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If you ask most early-stage VCs their number one criteria for investing in a startup, the answer you will get is “team.”  Even market first investors, like us, want to know why the team is best suited to tackle the problem.

In a fundraising environment that is becoming more crowded, differentiation is incredibly difficult and the question I’m often left asking after reviewing a deck is “why you?”  As in why are you the best person to solve this problem?

Yet, for some reason, most of the decks that come across my desk leave the team slide either somewhere in the middle or near the end instead of answering that question early and with clarity.

Team, team, team, market, team. — Mark Suster, General Partner at Upfront Ventures


The one thing that always stands out the most in an early stage startup is the team. We invest quite early in a company’s life; it will usually take 6–10 years for the company to reach giant success. Given that, many things will go wrong and the one mitigating factor for setbacks is a great team.  We spend the most amount of time thinking about the founders and the early team before investing. — David Pakman, Partner at Venrock


The answer can be as simple as the invention serves the need of the inventor.  Our first portfolio company all suffered from the disease they were working to monitor and as a result understood the daily life of their customer.   This has been a guiding force in their product design and cost.

Perhaps you have extensive work experience in the industry and have seen the problems from the inside.  This is especially important in industries that require the careful navigation of regulation, long sales cycles, entrenched incumbents, and/or bureaucracy.

While the best stories in Silicon Valley lore often involve a founder rescuing an industry with innovation from a fresh perspective, the truth is founder-market fit matters and in most cases is a strong advantage.

Be brutally honest with yourself,  are you uniquely qualified to execute on your business?  If so, trying leading with the team first – the risk is low and the rewards could be worth it.

By now you’ve likely seen this week’s The Economist cover story entitled Peak Valley, which features quotes from Claire Haidar.  Claire is CEO of WNDYR, an Intelis Capital portfolio company. The article highlights a mixture of outrageous costs-of-living, poor local government, and high operating costs as the catalysts behind an impending Silicon Valley collapse.


We’re skeptical Silicon Valley is “over.” However, we do see its influence dwindling in the next few decades as a direct result of a technological invasion into new sectors that drive the economies of the regions most dependent on them.


Every Industry is a Technology Industry 


It should come as no surprise by now that almost every industry has come to rely on technology for some core part of its operations.  Yet, there is a large variance in the degree of digitization across sectors that are cornerstones in regional economies outside of the Valley – these sectors have largely been ignored by coastal VCs until the last couple of years.


Industries like energy, agriculture, construction, and manufacturing are lagging behind the innovation curve and represent a multi-trillion dollar opportunity for startups and investors alike.  Their importance to regional economies like Texas, the Southeast, and Midwest can’t be overlooked.



We used the Bureau of Economic Analysis geographical definitions of the Southeast in addition to Texas for our analysis for the graph above.  Sectors such as power utilities (5.2% of SE GDP), oil & gas (2.54%), transportation (3.43%) and construction (4.83%) contribute much more to the regional economy than the US as a whole and while these percentages look may look small, it’s important to note the size of the US economy was $18.5T in 2016 and the region accounts for about 1/3 of total US GDP.


The ability to build software products is without a doubt Silicon Valley’s competitive advantage, made possible by an unmatched density of engineering talent. Yet because the aforementioned sectors are largely un-digitized, only a minimal level of improvement is necessary in order to replace current analog processes. Thanks to the spread of technology the requisite level of engineering talent can now be found, for less money, in most metropolitan areas.


Additionally, distribution of product is sometimes as important, if not more so.   The density of customers and potential partners in other regions provides startups with a ready-made strategy to build revenue from the outset.


These advantages can result in the healthier P&L’s highly-valued by potential acquirers in these sectors, leading to exits that drive ecosystem growth.



Founder / Market Fit


There’s a reason these analog industries have yet to be disrupted.  Often they require highly-skilled and specific knowledge, are encumbered by regulation, have entrenched bureaucracy throughout the entire value chain, or in the worst cases — all three.


Witnessing first-hand the ways an industry is broken is crucial to building the foundation of a big business within them.  More importantly, it removes any naïveté a founder might have and prepares them for the potential roadblocks ahead.  A few obvious and successful examples of this are: Flexport (freight), Robinhood (finance), and Farmers Business Network (agriculture).


Before, entrepreneurs would have had to move to SV to start these companies due to lack of local resources and talent. However, an explosion of cloud-based collaboration and communication software has now made it possible for these executives to tie into specialized talent from the Valley if and when needed.


Moving to the Valley as a contingent of funding is becoming less common distributed work becomes more of an accepted practice, and the rise of new firms focused specifically on not investing on the coasts has given founders more access to capital than ever before. This combination has solved one of the biggest problems of building a business outside of Silicon Valley – access to capital.


It’s clear there are several new sectors and regions are primed for the necessary disruption heading in their direction. Undoubtedly, Silicon Valley will play a direct or indirect role in many of the advances, but for the first time ever that role may not be from the driver’s seat.


Last week, Slack announced it had reached a deal with Atlassian to acquire its Slack competitors Hipchat and Stride.  First, it’s important to note that as a part of this deal Atlassian made a small equity investment in Slack as well.  Imagine being so far ahead with your business that your competitor sold you their IP and also makes an investment.

While it certainly didn’t generate the headlines of the Slack / Atlassian deal, Facebook acquired Redkix as it looks to take on Slack, Microsoft, and Google in the battle for workplace integration.

Speaking of Google, they announced a new set of features including smart replies to both email and chat as well as grammar suggestions across all of their MS Office competitors. All of this on the heels of Microsoft making a version of Teams free even to those without an Office 365 account.

What does all of this activity mean in the context of our daily work lives:

  • The tools are being developed are the beginning of a movement to free us from the most mundane tasks of our workday
  • A change in focus from email and task completion creating value on a per employee basis

Why does it matter:

  • Industries like energy (47), real estate (48.4), and agriculture (47) all have workforces that are significantly over the national median age of 42.2.  These industries are all large contributors to our GDP and face an impending labor shortage crisis or a large transfer of knowledge to new employees.  Either way, software is going to play a large role.
  • Consumer expectations for industries like healthcare and energy are changing.  We now expect all companies to engage with us and service to be completed as quickly as possible. SaaS companies that increase the efficiency of problem-solving for consumers while making employees happier (employee happiness is correlated with customer engagement) will be big winners in these massive industries.

Three trends worth monitoring:

  • Can Google and Microsoft expand their footprint inside organizations outside of their 3-5 core products?
  • Will Facebook be able to gain market share as it focuses on expanding Workplace in the face of slowing US growth?
  • When will we see these SaaS companies play a role in determining the optimal organizational structure for the large industries that impact us every day but are in desperate need of renovation?

One thing is almost certain, this space won’t begin to slow down anytime soon.  Engaging and making employees more efficient is going to be big business.

Employees have more information and choices than ever, the best talent will go where they are valued more on their impact than email output.  On the other side of the coin, organizational efficiency drives the bottom line which is obviously a decision criteria for any company looking to onboard new software.

Yesterday, I had the privilege of attending my first AUTM conference after being invited by Kerri Smith of the OWL Accelerator in Houston.  The topic of my quick 10-minute talk was “Ethics in Flyover Ecosystems” and it was part of a broader discussion on “Ethical Challenges Facing Startups”.

From their website:  “AUTM is the nonprofit leader in efforts to educate, promote and inspire professionals, throughout their careers, to support the development of academic research that changes the world. AUTM’s community is comprised of more than 3,200 members who work in more than 800 universities, research centers, hospitals, businesses and government organizations around the globe. The core purpose of AUTM is to support and advance academic technology transfer globally.”

Among the speakers were me, Kirsten Leute, SVP for University Relations at Osage University Partners, and Charles Valauskas of Valauskas Corder LLC.

Kirsten used a term – mirrortocracy -to describe the practice of hiring only those who fit a certain profile for a position. It’s possible I’m late to the game with the term, but I definitely plan on using it moving forward as there are so many possible use cases.

Below are the slides I presented, plus an additional one at the beginning which I left out but spoke to in order to create a frame of reference for what can happen when investor ethics turn in entrepreneurs’ favor.  Once a “market” is created for common terms, it puts everyone on an even playing field which benefits all involved.

Universities have a huge role to play in developing startup ecosystems.  They produce ideas, founders, and affordable talent for startups.  They are taking ethics from faculty, students, and outside parties like investors and mentors very seriously.  I really enjoyed being able to play a small role in their process and to give our perspective on the issue.
Thank you Kerri and the AUTM team for having me!

Directionally correct startups could be considered successful depending on the amount of capital raised, but ultimately fail to live up to their potential.  For most, the pull of the market ends early and the next phase of growth requires precise allocation of capital internally.

Subsequently, growth expectations begin to outpace what funding alone can accomplish and a ceiling in valuation is created.  This leaves the company unable to raise more capital, eventually leading to an exit that leaves investors clamoring for what could have been.

My hypothesis is that there are several companies which are acquired for somewhere between $20-$50M that fall into the category of directionally correct (accurate), but did not operate with precision during their early days.

Accuracy (n): the degree to which the result of a measurement, calculation, or specification conforms to the correct value or a standard.

Precision (n): refinement in a measurement, calculation, or specification, especially as represented by the number of digits given.

I’m admittedly still in the early innings and need to see more startups at this stage before coming to a valid conclusion, but I want to have a few key points in writing for reference moving forward.  In no particular order they are:

1)  The difference between these two groups happens during the time period between traction and scale.  That is, 95% (or some number larger than 80%) of the time, scale happens when startups execute with precision in product and marketing after their initial customers are onboarded.

2) The first few customers – the early adopters – were going to love the product and be the easiest to find regardless of how well the company executed.  The result is a lower bar than what most of the market will consider “viable” in an MVP and marketing costs were artificially lowered by initial consumer demand.  Counterintuitively, acquisition costs will actually go up after the early adopter market is completely exhausted.

3) Startups that scale don’t over-estimate the fidelity of the data created by early adopters.  Instead, they create a framework for discovering core product value for users which will be key to both growth and preventing customer churn in the future as they enter new markets or segments.

4) Market size (need) is correlated to the length of time a startup has to build a scalable customer acquisition strategy which is more than finding a blended CAC.  Precise startups understand how to achieve a sustainable ROI and focus on LTV (ex. bookings) acquisition instead of purely growth metrics (ex. customer count).  For example, at CE we knew a customer in TX had a substantially higher LTV than one in CT and adjusted accordingly.

5) Precision is defined as a repeatable process in the most vital parts of the startup like sales, marketing, and product.  Often, investors talk about “playbooks” and this is where they really punch above their weight.  If the market is X then we do Y or if we do A then the result is B are powerful indicators of precise execution.  Chamath Palihapitiya highlights the importance of this in a talk on “growth hacking”.  During his time at Facebook, they discovered if a new user hit 7 friends in 10 days they were hooked and built product focused on hitting this metric.

6) Once a startup crosses this threshold, the solution will have seemed obvious. The reason, getting there requires measuring and testing over and over and in hindsight, it’s easy to feel the data revealed a straight-forward conclusion and to discount the decisions needed to arrive at the right answer.

I’m looking forward to having more opportunities to help growing startups bridge the gap from consistency to precisision in the coming years while measuring the level of truth in the insights to refine refine them moving forward.

Pitchbook has released a new study on startup ecosystems and a few things immediately stand out to me:

1) TX has anemic local capital per venture backed startup. It’s WAY behind states with growing ecosystems like Tennessee, Utah, Michigan, Missouri, and Colorado.

Some might argue the number is artificially low due to the angel ecosystem filling the gap, but outside of Colorado and Utah the states mentioned above have very minimal VC activity. Additionally, the number of startups receiving funding hasn’t proven this to be true, bringing me to my second observation.

2) TX seed start-up density (# of startups receiving seed funding / pop.) is low. TX’s number is around 15 – several states are ~20+. This makes sense given the above – seed rounds are often led by local investors, and if there isn’t enough capital then fewer ideas are funded. However, Texas does beat IL which is a surprise given Chicago’s recent success.

3) Unsurprisingly, the density gap between established ecosystems like CA, MA and NY really grows in early-stage and late-stage funding. However, the gap is MUCH wider than I expected. In some cases, TX trails states with more active startup ecosystems by 5X.

All of these things are evident on the ground and it’s good to see data backing up the assumption more capital is needed in TX. The report highlights the need for startups to seek angel / seed funding that really understands the fundraising process and has a network to connect them to follow on capital.

You can find the study here.

I had the privilege this week of participating in a panel focused on developing startup ecosystems as part of the ITTN Cross Border Technology Summit in Suzhou, China.

The spirit of the conference was to encourage entrepreneurs to think globally about their opportunity and build relationships outside of any and all comfort zones, including geographic ones.

One of the questions asked of the panel was “what is your role in helping your innovation ecosystem think outside of its borders?” Admittedly, it was a question I had to think about for a second.

The answer that came to me most naturally was we encourage our companies to think BIG with their vision. This may seem obvious, especially in dominant ecosystems like Silicon Valley and Shenzhen, where global market share is the goal.

However, developing startup ecosystems are often different and the majority of early funding is provided from angels who have made their wealth in practical, but successful businesses. These investors want to see business plans rooted in the fundamentals leaving little room for ambition. This starts a cycle where founders are encouraged to think smaller with their vision because it’s what local investors want to hear from them.

Yet, these two ideologies aren’t mutually exclusive – you can think big while having an eye on building a sustainable business in the long run. Big, ambitious thinking when balanced with intense focus is a powerful combination.

We always ask ourselves, “if we get lucky and everything goes right, how big could this be?” It’s important to remember that venture capital is a business of maximizing the ceiling, not minimizing the floor.

After the panel, an entrepreneur found me to say he’d faced this problem when starting his startup which focuses on early-stage colon cancer detection. Local investors had told him the dream was too big and the problem too hard, but he kept pushing and found funding elsewhere.

If you’re angel investing in ecosystems that are just getting started, I encourage you to challenge founders to think big. Without your encouragement, society might miss out on the next big breakthrough.


Today, Intelis Capital is excited to announce our seed investment in Wndyr ( \ ˈwən-dər \), a company providing operational clarity to businesses by helping them become more efficient with the tech stack they already have in place.

Socrates is credited with the quote “Wonder is the beginning of wisdom,” and we believe wisdom is exactly what Wndyr will bring to companies who have trouble understanding how they use software.  Below are just a few of the many reasons we are excited to welcome Wndyr to the team.

1) Claire and team

When I first met Claire, I was struck by her experience and clarity of vision when it comes to the future of customer success and change management.  However, I must admit I left our initial meeting a little unsure of what exactly Wndyr did but impressed with Claire.  Wanting to learn more and gain clarity around the product, I asked Claire to come by our offices and present to Jonathan and Kevin; fortunately for us, she accepted.  Over the next 8 weeks, we got to know Claire, her co-founder Tracey, and her team through both direct interactions and speaking with their customers.

Some of the words that were used to describe them: committed, best-in-class, listeners, curious, open to learning, determined, thoughtful and intensely passionate.  In the following weeks, we learned more about the state of SaaS and customer success from the team than I thought was possible. Their vision for the role Wndyr would play in the future of SaaS had us hooked, especially when we saw how they executed against the vision day in and day out.

2) The aging workforce in large industries is a rapidly approaching problem

Industry % of Workforce % Older than Median Age
Utilities 5.3% 7.11%
Real Estate 6.9% 4.69%
Finance 2.1% 4.98%
*US workforce = 154,000,000 people

Several of America’s largest industries are facing the challenge of an aging workforce leaving them with a shortage of employees in crucial roles over the next decade.  This raises four critical questions for those industries: how to capture the knowledge of workers nearing retirement, what skills gaps will be created, can those skills gaps be automated, and do the industries have software to handle the excess capacity of work that could be placed on the remaining workforce?

Unsurprisingly, we believe Wndyr can play a huge role in answering all four of these questions.

Additionally, the US isn’t the only country facing the pressure of an aging workforce.  In the UK alone, over 50% of the workforce in key infrastructure industries such as water, power, and transportation are within 10 years of retirement age.  Given these figures, it’s not surprising businesses in massive industries are seeking solutions to solve this looming problem.

3) Productivity is shrinking in large industries critical to the function of the macroeconomy

The United States, and the world for that matter, appear to have a productivity problem.  US productivity grew a measly 0.1% in 2015.  Perhaps more surprising, that is ABOVE average for both developed nations and the world as a whole.

A deeper dive into the US statistics shows that productivity growth is being dampened by a few of our largest industries which I’ve highlighted in the table below.  The defining characteristic of the industries listed here is they all lag severely behind in the adoption of technology.

These industries will likely be forced to evolve into more digitized businesses over the coming decade much in the way advanced manufacturing and ICT have in the last 5-10 years.  We believe a digital revolution is coming in these fields and tools like Wndyr will be required for deployment scale, speed and accuracy.

Industry GDP Share Productivity Growth (2005-2014)
Healthcare 10.4% -0.10%
Construction 5.2% -1.40%
Public Administration 16.3% 0.20%
*2016 US GDP: $18.6T

4) Businesses are now over-subscribed to and under-utilizing SaaS products

All businesses are now technology companies in one form or another and the result is almost all firms are inundated with an abundance of software that is being either underutilized or unnecessary.  We’ve seen a new wave of companies being built to help manage licenses, increase the likelihood of customer success, and provide analytics to the SaaS companies themselves much in the same way a Mixpanel or Optimizely do for websites.

Given that 1,000 new SaaS companies are formed each year, we believe this opportunity will continue to expand while forcing incumbents to better serve their customers to remain competitive.

The winner in this space will help end-users SOLVE the problem, not just manage it, while still helping SaaS companies perform at their optimal level.

We are proud to partner with Claire, Tracey and the rest of the Wndyr team as they help bring next-generation wisdom to companies navigating today’s cluttered and inefficient SaaS landscape.

Recently, the tweet below from Austen Allred has shown up on a few separate occasions in my feed. One of the responses was from Leo Polovets who is one of my favorite VC’s to follow both on Twitter and at his blog.

His reply led me to this post by another must follow for aspiring VC’s, Charlie O’Donnell, of Brooklyn Bridge Ventures, a pre-seed / seed VC firm in NYC.  Charlie knocks it out of the park on how to execute conviction and the signal it sends to founders as well as other investors so I won’t be attempting to duplicate something that has already been written.

However, I do want to touch on where conviction has manifested itself thus far for us.  As it turns out, conviction isn’t just making (or leading) investments others won’t.  Just as importantly, it includes having enough conviction in your own process to stick with the plan as a firm even when an investment feels like a potential opportunity.

This is a tough balance because it’s also important to remain open-minded to non-obvious opportunities.  It’s early for me, but I think these questions have proven important early-on:

1. Are you willing to pick companies when no one else has yet?
2. Can you stick to a thesis?
3. Will you pass even when a company looks like it could be a good investment?

The first point here is fairly self-explanatory, do you have the conviction to write a check even when others have passed or haven’t yet?  Here, I agree with Charlie, only writing checks when others commit is telling the market “I’m not smart enough to be doing this alone.”

Importantly, this adds more risk to the riskiest stage of VC.  The size of these rounds means there is no guarantee that you’ll be able to get into the round once a lead is established.  Investors who believe early and are willing to take the lead get the deals.

This is common in underserved ecosystems where the seed-rounds are in the $1-2M range. Typically, these rounds only have 2-3 investors comprised of a financial lead and 1-2 investors who write smaller checks but bring additional resources to the table.

Discipline is the sidekick to conviction.  Bearing in mind that opportunistic investments do happen, the challenge becomes remaining convicted in a thesis and/or strategy even when good (not great) deals present themselves.  This is especially when the time between investments is longer than expected or just starting out when the results of the process are to be determined.

As Ray Dalio wrote in Principles, “Maturity is the ability to reject good alternatives in order to pursue even better ones.”  Alternatives, in this case, come in two primary forms: thesis (what I would call industry for us) and stage.

We have two primary objectives at Intelis.  First, we partner with companies that are impacting the slow-change economy.  Second, we invest in the seed-stage meaning if we invest too late it’s possible we are diluted to the point where even a home-run could result in minimal cash-on-cash returns.

It’s common for us to see great businesses in industries where we have little expertise, or within our thesis but later stage preventing us from getting an initial share that makes sense.  It’s easy to fall in love with great founders and businesses, it’s extremely difficult to stay disciplined enough to pass when the fit isn’t perfect.

I’m hopeful our acute awareness of the damaging effects of distraction and indecisiveness from our time as operators continues to translate in this new phase.

Conviction and discipline are so important in practice because they play a large role in the most crucial decision in investing, actually investing.

When we first started thinking about starting Intelis, we found capital was readily available in the locations we wanted to focus. However, it was from angel investors who’d achieved massive success in other industries and most did not want the role of the investor of conviction.

To us, being an investor of conviction goes beyond the capital, it means working alongside founders to hopefully increase the velocity and probability of scale.  We strive to win deals based on founders believing we’re the best partner for them because they’ve found during the diligence process our passion for what we do comes through.

Pre-closing and during diligence we work with founders to set proper “market” legal and financial structures to ensure incentive alignment for all parties.  Often, this means touching on delicate, first-time subjects for them like founder vesting or setting up employee option pools.

However, we approach these matters with the sobriety they deserve and work diligently to make it clear we empathize with the founder’s experience. We encourage them to talk to other founders, investors, lawyers, and accountants to ensure them we have the success of future rounds in mind and aren’t setting expectations outside the norm.

Once we make an investment in a team, we’re all in and make them our first priority.  Post-closing we’ll provide a massive amount of operational, hiring, product and/or business development support. Our job is to support them to the fullest in any and all ways.  That can range from meeting with consultants, closing potential employees, sitting in on product planning, or working on engaging partners.  The goal is to help our companies grow and learn as quickly as possible which means their problems are our problems too.

There are many informal ways in which we engage with founders: text, Slack, Telegram, and calls at any time.  However, we believe the first institutional capital should go beyond the informal and create habits that engage the executive team with investors on a regular basis.  

This means we schedule regular stand-ups, something we greatly benefited from as operators, where we check in on progress and ask which part of the business we can be most helpful.   We understand this isn’t for everyone, so we tailor it to the founder in terms of structure, frequency (no-less than every 2 weeks), and length.

We’re also big believers of the board meeting even in the cases where we are the first outside capital involved.  They are typically very informal at the beginning and evolve over time.  However,  we think this habit accomplishes two major goals: 1) it allows founders the time to step away from the day-to-day and think more strategically at least once a quarter and 2) it sets a foundation for recording progress and process that signals accountability to the next institutional investor.

We understand that this kind of focus on process and involvement at the early-stage is different and often unexpected (if not tedious).  This is especially true during the diligence process, when it’s likely we dig deeper into a business than the founder has experienced up to that point and after when we try to set Series A expecations for internal processes.

However, we think the data suggests this kind of approach works and it’s important to know that our founders are always in control of the agendas and structure.  Time will tell if we are right, but we think founders crave a high-level of engagement from their investors and the results are better because of it.

One of the biggest challenges of building a venture capital firm is putting together a reputation from scratch.   When we first started Intelis, I naively believed that building a reputation would be as easy as blogging regularly and pointing people to the values statement we spent weeks crafting.  As with everything, it’s more about actions than words.

Reputation to Founders

Being in a second or third tier ecosystem is a double-edged sword.  Investors have a chance to be a real agent of change by acting in the best interest of a company and its future investors by constructing term sheets and cap tables that preserve the long-term incentive structure for founders to pursue maximum upside.

However, it’s common (often rightfully so) to have to clear additional trust hurdles with founders, as they may be used to dealing with investors less accustomed to partnering with high-growth startups

At Intelis, we strive to be value-added investors.  Admittedly, almost all VC’s claim to be value added in one form or another so the phrase carries little to no value at this point.  To add another layer of complexity to the conversation, not all additional value is equal.  Jonathan touched on this subject recently on our blog.

The question then becomes how to prove our team adds beneficial and relevant value to a fast-growing startup even before we invest.  We’ve attempted various ways to solve this problem by creating a pipeline of both talent and customers as well as joining team meetings during the diligence process to ensure both sides feel good about the potential fit.

Reputation to Other Venture Firms

The universal answer to the amount of capital needed to scale a startup rapidly is “more.”  Given this requirement, we connect as often as possible with Series A investors to learn more about the metrics and processes that make investments attractive to them.

We attempt to play a small part in the trajectory of our portfolio companies not only through the value adds discussed above but also by setting up regular board meetings for strategic planning and bi-weekly “standups” for tactical discussions.   Setting up these processes early on helps founders become accustomed to the accountability larger institutional investors expect.

Warren Buffet once said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”  I’m hoping the processes we’re putting in place today help us build a reputation that allows us to work with the founders and investors we admire.

In October, we published The Operations of Fundraising (Part 1 and Part 2).  One small section of the series covered how to identify the best potential investors for your startup.  These posts covered the basics like:

1) Average check sizes

2) Industries of interest

3) Understanding fund lifecycles

4) Portfolio construction

5) Building an investor funnel

With all of the revelations coming from Silicon Valley, it’s more important now than ever to research investors more deeply. The last thing any founder wants to do is give influence to an investor who creates more problems than they help solve.

There are two simple, but important, questions that can be answered just by checking a few references.

Are they good partners?

It’s always a smart move to ask potential investors to speak with the founders of their portfolio companies.  However, similar to reference checking employees, it’s important to call the references that aren’t on “the list”.

Don’t be afraid to find the companies they’ve turned down. The incentive to complement a current investor is high, while companies that have been turned down can sometimes provide better insight into the process.  Other avenues for vetting include lawyers and accountants that have worked with the investor in the past.

Obviously, firms that have been turned down by the investor could have a potential bias.  However, the quality and transparency of the interaction is often a leading indicator for decision-making and integrity which become crucial when faced with the inevitable challenges of a growing business.

I’m not suggesting that checking investor references should be only about finding negatives, but it’s important to get a sense of what a future partnership could look like.  This requires having a sense of both strengths and weaknesses of potential investors.  The more information the better.

How will they add value?

Capital is a commodity.  Early-stage startups should look for investors with operational experience.  Find investors who know how to build a team, product, or help with business development; things like finance often rise to importance later on, and even then operational finance still takes precedent.

It helps to know what your needs are, and what parts of the business are easily outsourced without sacrificing quality.  The only exception is when the investor will add value simply by association.

Pay careful attention to what’s not said by CEO’s of portfolio companies when attempting to answer this question.  If the investor has added value regularly and in a multitude of ways, it’s likely the CEO can offer specific examples of when they really made a difference.

Referencing is often tough and time-consuming which likely explains it’s not done more often.  However, learning the strengths and weakness of anyone who will play a major role in the company including investors is well worth the time.


Recently, Jonathan coined the phrase “the drag of orthodoxy” as it relates to regulated industries and their inability to quickly adopt new technologies even when they provide the best use cases.  Often, this is due to both the inability to implement new technology (easier to solve) and the opportunity costs of losing trust (harder to solve).

Digital adoption in these industries requires buy-in from traditional institutional mechanisms and an evolution of norms as well as consumer trust.

Unquestionably, the push of consumer expectations will continue to combine with digital forces to propel these industries past their legacy infrastructures and into a new age of innovation and growth.

Bitcoin could very well be the inflection point that is needed for mass adoption of blockchain technology in regulated industries and launches them into a new era.

We’ve been here before with less revolutionary technologies.  Marketplaces, enabled by wide-spread adoption of the internet have been around for over 25 years.

However, industries such as insurance and energy are just now beginning to leverage technologies like API’s to offer consumers the chance to compare plans just as they have flights for years.

The adoption cycle also applies to business model innovation. Uber and Airbnb offer on-demand services to better match supply and demand of goods.  It may not seem like it, but those companies are over 10 years old.

Just recently, we’ve seen startups like Honor and Trov apply the same concepts to elderly care and property insurance respectively.

The important thing to note is that just like consumer adoption of technology is rapidly increasing, the same thing is occurring in institutionalized industries.

Where can we go from here with blockchain in regulated industries?

Electricity transactions are still tracked almost exclusively in Excel before being submitted into databases that rarely are connected.  This system adds millions in additional transaction costs and makes full transparency between market actors almost impossible.

If smart meters and API’s wrote these transactions into a decentralized ledger, the errors would be eliminated almost immediately and new entrants (i.e. consumers with excess power capacity due to solar panels) would be encouraged to enter the market.

Healthcare provides maybe the most obvious applications of blockchain technology.  Patient information, research data, and prescription purchases all require privacy, security, and have rigorous standards for quality.

In finance, the unbundling of the job will require new platforms for the reintegration of common services like payroll, insurance, and financial planning.  Blockchain technology provides the perfect solution for transaction and ID verification.

The rise of Bitcoin and other cryptocurrencies has started a conversation centered mostly around their skyrocketing prices.  Yet, what is most exciting for me are the potential use cases that will come as the masses become more comfortable with the underlying technology and its ability to improve the industries that most affect their everyday lives.

For decades, incumbents in industries such as energy, healthcare, and finance have enjoyed the luxury of being protected by regulation. This has provided a moat against competition and eliminated the need for innovation leaving behind inefficient businesses and frustrated consumers. However, customer expectations are changing rapidly resulting in a demand for change and a major opportunity for building impactful, durable businesses.

Unsurprisingly, the concentration of talent in several regulated industries is actually higher outside of Silicon Valley and in cities where those sectors play an outsized role in the local economy.  This density enables several of the same qualities, such as network effects and proximity to potential customers, that make Silicon Valley a hub of innovation.  The metros listed below have a high number of industry experts and the technical talent to implement the solutions that will trigger a massive wave of disruption in regulated industries.


“I also see tremendous stuff happening in highly-regulated markets where there is such a demand for change. I think the dismantling of regulated markets through software is something to think about and watch.” – Chamath Palihapitiya


Energy: Houston

Houston is the energy capital of North America so it should be no surprise the city has a great chance to play a significant role in shaping the future of the energy sector. Texas accounts for 31% (335,000) of the nation’s oil and gas related jobs thanks in large part to its largest city and the international energy behemoths such as Exxon, Shell, Schlumberger, BP, and Engie that call Houston home.

The industry is full of seasoned employees who have spent most, if not all, of their careers in the space accumulating impressive field-specific experience. This dense, highly-specialized network creates unique advantages for energy-focused startups such as a labor-force with knowledge of a complex industry, hundreds of potential customers within close geographical proximity, and low-friction business development opportunities.

Traditional fuel sources aren’t the only major source of jobs as cleantech-related jobs number close to 50,000, while Texas ranks 1st and 9th in wind and solar generation respectively.  The diversity in energy sources has made Texas’ grid among the most complex and advanced in the US, but the fourth-highest penetration of smart meters (80%) gives startups the potential to easily access the energy usage data for approximately 7.5 million households.

Additionally, utility regulators in Texas are forward thinking when compared to the rest of the country and end-users are acutely aware of their energy usage due to volatile weather and comparatively large home sizes.  When combined, these factors make Houston the perfect testing ground for consumer and utility products such as demand-response, utility-scale IIoT, and grid security.

Sectors to watch: digital oilfield, cleantech, DER software, utility-focused IIoT


Finance: Atlanta

Atlanta affectionately calls itself “Transaction Alley” and with good reason.  Several of the world’s largest payment processors are headquartered or have major offices located in the city including First Data, Fiserv, Global Payments, and World Pay.  Additionally, Charlotte, currently the third largest banking city in the US, is only a one hour flight away.

These industry heavyweights provide Atlanta startups with the industry talent and local partnerships needed to fuel growth. One particular example is the Advanced Technology Development Center at Georgia Tech which includes a FinTech specific incubator funded in part by a $1M donation from World Pay in 2015.

In addition to large financial companies, Atlanta is home to large corporations like UPS, Home Depot, Delta Airlines, and Coca-Cola which provide growing startups with potential anchor customers. These firms don’t just represent large revenue opportunities, all of them have provided local incubators and co-working spaces with sponsorships and donations to support the local ecosystem.

The perception of Atlanta as a FinTech leader is already well underway due to the large successes of local startups Kabbage, Cardlytics, and BitPay.  For most, Groupon and Braintree helped to put Chicago’s tech ecosystem on the map. These companies have the visibility to cement Atlanta’s status as a FinTech hub for decades to come while incubating talent that could start the next wave of great companies in the space.

Sectors to watch: payment processing/disintermediation, cryptocurrency, authorization, automation


Healthcare: Nashville

Nashville is much more than the country music capital of the world. It’s also a major center of healthcare contributing more than $40B annually to the local economy and supplying residents with over 250,000 jobs.

The impressive numbers don’t end there.  Eighteen publicly traded healthcare firms, 4,000 small businesses related to healthcare, and Vanderbilt University (the 14th best medical research university according to US News) reside in the metro. The result is an unmatched opportunity for clinical trials via hospital systems like HCA and Vanderbilt as well as a large customer base software solutions for small and large practices.

Perhaps more than any other industry, healthcare requires a deep industry knowledge including, but not limited to, issues such as the regulatory pathway, intellectual property rights, and the role of insurance in the overall revenue of hospitals and small practices.  Nashville’s diverse but concentrated talent base provides founders with an abundance of resources as to solve these problems as they work to get their startup off the ground.

Sectors to watch: patient compliance, remote patient monitoring, small practice and hospital system operations


Regulated industries have been absent of major innovation for several decades but as customer expectations evolve these businesses will be next in line for a wave of disruption.  Due to the nuances of these sectors, it just so happens those waves are likely to be triggered from outside Silicon Valley. Instead, innovation will likely originate in the metros which know them best.

A few days ago, I published a post on the importance of setting up internal processes for fundraising.  Part II focuses on identifying the correct potential firms, interacting with them during the process, and finally closing the deal.  Let’s jump in.

Raising capital, like any sales process, becomes easier when you identify the proper targets and their individual goals.  However, in this case, a deal will hopefully lead to a long-term relationship with a partner or partners who want play an important role in the success of the company.

When raising institutional capital, there are generally two types of prospective investors: venture (private equity) and strategic (CVC).  It’s important to know the traits of each category in order to craft a pitch that will resonate and understand the terms that will matter if the deal begins to materialize.

Venture capitalists are primarily financially motivated. As a founder, it’s important to research a firm’s thesis, geo-focus (if applicable), and stage focus to find the best fit. While the chief goal for a VC is optimizing ownership, good investors are seeking a deal on fair terms that will leave the founder with enough equity as to maximize the incentive to pursue long-term value creation or seek additional capital.

Corporate venture capital is a little more tricky as it pertains to motivation.  Depending on the CVC, the reasons for investing can range from outsourced R&D, first-look at potential acquisitions, reduced customer acquisition costs, or synergies with upside potential.

It’s easy to imagine the difficulty in predicting the motivations of a CVC and the potential hazards that come with misaligned incentives.  Combine these uncertainties with the typically longer deal process and it becomes clear that raising capital from a strategic requires careful consideration.

The next factors are ones we see many founders neglect to consider: understanding both how and where you fit in a VC fund.

  1. How: the combination of thesis (discussed earlier) and funding stage.  In the slide above, we use a $100M fund as our example.  Typically, a fund makes 20-25 investments and reserves for follow-on. (note: this varies by fund, but this is the typical model).  Let’s assume this fund reserves $60M to maintain or increase its position in the winners, leaving $40M for initial investments. This means an average first check lands somewhere in the neighborhood of $2M. If you’re asking for $500K, it’s unlikely (though not impossible) this fund is too large.
  2. Where: the age of the fund and how this will impact the VC’s need for an exit.  Most investments are made during years 1-5 of a 10-year fund. Depending on the stage, a startup can be great for either end of that timeframe. However, it becomes possible to be pressured into an early exit due to a mistimed investment or have a board seat change hands in a secondary sale of equity.

It’s completely fair for founders to ask questions surrounding these issues.  I would argue it shows maturity in both understanding the venture process and wanting to ensure that both parties are completely aligned for the entirety of the partnership.

Much too often, we see cold-emails that are clearly of the “spray and pray” variety meaning founders are emailing as many potential investors as possible with no difference in message.  My advice to those startups would be to take a step back and really consider building a targeted pipeline of potential investors.

Start with a wide funnel that encompasses all the investors in either the industry, technology, or geographic region in which you operate then begin to narrow by the remaining criteria plus average investment size. For example, if you are a healthcare company in Dallas you might build a funnel of all healthcare investors which have done a deal in the last 12-18 months in the US, then narrow by the ones who have made an investment in your technology (ex. software/hardware), and finally by Texas.

Once you’ve selected the top 20% of firms that seem like potential fits, find the partners which made the investments.  Generally, all will have an online presence wether it be Twitter, a blog, podcast appearances, or just quotes in press releases, find something to use in the initial outreach which explains why it’s the right fit for a partnership outside of capital.

Though it varies from round to round and startup to startup, fundraising often requires thousands of interactions with hundreds of contacts.  It is essential to keep up with these contacts in an organized way while delivering positive news throughout the process.

For this reason, in addition to a CRM, we highly recommend finding a meaningful KPI which is unlikely to go down and sharing an update at the end of every week. The weekly update serves several purposes: it creates a trend line from dots, it shows accountability, it shows execution ability, and it keeps your startup at the top of the investor’s mind.

As the interactions with prospective investors increase, it becomes important to filter the noise and avoid “kissing a lot of frogs.”  After all, you’re still running a business and time is precious.  We encourage entrepreneurs to do their diligence on investors including asking service providers such as banks and lawyers for their opinions.  Association with the wrong investor can be a negative signal to the investors you covet.

Lastly, ALWAYS authentically respond to no’s.  They are an amazing chance to show humility and learn.  When a founder ignores a no, it feels like a confirmation, right or wrong, I made the right decision.  After sending a response, move on.  Time is money.

It’s often said time is the enemy of all deals.  Once a VC has agreed to invest, work to close as quickly as possible. Often, it’s hard to manage the process especially when it pertains to service providers but there are steps that can be controlled.

The groundwork laid in the previous post really comes into play as the close nears. Thorough research on comps helps guide the valuation process and an organized data room containing the appropriate materials increases the speed of diligence by reducing the need to find materials and limiting unnecessary communication.

Much like the previous post, this one was long in nature.  However, I hope these tips are potentially useful and maybe introduced a few unfamiliar nuances in the fundraising process.

Credit: John Tough, partner Invenergy Future Fund, for the inspiring the images used in this post.  

Part I can be found here.

Inspired by recent conversations with aspiring entrepreneurs and the questions they asked, I’ve been posting recently on topics that are useful during the fundraising process.

I’ve covered storytelling as a tool to help others emotionally engage with the business and displaying empathy for users via a heightened degree of customer knowledge.  Here, I’ll cover more of the capital raising process itself and a few tips that should make things go a little more smoothly.



Fundraising is commonly a long process that begins well before an actual roadshow and investment take place.  We’ve come to think of the capital raise in 3 distinct parts.

  • Part 1: Preparation and iteration – The key milestones here include getting the presentation deck prepared, inviting feedback from key stakeholders, organizing the data room with all necessary information, and creating a place to track investor outreach.
  • Part 2: Presentation and follow-ups – This step is self-explanatory and contains the presentation to investors as well as the follow-up conversations that occur after the initial pitch.  In the next post, I’ll dive deeper into how to identify and rank these potential investors as well as best practices in communication.
  • Part 3: Close – Speed matters.  Look to close the deal as quickly as possible after receiving a yes, uncertainty can derail the process if allowed.



More often than not, a snapshot of the headlines on sites like VentureBeat and TechCrunch can give the impression everyone is fundraising and doing so with minimal effort.

What’s missing is the real story, unless a startup is a runaway success, deals rarely come together quickly.  In reality, fundraising is usually a marathon that will test resolve and require luck along the way.


Despite that fact, fundraising is an amazing career experience, and with the right attitude, can be a lot of fun.  You’ll meet more interesting and successful people in a short amount of time than at any other point in your career.

It’s important to take advantage and learn from every interaction.  Great investors will force you to think outside the box about the business and highlight the potential hurdles ahead which they’ve learned from experience as operators and investors.  LISTEN, you’ll be better prepared for the next pitch meeting and to run the business overall.

Outside of the opportunity to learn, other benefits include adding new skills:

  1. Sales – Obvious example, fundraising is all about learning to sell.
  2. Leadership – Fundraising may have one point of contact, but it takes a team to build a deck articulating a well-rounded vision. Not to mention, the possibility jobs can be dependent on closing the round, placing an increased emphasis on communication.
  3. Presentation – Another obvious example, being able to present to large groups of unfamiliar faces only gets easier with practice. Additionally, the ability to craft a well-designed deck comes in handy. People love pictures.

Perhaps most importantly, fundraising is unmatched when it comes to teaching humility and bouncing back from failure.  Even small venture capitalists see ~500 deals annually, and make somewhere between 8-12 investments meaning “no” is the answer 98% of the time. While it’s important to understand the odds are steep, the fundraising process is an incredible experience that teaches career-long lessons like only it can.



Now that we’ve established fundraising is a difficult, but rewarding task, it is VITALLY important to know when to begin the process.  More often than not, we see many startups believe the process will take 3-4 months.  Our advice is to take that timeframe and at least double it.

The other crucial mistake we see is not raising enough capital for a given burn rate.  This is usually a combination of misunderstanding two variables, as mentioned the first is the length of the process, but the other is much more nuanced: negotiating leverage for the subsequent raise.

Attempting to close while the cash balance is dangerously low is likely to negate any negotiating leverage and creates the opportunity for investors to include less favorable terms.  These terms often have the tendency to become an issue at the worst time possible.

We advise raising no less than 12 months of operating capital and prefer to see startups targetting a raise that buys them 15-18 months of runway.  This creates a buffer in the event unforeseen circumstances such as a slower than anticipated average sales cycle or a longer than anticipated capital raise create a cash crunch.

Lastly, always know the seasonality or cyclicality of revenue and sales.  A downward trend, even if the YoY growth is great and can be explained, creates an unnecessary hurdle.  For example, if sales ramp up in Q1 and Q2 but cool off in Q3, it’s best to ramp the roadshow and target a close in those first 6 months or be confronted with undesired friction.

Once the decision to raise capital is made, the next step is often to create a “pitch deck.”  However, that’s only the beginning of the process.  Great startups recognize that fundraising is much more than a pitch deck, but a process that will likely take months and involve contact with dozens of individuals.  As a result, they build the process for scale.

This includes creating various presentations tailored to the type of investor and method of communication, preparing a data room that can be easily shared, and creating a CRM (excel, Hubspot, etc..) to keep track of each interaction.

One last tip, research market comps and use them to direct the narrative of the future.  I’ve seen several startups use this tactic, and when done well it can be extremely powerful.

This was a long post covering a lot of (hopefully useful) information.  If you made it this far, thank you for reading!  I’ll be back in a few days with Part II which will focus on identifying the right investors, keys to pitching them, and how to close the deal.

As always, if you liked this post, please share!  Part II can be found here.

Credit: John Tough, partner Invenergy Future Fund, for the inspiring the images used in this post.  

This week, behavioral economist Richard Thaler won the Nobel Prize in Economics. Thaler is best known for his work for disproving the traditional assumption that people make completely rational economic choices. If you’re a founder and not interested in behavioral economics, you should be.  A great place to start is Dan Ariely’s Predictably Irrational.

A few days ago, I mentioned the possibility of putting together a few posts on pitching and fundraising topics that are not covered as extensively as others. One particular topic that is often touched upon but, as evidenced by Thaler’s work, cannot be over-emphasized is the ability to demonstrate profoundly deep knowledge of your customer.

This capability is almost impossible to fake.  Either a founder speaks regularly to customers, both in-person and through data, or they do not.  Founders who have this deep knowledge are often able to easily speak to the customer behavior that is unique to their industry, and explain exactly which steps they took either with the product or the sales process to exploit these behaviors to the tune of traction.

A few real-world examples from startups include:

1) Understanding that in older, more entrenched industries a full technological leap may be unwanted or not possible.

There are a multitude of reasons this is the case, but the three that immediately come to mind are:  too risky from a financial or operations perspective, lacking the internal technical talent to implement or learn a new software, and the “that’s the way it’s always been done” mentality.  The quote below from Invenergy Future Fund partner John Tough perfectly sums up how founders should think about disrupting these industries.

No new technology solution is going to completely rip & replace existing software. Start-ups that expect to dramatically replace existing software architectures and make generalizations about weakness of existing solutions simply have not done their homework. @johnjtough

We’ve seen attempts to overcome these hurdles through slow-roll outs (note: slower revenue growth), taking increased responsibility for implementation (potentially higher costs), and inserting a human element into the process, think customer starts online but confirms via telephone (higher CAC).

Obviously, none of these options are ideal but are often necessary to gain traction within these legacy industries.

2) Learning that, much like B2C, in Enterprise SaaS it is still necessary to build for the end user.

Telling a visionary entrepreneur not to build the sleekest designed or most technologically advanced product possible seems counterintuitive. But, depending on your customer’s end user it could be the best possible strategy and a great way to conserve already constrained resources.  We came across this insight personally at Choose Energy on the B2C side and it recently surfaced again with a B2B startup with which we met.

Since I want to maintain the startup’s anonymity, I’ve made up this fictional example so please excuse me if it seems completely ridiculous on multiple levels.

Imagine building a software that optimizes call center or chat volume through algorithms based on inputs from the call-center agents themselves.  Who should the startup be building for?

My answer would be the call-center agents who are responsible for the inputs. The algorithm is only as good as the data it receives from the agents, who in most cases will be high school educated workers who are not interested in learning the newest technology but simply want to get the job done as efficiently as possible. A simple product that interrupts their workflows as minimally as possible is the way to go.

3) Adapting to a communication style that makes the customer more comfortable. 

Some new tech expressions can sound scary, especially to those in industries that have yet to be largely disrupted.

While phrases like “machine learning” and “artificial intelligence” can sound great in a deck or pitch meeting, potential customers often hear those words as the potential to remove the human element, i.e. them.

Another common phrase in the tech space is “cloud storage”, and while we think reliability and ease of use, some older industries think “unsecure storage.”

Founding teams who are exceptional at sales strike the right balance of communicating the value of their technology to management, get buy-in from those who the software will impact most, and make everyone comfortable during the process.

Knowing your customer is crucial in any business, but special founders are able to demonstrate unmatched insights into their customers.  More importantly, those founders turn these observations into distinct competitive advantages in sales, product, and marketing.

Like this post? Sharing is always greatly appreciated!



Last week, Jonathan and I had the privilege of joining an SMU MBA class as the judges for the final assignment of the class: pitching a business born from a mod-long hackathon.  During the break, we held a small Q&A session and one question we were asked by a student was, “how far are we from the real thing you guys see on a day-to-day basis?”

To be fair, this class strictly focused the ideation, market research, and MVP demo of an idea so the answer was quite far.  However, SMU does a nice job of offering entrepreneurial-minded students the chance to take classes which get them closer to a finished product.

This interaction did inspire me to finally begin writing a series of blog posts I have been contemplating on pitching and the fundraising process.  I’ve long assumed it would be worth writing a few thoughts on these topics but wanted to do so outside of the standard pitch deck structure, which I cover extensively by providing examples in my previous 50+ Resources for Entrepreneurs post.

Most venture investors at the seed-stage will tell founders one of the first things they are looking for is a strong team. Particularly, we are looking for great leaders and communicators who generate a lot of energy for their team.

These leaders take the noise, rather internal or external, and produce a clear message from it.  For me, the clear message is key especially in a world where you have your consumer’s attention for less than 60 seconds in most cases.

This skill manifests itself in several different parts of the pitch meeting, but none more obvious than the initial setup explaining what the company does and why it does it.  Here are a few tips on how to clearly explain the mission while getting investors excited to hear the rest of the pitch.

1) Let the audience create their own frame of reference and ask a question to which you know the answer.  For example, in this Y Combinator video, Sam Altman is pitching a company from his cohort that is an all-in-one app to house all of your personal EMR’s.

The first question he asks a potential angel investor is, “What do you believe the biggest problem in healthcare is today?”  Sam has actually done something very clever.  When the prospective investor says, “rising costs,” Sam immediately educates him on how this new product is going to drive down the exponentially rising costs in healthcare.

2) Avoid the “imagine a world” type statement, and tell a personal story instead.  We’ve always been a fan of the saying “the best inventions serve the needs of the inventor” primarily because it often translates to founders being more likely to deeply understand their customers.

The team at BioLum does an amazing job using this strategy in their pitch.  All three founders are asthma sufferers, and as a result solving the problem is deeply important to them personally.  The most successful founders are often obsessed with solving the problem over all else; if that problem is personal to an entrepreneur the desire to find the solution is amplified by a significant amount.

Over the next few posts, I will continue to focus on nuanced tips and wrap up with a post on how we think about running the process of fundraising including this deck on which we will elaborate further.  Until then, I’ll be in Austin for Startup Week until Wednesday.  If you’ll be there, feel free to find me and say hello.



Over the last 18-24 months, as we were working to evaluate the product-market fit of an early stage venture capital firm focused on emerging ecosystems, we met with several entrepreneurs. The goal was to gain insight into the strengths and weaknesses of their respective ecosystems and determine how we could best solve their problems.

Lately, as we’ve become more public about our intentions to invest, I’ve noticed some founders who approach us don’t feel comfortable being completely clear in their intentions for meeting.  I’m unsure if this due to the current atmosphere in these ecosystems, if we aren’t doing a good enough job in expressing our desire to help founders to the best of our ability, or I am naive and should always expect to be pitched.

Regardless, I strive to tailor the circumstances of the meeting to the appropriate levels, and to quote Jason Calacanis, when it comes to meeting founders “there’s nothing I love more.”

The reason I do this is that I want to be known for always having time for founders.  People tell me, “I know you’re really busy, I don’t want to keep you.” But it’s my job to meet with founders.  There is nothing I love more.  – @jason

If I know your intentions for our meeting, it allows me to optimize the time we spend together by adjusting three important aspects to any encounter.

1) Setting – If we are meeting as an opportunity for both of us to expand our network, I’m more likely to suggest lunch or a coffee due to the more relaxed nature of the conversation.  However, if we’ve agreed to a pitch meeting our conference room is preferred.  First and foremost, the founder now has the choice of how they’d like to present their deck, if at all, and they don’t have to do so on a laptop screen at an awkward angle inside of a loud coffee shop.  Secondly, it provides me the opportunity to take better notes and in turn offer much better feedback regardless of our investment decision.

2) Preparation – I am a huge fan of Cal Newport’s Deep Work and Greg McKeown’s Essentialism which means I’ve learned to immensely value other’s time as well as my own.  If we are meeting as a casual get to know you, I’ll do some light research on you so that I am able to anticipate your needs and how I can help. However, my preparations for pitch meetings are often much more in-depth and take up large portions of my day.  It’s crucial to me founders leave those meetings feeling as though they got something other than another opportunity to pitch and if I’m surprised by the pitch I won’t be able to be adequately prepared.

3) Time Allotment – This one might be a little more counter-intuitive.  If our meeting is a more casual, networking style encounter, I’m more likely to be strict with my time. Whereas during the more formal pitch meeting, I’ll put a 30-minute buffer on the back-end to allow us to go over.  The last thing I want to do is rush out of what is a vital conversation for both parties.

I hope this list encourages founders to feel as though they can be open with their intentions in meeting with me moving forward.  The best part of my job is meeting with people who are on the front lines building businesses that could potentially change a major part of our lives.  Running a business is often a 24/7/365 endeavor, and my goal is to ensure I don’t waste a minute of an already precious resource….your time.

Recently, CrunchBase published a new case study on early-stage funding including the different types of deal structures, priced (equity) and unpriced (convertible notes or SAFES).  The post was a useful, if very high level, overview of the early-stage funding process.  However, due to this simplicity, the article painted a naive picture of how unpriced rounds often work in practice. While notes and SAFES have become the norm in recent years, it doesn’t mean they should be, especially in underserved ecosystems like Texas, Pittsburgh, or Atlanta.

In these metros, early-stage capital is scarce, thus increasing an investor’s negotiating leverage.  Given that context, fundraising is often an extremely difficult hurdle to navigate for local entrepreneurs. Ultimately, unpriced rounds making up the majority of early-stage deals in emerging ecosystems can be shortsighted.  Over the long term, it can limit a startup’s ability to raise future rounds and hinders the ecosystem as a whole by sometimes forcing great entrepreneurs to start companies in more favorable markets where investors are accustomed to optimizing for a startup’s long term success.

It’s easy to forget that, just 130 miles outside Chicago, is the University of Illinois’s main campus. “Remember, Marc Andreessen was building Mosaic at U of I, and Max Levchin,” probably best known as the founder of PayPal, “was down there too.” Carter relayed the story of how Levchin came to Chicago to raise money for his first startup, he was spooked by the terms put forth by the independent investors he spoke with. He probably left for the Valley because we [Chicago investors] couldn’t structure a deal,”  – Jeffery Carter, Hyde Park Angels

Convertable notes and SAFES only make the process more confusing by putting off the valuation and thus hiding the potential ownership (i.e. possible dilution) at the time of conversion especially in cases where the startup has raised more than one note on varying terms.  I believe some investors do like this opacity.

Entrepreneurs are not the only ones put at risk by unpriced rounds of fundraising, the investor hasn’t actually put themselves on the cap table which leaves open the possibility of issues such as the renegotiation of their terms by the next lead investor. This puts the seed investor in the awkward position of getting the terms they believe they negotiated or being the “bad guy” who could potentially spoil the next round.

The goal of any aspiring startup ecosystem should be collectively working to eliminate onerous term-sheets to better incentivize founder upside for the ENTIRE lifecycle of a company, not maximizing the “paper” upside of one investor for one round. This perspective enhances the goodwill between investors and entrepreneurs while encouraging both sides to continuously participate in the scaling of great companies.  We achieve this by taking four simple steps:

  1. Use priced seed rounds whenever possible.  Legal fees used to be the main sticking point for doing an equity term-sheet but now the prices can be fairly comparable.  As mentioned above, there remains little reason to delay valuation for sophisticated investors.
  2. Provide extreme clarity in the event the round must be a note or SAFE. One of the best practices we’ve implemented is showing our entrepreneurs pro forma cap tables in the event of down rounds and at the “cap” set in the term sheet.  This allows us to highlight the various levels of dilution possible for founders.
  3. Simplify the terms. We advise the startups with which we work to offer only one round of convertible notes with the same terms to all participants. As Fred Wilson has recently pointed out, $1-2M “feels about right” for the as the maximum size of the raise. Obviously, this depends on the product and other factors affecting the anticipated runway.
  4. Provide a list of established VC resources and discussions of notes.  By doing this, we allow founders to do the research themselves and collect opinions from both sides of the table.  Y-Combinator, Fred Wilson, Seth Levine, and many others have written extensively on this topic.  We encourage founders to seek, and in many cases we provide, these resources.

Anyone who has discussed venture investing with me knows I passionately dislike unpriced rounds though that doesn’t mean I won’t do them.  The ultimate goal for us has, and will always be, to partner with the best possible companies. However, if we do participate in Notes or SAFES we work extremely diligently to make sure the terms are clear and founders thoroughly understand the pros and cons of the structure.