Urgent Speed

More Networked than Cisco? Angel and Venture Syndicates

I like the thinking behind Yael Hochberg, Alexander Ljungqvist, and Yang Lu’s research on predicting venture investment return.  Their study, “Whom You Know Matters: Venture Capital Networks and Investment Performance” shows how, historically, Angels and VCs that make a habit of co-investing outperform funds that tend to participate in more limited syndicates.   As TechCrunch explains:

A venture firm’s network in the study was defined as being made up of all the other venture firms who co-invested with it in funding rounds. The more co-investors a venture firm has, the better its network. The better its network, the better its overall returns. The correlation between the size of a venture firm’s network and its returns may have something to do with better access to deal flow, talent, advisers, potential customers, and potential exits.

If this is true, then who are the most connected venture firms and angel investors today? Vijay Dondeti , a graduate student in bioinformatics, applied the analysis in the Hochberg paper to about 2,700 investors in CrunchBase  who participated in over 3,300 startup funding rounds between 2006 and 2008. He scored each investor based on how well connected they are to other investors as well as how well-connected their co-investors are to other investors. “In summary,” says Dondeti, “to get a high score, you need to co-invest often with others that also co-invest often.”

In my experience, larger more-connected syndicates are more likely to be able to help a start-up as it grows. As an Investor, I like having other smart heads looking out for my Angel investments, as an Entrepreneur, I like having a diverse group of minority investors I can turn to for guidance and perspective.   I agree with the study’s hypothesis that the outperformance of networked VCs is due to the increased likelihood that the syndicate can also contribute relevant intellectual capital.

But I think the “Whom You Know” study is missing an important correlation. Networked investors tend invest earlier, often at the seed stage, and seed investments, on average outperform the VC investment class.  Small funds and Angels need to co-invest, because they don’t have huge funds. Without a huge fund, an investor runs the substantial risk of being unable to meet the needs of the portfolio company. This is why small investors ban together to make sure they can invest a meaningful amount, while still keeping funds in reserve.   Small funds make their money on the upside; large funds often make substantial money on their management fees.  The result is not a big surprise; small funds tend to obsess on helping their portfolio.   Don’t get me wrong, I respect several large funds. There are several great large funds that have a proven track record both participating at all stages and also adding value beyond simply writing a check.  DFJ and Sequoia are good examples, and are ranked high on Vijay Dondeti's ranking.

So I salute Yael Hochberg, Alexander Ljungqvist, and Yang Lu.  I hope there is a next version of their study where they try to statistically separate Alpha from “stage” from Alpha from “network” (a hard task given the opaqueness of venture returns).  As for Vijay Dondeti, I salute you also…your analysis was excellent. I don’t claim your ranking of me (at 63) above Cisco (at 65) is perfect, but if someone knows a better statistical predictor of venture/angel performance… please speak up.

BTW, when reviewing the "Whom You Know Matters" study in the Journal of Finance I noticed an outcome tree for 16,315 venture investments from 1980 to 1999, following their outcome through 2003.  For my own edification, I created a pie chart showing outcomes. 

Only 18.5% of all deals resulted in an exit over the course of the dataset. So the takeaway for Angels: if you can't see at least a 10X+ return on investment, don’t make the investment, unless you have some method of avoiding the other 81.5%.  If you have a method of avoiding exitless investments… please speak up. 

Perhaps the folks at Sharespost will help create exit opportunities for early shareholders? Til then I am sticking to co-investing with a 10X+ hurdle.

2006, 2007 and 2009 list of VC Blogs

It’s good to see Larry Cheng has posted a list of current Blogs by Venture Capitalists.  It’s interesting to compare the 2009 list to the VC bloggers list from 2006 and the VC Blogger List from 2007.

Top 10 Tips for Getting Past a Gatekeeper

Next NY’s “Jumpstarting Sales in Your Startup” panel last night featured Mark LaRosa of QuotaCrush and Jeff Stewart of Urgent Career.  Though the group was lively to begin with, the question that generated the most buzz - "What are the best ways to get past a gatekeeper?" - was such a classic that I had to post the best responses.

Here’s the best of the best that came out of the crowd last night:

1. Give the gatekeeper the benefit of the doubt.  Most salespeople assume that an assistant doesn’t have the time, judgment, or influence to help them, and therefore ask immediately for the decision-maker.  Huge mistake!  Treat every assistant with the courtesy and respect of a CEO.  Doors will magically open for you. 

2. Treat the assistant like a human being.  This is obvious, but most assistants don’t aspire to be assistants forever.  Google their name.  See if they blog or tweet.  What’s their web presence?  Find something that they are genuinely interested in and run with it. 
3. Use your arsenal.  Make a joke.  Play good cop/bad cop.  Talk about the weather.  Mention a tidbit you saw in the news.  Ask about their company’s latest release.  Ask if they’re running the company yet.  Whatever your style, get the assistant on your side.  After all, they’re controlling your access to the company.  There’s no need to make them enemy #1.
4. Write down the assistant’s name.  Refer to them by name, every time.  Be friendly, polite, and direct.  Remember that you are not yet their highest priority, and being impatient, self-righteous, and vague is never going to get you there.
5. Be honest and forthright about your solution.  Value the assistant’s time - it’s just as important as the decision maker’s.  Explain to them up front what you are calling about and why you think it will add value.  Don’t hang up and try again if your target is unavailable – it’s disruptive and dismissive.  Worse, you’ve wasted an opportunity.
6. Ask for help. The more you can engage the gatekeeper in the process, the better.  Ask the assistant about the best time to call, the easiest way to get in touch, direct numbers, cell phone numbers, etc.  Ask if it’s better to leave a voicemail, leave a message, or just to call back.  But before you do that…
7. Assume the assistant is a decision maker.  Believe it or not, the assistant’s job isn’t to keep you at bay.  Rather, their job is to discern potential value for their executive and/or their company.  By that logic, you should involve the assistant’s judgment as much as possible. Gatekeepers have an ear to the ground about every aspect of the business.  Ask them about their pain points.  Where would they see the most value added?  What’s most important this quarter?  Next quarter?  Next year?  What’s their growth strategy and what are their bottlenecks?  What’s their biggest frustration?  Assistants offer unique insights that can help you refine your pitch.
8. Ask who else is involved.  Gatekeepers have the ear of everyone that will be involved in your sale.  They know who you should be talking to.  Ask if you are targeting the right person.  Do they know anyone that might be of assistance?  Who should you talk to first and why?  Who is the ultimate decision maker?  Let the assistant paint the relationship structure for you and guide you up the ladder.
9. Alleviate their burden.  Assistants are responsible for sourcing and evaluating vendors.  If you’ve called them at the right time, you’ve eliminated their legwork.  Let them be responsible for walking your sale through the company.  Don’t blow it by presuming that they won’t be involved in the process.
10. Let the gatekeeper advocate.  If you’ve effectively engaged the gatekeeper, they will be your advocate throughout the entire sales cycle.   Let them make introductions on your behalf.  Ask about the best ways to engage various decision makers.  Ask their opinion on what’s most important to each decision maker.  Use them as a strategic sounding board as your deal goes through the pipe.  The more they are engaged in the value, the more value they add to you.  

Got any more of your own?  We’d love to hear them in the comments.  

About the Guest Blogger: Lauren Gilchrist is Urgent Career's "Jill of All Trades," managing operations ranging from finance to marketing to strategy and beyond.  A young entrepreneur interested in the intersection of sales and technology, Lauren plans to contribute regularly to Urgent Career's growing web presence as an authority on all things sales.  Look for more of Lauren in the coming weeks.

The Next Bubble – Alternate Energy

Eric Janszen does a masterful job articulating the conditions needed for a massive innovation bubble.  His article is required reading for any entrepreneur looking change the world.     The move away form oil will be as big as the transformation from animal power to steam, or transformation from steam to oil.  
 

Publish at Scribd or explore others: Business economy crash

There are two types of bubbles; asset bubbles and innovation bubbles.  The Asset bubbles are a zero sum game that doesn’t offer anything new to society, but innovation bubbles are critical to rapidly deploying new technology.  

The Tulips Bubble of 1637 is the classic example of an asset bubble.   More recently the assets of real-estate, oil, and gold have all had their bubbles.  I believe asset bubbles are a natural occurrence given our collective human nature.  (I wonder if algometric trading amplifies or dampens our human propensity for froth and panic.) 

But innovation bubbles are a different organism. Innovation bubbles are the markets (our collective intelligence) realization that technological change is afoot. Canals and Railroads are the classic example form the 1800.   More recent examples include Radio, Automobiles, TV, and the Internet.   Fortunes will be made and lost, but in the wake of the bubble a new technology will have taken root. 

I can’t wait to see what technologies replace oil and coal, and even more so; I can’t wait to see what entrepreneurs make it happen.  Will it be microbiologist hackers modifying algae to produce cheep fuel? Maybe nanotechnologists will invent cheep solar cells that are super efficient.  Perhaps some grad student is about to drop out of college to commercialize his ultra-capacitor thus ending the need for batteries.
  
Moving away from oil will take dozens of new inventions and business models; I am just glad Eric Janszen gives us a roadmap.

Top 50 Job Boards for Start-ups

There is nothing more important for a tech start-up than attracting great employees.  As the economy slows, it becomes slightly easier to attract exceptional talent which is great news for start-ups. 

The first dozen hires are usually the most critical because this core group will set the culture for the next 100 hires.  A hiring mistake early on can set your start-up back months (or worst).   When possible this core group should be recruited from existing relationships. Ideally people you have worked with, or have worked directly with people you respect and trust.   The problem with this approach is it limits your choices to a much smaller pool of talent, and does not scale as your company grows.  That’s where job boards can be handy, especially in a shrinking economy.

As a general rule of thumb I find that the best employees are usually already happily employed.  In a growing economy, that means a founder must be super persuasive to get them to join his/her start-up.  But in a shrinking economy, like the one we are experiencing now, even capable talent is hitting the job boards.

2005
First Choice – Candidates I have worked with, or have worked with close associates
Second Choice – Candidates currently happily employed elsewhere
Third Choice – Candidates from Job Boards

2009
First Choice – Candidates I have worked with, or have worked with close associates
Second Choice – Candidates from Job Boards
Third Choice – Candidates currently happily employed elsewhere

I have compiled a list of the top 50 Job Boards, ranked by traffic.  A mix of well written job postings can yield hundreds of resumes and a handful of viable candidates.

1        Craigslist        http://www.craigslist.com    40,500,000
2        Monster        http://www.monster.com    27,000,000
3        CareerBuilder    http://www.careerbuilder.com    12,600,000
4        LinkedIN    http://www.linkedin.com    7,800,000
5        Indeed    http://www.indeed.com    7,000,000
6        Simply Hired    http://www.simplyhired.com    5,100,000
7        Snag a Job    http://www.snagajob.com    3,600,000
8        USAJOBS    http://www.usajobs.gov    2,800,000
9        EmploymentGuide.com    http://www.employmentguide.com   1,200,000
10        The Ladders    http://www.theladders.com    1,000,000
11        Beyond    http://www.beyond.com    982,000
12        Top USA Jobs    http://www.topusajobs.com    867,000
13        Jobs.com    http://jobs.com    864,000
14        Dice.com    http://www.dice.com    848,000
15        JobFox    http://www.jobfox.com/    670,000
16        jobster.com    http://www.jobster.com    630,000
17        thingamajob.com    http://www.thingamajob.com    565,000
18        Vault    http://www.vault.com    556,000
19        JobIrn    http://www.jobirn.com    517,000
20        JobCentral    http://www.jobcentral.com    476,000
21        Yahoo! HotJobs    http://www.hotjobs.com    418,000
22        Job Bank USA    http://www.jobbankusa.com    416,000
23        FlipDog    http://www.flipdog.com    370,000
24        HigherEdJob    http://www.higheredjobs.com    297,000
25        Net-Temps    http://www.net-temps.com    264,000
26        GoJobs.com    http://gojobs.com    263,000
27        NationJob Network    http://www.nationjob.com    231,000
28        JuJu.com    http://www.juju.com    220,000
29        America's Job Bank    http://www.jobbankinfo.org    207,000
30        sologig    http://www.sologig.com   186,000
31        brightfuse.com    http://www.brightfuse.com    163,000
32        Job Target    http://www.jobtarget.com    155,000
33        xing.com - Europe    http://www.xing.com    136,000
34        jobscore.com    http://jobscore.com/corp    130,000
35        Prohire.com    http://jobs.prohire.com    112,000
36        College Recruiter    http://www.collegerecruiter.com    98,000
37        climber.com    http://www.climber.com    93,000
38        Work Tree    http://worktree.com    74,000
39        yotify.com - linkedin alerts    http://yotify.com    73,000
40        6figurejobs.com    http://6figurejobs.com    72,000
41        Employment911.com    http://www.employment911.com    71,000
42        Jobthread    http://www.jobthread.com    71,000
43        CareerSite.com    http://www.careersite.com    65,000
44        Jobs2web.com    http://www.jobs2web.com    62,000
45        Trovix    http://www.trovix.com    62,000
46        smuz.com    http://smuz.com    59,000
47        VisualCV    http://www.visualcv.com    56,000
48        CareerShop.com    http://www.careershop.com    51,000
49        The Interview Exchange    http://www.interviewexchange.com    51,000
50        Real Match    http://www.realmatch.com    50,000

Publisher Monetization Tools – Useful list for Angels

Steve Spalding's article “21 Great Advertising Networks For Publishers” is the best round up of services for publishers to monetize traffic I have seen in a long time.  I linked to the article because I thought it might also be useful for start-ups that need to advertise as well as Angels investors,  looking to better understand the (still growing) on-line advertising market. 

Sales as R&D

After years of talking to start-ups and fellow seed stage investors, I have noticed that the smart ones understand that in a startup environment, the selling process doubles as a research and development process.  In my mind, learning how to sell a new product is one of the defining differences between a technology startup and an established business. 

Great startups not only invent a new product, but also invent a way to sell that specifically benefits their product or service. As Geoffrey Moore points out, most great startups are innovative when it comes to their products and  when it comes to how they market.

I would add that startups can benefit by implementing the same steps for a new sales process as they would for a r&d process.

How do I propose you find the overlap? 

• Like product R&D, don’t invest too much too quickly.  Innovation is an iterative process. Be sure to budget for the time to experiment.
• Like product R&D, don’t put all you eggs in one basket.  You will likely need to experiment with pitching to different market segments, different occupations, and different demographics.  Staff accordingly
• Be ready to commercialize, but don’t commercialize prematurely.  Once you think you have a grasp of your target market and resonating value proposition, scale the sales team.

Many engineers I talk to have the misguided “if we build it, they will come,” approach to sales.  To this I say: Bull.  In 1999, I had the chance pleasure of meeting most of the Google sales team in a hotel bar.  Let me tell you, they weren’t talking about algorithms.  While the PHDs at Google deserve a lot of credit for building a great product, we can’t forget that the innovations of the sales team developed for the company.  They are very responsible for getting Google to where it is today.

"Discovering" how to sell your product is as important as coding your software. No one likes to hear "no i won't buy from your company" any more than they like to that their code won't compile, but both are important vital parts of the development process.

Of Start-Ups and Battles

I like to have a detailed business plan in place before committing serious resources to a new venture… I figure it is a lot better to catch mistakes on paper, as opposed to discovering them once cash and careers are on the line. 

A business plan should not be viewed simply as a funding document. Even if you don’t expect to have outside investors, it is a great way to solicit feedback from people you respect and trust.  Writing a plan is hard work, but it makes execution easier.  I am surprised how many start-ups don’t invest the time to write down their plan, yet still expect an outside investment. 

Why should an investor risk their cash if the entrepreneur is not willing to think through her idea?

Over the last few years, I have witnessed an increase in the number of entrepreneurs who expect to raise funds with nothing more than a prototype and a PowerPoint.  The general consensus in Silicon Valley is that funding is about to be a lot harder to come by.  I hope that one of the upsides of the nuclear winter  is startups that are more thoroughly thought out. 

There will always be capital available for good management teams with well thought-out plans… Perhaps the ability to think through an idea is the mark of a good management team?

Of course, planning is no substitute for actual selling.   For pitching, Prototypes and PowerPoint reign supreme.

"No battle plan ever survives contact with
the enemy"

Field Marshall von Moltke

"No business plan ever survives
contact with the customer"

Steve Blank

Moltke: 

Aesop’s Ant and the Crash of 1873

Last night I read about the crash of 1873. Fascinating.  If you expect to live for 100 years, statistically you should also expect to experience one major bank run accompanied by a stock market crash.  Human nature has not changed since the tulip bubble of 1630.  I argue that modern communications do nothing to change the psychology of markets.

A well-run market is a balance between Greed and Fear.  Sometimes balance gets out of whack.  Overall, I view market crashes as “nature’s way” of clearing out the dead wood, much like a forest fire.  Sure some good trees burn, but years later the forests emerge stronger. 

Professor Nelson’s article points out:

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad.

Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America's heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region's assumptions about continual economic growth were too optimistic.

Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing).The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track.

Sound Familiar?

Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.

Correspondingly, if you are a start-up, you need to find a business model that is not dependent on massive cash infusion.  When we founded Mimeo in 1998, we were able to raise $20+ million to hire 45 developers and set up an integrated built-to-order manufacturing facility.  Today at scale, Mimeo is very cash efficient, but I don’t think I would launch a company that needs to burn through millions of dollars before hitting profitability.

I recommend start-ups that use invention and intellectual capital to create cash flow.  Software, web applications, and cleantech come to mind. Truly great start-ups are bigger than any temporary economic downturn. 

The article goes on:

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

I guess markets are like seasons, sooner or later we will see winter.  May you be Aesop's Ant…I get the feeling there are more than a few Grasshoppers here in America. 

The Saudi Arabia of Innovation

Saudi Arabia wields enormous political and economic might because of their vast oil reserves. True, there are many other countries that produce oil, but no other country dominates like Saudi Arabia. Their geological advantage is not just quantity, but also quality -- they can pull it out of the ground a faction of the cost most countries incur. 

Lately, with oil over $130, it seems America’s importance is shrinking as we wire much of our national income (700B/yr) to oil producing nations.  All might flows from economic might, so there is a real reason for concern -- but there is no reason for despair.   As John Pierpont Morgan use to say "Never Bet Against America". 

The United States is the Saudi Arabia of Innovation.

We are good at taking risks, we are good at commercializing technology, we reward innovation and we admire creativity.  Core to our culture is a bias towards action, that does not get bogged down in history or tradition.  I am continually impressed by the caliber of my coworkers abroad, but autonomous risk taking is seldom their strongest suit.   

America, by no means have a monopoly on innovation, but our “reserves” are awesome.  Lets just say I have Techno-Optimism. In the coming months and years there will be great advances.  I expect America (especially Wall Street and Silicon Valley especially) to play a critical role. 

Solar – A Moore’s law of solar mean grid parity is just a matter of time.

Digital Power. – Electrical drive trains and sensors are displacing mechanical ones in factories, ships, hybrid cars.

Biotech/Genetics. – Biochemists are starting to hack genetic code.

Bio-Fuels – Algae, Bacteria, Modified weeds, etc. Expect crude oil to become an antique source of hydrocarbons.

Nanotech – From Super-Materials to Sensors, Microengineered materials will transform everything.

Internet – Data, Application and Communications will continue to evolve.

CleanTech – Transportation, Energy, Recycling, Water, Construction and Manufacturing will all be transformed.

Machine Learning and Computational Linguistics – Unlocking the semantic knowledge in text will have a bigger impact than the database.

And each of these technologies will support great companies.  We should expect a….

Chevron of solar
Microsoft of genetics
Ford or digital power
Standard Oil of Bio-Fuels
Google of the Internet….(no wait, what I mean is expect more Goggles)
McDonalds of CleanTech
IBM of NLP

Who knows maybe the next Henry Ford is this guy.