GenuineVC David Beisel's Perspective on Digital Change

When was the last time all of your startup’s management team came together to take a step back from day-to-day minutiae and think big picture?  I think it’s actually incredibly valuable for startups to occasionally, and regularly, have offsite planning sessions.  Unlike at “big companies,” a startup offsite isn’t about a boondoggle, it’s not about fancy hotel rooms, nor is it about silly team-building exercises so dilberts in accounting can interact with dilberts in marketing.  Instead, a startup’s offsite provides the leaders of a startup with the opportunity – and excused absence from one day’s operational details – to review where the company has been and point it in the right direction for the future given that context.

The benefits of an offsite for a startup include:

1. Challenging assumptions.  In a startup it’s always about executing.  Part of the elegance of the startups machine is that there are explicit and implicit assumptions which under which people are empowered to make the right choices and judgment calls on everyday decisions.  It’s helpful to challenge them sometimes, not to waiver in strategy, but ensure that they’re on right track and course-correct if need be.
2. Shifting thinking & responsibility out of silos into where it’s more appropriate.  It’s natural for people become heads down and worry about only what they’re supposed to do, even in small nimble organizations.  That’s their job.  But in a startup, things are fluid.  Product is marketing is technology is operations is sales; they’re really not wholly separate functions.  Bringing everyone together to talk about direction of the company places all these functions under a collective brain-trust.
3. Helping identify what’s missing.  As an individual in an organization, it’s harder to see what isn’t being done than it is to see what is being done (sometimes incorrectly).  Again, collective minds together can overcome what one person (often even the CEO) can’t perceive.
4. Empowering leaders to set real stretch but achievable goals.  When everyone is on the same page about what constitutes success for the overall company, it’s easier to set lofty but achievable functional goals because there is context to them.
5. Re-energizing excitement.  Even in a startup, daily activity can cloud what everyone together is building towards.  An offsite reminds people of bigger picture and helps with intrinsic motivation.  And yes, it can build a team atmosphere even without water-baloon toss.

The challenge with startup offsites is all of the demands of a company of this nature don’t stop that day.  I think especially because of that fact, it’s important to physically get out of the office, even if it’s to the conference room of an investor or that of another friendly local startup.  It is called an offsite for a reason, after all.  (While we’re atypical ourselves at NextView Ventures as a “startup VC,” we think offsites are essential and conduct them consistently quarterly - always somewhere outsite the office.)

Also, I believe that it’s necessary to having someone planning and drive an agenda to lead sessions, otherwise there’s real risk of wasting productive time.  Leadership buy-in into an offsite is key, and not just from founders/CEO, but everyone evolved investing in the day’s process.  (As an investor and board member, I’ve participated in startup offsites for portfolio companies, which can be helpful in adding an additional partially-outside perspective, but nowhere near essential and sometimes perhaps distracting.)  I’ve seen many portfolio companies hold offsites of various sizes and shapes (in terms of people involved & structure), all tailored to the unique situation of their company.  In the end, what is put into a startup offsite directly corresponds into what comes out of it, which if done effectively, is quite a bit.

VCs rarely go into an entrepreneur’s pitch meeting with a completely open mind. Of course they have biases given their past experiences, like with any human interaction. More importantly, though, they have biases about whether or not they are going to find the opportunity attractive even before a word of the dialog has been spoken. VCs have a fond saying about “wanting to like it” when they’re introduced to a new investment opportunity where many conditions of their so-called pattern recognition are satisfied prior to hearing the story. On the negative side, many VCs often take meetings (out of “courtesy,” for education purposes, etc.) when they know a priori they have no intention of investing.

There’s been a lot of spilled ink in the blogosphere about getting the right introduction to a VC, and the signal value that’s associated with the right person facilitating that connection. Yes, there’s a real message in who makes a specific introduction, but I personally think that attribute is over-valued. Either an intro is from an extremely trusted source and a VC will pay specific attention, or it’s from a respectable source and a VC will take the opportunity at face value… I don’t think there’s much signal in the greys in between.

More subtly, however, there are a myriad of smaller items which affect how a VC feels about a potential investment before even going into the meeting:

• Interactions over email (and with an assistant).
• First glance at the website (or lack thereof).
• Quick flip-though whatever materials are included in introduction (or again, lack thereof).
• Internal point-of-view on a specific space/category. For example, I know some firms which systematically won’t do anything travel or dating-related, but will still take meetings. Or, some firms have very specific theses about particular spaces and are actively seeking companies which fit into those maps.
• “Profile” of the entrepreneur or company – first-time or experienced, background, graduating(/ed) from a particular accelerator, etc.
• Whether he’s “heard” of the company prior to getting together. This includes both his perception that it’s “hot” through PR or VC scuttlebutt, as well as if he believes the investment opportunity has been “shopped around.”
• Where the company would “fit” well into the firm’s existing portfolio, filling in gaps from a stage or sector standpoint.
• Knowledge about the (existing or future) syndicate composition or other deal dynamics which are favorable or unfavorable.
• How much board-level capacity the individual partner has remaining – is he overloaded with board commitments or is he in investment-seeking mode?

The above list is illustrative but in no way intended to be exhaustive. The point is that some of the above factors are within an entrepreneur’s locus of control and some of them are certainly not. (At NextView, we deliberately aspire to go into each entrepreneur conversation with a “blank canvas” perspective, one of the stated aspects of our firm’s ethos.)  The takeaway is for entrepreneurs to recognize that before an opening slide is even shown, a VC has begun to form a point-of-view of whether it’s an attractive investment; and by attuning to any intangible initial signals in the opening dialog, modify the pitch accordingly.

People ask us at NextView all of the time: “What is the typical profile of an entrepreneur in your portfolio?”  Subtly behind that question is often one about the experience-level of the founders.  The answer, however, doesn’t fit into a neat soundbite.  We have and will continue to fund young entrepreneurs in their twenties – and as my partner Rob Go likes to say, we’re proud of it.  We also especially have an affinity for what we call Tom Brady Entrepreneurs - executives with experience who have seen the playbook for success and are now ready to become the starting quarterback for the first time.  And we’ve also funded a number of serial entrepreneurs who are doing it again (and again).

Rather than age or the length of a resume, the more important quality which we look at is authenticity, one of the core aspects of our Ethos here at NextView.  What we mean is that we identify best with entrepreneurs driven to solve problems realized through their own genuine experiences.

Younger entrepreneurs are “digital natives,” having had the unique background of growing up entirely with the internet as a presence in their lives.  That perspective goes a very long way into creating a service which can be truly transformative yet integrated in how people inherently interact with the web.

For founders who have more working experience in large companies or at startups, those who resonate with authenticity are most often those who are addressing problems/opportunities which they have observed first-hand.  From that observation, they are creating a real solution, not just a business for the sake of financial gain.  It always baffles me when we see pitches from entrepreneurs who have some great deep-domain expertise in their backgrounds and they’ve deliberately decided to pursue something in a different space.   Great ideas search for a great entrepreneur; great entrepreneurs don’t search for a great idea.  That is not to say that truly exceptional serial entrepreneurs can’t be successful with new endeavors outside the domain of their earlier startup(s), but there is a clear distinction between eschewing past experience and pursuing true opportunity.  Authenticity isn’t about a verticalized understanding of an industry, it’s about having a genuine narrative of why you’re pursuing a specific endeavor and what in your personal story can be leveraged to give you an unfair advantage for success.

So if you look at all of the founding teams in our portfolio, the one typical profile which is common throughout is the experience of having an authentic passion for creating something that is uniquely true to the context of their own individual lives.

Over the past decade, VCs have been lamenting about the poor state of the IPO markets and that the number of real potential acquirers for consumer internet startups has dwindled down to a handful, if that.  Many of formerly rich acquirers like AOL and Yahoo have long since faded past their heyday, and their appetite for acquisitions has subsided along with it.  The exit markets, along with the overfunding of the VC asset-class, have significantly contributed to poor returns that venture capital experienced during the 2000’s.

But now with the IPO markets opening up for the strongest of players to go public (– though certainly at a higher bar than a decade ago pre-SOX), there is reason for some optimism.  That optimism, even, can extend beyond the IPO markets to M&A as well.  If you examine the four largest recent (soon-to-be-)public consumer internet companies – LinkedIn, GroupOn, Zynga, and of course Facebook – there’s a clear positive pattern which is emerging about their acquisitiveness.  Over the past three years, the number of startups which have been acquired by these four companies is trending upwards.  The following chart details the number of startups that LinkedIn, GroupOn, Zynga, and GroupOn have acquired annually since 2009 (source: Crunchbase; 2012 total straight-line extrapolated from Q1).

While the above upward trajectory is demonstrated on a numbers basis, not a dollars basis, the former is still a direct proxy for these companies increasing their internal M&A functions.  And last week’s $200M OMGPOP acquisition by Zynga is the starting-gun fire for deals that aren’t just “acquihires,” but real meaningful ones.  Likely soon after their IPO, Facebook will leap out of the starting-block on that race as well.

With these new acquirers in the ring, Google will not be the only game in town with a purse and appetite for sizeable consumer internet acquisitions.  The result will be more deals overall, larger deals, and more competition for them (resulting in higher exit prices).  Overall, a much more positive picture than the late 2000’s.

This trend of a new generation of acquirers isn’t just relevant to consumer internet; for example, Salesforce is ramping up their own acquisition machine with three $100M+ acquisitions (Radian6, Heroku, & Jigsaw) within the past two years.  In addition, these four companies aren’t the only “new” ones utilizing M&A… still-private companies like Twitter (9 acquisitions in the last year) and recently public ones (Homeaway) have a penchant for acquiring talent and real organizations that could become on the go-to short-list of strategic exits for startups.

Looking in the rearview mirror, there are reports of VCs’ confidence continuing to fall, but all of the above is cause for cautious optimism about what’s in store on the road ahead.

It always feels anachronistic these days to exchange business cards when you usually have someone’s contact information anyway in an electronic format before (via email introduction) or just after (via LinkedIn connection) you meet.  Many people, though, take the opportunity with a physical card to make an impression with a unique spin on their card (size, vertical orientation, etc.).  But the one thing I find which also makes a subtle impression on me when I meet a founder of a startup is the convention of the company’s email address.  I started mentally noting a few sort-of-funny-because-they’re-true cases, so I thought I’d brainstorm a quick list of what founders’ email addresses say about their startups:

• john@startup.com <– The first-name convention projects that the company values the individual in a truly personal manner.  Or, it wants to ascribe internal prestige to the early employees (i.e. “I was the first John”) that will not whither as the company grows .
• jsmith@startup.com <– This convention conveys the importance of scalability in the organization, even from the founding stage… most likely stemming from a technical founder.
• johnsmith@startup.com <– Precision trumps brevity in this startup.
• johns@startup.com <– The founder’s last name is too long or hard to spell, and so nobody else at the company will list theirs either.
• johnny@startup.com <– It’s a casual, yet hip atmosphere… the office eschews chairs for beanbags, shared tables for offices & cubes, and there’s not a Windows PC to be found.
• john.smith@startup.com <– The founding team is all from Microsoft and can’t shake it if they tried.
• founders@startup.com <– The founding team is alumni from one of the Techstars programs.
• chiefninja@startup.com or chiefcrazytitle@startup.com <– The founder over-communicates in a somewhat conventional manner that he wants to defy all conventions.
• info@startup.com <– The team is running in stealth-mode to look inconspicuous, but really wants people to ask.
• john-smith114@gmail.com <– The founders can’t even figure out how to buy their own domain name.
• jsmith@startup-inc.com <– The founders are so convinced that they’re taking over the world that they want to leave the option of issuing @startup.com email addresses to their consumer users.
• js@startup.com <– The founder is a Lean Startup disciple who wanted to put out a Minimum Viable email address.

What else am I missing?