The VC audience

Understanding your audience as anyone who’s in sales, marketing, or speaks frequently will attest is probably the single largest factor when preparing for and then having success.  Its really no different when it comes to understanding and raising money from venture capitalists.  In fact, its probably one of the most important (and overlooked) things you can screw up. I’ve been thinking about this lately as I talk with fellow entrepreneurs who are looking for investment capital and want advice or opinions on who they should talk to and what their best line of attack should be.

In my experience, no matter how a VC gets onto the career path to partner, they tend to always gravitate into 1 of 3 types of lead investment criteria.  I think this understanding is generally not well understood by companies seeking to raise capital.  Understanding the primary drivers of your audience results in less time wasted and less frustration for both.

1. The Market or Theme-driven investor

At Lijit, our primary lead investor, Foundry Group, falls squarely into this category.  These investors seek out a major market theme and then learn everything there is to know about it.  They are connectors, filters, and learners.  They meet with everyone that covers, invests in, or tries to build a company in their particular focal area.  If they’re right about the market and they do their job right of meeting everyone and looking at everything, then they have an obvious advantage over other investors pursuing the same market – and – they give their portfolio companies a huge boost with connections, partnerships, business development assistance, economic modeling, etc.

2. The People-driven investor

We also have one of these as a lead at Lijit, Boulder Ventures.  This type of investor bets primarily on entrepreneurs that have track records of demonstrable success.  Over time, they form a “stable” of these entrepreneurs.  Tracking, following, keeping in contact with people they want to back.  They make good and focused use of their EIRs to start something and then they invest in that something.  Oftentimes these investors will pass on a deal that has what could be phenomenal market potential, simply because they don’t like or don’t have any experience with the management team.  Conversely, they will take on more market risk with a known and trusted management team with the driving belief being that the team will figure it out and create success.

3. The financial-driven investor

More often than not this group comes from investment banking or other professional investment backgrounds.  They look for deals where they can apply some sort of financial leverage as the leading criteria for weighing whether or not to do a deal. The portfolios of these investors have a more private-equity look and feel.  Portfolio companies that are capital intensive businesses, service driven businesses, roll-ups, and the like might also be there.  Down-rounds are opportunities to consolidate positions, and creative use of leverage is common in their deals.

Obviously the successful venture investors apply all 3 of the above when making an investment decision, but understanding the primary criteria of your audience will make both sides lives easier and more productive.

Admit One.

Step right up.  Get your one-way ticket to ride the ride.

free ticket

At the close of every quarter we do a review with the entire management team.  Typically these meetings are a chance for everyone to share their successes, how they or their team performed against their goals and get collaborative feedback on what did and didn’t work.  Its also an opportunity to set goals and discuss tactics for the upcoming quarter.  In general I think everyone gets a lot out of it and its a great level-set for where we are as a business.

At this last review we started off with a presentation called: “Ticket to Ride”.

My thesis was simple:

1. You each have a ticket.

2. The ride is going to be up – down – and definitely twisty. 

3. It will be really fun and possibly really scary at times.

4. It may make you light-headed, queasy, disoriented, and possibly you might even puke all over yourself.


5. You will not exit the ride the same as you entered the ride.

Punchline: you have the choice whether or not to take the ride. 

But.. if you go through the turnstile, understand that there will be too much to do, in too little time, with not enough resources.  We’re going to do things that we’ve not done before and in ways that we don’t yet know how exactly we’re going to do them.  Some of you might not make it out alive.  Those that do, will, at a minimum, never be the same again…

Everyone on our team grabbed their ticket.


Would you?

Venture Capital + Federal Government = Sucks

I wrote a quick blog post awhile back after Thomas Friedman’s op-ed in the Wall St. Journal.  Mr. Friedman essentially said that if government really wanted to spur innovation and progress, that we (the royal “we”) should be emulating the venture capital model of a small group of knowledgeable investors making strategic equity investments in promising new start-ups that are executing on innovative and disruptive ideas.  I still like the line of thinking.  I’m not passing judgment on the how or who, I just like the idea.


Today in the PEHub daily newsletter, Dan Primack takes a swing at a Federally backed VC fund-of-funds.  Take a minute to read the article (and the flow chart).

This is where I get sideways with the VC + Government idea.  My experience with the prior wave of SBA-backed VC funds is nearly universally bad.  To me, this was a way for fledgling VCs that couldn’t raise institutional capital, to lever up their individual investors commitments and get them a “big boy” fund.  This is bad on several levels and in nearly all cases I’m familiar with produced a flop for the individuals, the government, and the companies.

Mainly, I think the bar that VCs have to hurdle in order to raise an institutional fund is there for a reason.  It separates the wheat from the chaff in a way that no other model currently does.  It forces the team to have certain performance characteristics, have a sound strategy, and it gets them the kind of commitment that doesn’t balk when markets fluctuate as the always do.  Its a basic check and balance to ensure that only the best survive and that the rewards accrue to the consistent top performers.  Isn’t that what operating and executing in the high-velocity world of venture capital and disruptive innovation is all about?

The creation of a Federal fund-of-funds will obviously push a whole bunch of capital flows into alternative investments.  This will result in a spike of investment and startup activity some of which will be good – and of course some of which will be bad. The rule of unintended consequences suggests that most of this will flow to mediocre VCs and mediocre startups while at the same time hamstringing the companies and investment firms that truly have innovative and disruptive ideas.  A classic example of where the ideals and reality part ways.

Founders make the best salespeople

People that have known me for any length of time have heard me say this more than once.  I still believe it to be the case, although recently I’ve evolved my thinking to include the ‘owners’ of a business.

Steel Mill

The simple reason  for my original contention is that a founder of a company has been there since the beginning.  They’ve seen all the gyrations, been intimately involved in building the product or service, sold the first few customers, answered the investors questions, taken on heaps of constructive and critical feedback, and described what they do (or intend to do) at countless social events.  Pile on top of all that: they wouldn’t be founders if they didn’t have a passion that ran far deeper and more animalistic than anyone else around the table.

Like I said, recently, I’ve evolved my thinking a bit on this.  I now include people who truly “own” the business.  By this I mean those people that posses the ownership gene.

This set of people develops a sense of the company’s history regardless of how long they’ve been there, they fearlessly try and try again to describe what it is the company does at each and every family/social/cocktail/sporting event, they roll up their sleeves and get involved in challenges beyond their job scope and description, they think about new ways to expand, increase, grow and generally go faster everyday.  Every business needs a team of people like this if they hope to succeed.  People that have an insatiable need to talk to end users, prospects, skeptics, and basically anyone who will take the time to listen and give constructive feedback.  They use every opportunity to talk passionately about what they’re doing, where they fit amongst the competition, and why their product or service is more awesome than the other guy’s.

Once these people truly understand, are deeply passionate about, and can describe the company’s place and position in a holistic business sense, they then become the best salespeople in the company.

Reducing ‘value’ to an algorithm


Interesting article in the MIT Technology Review about measuring the value of a company (startup) by measuring buzz metrics (Twitter activity, Techcrunch mentions, Blog posts, etc.).  Similar to the YouNoodle or KillerStartup goal of predicting a companies value and ability to raise capital based on the historical biographies of the management/founders.

All of this is complete and utter bullshit.

In the article Feld has a quote that hits the mark: "factors like this dramatically oversimplify the drivers of success (and failure) in entrepreneurial ventures.".

Also in the article is a paragraph quoting Josh Lerner: he has published research showing that an entrepreneur's second startup has slightly better odds of succeeding than her first, and that having one successful startup makes a second startup more likely to succeed. "That suggests there are definitely patterns out there that work," Lerner says. "I'm sure if you were really to punch the data, you'd find there were many other patterns."    This statement on the surface seems to suggest that indeed there are data patters that point to a positive result for YouNoodle.  That unfortunately is at best a weak linkage, and at most purposefully misleading.

The issue I have is that the article and the stance by both the popularity and valuation algorithms is that they completely miss the point of how value is created in ANY company, startups, or otherwise.  I’m actually amazed that MIT paid any real attention to it.  I’d assume that The Onion would be a better source to cover the news on this one.  Not my line, but one I like is Peter Drucker’s: “the purpose of any company is to create a customer”.

Value isn’t created by buzz or by the ability of a founder or manager to raise capital, its created by customers parting with their money/resources because what you have to offer is more valuable than their money/resources.

Back to the article’s usage of Lerner’s research: if you extrapolate that a 2nd time team is statistically more successful than a 1st time team.. then why does the 3rd time team bump directly into the Experience Trap I wrote about a few days ago and decline in their ability to succeed and create value?

Data: who’s your daddy?

A pullback, slowdown, recession or whatever you want to call it, often exposes big opportunities for people and companies that are wise to the bigger picture.  This is exactly what I think is going to happen in the world of online advertising data.

The ad networks figured this out a while ago.  As did the behavioral targeting firms.  The ‘big guys’, Yahoo, Google and Microsoft all own ad networks and behavioral targeting technologies, so by definition, they’ve also sort of figured it out if not implicitly.

What I mean is that online advertising whether its search, display, video, pop-over, pop-under, affiliate, or whatever essentially is a commodity.  The real and tangible value resides in the data (and one could argue the creative).  This data-value contention is what will eventually separate winners from losers and in the process cause all sort of interesting havoc.

My premise is that most online publishers are fickle.  So are the brands.  They seek to get the best performance, period.  To publishers that means quality advertising that generates them good returns on their investment in publishing and engaging readers.  To the advertisers, that means engagement with their brand in a way that (eventually) generates sales.

The trick here is that understanding the performance of what works, what doesn’t, why/why not, and how to improve is the critical component.  The creative process of course has a huge roll to play here, but I think that roll will always accrue to those that are truly creative.  The data piece of this puzzle is much more up for grabs.

Think of it this way:  An ad agency works on a campaign for Nike, they run it across many types of online media.  Its either successful or not.  Who then owns the data about the efficacy?  The agency? The media buying firm? The ad networks? The ‘big guys’?  What if Google decides to take that data and help Adidas?

The fantastic thing about online advertising is that nearly everything can be instrumented, measured, analyzed, experimented-with, tuned and tweaked.  There is a transparency that makes it a compelling place for advertisers and consumers to connect like never before.  The real battle that will wage shortly is behind the scenes and it will be fascinating to watch it play out.

The ‘heads-down’ challenge

For over 14 months now I’ve been working like a banshee at Lijit.  We’ve made a ton of real progress, grown the network of publishers exponentially, and built an entire Ad serving platform.  Sometimes its hard to gauge all that progress because I’m so damn close to everything.

Yesterday, we brought in a handful of thoughtful, smart, and experienced publishers from our network.  We took them through the story, what we’ve been building this past year, and what is on the roadmap for 2009.

This morning Louis Gray wrote a fantastic post that really captured the essence of what we’re doing.  I’m on one hand fired up that he not only ‘got it’ but also was able to articulate our value proposition so clearly.  The disappointing thing is that I realized we’ve done ourselves the disservice of not effectively getting our message and progress out to a wider audience. 

It’s understandable that being so heads-down creates a lack of attention to the external marketing of our value.  The good news is that we can fix that.  We just need to pay more attention to it, and get on that shit! Thanks guys for pointing it out.

The experience trap

Experience is typically an asset. But.. I think, at times it can become a hindrance to success. 

What do I mean?

Take, for example, a team that starts a company.  They begin figuring things out, listening to the market, learning, making mistakes, focusing on where they succeed.  Eventually they persevere, grow, and take the company to a good place (profit, IPO, sale, merger, whatever).  This team eventually moves on from the company.

Some time later, this team gets ‘the band’ back together.  They do it all again.  Maybe.  This is where I think the Experience Trap starts to creep in.  Maybe they’re successful this time around, likely not.  If they ultimately succeed, I don’t think the 3rd time works. Ever.

The problem is people start to rely or lean on their past experiences too much.  The market, by definition, is constantly evolving.  Most people fall into their comfort zones too easily and a team of people that have worked together multiple times usually exacerbates that.  This gets progressively worse, which is why I think 3rd-time teams never succeed.

An analog to the team effect, is the “been there – done that” effect.  This is when someone that has a background in a particular market and has been very successful in that market, tries the same thing that worked in the past.  Again, the market evolves and what made them successful before may not be what will make them successful in the current scenario.  Some experience is critical, relying on what worked before to work again is the issue.

Worse, is the “too much respect for authority” effect.  That generally occurs when someone has a bunch of experience in a market and is too mindful of the general pecking order of companies, executives, and people in authority positions.  They hesitate to make contact or run an idea too far up the flagpole because they have a pre-determined notion for how that idea or contact will be perceived.

I’ve found that keeping myself honest is something that’s required to be successful.  I have an insatiable appetite to learn new things, new technologies, and new people.  I’ve in the past (at times unfortunately) had too little respect for authority.  Everyone puts their pants on one leg at a time.

Venture Capital Triage

An article this morning on the front page of the WSJ Marketplace talks about VC firms performing ‘triage’ on their portfolio companies.  The article profiled a small bay area firm Claremont Creek and my friend and MD at the firm, John Steuart.

Too bad the article was dumb.  It could’ve gone in a much more interesting direction about the types of new businesses that are succeeding in this market and why.  Instead it focused on the culling of the herd.  It strikes me that one of the ‘benefits’ you get from VC money is a laser focus on results and a discipline of constant investor activism.  The gist of the article was that in these tough times VCs are placing their bets in “A” companies rather than “C” companies.  Shocker!  Sort of sounds to me like what VCs should always be striving to do.  Just goes to show that no crisis goes un-wasted.

Structures, methodologies, and tools

If there was one best way to set up and manage an organization all companies would be set up and managed the same way.

I’ve recently had this funny feeling when I started to hear the Agile software methodology religion. We just started a rollout of Rally Software.  A great company with great leadership, BTW.

It occurs to me: its not the methodology (Agile) or the org structure (Matrix), or the SFA tool (  Its the people, culture, trust, competency, and the common desire to accomplish great things, succeed and win.  The other stuff just helps streamline communication, responsibilities, and “agility” of the potential that already exists.

Back to my “one best way” comment above.. My experience suggests that most people/companies approach things exactly backwards:

1. Start with an org structure or chart (matrix) – or – a methodology (agile) – or a tool (

2. Next, go about determining what people need to do (tasks), by when (dates), and how they should use (processes) their shiny new matrix, methodology, or tool.

3. Then, they put people in.

What we ought to do is go the other way around:

1. Starting with getting the best people possible around the table (or on the Bus as Jim Collins would say).

2. Stand in the successful future (this is a mindset thing)

3. Once you have an idea of what you want to be possible, then you can begin to break it into goals, dates, tasks, processes, and yes, structures/methodologies/tools.

My problem with a Matrix, Agile, or even is that they all have just as much promise as they have the potential to obfuscate and insulate.  Its not the tool’s fault, its the people using them and the way they’re used that makes the difference.