Board meeting action items

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Board meeting is an intense 90 minutes event that happens every month or every second month. It's the time when you get all  your investors, observers board members and management in one room, reflect on past few weeks and steer the course of your startup in the future.

One interesting side effect of such brainstorming is that even though boards often tackle more strategic issues, there are quite a few operational ideas sprouting in the same time,  like intros, sharing some docs and others. It's crucial for the CEO or whomever is taking down the minutes to adequately organise them and follows up on them with the board members. Otherwise things get forgotten and potentially helpful idea goes down the drain. 

So in order to do it right, do the following:

1. write down every single action item, if possible with a due date and the owner of the item

2. send out follow up emails to participants with their action item lists, don't expect investors to write down what they promised; I even suggest that you send one email, CC everybody and list action items per each participants

3. in due time, or every week send out gentle reminders on to each participant; in this case don't CC everybody, you don't want to make them look like kids that needs to be reminded constantly

4. on the next board meeting, report on the non executed action item, and thank your board members for the executed action items

If in Rome, do what Romans do!

I was on a panel yesterday, where there were quite a few founder wannabes. An interesting question was asked: "Where can we get the information an knowledge about having a startup?"

Effectively there are two things one should do:
1. start reading blogs about startups
2. move to the Valley

The first one is obvious, I guess I don't have to expand it further.

The second one needs a bit more explanation. If you're a model, you want to be in Milan or Paris. If you're a car designer, you want to be in Germany, Italy or Japan. If you're Egyptologist, you want to be in Egipt.

Got the idea?
I'm not advocating that you should move permanently. On a contrary, I respect European lifestyle too much.  But a few months gig in the Valley for any internet startup is a must and very eye opening.

How investors value startups

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Startup raise money in order to leverage their businesses. However when and how much to raise is always a source of misunderstandings and false expectations amongst founders. A road to break even can be divided in 4 stages, and investors value various stages in different ways:

1. Idea - valuation is 0, nada, null...I don't know how else  to put it, however ideas don't get financed. They're are a necessary element in one of the next stages, but on their own, they're practically worthless.

2. Technology/Product - up to a  few tens of thousands of dollars. In a few cases a bit more, but not much. This would a typically  be an angel round, where founders have some code and a prototype, but they need an engineer or two to get it a bit further.

3. Distribution - when the technology is ready and service/product done, you want this thing to spread like a virus. It might take to recode the service several times, change focus, poke the market.... You need to demonstrate that the thing is growing and gets used on a massive scale. This is quite often  a strong angel, or early stage VC stuff. If you're really successful, you'll raise up to 2M USD. More realistically you're looking between 0.5 and 1M USD.

4. Revenue - You need to have significant revenue, closing in on profitability with a reasonable team,  payed properly, 6+ guys, and you can already smell the profits in the following months. That's the VC's sweet spot. If you can show that by adding 2 sales guys or a product + sales guy or something in that sort, you can significantly increase revenue, you hit the jack pot. That's a proper A round and  you're looking at 3-5M USD.

That's it. As always, things are not black and white, stages overlap, however the concept is there. The lesson is that it's worth to set your expectations.

Planned vs. market driven product development

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European startups, particularly the ones with strong engineering team, tend to plan their product development. They trust themselves and meticulously plan all details of the product. That's fine if you have time for it, but it gets worse. There is a fine line with planing  and over planing. When a CEO explain that they "just need to add one more feature" I know something is wrong. I've seen startups postponing their launch month over months, due to that "just one more feature" reason.

Valley based startups tend to be much more market driven. They launch, test, measure, iterate. At the end of the day, that's what small lean startups are designed to do...Move really fast (we're talking about days, not weeks), and check for every clue from the market.

There are pros and cons to both approaches. Europeans would benefit from a bit more flexibility, and Americans from thinking things through a bit more from time to time. A startup must find it's own balance, as always the right answer is somewhere between the two extremes.

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Are you ready to fundraise?

Quite a few startups want to fundraise just for the heck of it. I think that's wrong. I partly blame the whole social networks phenomena, when it's hip to receive funding.

However business is supposed to be a rational thing. There is a set of criteria, where one can decide if they want/need to fundraise or not:
- Can added funds be significantly leveraged? e.g can adding 2 engineers, or 2 sales people to the team at least quadruple revenue, or adoption. Can you prove it, or it's a hunch? Do you have 1 sales guy that already does X and two more will do X*3?
- Can adding the investors really help you with finding the right answers, connections? In other words, are these investors the right ones, or are they just bringing money and you already know everything?
- Are you willing to give up your company for fame and wealth? It's very simple, having investors is great, if you sort this one out in your head: It's not your company anymore! Typically after normal fundraising process you give up around 30% on every proper rounds and by the time you get to an exit, founders hold less than 20% and that's without liquidation preference and other legal mess. It can still be a fun ride though:)
- Do you want to have a lifestyle business or make it big? That seems obvious but can significantly change your preferences and your decision. Lifestyle business is safer, slower more secure, and you don't fundraise for it. Venture type business can be big, very risky and you want to fundraise for it.

What you want to do?

Setting the pace for a board meeting

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Board meetings are strange beasts. On one hand the CEO is talking to his investors, which is by definition an asymmetrical relation, on the other hand it's the CEO who's responsible to control the meeting and make sure that things don't get out of hand.

Investors are typical quite chatty and it's occasionally hard to stop them and move on to another topic. However, if the meeting runs out of time without touching on all topics, it's a failure.

So here is one suggestion how to deal with it:

1. make sure that you know how much time each participant has for the meeting (aim at 2h, expect 1.5h), start on time, even if somebody is missing
2. on the first slide show agenda with allocated time slots; it frames the discussion and sets the expectations
3. keep time, or better, have one of your team members do it, but be sensitive to where the discussion is going
4. while the time for certain topic is running out, summarise the key points; that puts everyone in the summarise mode and moves them away from the details they often like to drill into

Temptations of power

There is a story today on Techcrunch, probably a "breaking" story about a bunch of super angels trying to find a way to block off others from their turf (the Valley), or at least to control the prices. As Michael Arrington points out, if true, it's at least illegal, amongst other things. However, it illuminates an interesting phenomena that happens in every market where there is a huge difference between buying (investors) and selling(entrepreneurs) power.

Entrepreneurs, particularly the first timers are the weakest party here. During their fundraising process they get bombarded by new concepts, new names, new environments.  I guess it's cruel, but natural. You're lost, and at the end you cling to one thing that you can at least related to: the brand. That's why well known investors get the upper hand, they bring brand, experience and network. And that's why you're after. 

I've raised funds from a couple of top investors (like Fred Wilson and Saul Klein) that brought me and Zemanta incredible advantage and experience, by actively working with us. Price was almost never under discussion! But it was fair. We might get a better price from somebody else, but it would never brought us the non-monetary advantages we had.

If I put aside the legal side of the argument, and if  the super angels are really trying to arrange the environment in their own favour, it's a shortsighted attempt. Money that's invested it's always invested in business and they can much better leverage their investment by working with the entrepreneurs and actively help them. At the end of the day, they call themselves angels, aren't they?

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Kings of efficiency, rulers of lifestyle

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A few days ago, Fred Wilson wrote a post The Office Matters.  I agree with him in almost everything he wrote, except of one thing. He says:

When you are less than ten people, it is hard to invest in stuff like this. All you can do is focus on getting your product right and launching it. 

I heard that argument many times when talking to American startups and investors. I think it boils down to cultural differences.

It's perfectly natural for an European startup to provide free coffee, drinks, snacks (like fruit, nuts), parking space, occasional picnic, sometimes even unlimited cell phone use, and a bunch of other toys. In terms of legal environment people get fired or quit with 2 months notice, get full dental and health coverage, pension benefits and other stuff. You hire people by providing interesting job and not environment.

In American startups, you see people buying their own coffee, negotiate details of their health plans and vigorously negotiate for salaries and other compensation. They quit or get fired much more quicker than their European counterparts, with 2 weeks notice. They eat their lunch at the desk and don't jointly watch famous sports event during an office hours.

Which one is better? I don't know! Americans are kings of efficiency, while Europeans rule in terms of lifestyle.

But it still interesting to hear Europeans bragging about the latest achievements in terms of speed or volume, which would come standard for their American counterparts. And, vice versa, it's interesting to watch Americans talk about the new perk they provided for the employees as if it was the latest and the most innovative thing in the world!

My opinion: healthy dose of both worlds would be best. The big question is how to find the right balance.

Paying VCs for being on your board

Recently I talked to an entrepreneur who just closed his first round and got a VC for a board member. All good and well, however the VC asked to be paid for sitting on the board.

I think that's really strange, because:
- it's immoral: VCs give founders money, than take it away to their own pockets! I wonder what their LPs are saying?
- it's misaligned: First rounds are meant to prove the product or leverage revenue generation, not paying the VC.
- it's wrong: VCs should help their companies, regardless of the fact if they are directors, observers or just investors in the company! It's their job to grow the companies they invest in and they are already being paid for that.
- it's pointless : founders and VCs become partners on the project - the startup. If they start charging each other, the whole point get's lost. Should startup charge VC for their services?

I'm not naive and understand that non-executive director get paid in a well established companies even if they are investors, however with a startup, there is whole different story in my view. Every single friction point is potentially dangerous, and a startups don't need insiders bringing new ones up!

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Hollywood pitch

Hollywood pitches are a new hot terrm for online description of your business. In most cases taht means that you compare, mash on or two known services or brands and define the relationship.

Like: 4square for products! Facebook meets yelp for goldfish...

It's designed to grab attention of investors and clients, and more importantly help them remember it and pitch it to others when they describe your business.

Enterprise vs. SMB sales

I'm hearing a lot of startups dreaming of selling to enterprises. That's fine if they can pull it off, however not very likely to be able to do it fast.

When deciding to sell to enterprises consider the following:
- long sell cycles: be prepared to work long time to secure a deal. Decisons are almost never made by just one person in large companies.
- custom made: enterprises won't adapt to your solution, you will have to do it, which will increase your cost and more importantly take the developees away from their code activities
- almost no repeatability
- lawyers!
- great for branding: big names are great for name dropping
- lucrative, if successful

On the other hand selling to small and midsized business:
- scalable: if you hit it right
- painful feedback: customers vote with their feet
- short sales cycles
- repetability designing once, deploying many times
- cheaper sales, for lower price

They are both valid approaches, however one has to be careful when setting the product and sales strategy. Enterprises and SMBs are different beasts.

Knowing what to sell

I'm spending this week in London. Mentoring at Seedcamp Week. It's amazing too see how startups and even established companies are focused on sales. Which is good. What's bad is that quite a few of them actually don't know what they sell. They want to cater to the enterprise, some government agencies and local shops. That doesn't makes sense to me. I think defining the product and segmenting your customers is very imporant, actually crucial!

I had a chat yesterday with a CEO that gave me an honest answer:"I'm afraid that if I let those opportunities go, I might be missing on some lucrative revenue." True, but the responsability of the CEO is to take care of the bottome line, not just revenues.

Being scattered all over the map with numerous products and services adds costs, direct and indirect ones. Profits come from repeating the same thing and selling it a lot of times. Not by doing one time projects. Even if they sound really sexy.

Investors invest in different stages

I'm mentoring at Seedcamp in London. I learned that a lot of first time founders don't understand at investors invest in different stages.

Angel investors are weathy individuals that invest small amounts of money in business that they (generaly) understand. Commonly they invest in packs (5, even 10 at a time). It's usually in a very early stage, paperwork is simple and idealy at least some of them bring more to the table than just money. They bring experience and network. Typically an angel round won't be enough for the company to bring it to profitability, but it's a great start.

Incubators are quite common organised as a small fund and their main advantage is networking. I actually think that accelerator is a better name. They'll invest a small amount of cash, but mainly they'll bring in mentors and primarly network. Examples would be Seedcamp, Y Combinator and others.

Seed stage VC are smaller funds that behave as a proper VCs, give relatively smaller round, but big enough to take the company through the first year. The paperwork is already annoying. Quite often they have really cool partners that understand early stage risks. You can always call them for advice or opinon and often you'll get great feedback. They are not a lot of them, but those who are, are absolutelly instrumental for a success of a small early stage firm. Guys like First Round Capital, Union Square Ventures or The Accelerator Group are in this league.

Later stage VC tend to be more about money than anything else they won't invest less than a properly sized A round (typically 5mio usd). They have the whole infrastructure in place, controllers, annoying lawyers and everything else. They don't invest in early stage first time founders.

So know in which class the person you're pitching too falls into.However there is a small trick. Investors know each other. They talk. So, if you're pitching an early stage startup to a late stage investors,do it properly, you never know with whom he'll have a lunch after your meeting.

How to figure out which investors are in your space

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I've written a few things about selecting the right investor, but recently somebody asked me how to find the investors.


Well, here a couple of strategies:
- find 20,50, 100 of companies that are roughly in the same space as you are, check who are their investors are and make the list of the ones that invested in a couple of them
- check lists: thefunded.com, venturehacks.com, Ycombinator, Seedcamp, TechStars and others, get a big list and do some smart matching with the companies
- find top 20, 30 bloggers in your space and check their blogroll, any interesting names there? Not? Read their blogs, bloggers like to stroke each other's back, particularly if they are investors as well

It's a tedious process, however necessary if you want to play the game. Do your homework and select a list of top 50-100 investors that you might have a chance with. Use any kind of database, spreadsheet, even whiteboard if you want. Involve your cofoudners. You'll feel like generals planning the invasion of Normandy! It'll take you a week, but suddenly you'll realize that the investing space is not an unknown void anymore. Names will become familiar. And you'll feel much more confident.

Importance of sabbatical

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As you saw, I stopped blogging for 2 months. It was not intentional, but it was natural. I actually stoped doing anything. Went for a vacation in the beginning of July and just stayed there (with a brief one day trip to London, where I bought my Ipad and loaded it with Kindle books :). And it felt good. I'm recharged and ready to do new things. During my prolonged vacation I managed to read a lot, and more importantly started a few new things.


In fact I took an unplanned sabbatical. Etymologically, according to Wikipedia, sabbatical comes from from Latin sabbaticus, from Greek sabbatikos, from Hebrew shabbat. Interestingly in all languages it means ceasing. And that what I did. I simply stopped.

Somewhere between a reading in the shade and evening BBQ I remembered TED lecture by Stefan Sagmaister. Check it out:
http://www.ted.com/talks/stefan_sagmeister_the_power_of_time_off.html

I consider myself fortunate to be able to do that. I did that once 9 years ago and now I did it again. I strongly encourage everyone if they can to do it. It's simply something we all need.

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