founders becomes tricky though as their terminal ownership can become tiny to the point of not being interesting any more.

Rebecca Kaden — (Union Square Ventures — US)

I back founding team with a Product-first mindset, a Bias toward action/testing/doing, and a Hunger/passion/perseverance — you get the gut feeling they just wont quit until it happens. Typically this requires an all star recruiter/talent magnet. This combo gives credibility to the reason they are best positioned to win the market they're tackling (past category expertise/experience directly is one but there could be others in addition or instead). Also very interested in teams that have a consumer/customer-centric approach

Carl Fritjofsson -(Creandum — EU/US)

General industry + startup experience, and complementary skillsets amongst the founders (tech, ops, + sales) is always attractive. But what fundamentally gets me excited are founders with 2 specific abilities. First, the ability to articulate a unique insight or perspective about the opportunity they are pursuing, and how that insights or perspective will give them an unfair advantage to build their business. Sometimes these insights comes from working experience but sometimes it simply originates from a visionary mindset.

Secondly, the ability of fantastic storytelling. Any company changing the world needs to be known to the world, and founders ultimately needs to be able to sell the opportunity of their startup to employees, customers, investors, press, and everyone else.

Hadley Harris — (Eniac Ventures-US)

I’d say we optimize for founder market fit first followed team completeness. Founder market fit can come from a number of areas but most commonly it stems from deep expertise in a particular area. This could be functional or verticle. Team ‘completeness’ is also very important, but a complete team that isn’t well suited for their market is not interesting to us. We tend to put less emphasis on founders’ external relationships since that is an area where we’re especially helpful.

Andy Chung — (AngelList-EU/US)

As an early stage investor, my preferred founding team is one that has worked together and built something before in a relevant market. The Centrifuge.io team are an example of this — Maex, Philip and Martin — previously co-founded Taulia together. The only thing to watch out for is survival bias — where one thinks the thing that worked before will work again, but I try to screen for this separately.

Carlos Espinal —( Seedcamp — EU)

One thing that we look for at Seedcamp is the maturity of founder relationships. I recently wrote a post about the nature of co-founder relationships and find that teams where the relationship is strong and long-lived, there is better speed of overcoming difficulties and fighting fires, so to speak. Furthermore, a strong founder-market-fit is something we also look for, meaning that founding teams that tackle industries they have experience in are more likely to succeed.

If a team is not based in your home geography, what additional elements do you look for in order to consider the investment opportunity?

Andy McLoughlin -

We primarily invest in North American (US and Canada) but have teams who come from all over the world, many of whom build a secondary centre in their home countries. We really like having a co-investor based in that geo as we know that on-the-ground support is so important at the early stages. We haven’t invested in an internationally headquartered company yet and never say never but the bar would need to be extremely high in terms of team, product and market opportunity. My gut is that they would most likely be working on a B2B software opportunity where North America is the key market, and they have a plan to move HQ to the US in the coming year or so.

Rebecca Kaden -

I don’t think my bar or filter is really different because of geography — likely unless I feel like I don’t know the market they are playing in/their customer base is in enough to have a good sense of their advantage and/or opportunity, in which case I need to be passionate enough about the potential to do a lot of work to figure that out (ie outside of the US.)

Carl Fritjofsson -

With 3 offices but investing across all of Europe and the US we constantly evaluate investment opportunities outside of our “home geography”. We have no different filter when evaluating these companies but instead as a firm we believe we need to travel to the places where the best founders are rather than wait for them to come to us.

Hadley Harris -

We generally only invest outside of our home geography when the opportunity tightly aligns with one of our theses. For example, we recently led a seed round in London based on a thesis we have around AI driven developer tools. Interestingly, now that we have one company in London, it makes more sense for us to consider it part of our core addressable geography.

Andy Chung —

“We always try to co-invest with a “local” investor we trust. Local for me means closeness to the founder or team. This could be economic closeness (ownership), physical proximity (geography), or where they have a strong prior relationship (advisor / mentor). A simple data point is how often this investor is talking to or meeting with the founder or team. “

How do you decide when an opportunity justifies going off-thesis? (generally investors have a thesis they state when they go fundraising for their own funds and thus going off-thesis means they are pursuing a deal that is likely too big, too small, in a different area than their expertise or something unorthodox about it that is deviating from their stated strategy).

Andy McLoughlin -

It’s hard to know when you’ll fall in love but when you do you definitely know it :) There will be the occasional deal that doesn’t fit our stated strategy in terms of geography (we just did our first deal in Austin, for example), stage, or sector but we are so excited about the team and product that we’ll bend our rules. It probably boils down to being excited enough to convince your partners it’s worth dealing with the extra diligence work and convincing yourself that you can get your LPs on board with the decision too!

Rebecca Kaden -

We don’t often do this since we are really thesis driven in where we spend our time but the most likely reason we’d go off thesis is because a team we know and have high conviction in is starting something new.

Carl Fritjofsson -

The most important factors when evaluating a company is market, traction and team. Going off thesis would require at least 2 out of those 3 elements to be off the charts.

Hadley Harris -

Based on our experience investing for 8 years, we’re very hesitant to go off thesis. We’ve set the bar for going off thesis to a level where all four partners would need to have extremely high conviction.

Andy Chung —

“We adapt our thesis based on new data points. Each investment and non-investment gives us more data to make better investment decisions.”

Hopefully the answers to these questions give you some insight into how investors think about investing in teams across geographies and in different sectors than their specialty, but in the end, it comes down to chemistry. One thing I’ve noticed over the years, is that no matter which way you slice and dice it, investing in startups and/or taking money from an investor is ultimately a relationship business.

Continue Reading

Managing Your Fundraising Pipeline

As part of my fundraising-focused book’s chapter on “The Search for An Offer,” I mention the creation of a ‘pipeline’ of investors, similar to a sales pipeline, that helps you manage your fundraise.

In an effort to shed more light on what a potential pipeline could look like, below is a link to a Google Sheet that hopefully you find useful in planning your fundraise:

http://bit.ly/2RKF4Ad

This pipeline template will hopefully help you focus who you want to talk to based on the criteria that best suits your company’s fundraising needs (eg. geography, round size, stage, sector focus, etc) and maximising the connections you have to reach them. Whilst I know people use different tools to track investor comms/relationships, I wanted to offer the below merely as a suggestion for a simplified way to help track and stay on top of the many conversations and relationships needed to aid the fundraising process.

In order to get the most use out of this template, however, consider the following points:

1) Copy & Paste this template onto a shareable Google Sheet, which you share with your key team and key shareholders that will assist you in reaching desired connections for your fundraise.

2) In column A, only put names of people that best suit your current fundraise (feel free to create a separate sheet that ‘archives’ people you want to talk to for rounds further down the road).

3) Be disciplined about researching investors’ suitability for your raise. Aside from looking at their website, ask other founders or friends/shareholders that have interacted with the investor to get estimates on all variables, including how much they typically invest, sectors of keen interest for your contact person within the fund (or angel’s interest), and what their typical fundraising process looks like.

4) Scour your LinkedIn and the LinkedIn connections of your key team members and key shareholders for the best person(s) within a fund (or angels) for you to get introduced to.

5) In column ‘G’ of the template, add the friend/colleague/current investor within your network (as per #4 above) with the strongest relationship to make the introduction to the person you want to meet.

6) If you don’t have a direct connection to that person you’d like to talk to (within a fund or angel), use LinkedIn to identify a connection (a few is possible as not everyone is best friends with people on LinkedIn, and you might need to ask around for the strongest connections) within your network that could help you with an introduction to that person.

7) When the time comes to request an introduction, make it easy on the introducer by drafting a simplified email that they can forward on your behalf with why your opportunity would be of interest for the recipient and a one-pager (or more information in a simplified format) about your company attached so that they can get an idea of what you are working on and they can determine if it’s of interest. That way, your connection simply has to hit ‘forward’ with some simple text like “Dear [friend in VC fund], one of my other [friends/investments] would like to talk to you about their raise, more details below, please let me know if of any interest so I can make an intro”.

Aside from these steps above, try to get your introductions made in a tight time-frame and from a diversified set of sources. Nothing is worse for you than to drag things out longer than they need to or saturate one person with introduction requests (it is less effective anyway). Once you have your list, dedicate a few days to cranking through the introduction requests, sending out emails, replying to first meeting scheduling and getting your fundraise started!

Best of luck and make sure to check out the rest of my book on fundraising (The Fundraising Fieldguide) on what to consider once you receive an offer!

Continue Reading

The Four Phases of a Partner/Co-founder Relationship

I was having a chat with a fellow investor friend a few nights ago as part of Web Summit and we got started talking about investment partnerships, their quirks, and how in many ways they resemble many of the dynamics of what co-founder relationships go through in startups. As she shared some funny and not-so-funny anecdotes of her relationship with her partnership, I reflected and shared back some of my own, having worked with my colleague and co-managing Partner of SC, Reshma Sohoni for over 8 years now and with my new Partners Tom Wilson and Sia Houchangnia for 4 years now, I had plenty of anecdotes. After our exchanges and mutual agreement that there were many things in common in these journeys, we concluded that there were 4+1 phases to highlight… so here they are:

Phase 1 — The honeymoon phase & the first best time — You’ve been friends for a long time, or you’ve either been paired up by someone else who thinks you’ll work great together (program or otherwise), or through a skills comparison and conversations over drinks/dinner and friend references, you end up agreeing that you’ll both be a great fit for each other. You start work on your new venture, you tell all your friends and family, you praise your colleague all the time and it’s all high-fives everywhere and you dream about the future constantly. You likely think you might even build houses next to each other on the island you will build together.

Phase 2 — The cracks phase & close-to-worst time — Sometimes this phase can come quicker than you think. This is when you start seeing some cracks in your partner and unexpected arguments start surfacing… things such as when you thought you had agreed on something, but you both clearly walked away from the conversation with different expectations in mind, or when you overhear your partner/co-founder say something astronomically stupid but don’t know how to react to it yet, or when you did something you know you’re better at, but somehow your partner/co-founder seems to think they merit an opinion on the matter when clearly you are the subject-matter expert, or when you disagree in public for the first time and don’t quite know how to recover from it without being awkward. I’m sure I could list a few more, but by now I’ve likely got your head nodding a few times. Don’t despair though… it gets worse.

A note on partnerships or co-founding relationships that are stable already because they have a long history together prior to your current project… such as siblings/married couples/repeat co-founders… tend to not go through this phase that much as they already know each other quite well, but they aren’t necessarily immune to Phase 3 below because as part of this new venture, they may have had a change in the context of their pre-existing stable relationship (role reversals, etc).

Phase 3 — The unstable phase & the absolute worst time — This phase plain sucks. In this phase, even your family is somewhat partially involved in your disputes as they hear your partner’s name every day mostly in frustration…This is when you are likely having some heated arguments and it’s just stopped being fun altogether and you’re thinking about throwing in the towel. This phase can last a long time or at the very least, feel like it’s lasting a long time.

This is the phase where most partner/co-founder relationships unravel. It’s not always a guarantee you can get past this phase, and if you have divergent values (eg. why are we doing this, what does it mean to us, what are we willing to do to overcome this, etc), this is usually when things start drifting apart because without having similar values, your rationale to stay together crumbles altogether. Additionally, if trust between co-founders/partners is compromised during this phase somehow, that’s super difficult to recover from, so make sure you argue openly and transparently.

This phase does have an upside though, particularly when you think about it as a way to figure out many things about what makes your partner(s) tick, what’s important for them and what the value over what you value. It’s an opportunity not only to develop conflict resolution skills, but also to identify flaws in your own character that generated your part of the argument to begin with. There is a great book called “The Courage to be Disliked” by Ichiro Kishimi and Fumitake Koga, which can help you think through where perhaps you are part of the problem in how you react to things and externalities.

Many conflicts also arise from poorly identified roles and responsibilities within what you do, so naturally you’re reacting to the feeling of having someone ‘stepping on your toes’ so to speak.. Spending some time on preventing this can be seen as an investment that will pay back in spades with time. One way of doing this is by reviewing a simpler version of a RASCI chartof your organization and agreeing on clear roles and responsibilities for all key people.

As they say, all good things come through hard work. If you can make it through this phase, the best one comes next.

Phase 4 — The stable phase & the second best time — When you’ve reached this phase, you have most likely come to terms with the fact that you can’t be everything to everyone in a team and as such, there are some elements of compromise that you’ve had to make to get here. Whilst this might sound like a bit of a downer, it is not, rather it’s more of an acknowledgement that it’s hard for a team to have everyone be the same exact way, so the quicker you adapt to how you can uniquely and best contribute, the happier everyone will be. When you’ve reached this stage, you’ve also come to terms with each other’s differences and strengths, and you can largely manage them and you don’t over-react to each-other’s feedback, but rather welcome it. You also start enjoying working together again, and also start seeking each other’s advice for things work and non-work alike. Not only have you come to terms with each other’s strengths/weaknesses, but you’ve also improved on your ability to leverage them for the betterment of your organisation and with minimised conflict in getting to an outcome. You have also identified each other’s “landmines” and you try and avoid detonating them unless absolutely necessary. Lastly, in this phase, you also can deal with adversity that hits your company better as you feel like you’ve fought enough battles together to have a working plan on how to address a new one.

Oh, I forgot to add…Once you’re in this fourth phase, you’re never quite immune from going back into Phase Three.. any mishap that you didn’t manage with your accumulated relationship wisdom can easily set you back a few steps.

Phase 5 — the third best time — After the fourth phase, there is allegedly one secret phase you can unlock. Similar to the after-life experiences, I have no idea what this phase is like, so I can only hypothesise, but if you do, feel free to leave a comment and share! However, rumour has it that this phase is only available after you’ve stopped working with each other ‘as intensely’… typically after an exit or when you’ve both ‘made it enough’ to take some of the heat off.

So… a parting piece of advice: Invest in your partnership/co-founding team. You don’t have to specifically do team stuff as such, but at least make the time to catch up and talk, about anything, and if you need to do something about it after you talk… do it.

update from original publish date:

If you are struggling to communicate with your co-founder or partner, don’t hesitate (if you agree) to bring in a trusted relationship to help discuss the topics at hand (rather than repressing them). If you are ‘stuck’ this can help move things along and prevents the accumulation of resentment that can be difficult to shed.

If things do unravel for you during the third phase, it’s helpful to have a plan in place on how to manage an orderly unwind. If the company isn’t incorporated yet, you can use a tool like the founder’s collaboration agreement from Seedsummit.org to plan how to do that or implement a reverse vesting schedule that is fair for all parties.

Continue Reading

Weatherproofing your startup for any financial climate — the 3rd way

Weatherproofing your startup for any financial climate — the 3rd way

Last week the Economist drafted an article about the lack of financial tools governments have to deal with a recession should a ‘big one’ arrive. Similarly Ray Dalio (author of the best-selling book ‘Principles’ and a hedge fund manager) wrote a free to download PDF on the upcoming possible nature of a debt crisis in which he pinpoints a possible recession in 2020. With all this doom and gloom being predicted (and luckily with recovery as of the posting of this), if you’re in a fast growing company, it’s easy to get distracted and expect the worst, or try to ignore the noise and hope they are all wrong. There’s a 3rd way! It’s a very good time to get your house in order.

During my career, I’ve had the chance to witness two financially challenging times (the 2001 & 2008 bumps). In the first, I was in a startup (Baltimore Technologies) and in the second I was in a VC fund (Doughty Hanson). I can still remember the serial layoffs when I was at Baltimore Technologies as things started to come to a head. We went one after the other, in the order of the desks we had, to receive our separation packages. It was a sad day for many of us and it taught me quite a bit about how quickly things could turn around (I still remember chats with my colleagues regarding the value of our options only a few months prior and as the CEO promised much more growth and aggressive expansion).

During my time at Doughty Hanson, I experienced it from a different point of view as many of our companies — along with those of many other VCs — were going through the same challenges but, in both circumstances, I noticed a pattern started to emerge. Whilst not exhaustive, I did notice the following six attributes:

  1. Public companies stop buying external companies and start focusing on reducing costs internally.
  2. Because of #1 above, exit opportunities for companies that rely on external funding for growth or returns start drying up.
  3. As VCs start to focus their funds on rescue ‘bridge’ rounds for existing portfolio companies that are of high value, less money (to zero money) is directed to new investments.
  4. Massive failures in growth-sized startups start generating other massive failures as accounts payables aren’t paid and accounts receivables are received. The whole ‘chain’ so to speak, starts unravelling.
  5. With some failures being quite nasty, public perception then pushes for regulators to take action, which then drives audits and governance clampdowns in startups.
  6. Smaller funds start struggling as their portfolios that haven’t received enough funding to survive #3 above, so new investments start to dry up, and the whole early stage investing scene starts grinding to a halt.

If the above sounds scary, it’s because it is scary. However, many of the best companies were born or were chiselled out of tough times because of the actions and mindset the founders brought to the circumstances, and because some of the market dynamics also changed in their favour due to the downturn’s impact. Mark Roberge, the chief revenue officer of HubSpot, a Boston-based inbound marketing firm and Senior Lecturer at Harvard Business School, recently wrote a great piece on the opportunities that can surface in a downturn and that he experienced during his time. Read it here — A Recession Doesn’t Mean Your Startup Can’t Grow

So, a downturn can be good for you as well as bad for you, but what can you do today? In the words of a friend and current Venture Partner at Seedcamp, Stephen Allott “If you have the capital you can double down and beat the other players, and if you’re not lean & mean, you’ll either die, or get forced into being lean & mean.”

In that spirit, while not an exhaustive list, some of the actions below are actions that you could consider should we all find ourselves in that situation in the future. In a bull-market, some of these actions will seem contrary to what is being popularly proposed for massive and fast growth (usually expensive paid growth)! However, these actions should not be seen as ways being more ‘conservative/risk averse’ rather, they are about being more robust in your growth strategy, regardless of the market conditions!

These actions include:

  1. While the going is good, go for cash generative customers over vanity customers — there are customers and there are customers. Those that pay on time and have good solid financing are always going to trump those that are pie-in-the-sky opportunities, or who will flake on contracts due to their own situations failing.
  2. Lock-in contracts and get prepayments via discounts if you can — by focusing on getting cash-in-hand, even if at the cost of some discounts, you make sure you aren’t putting yourself in a position where a customer can flake on you later in the year if things get worse.
  3. Make sure you’re not overspending internally — hey, we are all suckers for great startup-merch and furniture but do you really need to spend that much on office perks and other cash-draining activities? Keeping things lean means you have fewer cash commitments and you also don’t have the issue of having employee morale drop massively as their previously indulgent massage Mondays perk gets removed.
  4. Focus on becoming cash-flow positive — at the end of the day, nothing beats being cash-flow positive, particularly if your customers are counter-cyclical or somewhat immune to the cycle (eg. govt services, larger cash-rich companies, etc). Short of that, focus on sustainable growth, not growth through crazy spend on customer acquisition.
  5. Make focusing on receivables management a top management focus— “lead from the top with questions like — have we been paid? what do we have to do to get paid? have we done it yet? who is accountable end to end for getting this customer to pay?” — Stephen Allott
  6. Raise as much cash as you can right now — nothing beats having cash on hand, so the more you can raise now, the better ‘reserved’ you will be for tough times ahead… that is assuming, of course, that you’re going for the appropriate use of this cash, not just a spend-quick mentality.

Ivan Farneti, an ex-colleague of mine at Doughty Hanson and now Founding Partner at Five Seasons Ventures (a food-tech focused venture fund) who had to navigate some of the portfolio issues of both previous downturns, had this to add — “Because of the length of this run, most of the founders in VC’s portfolios have not seen a downturn before. They may not be prepared, and knee-jerk reactions like cutting the online marketing budget and letting go of their community manager may be amongst some of the moves they make, but they may not be the right moves long term. Experienced board members should step in and add real value here (not just financial controls, but also how to deliver those cuts, but rather what communication style to use, how to manage it, etc). Additionally, founders may want to know where they stand in the priority stack of the portfolio of their investors, and may want to know how much reserves are left with their name written on them. Naturally, VCs might not want to share this with all of them, but this information could be important to help decide on alternatives when there may be still time.”

As mentioned before, some of the above recommendations might sound heretical to the current fashion of advice given to startups (which assumes a bull-market, fast spend, and cash-rich environment), but keep in mind that almost a decade ago, Bill Gurley wrote a great piece to his companies on how to weather that storm and Sequoia sent out a deck to their companies — and many of the same points that were made then are still valid today; there is a reason why great advice stands the test of time.

Continue Reading

Founders For Opportunity; coding for Spear graduates

In December of 2017, in conjunction with Resurgo Spear, Code First: Girls, Campus London, Seedcamp, and many other friends, we hosted the first Founders for Opportunity event to link Graduates from the Spear program with Founders for mentoring and to explore potential ways to enter the tech ecosystem. For a summary of the event, check out the original post now updated with a video summarising that event.

In early 2018, Silicon Valley Bank kindly sponsored the Spear Graduates who wanted to learn how to code and put them through the Code First: Girls program, allowing the Graduates to further develop their tech skills for the workplace. After the recently completed 8 week intensive program, where they learned how to build an e-commerce website, the Graduates showcased their newly built site and shared their ambitions for the future.

Thank you to Code First: Girls, Seedcamp, Resurgo Spear, Campus London & Silicon Valley Bank for making this possible.

Continue Reading
1 2 3 25