Babbling VC

Unlearn While You Learn

As you may or may not have heard, I've once again transitioned in my career. I note "once again" as I believe this is technically my sixth grown-up job. I am leaving out the multiple stops which were there in the run-up to my "career" (including newspaper delivery, landscaping, snow shovelling, bicycle mechanic, pool builder, bouncer/go-go dancer security....don't ask, office assistant, gym trainer, waiter and water company utility guy.) I'll admit I have done a lot of learning along the way. Not just learning how to do my job but learning how to transition between roles.

As you may have guessed from the title, one of the most important parts of a transition is unlearning a lot of crap. I'll call it crap because it can truly burden you in your new role. "That's always the way we've done things" is at times the worst mindset to have when starting something new. Adapting is what it's all about and an important part of that is throwing a lot of what people like to call experience by the wayside. Technically, you can't "unlearn" anything. Once you've learned it, it tends to become almost the same as a habit. It's the way you do things. It's extremely hard to change habits and in my opinion, it's just as difficult to change what you've learned. 

This has been slapping me in the face daily for the past couple of weeks. Transitioning from a VC role to someone building up an innovation lab has required a bunch of adaptations. As a VC you're always at least one degree removed (outside of the daily business internal to your fund). Now we're doing it all by ourselves. In my previous role, the day to day business had a bunch of support from team members and external parties. Now we drive all the processes in-house without support staff. I'm not technically learning this stuff anew. What I am actually forcing myself to do is unlearn many of my processes from the past 12 or so years. So much of what I did in my previous roles doesn't work in this case and actually is counterproductive to our current goals. You can no longer watch from afar because if you don't do it, it doesn't get done. I am having a blast doing this but the main message is, unlearn just as much as you learn. Experience has its benefits obviously but it can also at times be baggage. 

 

Cat's Out of the Bag: Liquid Labs

Well that didn't take all too long. Although it would of been nice to have been under-the-radar for a bit, it's not like we're planning on hiding anything. Liquid Labs is launched and soon we'll have more information although Mike does get the key points right to some extent. 

Liquid Labs is just that: a lab. We're not an accelerator, nor are we an incubator. We're not a venture capital fund nor are we business angels. We're a bunch of investors and entrepreneurs who will be building companies. With the backgrounds that we have, it's inevitable that we will mix VC style investing with entrepreneurial style company building in a "skunkworks" like environment. We are doing this without any of the "stealth mode" crap to create hype. It's simply because we're buidling this thing from the ground up that we're taking one step at a time.I'm also super happy to be doing this together with Michael Backes, another US expat with VC experience here in Hamburg. 

We'll have a site up shortly with all the juicy details. Plus we're looking for people with both technical and product backgrounds who want an environment to learn about building companies with an opportunity to earn while doing so. 

 

On References

Getting references seems like such a common sense thing to do. For some reason, I feel that it's a valuable option rarely used. I'd even go as far as to admit that I value nothing more than references when it comes to hiring someone or working together with them. Therefore, I can only shake my head when people don't use one of the easiest tools in the box for hiring or partnering decisions. 

I was myself reminded of this multiple times in the past two or three months. On many occasions I was asked to provide references. I've written often about how to use them. Always call at least one or two that are proactively given and find at least one or two (or five) that weren't given by the candidate. Call anyone and everyone who can tell you something about said person. In my situation, these people either knew a ton of people whom I did not think of or they simply did not call. I'd gander that it was the latter since folks tend to let me know that someone called them asking about me.

What an opportunity lost. I am sure there are people out there who hate my guts. Further, they would at least tell you everything I am not good at. Trust me, no one is perfect. You don't want to hire or work with anyone who seems to be. Therefore, if you only call the references which are provided, you'll get a skewed picture. BUT, if you don't call any references, you're hiring (or partnering) based purely on the song and dance that said person gives you in the interview process. You want to know a person's strengths as well as weaknesses (and do filter for the crap provided by some people since they simply dislike someone). It allows you to better position that person for success. You may choose to even pass on that person but if you do hire them, you are far better prepared to help them succeed IN YOUR FIRM. 

And there, I come to the main point. Getting references is up to YOU. It is the work you should be doing to hire the best people out there and further, it's a task that helps you manage better. You want to hire AS WELL AS position your employees where they can shine. This helps them and most importantly, it helps you as their manager. 

 

It's Been Quiet Around Here

As you've probably noticed I haven't blogged much in the past two months. This is a proactive choice. I needed to get away from venture capital, technology and all things start-up for a little bit and didn't want to pull myself back in by blogging in the meanwhile. Nevertheless, I couldn't stay away that long (note to self: figure out the "downtime thing" at some point in life!)

Actually, I've missed the outlet that this blog has become to think things through openly. Therefore, stay tuned! I am ramping up again at the moment and will hopefully be back to my regular posting schedule shortly. Thanks for being patient and rest assured, I have a ton of things brewing in the back of my mind that will be spewed on to these pages!

German Venture Ecosystem Needs an "Old Boy's Network"

Technically I shouldn't be writing this. "Old Boy's Networks" aren't things you write about, especially if you're part of one. At the same time, I really don't have much to fear in Germany. You just don't have much in this regard. The Valley sure does and we're constantly going to be compared to or comparing ourselves to them.  Like it or not, that's not the point of this post. One thing though which works wonders in the Valley is the "network" of connections you have there amongst VC's. There are very clearly cliques of funds which tend to work together on a regular basis and there are multiple such cliques. Further, you have an intertwined mesh of VC's sitting on boards of large, tech companies feeding deals back and forth amongst their networks. Dive just a layer or two deeper into large VC financings or exits of venture-backed firms to the large players and see who is connected with whom via board seats.

I know, I know, you're already probably reeling at this and thinking how could one possibly want "collussion" and "a bunch of priviledged, old, white men" running the show? Honestly, I don't want any of that. What I believe is necessary though is that funds work together to create an ecosystem. This then benefits the entrepreneur. Once this ecosystem is built, it feeds upon itself to the benefit of the system. When funds regularly work together, they can pool their resources and knowledge as well as networks to generate better returns. Further, once an ecosystem is in place and formerly venture-backed firms grow to the size where they are relevant M&A players, the ecosystem grows. This allows for ever more new start-ups to get off the ground, get funded and if successful, exit. Sure, many are left by the wayside on this journey but without such an ecosystem in place, Germany and Europe will forever trail the US. 

Specifically in Germany you have the problem that very few funds have grown to scale. Basically if you look at Germany, you have Wellington, Earlybird , Rocket Internet and maybe Target who have been around for more than 10 years and have presence beyond Germany's borders, i.e. in brand, fundsize and relevance. Thereafter you have a bunch of regional players who most international funds have never heard of. Then you have the corporates, some super angel funds, more recently incubators and government entities. In total, there are quite a few funds but you definitely don't have enough for cliques to have formed and none of them can go it alone (one caveat: if the Samwers, as rumored, raise €1 billion, they sure as hell will go it alone!)

Further, you don't yet have enough companies at a scale where they can start buying smaller start-ups and generating relevant returns. When going for a trade sale, you always look first beyond Germany's border for a buyer, preferably a Google, Amazon, Facebook, eBay and so forth. Some large publishing groups are active in M&A in Germany too but the VC's don't play any role in their supervisory boards. 

I strongly believe that the VC's in Germany (and Europe) need to start working closer together to inject higher amounts of money into start-ups, allowing them to be relevant beyond Germany's borders. We can't expect just the Samwers to have the balls to put 50 or 100 million Euro into a company. As long as German funds don't have the capital for such large rounds alone, they'll have to work together. It doesn't necessarily just have to be German funds. Syndication works well across borders in the EU as many of UK's and France's funds are ever more active in Germany.

Further, we need more companies which were venture-backed to grow to scale. There needs to be additional companies generating M&A exits in this ecosystem beyond just the large publishers. Finally, we need to have VC's who last more than one generation of fund in the ecosystem so relationship building evolves over years and groups can be formed. There is nothing wrong with people who work well together, i.e. the "Old Boy's Network" I'd like to see in place. It won't happen overnight and I'm confident we're on our way. Yet it's a concerted effort necessary on the part of all players in the EU game. 

Know Thy Customer

Yesterday we picked up a new car at Audi in Ingolstadt, their headquarters. For those of you who don't know, Audi offers the option to pick up your car directly at the source. There's a lot of fanfare associated with this. Germans love their cars "long time"! (Slovaks too!) Anyway, what you basically do is show up (usually in a rental car) and get your car handed over to you in their customer center. They invite you to spend a couple hours there by offering you a tour of their factory floor, access to the Audi Museum and free food and drink. All in all, it's a fun way to start off your "relationship" with your new car on the right foot. Plus, you save some money in transfer and shipping costs.  

Nevertheless, here's a bit of a rant about how Audi drops the ball on something so easy to remedy. We showed up at their reception and told them we were there to pick up a car. In my opinion, here is where CRM software absolutely HAS TO BE in place and needs to shine. My g/f was the one buying the car this time. This is her second Audi. Her father has already bought two Audis. Her mother drives an Audi. Her brother drives an Audi. All of these cars have been in her father's name. Long story short, we're talking about a name associated with approximately €200,000 in value thus far. Do you think they knew this at Audi when we picked up the car? Nope! Did the level of service we received reflect in any way the fact that they knew we were repeat buyers? No! Ball dropped? Yes!

Compare this to my experience when I picked up my last Audi. Note, my car cost more than double the car we picked up yesterday. It was also my third Audi at that point and I tended to prefer S-Versions in the past. Basically, when picking up one of those vehicles, you're specially greeted by someone from Audi and are treated a tad "differrently" then when picking up a vehicle at the lower end of the spectrum. Fine, I can understand investing more time on those spending more. It's similar to either being Senator Status or "only" Frequent Traveller Status at Lufthansa. Different class of service. At the same time, a customer buying a cheaper car can be a repeat customer and have a lifetime value far greater than someone who only buys one expensive car from you. 

What's the takeaway here? Basically, know your customer even before they get to you. If someone has already bought something from you, install software to make sure that you recognize him or her when they return. Audi knew we were coming that day. They give you a timeslot to pick up the car. Someone could of easily done a bit of research beforehand to make sure that when we arrived, the person greeting us had info in front of them about who we are. You wouldn't of even needed real time updates. This information could of easily been prepared and waiting for us. 

In so many businesses, both online and offline, your customer introduces himself to you with their name. They are either checking in, signing in or being personally greeted by someone when entering your premises. You always have a chance to cross-check that name with your database to see who this person is. You can't imagine how much people enjoy being "recognized". If someone spends a ton of money with you, celebrate them. It's such a simple thing to do and the technology is there to do this. I can't possibly imagine why you wouldn't. Yet on a daily basis, I'm reminded of the fact that there is still so much technology to implement and so many little tweaks which allow you to outcompete your competitor. I'm sure Toyota or Peugeot or Nissan are taking note of these things and could just do a bit more to get my business. In the car world, this can be hundreds of thousands in won or lost sales. Make sure this doesn't happen to you, even if your sales amounts are lower. 

Sidenote: for the first time in 10 years, I am again car-less. I spent the first three years in Germany w/o a car. Just didn't need it. I am again at the point where a car is no longer necessary. Public transport, car-sharing schemes, taxis and very simply, my bike will be keeping me mobile. Manufacturers, take note!

Hell Yeah It's Personal

"Don't take this personally!"

Man do I hate that quote. You usually hear it as someone is about to stab you in the back, steal your win or generally screw you over in some way. I know we're suppossed to seperate our private lives from our work lives so that we have some sense of "balance" in our lives. I'm calling bullshit on this once and for all. I just don't buy it although I used to think I was able to keep my private life seperate from work. After some reflection on this during a time when I am about to embark on something new, I've decided not to even sweat it anymore. From now on, hell yeah it's personal! That's what drives me. There's a certain amount of "passion" that you can only generate when you take things personally. Your flaws appear but it's smarter to focus on your strengths and find others to do what you can't. 

It's a pretty simply decision for me. I like to win. More importantly, I hate losing. There's no shutting off when something goes wrong. I don't walk out of the office and stop thinking about things at work. Vice verse, if something has gone all kinds of wrong in your private life, you're not just going to forget about it as soon as you walk into your office. That's fine! It's what makes us human and this work-life-balance bullshit is annoying me at this point anyway. There's no work-life balance in the sense that all these suppossed "work gurus" preach. You can either manage your life or you can't. Balance? Who the hell has balance when you think about an entrepreneur starting his business while raising two kids and so forth. Have fun discussing balance with them! 

I don't need balance when I think about starting a business. I want to be thinking of solutions to problems and figuring out how to make my customers happy all while making money. Ideas come at all times and in all forms. Likewise, if I need to take care of my family or do something "personal" during the day, then so be it. The working world has changed and you "balance" things while they're up in the air, i.e. while you're juggling priorities. 

I've yet to meet an entrepreneur who wasn't intense. Further, here's what's even more interesting about the most successful ones I've met. They've always had their flaws. I haven't met one person who ultimately went on to "greatness" where I didn't think at least once "what a freak"! Some were completely asocial and had no clue how to deal with people. Some were tyrants to their employees. Drinking? Yup, you had total alcoholics in the mix as well as complete straight-liners. Others were so whacky that you wondered how they manage to get around in their day-to-day lives. I'm not even going to get into the fashion and grooming defects that you see. Nevertheless, one thing that defined them all was a sense of passion for what they did and the fact that it was ALWAYS personal. They were doing what they were doing because it was A choice.....their choice.

You can argue a million ways whether entrepreneurs are born or made. Yet when you have one in front of you, the last thing you see is work-life balance and seperation of work and private life. Some choose to be entrepreneurs while others have it thrust upon them. It doesn't matter. What unites them all is that it's always personal! 

Greed is Good: Start-Up Version

If you haven't seen this scene, you've been under a rock but if not, watch it anyway. 

 

This is Gordon Gekko from the 80's movie Wall Street. This was an awesome movie but I think what he is saying is basically a crock of shit. It's banker-speak and how unfortunate that this movie foreshadowed so much of the mess we are currently in. 

Yet, I am going to address greed in terms of start-ups. In a sense, greed is good in a start-up, specifically for two reasons. First, it makes people do crazy shit. Second, it allows you to pay people with equity instead of cash. There are many other things I am sure could be considered beneficial in regards to greed but these two points stand out most for me from a founder's perspective. 

Call it what you will but it's greed that will get people to work their butts off to make something happen. They may not be greedy for money but they're still greedy for something, be it power, standing, reputation and so forth. I am fine with this. Start-ups are hard and I've written enough about that fact. Nevertheless, it's almost impossible to get someone to work with or for you on a start-up unless you address some greed of theirs. The amount of time and sacrifice in connection with start-ups far outweighs the expected benefits statistically. Either someone wants to get really rich (see below)......become a "player" in the market (give them a big role)......be seen as successful (put them on stage)......change the world (let them develop products)......whatever. Find out what they're greedy for, give them a chance to get it and you may just be able to land them for your business (see this post too about not confusing who is an employee and who is an entrepreneur). 

Second, it's greed that lets you pay with equity. Sure, you have to offer some form of a base salary. People do have their basic needs. Yet it's greed that allows you to give your early employees a share of the pie when you exit instead of paying them richly up front. You don't have much money when you launch a business. Further, even if you do raise money, you have to be frugal spending it as you never know how long until you are profitable. Therefore, the crazies mentioned above whom you've brought on board can be paid with shares. Does it get any better? Hell no! You offer them a promise. A promise that their hard work will grow the company, in return growing their share of the spoils. 

BUT, and there's always a "but" involved, being greedy as the founder can kill you. If you aren't willing to share the wealth, if you want to always be in the spotlight, if you don't promote from within, if you don't share your time and whatnot, you are going to get killed by greed. Let your employees be greedy. It keeps them motivated. As a founder and C-level executive of your business, be magnanimous in the spoils. Let people lead, let people develop, let people earn. Share the wealth and let greed be a positive driving force. 

Should VC's Be Blogging?

Chris Dixon started my thinking about whether VC's need to be blogging. He posted a quote from Marc Andreessen, which is actually quite good, but not relevant to this post. What is relevant is Chris's quote at the end: "Man, I wish Marc still blogged!"

I, too, miss Marc's regular blogging. He wrote great things and although he wasn't consistent in his regularity, they were always really good. His partner Ben has taken up the reigns in terms of writing blog posts but he too is writing less and less. Is this a trend? Well, yes & no, if you look at it from multiple perspectives. There are only a few bloggers out their in the VC sector who regularly garner large readership, including Fred, Brad, Marc and maybe Euro-Fred as examples. On the other hand, there are a ton of blogs from VC's which are rarely posted to or are totally dead after a couple years. So what's happening here?

I have two theories. One is that said VC has some downtime and launches a blog. He plays with it for a while, has some interesting thoughts and posts them. A couple of these posts get a large number of readers so he or she continue for a while in regards to posting. Eventually though the downtime comes to an end and said VC does the math? Does the time I invest in writing bring as much reward as if I were investing this time elsewhere? This question can easily be answered by looking to see how well the VC writes and if the writing is a passion or just a tool. I believe that those VC's who continue to write do it because they love it and not because they have to. The second theory for why VC's stop writing is that they run out of ideas. It's hard to keep banging out posts which people want to read. As creative and witty as we VC's try to be, most of it has already been written. The numbers are simply against you when you look at the sheer number of VC blogs which were launched in the past 10 years. Someone out there has usually already written about everything you come up with (probably this topic too). You put your own spin on it but it's not new. This can be frustrating. 

Back to the question of whether VC's should be blogging. I think the answer is yes but only if you do it because you love writing. Those VC's I mentioned above all write (I believe) because they love the practice of writing. Most of them are doing it late in the evening or early in the morning alongside their heavy work and travel schedules. Hats off to them for having the energy to keep at it. Further, a large readership does bring it's benefits and you can bet that they are generating fairly large marketing value for their funds via their blogs. On the other hand I'd bet Marc stopped blogging frequently because he's been real damn busy. Look at the funds he's raised, the team he's built, the boards he sits on and so forth. I would be shocked if he regularly banged out high quality posts on top of all this. Therefore, my answer is that VC's should blog but only because they are passionate about it. You shouldn't blog as a VC because everyone is doing it. Some people simply write poorly and have no business maintaining a blog. I write because I enjoy it. I'm always secretly planning my next book in the back of my mind and do this because it's a way to think out loud. It gives people an idea of how I tick. Finally, I hope it adds value for my readers and if not that, is at times a bit amusing. 

Your Employees Are Not Entrepreneurs

One of the most annoying things I often hear is founders telling their employees that they need to think like entrepreneurs. Or they are told they need to be more "entrepreneurial!" Don't fall into this trap thinking it'll motivate your employees in any way. Actually it probably makes them resent you and hate your guts behind your back. Yet you'll never know this because the repercussions rear their ugly head in totally different ways, i.e. job hopping, lack of motivation, gossip and so forth. 

Employees know they are not the founder and they usually make a clear choice to be employees due to their own reasons be it risk aversion, lack of experience, lack of funds and so forth. Employees will be passionate about your company and they will work hard if you choose them well. Yet do not underestimate how annoying it is to be told to be "entrepreneurial" and then in hindsight to see that the equity gains all land in the founder's pocket. Sure, your employees may have options or shares of your company. This is a great way to give them a sweetener on top for their hard work. BUT this is a bonus. It is not the same as it is for you if you are the founder. You make a boatload more than they do when you successfully exit. 

Treat your employees right and never forget....treat them like good employees. They want a great place to work with challenging roles which are compensated with cash and perks. If you expect to skimp on the things which make employees happy by saying they too are compensated in equity, watch out. Spend that extra buck on a nice office and get them good hardware. Throw a great Christmas party. Give praise and honest feedback so they can further themselves and their careers. You know what I mean. But don't belittle hard working and intelligent people by telling them "I am a cheap bastard who wants to increase his upside at your cost!" Translated into founder speak, that sentence reads "When we sell this company you will make millions and hence should forego salary and a proper work environment to further our team!" I wouldn't fall for that shit when looking at a job and if you have smart, motivated employees, neither will they.