Venture Outcomes are Even More Skewed Than You Think

The typical “successful” venture portfolio is often described as having the following outcome:

  • 1/3 of companies fail
  • 1/3 of companies return capital (or make a small amount of money)
  • 1/3 of companies do well

Fred Wilson, for example, described this a few years ago:

I’ve said many times on this blog that our target batting average is “1/3, 1/3, 1/3” which means that we expect to lose our entire investment on 1/3 of our investments, we expect to get our money back (or maybe make a small return) on 1/3 of our investments, and we expect to generate the bulk of our returns on 1/3 of our investments.

It’s a generalization but one that’s pretty well accepted in venture circles and it’s how many VCs describe target fund distribution, myself included. But does this heuristic match reality?

Actually no.

Correlation Ventures just released a study that shows the distribution of outcomes across over 21,000 financings and spanning the years 20014-2013. For those of you that don’t know Correlation, they take a data driven approach to co-investing – essentially creating an algorithm that predicts the success of a company based on a number of factors that include both business trajectory as well as financing trajectory (we’re co-investors with Correlation in Distil, for example). The result is that they process a lot of data. Which leads to some pretty interested insights.

venture returns

Based on their data, a full 65% of financings fail to return 1x capital. And perhaps more interestingly, only 4% produce a return of 10x or more and only 10% produce a return of 5x or more. These data suggest that the heuristic I site above potentially presents a rosier picture of the venture industry than reality suggests is the case (there are some missing data here in that the vast majority of companies are in the 0-1x category but the data within that category weren’t released – but my suspicion is that within that category the distribution of outcomes follows a similar power curve).

This really underscores the challenge of creating a venture portfolio that produces reasonable returns.  If you were to actually construct a portfolio based on these averages, a $100M venture fund investing in 20 companies would produce a gross return of approximately $206M (that’s before fees and expenses). The resulting fund would have an IRR in the range of 10% (the exact IRR would depend on the timing of the cash flows, but I constructed a few models to approximate this and 10% was the average return).  That’s hardly something to write home about and underscores the challenge of being “average” in this industry.

Hidden in this exercise – and perhaps more important – is the challenge of finding companies at the right side of the distribution chart. In my hypothetical $100M fund with 20 investments, the total number of financings producing a return above 5x was 0.8 – producing almost $100M of proceeds. My theoretical fund actually didn’t find their purple unicorn, they found 4/5ths of that company. If they had missed it, they would have failed to return capital after fees.  Even if we doubled the number of portfolio companies in the hypothetical portfolio, a full quarter of the fund’s return comes from the roughly ½ of a company they invested in that generated 10x or above. Had they missed it, they would have produced a return that roughly approximated investing in bonds – not the kind of risk adjusted return they or their investors were looking for.

It’s important to note here that I’m extrapolating a bit – the Correlation data are based on financings, not companies (I asked – they didn’t have a sort at an entity level in this exercise). I thought about ways to normalize this but came to the conclusion that the best normalization was to use the raw data and caveat that it was financing level, not company level. I’m going to work with Correlation to get entity level detail the next time the do this exercise.

All of this math simply underscores how important winners are to venture returns and how difficult it is to find them.

Note: An obvious, but important, thank you to Correlation for allowing me to share these data as they were originally prepared as a private exercise for Correlation and their venture partners. As I mention above, we’re coinvestors with Correlation in Distil Networks. They have a bit of a unique model for co-investing which allows them to see a lot of data on a lot of companies to support their data driven investment thesis (which also allows them to reach fast investment decisions).

It’s time to get away

beachAs we approach August, and having recently taken some time off myself (some real time off this time – more on that experience in a different post) I thought it might be a good time to talk about the importance of vacation.

No – this isn’t going to be a post that waxes poetic about the importance of recharging and how the startup culture is totally fucked up in its crazy work ethic. All true, but I’d actually like to approach the question here from a purely business perspective.

For years I’ve encouraged startup execs (especially CEOs but this advice flows down the chain as well) to take time away. Completely away. No checking in once a day on email. No calling into the management standup. Just gone. If that’s a week, great. If you feel you can’t get away for that long, try a long weekend (but seriously – you can’t take a week off?). Just make yourself unavailable for a bit.

You’ll get some nice down time. But just as importantly, you’ll learn a lot about what isn’t working at your business and specifically where you’ve set yourself up as a bottleneck. What decisions don’t get made in your absence? What projects grind to a halt? Which managers step up and which are hand-tied without you around to bounce questions off?

Every CEO I know who has tried this has come back and made changes to how they manage their business based on what they learned through the experience. My guess is that you will as well.

Syndicate Funding on AngelList – A Company’s Perspective

A few months ago AngelList announced Syndicates – enabling investors on AngelList to create fund-like groups of investors to invest together in AngelList companies (following a single lead investor). It’s a great idea and at Foundry we quickly decided it would be an interesting experiment to form our own syndicate. We were the first formal venture fund to do this. Since then we’ve completed about 10 deals (I say “about” because we have a few things in various stages of completion as I write this – the intent of FG Angels is to make 50 AngelList investments – about 1 per week).

We often get asked how the process works and while what’s below has specifics about working with FG Angels it also contains some great advice for anyone raising money on AngelList in general, and through Syndicates specifically. I’ve edited the text and added some things of my own, but this is largely the work of Carrie Requist, CEO of UGrokit, a company we recently funded through FG Angels.

How AngelList Syndicates (and FG Angels) Works

It’s important to understand that AngelList syndicates work somewhat like an opportunity fund, where AngelList investors sign up to “follow” a syndicate and pledge to invest a certain amount of money. The key here is that this isn’t a hard commitment – each syndicate member makes a deal by deal decision to invest. As a result the syndicate size isn’t the total amount of money you’ll raise – it’s the maximum you’ll raise from the syndicate. And depending on how many members there are to the syndicate and what crowdfunding exemption you use (more on that below) the actual limit will likely be quite a bit less than the total you see next to the syndicate name on AngelList. And, of course, it will also require some work on your part to pull syndicate members into your actual deal. Syndicates aren’t automatic capita – you’ll still need to work for your money.

There are 2 parts to the FG Angels or any AngelList Syndicate investment:

  • Foundry Group (or your syndicate leader) invests their portion – in FG Angels case this is $50,000
  • In parallel they open the investment to their syndicate members on AngelList

AngelList shows for each syndicate the amount that the syndicate leader will invest and the amount pledged by all the syndicate members as a whole (shown as “backed by” on AngelList). At the time of FG Angels investment in U Grok It, their syndicate total was $426k (that total excludes the FG Angels portion).

It’s worth reiterating that unlike a mutual fund, the investors are not committed to investing in every company that any syndicate backs, so the $426k from the members of FG Angels represents the maximum investment if every member decided to contribute (and again, as a practical matter given the number of members in the syndicate and the exemptions that AngelList relies upon to fund these syndicates the actual maximum is below this number). Members have not given any money to AngelList or FG Angels for the syndicate and ultimately, the investor must make their own decision on each deal and then transfer money on a deal by deal basis.  Many things can effect your actual deal participation including how many deals the syndicate has completed, the pace of the syndicate’s investments, the type of investment (ie., note or equity), the stage of the company, how much the company is raising, specific deal terms, and members personal preferences.

U Grok It was actively raising on a convertible note and had already closed a portion of it, so we already had terms in place. Foundry reviewed these terms before committing to invest and both FG Angel’s $50k and the syndicate member’s total amount are under the terms of this note. This means we did not negotiate deal terms with Foundry or with AngelList, the investors accepted the terms we already had for the convertible note (or choose not to invest). There are syndicate deals where the lead investor does negotiate terms (Foundry does this on other FG Angel deals) but syndicate members don’t – they either accept the terms or don’t participate. And they do look at terms so structuring a fair deal is important.

Syndicate Dynamics:
To sign up for FG Angels, an investor must be approved by Foundry Group and agree to their terms, which include a carry. The carry is a percentage of the returns on the investment that the investor will give to Foundry Group for managing the syndicate and investments (note that AngelList itself takes a carry as well). The carry is between Foundry Group and the investor and has no direct impact on the AngelList company. This is beneficial to the startup because neither AngelList nor Foundry Group take any of the investment funds -there is no “finders fee” or other fee to the startup for being part of the syndicate. FG Angels and AngelList will get their carry straight from the syndicate investors upon an exit. The terms for being a syndicate member and the specific carry vary between syndicates, but the key for founders here is that this is all taken care of outside of any specific investment and any investor listed as part of the syndicate will have already agreed to the terms and carry.

The AngelList syndicate shows the number of members in FG Angels and lists each syndicate member as well as the amount they have pledged per investment. There is a portion of syndicate members who rarely invest in any deals and some who invest in every deal. A smaller group performs due diligence on each deal before they invest and makes a deal by deal decision whether or not to participate.

The Timing:
FG Angels Syndicate investments go FAST. Foundry committed to invest through FG Angels on a Friday. Over the weekend we revised our note and updated our AngelList profile. On Monday our deal went live and almost all the funds raised from the FG Angles syndicate were in process by the following Monday (within one week).

Be Ready for the Syndicate Investment to go Live on AL:
FG Angels is a popular and fast moving syndicate with 219 members at the time of the U Grok It investment – with an explicit goal to launch a new investment each week. This means that the interest in your startup will shoot up as soon as the FG Angels investment goes live on AngelList. Here is a graph of the investor views on U Grok It’s AngelList profile over the two weeks that the FG Angels Syndicate investment was live:

ugrokitgraphThe first short bar is the Monday it went live (we launched towards the end of the day). The big spike is Tuesday. What this means for an AngelList company is – be completely ready for investors before giving FG Angels the green light to go live.

506(b) vs 506(c):
These refer to two of the SEC rules that regulate “crowdfunding” financing. 506(c) is the new Jobs Act provision that, in part, allows for what’s called a general solicitation (on AngelList, this is shown as a “public” fundraising). FG Angels Syndicate investments are NOT general solicitations and some syndicate members do not want to invest in companies that are using this exemption. Check with your lawyer to make sure you have not engaged in general solicitation and make sure you DO NOT CLICK on the AngelList button that says “Activate” under “Raise Online On Your Own.” (this can’t be undone, so make sure you’re careful about this step). Your AngelList company profile shows “Investors Only” in the upper right under Fundraising if you are 506(b), which is likely you want (this isn’t legal advice – talk to your lawyer about the pros and cons about the various exemptions but understand that, broadly speaking, few institutional investors will ever invest in your company if you use the new broad solicitation rules – they simply don’t work as intended (yet).

What the FG Angels Syndicate Wants to See:
Closing an investment is just another form of closing a sale for your company. Investors just have a different pain they are trying to solve – they want a big return on their investment. Make sure your investor messaging is clear on this in your AngelList profile. Be sure to have your profile polished. For example, you’ll want:

  • Video of your deck – if you have a good quality video of yourself presenting your deck, great. If not, record your audio and put that with your slides. We did this in house (the production quality does not have to be stellar, just clear) and put it as an unlisted video on YouTube. You can then put the link in AL.
  • Product demo video
  • Product shots / screen shots
  • Every part of your profile completed
  • Current investors and total investment amount for this round. AngelList will show how much you are raising and how much is left in the raise, so make sure the numbers are up to date by updating each closed investor prior to launch
  • AngelList comments and references for both your company and the founders. If you don’t have these, ask for them. Your networking should have brought you into contact with many people who are rooting for you – this is a way they can help you without investing money. We had some high profile supporters who gave us comments just before the investment went live and this was a big help
  • Your website – Make sure your website is up to date because the FG Angels Syndicate members will go from AngelList right to your website to see what your customer messaging looks like and how you position your business.

What Happens After the FG Angels Syndicate Investment Goes Live:
You will have a lot of fundraising work to do in the week after the investment goes live. Members start to make reservations in the investment – you’ll see that is shown in the activity for both FG Angels and your company on AngelList. Members can also increase the amount they want to invest in your company. Members can also withdraw or cancel from the investment.

AngelList will show your company as having raised the total backing amount of the syndicate (which is overstated for the reasons already discussed) and separately show the total backing amount + FG Angels $50k. These are shown on your company’s Stats page > Fundraising > Manage > Overview. This total will initially be the full backing amount of the FG Angels Syndicate and will go down slowly as members withdraw (yes, slightly disheartening). Remember that this will be a good investment both from the funds standpoint and by having Foundry Group’s support.

Note that most FG Angels members will neither reserve nor withdraw. Your company will also get a lot of follows (mostly from FG Angels syndicate members) and a lot of request for intros. You should follow everyone who follows you and have a message prepared to send to each one. U Grok It’s message thanked them for following, invited them to watch the pitch deck and demo videos and to contact us with any questions, giving direct contact information. Also reply to each request for intro and expect these people to email you back, usually with questions. The request for intros are often investors who do more diligence about the investment. Some followers and request for intros are from investors who are not members of the FG Angels Syndicate, but watch what the syndicate does to find new investments. Plan that most of the your week after the FG Angels Syndicate investment goes live will be spent courting AngelList investors.

In our case, we were also contacted by people who follow FG Angels or one of the Foundry partners but who are not part of the FG Angels syndicate. These people can become outside investors (we are still conversing with a few that may be interested in our Series A round). Some syndicate members may also wish to invest directly in addition to their participation in the syndicate. U Grok It has a new investor in this round who has a small amount in the FG Angels syndicate, but is investing substantially more directly (this is a bit of an end around Foundry, so be careful here who you let in and whether they’re trying to simply piggback on FG Angels w/o paying the carry associated with doing so or if they’re legitimately interested in participating in the syndicate and so excited they want to invest more). So don’t discount a syndicate member just because their syndicate participation may be low. Also to this point, less than half of our syndicate investment came from investors at $5K or higher. The majority was at $2,500 or lower.

Closing the Investment:
At your direction, AngelList will begin to close the FG Angels investment. This will allow syndicate members to start transferring their investments into the fund (more on this below). AngelList will then select a closing date (about a week after you start closing). Our investment opened on Mon, March 24 and AngelList started closing on Wed, March 26 with an initial closing date of Tuesday, April 1.

Here is where you start to get an indication of how much you will actually raise from the FG Angels syndicate. Members will start transferring their investment and in the Stats > Fundraising > Manage > Manage page you will see the amount that has been collected (starts as $0) above a four-tabbed list: All, Not Started, Pending and Collected. In the “All” list, you will see only the members who have not previously opted out of the investment and then you will see some members cancel.You will see the pending amount increase and then the collected amount increase as the pending amount decreases (funds move from pending to collected). Starting to close doesn’t lock anyone out of the investment. Any member of the syndicate (even if they did not opt in, as most of them didn’t) can transfer their investment during this part of the closing. AngelList will send a message to the FG Angels members when the investment starts to close and another one a few days later reminding them to transfer their funds.

This is a great time to update the FG Angels Syndicate members in the Not Started group. If you ask AngelList, they will send you a spreadsheet of the members with their email addresses so you can do a group BCC: email with send you the link they need to click on to make their investment. Include some update on your company (in our case we received a new, glowing profile from a high profile AngelList member and we were opening our online sales). Come up with something to update them about. Make sure this email goes only to the Not Started group. AngelList is also generally happy to extend the closing date if your pending investments are still going up. We extended from April 1 to April 7, but the vast majority of the investment was in Pending by April 1. When investments slow or stop (in one to two weeks), AngelList will close the investment – this does keep members who have Not Started from joining the investment, but keeps things open until the pending investments have been received.

The Investment Paperwork and Details
The FG Angels Syndicate investment is overseen by Foundry Group (for which they receive the carry if the investment generates a return). The company will have only two new investors: FG Angels and FG Angels Syndicate. The FG Angels Syndicate members who invest in your company become part of a fund setup by Foundry Group through Assure Fund Management. Someone from Assure will contact you after the FG Angels syndicate investment goes live on AngelList to set up your funding vehicle (this is separate from FG Angel’s direct $50k investment).

If you have filled your round and are closed, that is great. If you still have room in your round (we did since we had extended the round to ensure there was enough room for the FG Angels Syndicate), then you can keep raising.

CONGRATS – Now What? – Investor Relations with the Syndicate
Technically, you only have FG Angels and fund(s) managed by FG Angels as your investors. However, some syndicate members will want to connect with you directly (in our experience often on LinkedIn), some will ask for updates and some will offer their help (services, connections, advice).
This is evolving so there aren’t really any norms here yet. On the one hand, it is impossible for a small startup to effectively manage 100 new investors. On the other hand, these investors all now have a stake in your success and many are willing to help make that success happen, so they can be quite beneficial to your startup.

You can send updates to the syndicate investors as a group through AL in Stats > Fundraising > Manage > Manage where, once the deal is finalized, you will see a list of Closed investors and Didn’t Close and on the right a Message box with a link to “Update Investors or ask for advice.” These updates are only visible to you and your investors. We updated the investors when the round completely closes and plan on providing them major updates and perhaps a quarterly post while right now I send out a monthly (or so) email to our direct investors as well as field calls and make calls when there is a topic to discuss.

Hopefully this overview is helpful in gaining an understanding of the AngeList syndicate process in general and the FG Angels process in particular. Of course this is a new and therefore evolving method for funding your business so check for updates from AngelList (and here where we’ll post new developments).

Taking the long road

Screen Shot 2014-05-02 at 12.10.15 PMI first met Carrie and Tony Requist of U Grok It in February of 2012. We were hosting a DEMO event with VentureBeat and UGrokIt was one of a handful of companies that was chosen to come in and pitch. I remember the U Grok It presentation well for a number of reasons. For starters, Carrie and Tony are married. And living in Steamboat. Both pretty unusual for the startup world. And they were building a simple smart-phone based RFID reader with the idea of creating a consumer product that would allow individuals to easily and cheaply track their stuff – a problem I’m quite familiar with as I have an uncanny propensity to misplace things (there was much joking in the meeting about this, in fact).

I stayed in touch with them after that first meeting and occasionally Carrie would swing by Boulder on her way in or out of town to update me on the company’s progress. As many businesses do, U Grok IT took many twists and turns as they figured out how to turn their prototype into a production unit and honed in on what they eventually found was a much larger opportunity – providing a enterprise class (but still smartphone based) RFID reader that was an order of magnitude cheaper and significantly easier to use than the special purpose units that had been on the market relatively unchanged for the past 15 years. All this while scrapping funding together on an almost continual basis.

I was impressed – mostly with their scrappiness but also with the progress of the idea and the business. And as I sat listening to the latest update about a month ago I finally had the right mechanism through Foundry’s FG Angels syndicate to actually support them and the business.

I wrote a post a while ago about the 10 year entrepreneur that described the often long, less celebrated journey typical of most entrepreneurs as they built their businesses (contrasted with what sometimes is glorified in the tech press). The story of UGrokIt’s funding is in the same vein. Perseverance in the business and in continuing relationships pays off. I’m excited to be working with Carrie, Tony and the entire UGrokIt team.

Why doesn’t British Airways Want to Make Money?

baBritish Airways parent company finally got back into the black in 2013, presumably benefitting from an increasingly favorable global economy. They certainly were not benefitting by their own policies as I unfortunately found out recently. I’m writing this post in the hopes of gaining an explanation for why BA would behave so stupidly.

Here’s the quick summary:

A few months ago I purchased tickets from BA that were basically two round trips (one inside the other). The BA website priced them for me at the lowest available fare that included the normal fare restrictions around changing the tickets or getting a refund (changes would incur a fee and there were no refunds – got it). The disclosure on their site was minimal and there was no obvious way to buy a less restricted fare. I knew at the time I might not take the middle round trip but I wanted to lock in the tickets.

Fast forward a few months and I decided that there was a better way to travel the “middle” trip so I called up BA to tell them that I wasn’t going to take the outbound leg of that segment. I didn’t ask for any money back for the unused tickets – just wanted them to know that I wasn’t going to use them and that they could cancel them and resell them to someone else. (I’ve done this plenty of times for US domestic flights and never had a problem)

And that’s where it all fell apart.

“No no,” I was told. That’s a “change” to your itinerary and to do that I’d need to pay a large change fee for the privilege of not taking the flight. What?!? I’m not changing any flights – I’m giving them back something of value. And as it turns out that flight is nearly sold out – they have a small number of tickets left for a 1-way fare of US$ 200. They need the ticket and will likely resell it and I don’t want it. But no. BA insists that not taking a flight is a “change” and my only choice is to pay or show up (if I don’t they’ll cancel the remainder of the itinerary).

This is completely crazy to me. British Airways has a simple and easy opportunity to both make more money and make a customer happy (not to mention make things a whole lot easier for me). Instead they’ve decided to make less money and completely alienate a heretofore happy customer (and you can be sure that if they don’t change their view on this, this will be my last BA flight). Not to mention that I’m not “changing” a flight or trying to rebook a ticket (which would clearly trip the change clause). I’m keeping every flight the same – just giving them back one leg of the trip.

Make more money and have a happy customer; make less money and lose a customer for life. That’s a difficult one.

The supervisor I talked with kept telling me that it “wouldn’t be fair” to other customers who had paid a higher ticket price. He also (quite rudely) kept telling me that I had such a low fare that I shouldn’t expect anything different (lowest fare or not, the ticket certainly wasn’t cheap). And remember that the BA website didn’t give me an option of buying any other fare for these flights (I tried that again today to the same result – they show only the lowest fare available and there’s no opportunity to pay more for a more flexible ticket – at least not an obvious way).

This makes absolutely no sense to me. Maybe you can help me understand the logic.

Camp DevOps! (at Gluecon 2014)

One of the big uptrends in technology is the rise of DevOps. Whether your organization is a large enterprise or a fledgling startup, DevOps can help.  We have seen this first hand in many of our portfolio companies and the market in general.  This is why we are excited to be working with Eric Norlin and the Gluecon team and in bringing Camp DevOps to Boulder on May 20th.

Camp DevOps is a follow up to the successful DevOps conference we help host last fall here. That conference was very well received and we think Camp DevOps will be even better.  Held at CU Boulder Atlas building, it is a full day chocked full of DevOps. There will be keynotes, technical tracks, business tracks, panel discussions and something called “Hello World” which are hands on technical training sessions.

The lineup of speakers for the show is great with keynotes from Sanjiv Sharma of IBM (and author of DevOps for Dummies), Rajat Bhargava of JumpCloud and Howard Diamond of MobileDay. Plus we’ll be there! You can see a full lineup of speakers and register at

The show is only $49.99 and that includes breakfast and lunch.  If you are already going to Glue admission is free. Also if you buy the admission for Camp DevOps you receive a $100 credit for Gluecon as well.

This will be a great event for the Boulder community on a subject that is near and dear to many of our companies. Hope to see you there!

The 4 Keys to a Successful Angel Investment Strategy

With the increasing popularity of angel investment sites such as AngelList and CircleUp more and more people are making investments. I love this trend and have a longer form blog coming on the subject – which I think is massive positive force in the startup ecosystem. But this post is much shorter and to the point.

I often get asked what my thoughts are on angel investing. Here are what I think are the 4 keys to a successful angel investment strategy:

1) Take a portfolio view of angel investing- put aside a pool of money and plan to make 10 or more investments. One-offs simply don’t make sense in this market (too much alpha)
2) Be willing to lose all your money (and assume you will) – mortality rate at the angel stage is extremely high
3) Be passionate about either the team, the idea or both. You should be in love. Angel investing is about emotion, not logic.
4) Don’t reserve/follow. Your job is to put in seed capital. The company’s job is to grow the business and find new capital. They either do this and are successful or don’t and you write it off. I don’t think it’s wise to play the pro-rata game at the angel level.

Just say NO to that large fundraise

I wrote a post a few years ago about using your lack of funding to your competitive advantage. The basic gist was that all businesses act within constraints and that the discipline that can result from having less money that a competitor – if you embrace it – has the ability to sharpen your focus, avoid the temptations of distraction and be more thoughtful about how and when you spend the precious cash that you have.

I was reminded of that post recently when engaged in a debate about how much money a company should raise. The knee-jerk reaction is often “as much as they can!” And while that might sound satisfying, it’s often not the case. At Foundry we’ve been fortunate to be involved with a number of businesses that have taken advantage of the ability to raise a war-chest of cash. And when you’re going big, and have reached proof points where you can now spend money with a specific plan in mind (and the metrics to back it up) this often makes sense.

But not always.

Much less is talked about the null case. Those companies that could raise larger round but opt not to. We’ve had a number of those in the portfolio that are – by the nature of having not raised a eye popping round – much less talked about. While a whole lot less sexy and certainly not as buzz-worthy, NOT raising a large amount of capital very often makes as much (or more) sense than raising “as much as you can.” A few thoughts on why:

– For companies that are cash flow positive and already growing about as fast as they can keep up with (yes – there are plenty of these businesses around and yes – adding more cash doesn’t always equate to more growth) there’s often simply not a compelling need to over-raise.  Think growing at the right cost vs. growing at all costs. One optimizes spend and trajectory. The other wastes money.
– Large rounds bring new investors and a different investor/board dynamic which can be a challenge to manage, especially for a fast growing business
– Importantly, those new investors and their large piles of cash bring with them lofty exit expectations. Often times companies are better served raising a smaller amount of money from existing investors to keep all of their options open – especially as they transition from start-up to mid-stage. I’ve watched this literally kill a company.
– Large balance sheets beget large spending (see my post I referenced above on being scrappier than your better funded competitor). The world is littered with companies that raised too much, then spent too much. And while you can certainly keep your discipline with a large balance sheet it’s pretty easy to get off track.

More than anything, its important to note that there’s a choice here. One isn’t better than the other – despite the market perception. Make your own choice and don’t get caught up in the hype.

Entrepreneurship behind the wall: A trip to Palestine

IMG_2174If you’ve been a reader of my blog for any time you’ll know that I’m intrigued by (and a big fan of) the notion of The Democratization of Entrepreneurship. It’s not that I think entrepreneurship solves all the world’s challenges, but I deeply believe in the notion of entrepreneurship as a catalyst for positive social change across the globe. It’s a powerful force and we’re seeing more and more examples of entrepreneurs creating real change around the world, community by community.

Late last year I had the opportunity to spend a week in Palestine working with entrepreneurs and traveling in the region. It was part of my work as an advisor to Sadara Ventures – the only Palestinian focused venture fund (Google, Soros, the EU, Skoll Foundation and others are investors in the fund). It was an eye opening trip to say the least and a truly amazing experience to be working with entrepreneurs in an area that is experiencing so much turmoil.

This is a personal story and one about entrepreneurship. But it’s impossible to tell that story without the context of the political reality on the ground. In fact everything in Palestine to some extent takes place with that backdrop (and perhaps – at least as it relates to business and investment – in spite of it).  I’m in no way trivializing the conflict nor suggesting that the answers to the region’s problems are easy ones that can be fixed if we only better supported entrepreneurs. But it was refreshing to spend time with people living literally behind the wall, but looking past the political situation to try to create an environment in which entrepreneurs can survive and thrive. While in Palestine I had the opportunity to work with a number of entrepreneurs, meet with locals in shops and restaurants, but also to meet with a handful of key business leaders as well as the Vice President of the Palestinian Authority. The perspective I gained was a true cross section of Palestinians and as varied as the backgrounds of the people I met.

A little background and context. Palestine can be a rough place. GDP per capita is low – about US$ 1,650 per capita. The overall labor force participation rate is only 43% and unemployment is over 20%. The population is very young – 70% are below the age of 30 (and 40% younger than 15) and youth unemployment is over double the overall rate.

Movement in the territories is pretty restricted (and here I’m referring to the West Bank and not Gaza, which is completely closed off). The West Bank itself is about 5,600 square kilometers (so not exactly tiny) but movement into and out of the territory is difficult. As a foreigner I could come and go as I pleased (as a side note, getting into the West Bank was much easier than getting out – really meaning getting back into Israel; the very heavily armed Israeli soldiers weren’t all that impressed with my US passport, nor I suspect my very Jewish sounding name given where I was coming from).  Some Palestinians do have papers that allow them to travel into and out of the West Bank (particularly those born in/living in East Jerusalem which is an area in dispute, but is on the Israeli side of the wall). Israelis are restricted from entering Palestine – by the Israeli government (presumably concerned that any violent act by or on an Israeli would case a political storm) – and several of the Israelis associated with Sadara had to obtain day passes to enter and exit (they were denied the ability to stay overnight in Palestine and instead had to drive back to Jerusalem each night; I was able to stay in the center of Ramallah at what turned out to be a pretty nice hotel). Cars in the West Bank are restricted to the territory if they have a white license plate but can access Israel if they have a yellow one. Even in Israel travel is a somewhat restricted with frequent check-points on the main highways (traffic slows, but does not stop through these).

Entrepreneurs in Palestine are like entrepreneurs everywhere – optimistic, hard working, a tad fanatical at times. And while many of the businesses I was helping with were building products targeted to the Arabic speaking world in the EMEA region, the businesses they are creating would be familiar to any entrepreneur – travel and hotel bookings, content for kids, a gaming platform, 3D rendering systems, etc. It’s that passion for their projects combined with their desire to build businesses in Palestine that really stuck out to me from my visit. Many of the entrepreneurs I met with were educated in the US or Europe and had papers that would have allowed them to start their businesses elsewhere. But they’ve chosen to come back to Palestine to work there in an effort to try to make a difference in their homeland. Many spoke eloquently about this choice and the decision to move back home. I have a lot of respect for that kind of national pride. But especially in the context of the political situation in the West Bank where another Intifada would put the region again in a tailspin – business leaders in Palestine talk openly about wanting to avoid this but also with the understanding that there was little anyone could do to either predict or prevent another uprising (although they also recognized that economic stability leads to greater political stability).

I left Palestine completely energized about the work going on there in the entrepreneurial community and hoping that I can continue to help pursue economic development in the region.

What follows are some images from my visit as well as some background about them.

Video from the “no-man” zone on the Palestinian side of the wall but not yet truly in Palestine (the Israelis set this area up basically as a buffer to Israel but its become this sort of bizarre in-between land that’s neither a true part of Israel or Palestine. There are several refugee camps just to the south of this area that we passed on our way in.

The difference between the Israeli side of the wall and the Palestinian side makes it clear who erected the barrier. The Israeli side is pristine while the Palestinian side is covered with graffiti.

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Pictures of Yasser Arafat are everywhere in Palestine.









I was fortunate to have the opportunity to have lunch with Dr. Mohammad Mustafa, Vice President of the Palestinian Authority. He’s widely talked about as the next PM of the Palestinian Authority. Interesting to say the least (my visit happened to coincide with a visit to the region by John Kerry, the US Secretary of State).  The details aren’t appropriate to get into, but Dr. Mustafa has an economics background (he was trained in the US and worked for 20 years in Washington) which I think lends itself to a pragmatic view of the world. Although even with that, the severity and length of the conflict leave even practical thinkers on both sides at odds over certain of the most difficult points of contention.









I had a chance to tour Jerusalem for half a day. It was my first time in Jerusalem – obviously a city rich with history. The pictures below include me at the Western Wall as well as some of the marketplaces and architecture around town.

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My tour guide in Jerusalem said something to me that, while I hope isn’t true, really stuck out to me. We had just gone through the Church of the Ascension and were ending our tour. Sitting on the steps of the Church I said to him: “You seem like a pretty reasonable guy and you’ve lived here for something like 20 years, what do you think the solution is to the fighting and disagreement in the region?” To which he responded: “That’s such an American question. What makes you think there’s any solution? This is a place where people have been fighting each other for 3,000 years. Maybe that’s just how it’s going to be.” I certainly hope that’s not the case, but the idea of finding a “solution” as being a distinctly American way of thinking was something I’d never thought about in that way before (I asked him if this view was broadly held he said it was, although he and many of his friends do hope that there’s some kind of path to peace).

I was also able to tour around Ramallah and the West Bank a bit and captured some photos from that part of my trip as well. Among the photos below is the “Stars and Bucks” coffee shop in Ramallah, the still under construction city of Rawabi – sometimes referred to as the “Palestinian Settlement” (it’s a full city being constructed for Palestinians in central West Bank; I had a chance to meet Bashar Masri who is a well known Palestinian entrepreneur and the main force behind the project). There’s also a picture below of the Entrepreneur Meet-up that we hosted in Ramallah one of the evenings of my visit. We had over 100 Palestinian entrepreneurs get together to talk about creating entrepreneurial communities and enhancing opportunities for Palestinian entrepreneurs. There’s also a picture of the “Startup Weekend Ramallah” sticker that I saw on many laptops around town – Ramallah has now hosted two such weekends.

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The final story from my trip comes as I was leaving. The airport in TelAviv is famous for its security – I had to show my passport 3 times before I even got to the check-in counter. As part of this process every passenger goes through a triage process where they’re asked various questions about why you’re traveling, what they were doing in Israel, etc. Basically trying to suss out whether you’re likely to want to try to sneak a bomb onto your plane (based on this interview they then put you through various tracks of security ranging from pretty much what you’d experience in any US or European airport to hour+ interrogations accompanied by detailed bag and person searches). Upon taking a look at my passport the triage team in my case then spent the next 10 minutes quizzing me in a way that I can only summarize as “Exactly how Jewish are you?” I had provided them some information on the purpose of my visit (but no details on where I went or whom I met with) so that had at least a little context – you would think – to give them reason to ask about what I was doing there. But no – all the questions were centered on where I went to temple, how often I went, etc. Apparently I successfully convinced them that I was Jewish enough because after 10 minutes they let me through the light version of Israeli security.

A huge thank you to Saed and Yadin from Sadara for hosting me. And especially to all the great entrepreneurs I met with while I was there (especially George for the great meal in East Jerusalem and Yousef for our breakfast in Ramallah). It’s both humbling and exciting to be welcomed so warmly into this great community of entrepreneurs.

Betting for a cause this SuperBowl

superbowlI’m a big football fan and, despite not having grown up in Denver, have been a fan of the Broncos since I was little (my grandparents lived in Denver and my sister and I spent a month every summer here with them – my Grandmother’s passion for the Broncos rubbed off on me at a very early age).

So, of course I’m excited that they’re in the SuperBowl (again!). This has lead to the inevitable side bets with friends in Seattle. If the Broncos prevail I’ll be eating some fine Seattle smoked salmon while watching pictures of my friend Cory sporting the latest in Broncos paraphernalia (among a handful of personal spoils for their victory).

But my most important bet is with Dan Levitan of Maveron. We thought it would be fun to put some real money on the line. But to do so for a good cause. The bet is $5,000. If the Broncos win, Dan gives that amount to the Children’s Hospital Colorado. If the Seahawks win, I give the same to Seattle Children’s. Win win for sure.

We’re doing this to have fun. But also to raise awareness about the good work both hospitals are doing in each of our communities (and beyond). And hopefully raise some more money for them as well. If you’re so inspired, make a similar bet. Or just give directly to support these worthy causes (Seattle Children’s here and Children’s Hospital Colorado here).