Tuesday, December 16, 2014

Introducing: The One-Slide Update Deck

When we start to work with a new portfolio company, one of the things we always suggest is that in addition to (sometimes lots of) ad hoc communication via eMail, Skype, Basecamp, etc. we set up a standing meeting or call, at least during the first 9-12 months following our investment. Typically it's a one-hour monthly call, and the purpose of these calls is to get us updated and to talk through current issues. Our experience is that these calls are a very effective and efficient way to discuss things and to find out how we can help. The last thing we want to do is be a burden on the founders, and so we try to be very respectful of the their time (even if we're not as efficient as Oliver Samwer with his famous "supercalls" - 12 hours, 180 companies, or something like that).

Just like a regular Board Meeting, these monthly calls work best if the investors get an update before the call, so that the call can be spent discussing key challenges rather than spending too much time going through numbers and updates. And that brings me to the topic of this post: The One-Slide Update Deck.

Founders often ask me if I have a preferred format for updates and KPIs. And while I can point them to my SaaS metrics dashboard for KPIs, we've never had something like a template for other updates. So here's my attempt to create a super-simple deck which you can use to update your investors (or me!):




The idea is that in the beginning you create a rough roadmap for the next 12 months, broken down into key areas like Product & Tech, Sales & Marketing and Team/Hiring (see slide 1), plus a financial plan. Better yet, you already have a plan :-) and you discuss that with your investors to get everyone on the same page.

Then, every month you create one slide which shows progress and problems, as well as the original plan, in each of the three key areas, plus key metrics. I've borrowed the "Progress, plans, problems" technique from Seedcamp; the metrics are taken from my own SaaS dashboard template. So just one slide, once a month, with information you should already have anyway, and you should have a great basis for highly productive calls or meetings with your investors.

It obviously doesn't matter if you use Keynote, Google Docs or something else, and depending on the needs of your company you may want to emphasize different key areas or include other KPIs. So this isn't meant to be prescriptive but rather a suggestion or a starting point for founders who are thinking about reporting for the first time – if you are already providing more comprehensive monthly reports, don't change it!

If you want to take a closer look, here is a PDF and here is the original Keynote version.

Thanks to Nicolas, Rodrigo and Michael for providing valuable feedback on the draft of the slides!






Saturday, December 13, 2014

A toast to all the great ones that we've missed

Picture taken by "nlmAdestiny"

One of the things that inevitably happens when you're in the angel or VC investing business for a couple of years is that besides a hopefully healthy portfolio, you're also building a growing anti-portfolio. As far as I know, the term "anti-portfolio" has been coined by Bessemer. Its meaning is described very well on Bessemer's website, and because it's so hilarious I want to quote it in its entirety:

"Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.
Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.
Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.
Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working."

What follows is a list of spectacularly successful companies which Bessemer saw and passed on, including Apple, eBay, FedEx, Google, Intel and others. (No need to send CARE packages to the guys at Bessemer though, they have more than 100 (!) IPOs under their belts).

I'm a big fan of dealing with failures openly, and I applaud Bessemer for being so open about their anti-portfolio. In the next version of our (meanwhile pretty outdated) website we should add a section about Point Nine's biggest misses, but let me already give you a sneak preview into my personal anti-portfolio:

The two "passes" which I regret the most are SoundCloud and TransferWise. The reason why these two ones stand out is that I had the opportunity to invest in them (at an early stage and at reasonable terms), spent some time looking at them and decided to pass. Since then, both SoundCloud and TransferWise have become "unicorns" or are on their way getting there. Congrats to the founders and early investors of these fantastic companies – Alexander, Eric, Christophe and Jan (SoundCloud) and Taveet, SeedCamp and Index (TransferWise)!

Another unicorn that we rejected is FanDuel. Congrats team FanDuel, Fabrice, Andrin!

As far as I know, these three are the only $1B-valuation companies that we've missed so far, but there are several other companies that we passed on and which are doing great. Most of these are probably worth well over $100M by now and they include:


The reasons for passing an all of these great companies varied and included concerns about market size, competition, defensibility, valuation ... all bullshit with the benefit of hindsight. :-) While I am of course trying to learn from all of these mistakes, I also know that it's inevitable that my anti-portfolio will continue to grow over time. And although that can hurt, I know that that is okay – at least as long as we're happy with our non-anti-portfolio.



Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working. - See more at: http://www.bvp.com/portfolio/antiportfolio#sthash.kZFrSNRx.dpuf
Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working. - See more at: http://www.bvp.com/portfolio/antiportfolio#sthash.kZFrSNRx.dpuf
Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working. - See more at: http://www.bvp.com/portfolio/antiportfolio#sthash.kZFrSNRx.dpuf
Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working. - See more at: http://www.bvp.com/portfolio/antiportfolio#sthash.kZFrSNRx.dpuf

Monday, December 01, 2014

Reflections on the early days at Zendesk (part 2)

This is part two of my post about the early days at Zendesk. The first part is here.

Small, fragmented and no potential for differentiation

As mentioned in the first part of this post, the seed round was only $500,000 and it was clear that we’d need much more money soon. That’s why Mikkel and I started to work on a pitch deck and a financial plan almost immediately after the closing of the seed round and started to pitch to VCs shortly thereafter.
In my personal experience as a founder, raising money has never been easy, and so I didn’t expect that it would be easy. I was quite optimistic though, since I thought we had a pretty good pitch: a well-rounded team of three complementary and experienced founders, a beautiful product, a proven business model, paying customers and nice (yet early) traction.

So why did all European VCs pass? I’m getting asked this question a lot and I don’t have a perfect answer, but here are a few important factors:

  • There just weren’t (and still aren’t) that many VCs in Europe who can write a Series A check. If a couple of them pass for whatever reason, you’ve quickly exhausted your available options.
  • Our timing was horrible – it was almost at the height of the global financial crisis which had started in 2007. While we were trying to raise the Series A, Lehman Brothers imploded and a collapse of the entire global financial markets seemed possible.
  • We had failed to convince investors that we were going after a large market and that we could build a defensible position. One feedback that we got was that the market for help desk software is “small and fragmented” and that there are concerns about the “potential for differentiation” and several other VCs were concerned about the size of the opportunity and our ability to differentiate, too.

You’ll notice that I haven’t mentioned the “European VCs are risk-averse/dumb/whatever” theme to explain why we haven’t been able to raise money in Europe. While I do think that there are differences between how VCs work in Europe vs. the US, I think it wouldn’t be fair to blame European investors for missing Zendesk: With hindsight Zendesk looks like a clear winner, but back in 2008 it wasn’t that clear. It was still very early.

At a critical juncture

A few months later, after having talked to a number of US investors and and after an almost-deal with a West Coast VC which was pulled back at the last minute, we eventually got an offer from CRV in Boston. We were relieved, but the valuation was much lower than what we had hoped for.

Because of the dilution which the investment round would mean and because the whole fundraising process has been so hard, Morten and Alexander got more and more doubts if going the VC route was the right thing to do at all. They were wondering if we couldn’t go the 37signals way instead – stay a smaller team, grow organically and maybe raise money at a later point in time when we’d be in a stronger position and when the market conditions would be more favorable. That was definitely a viable alternative and worth considering, but Mikkel and I strongly believed that we had to raise money and that we shouldn’t wait. This led to a lot of long emails and Skype discussions between the four of us. It also led to some very heated discussions between Mikkel, Morten and Alexander, which is no surprise, given how much was at stake. We were at a critical juncture.

One relic from those days is this email snippet (Alex in red, me in green):


I still need to buy Alex a T-Shirt with “I’m not confident that Zendesk can grow into a $100 million company” on it.

In the end we decided to take the investment from CRV, but we took a smaller amount than what Devdutt had offered us to reduce the dilution. It was still a significant hit in terms of dilution, but given how many doors the CRV investment has opened for us and how much Devdutt has done for the company it proved to be the right decision.

The rest is history – get Mikkel’s book to read about it!


Wednesday, November 26, 2014

Reflections on the early days at Zendesk (part 1)

Yesterday I posted a brief review of Mikkel’s excellent book “Startupland”. For me, the book is also a good opportunity for some reflections and to share some thoughts in relation to Zendesk’s journey.

The first date

When I stumbled on Zendesk in 2008 I knew absolutely nothing about enterprise software, B2B or SaaS. I had always been a consumer Internet guy, having founded comparison shopping engine DealPilot.com back in 1997 and personalized homepage Pageflakes in 2005. If Zendesk’s website hadn’t been so beautiful and if the product hadn’t been so easy to try and use, Zendesk would never have caught my attention (and I wouldn’t be writing this post now). The nice little buddha, the logo/brand and the tone of voice of the site also helped, massively.

Interestingly, if I had been an enterprise software investor, Zendesk probably wouldn’t have caught my attention either, since the website didn’t look like a typical enterprise software website at all. Today the “consumerization of the enterprise” has become mainstream, but in 2008 it wasn’t. Apparently you had to be a consumer Internet entrepreneur looking for the next big thing on the Web in order to stumble on and be attracted by Zendesk. This characteristic – not being a consumer Internet startup but not being a classical enterprise software company either – has probably contributed to our difficulty raising a Series A later on, but more on that later.

So when Mikkel and I met for the first time, I knew nothing about SaaS and probably asked a lot of dumb questions. At that I also knew nothing about inbound marketing and customer success – topics which are now near and dear to my heart for some years – and I was somewhat puzzled when Mikkel explained to me how they’ve been getting customers. I was worried that the inbound marketing plus customer success (at that time, called “customer advocacy”) approach wouldn’t scale and thought that they’d have to do outbound sales soon to keep growing. That turned out to be epically wrong: Zendesk grew to 10,000 paying customers before starting to build a real sales team, and up until this day, the vast majority of customers come from organic sources.

Having been an entrepreneur since the age of 17 I did know a few things about starting and building companies though, and since both DealPilot.com and Pageflakes were VC-funded I also had some experience with venture capital. So Mikkel and I were very complementary, or, as Mikkel puts it in the book:
There was a good vibe between us, even though we were extremely different. […] Ultimately, I think we recognized that we were a good balance for one another.
I remember that a couple of years later, at the first PNC SaaS Founder Meetup in San Francisco in 2012, Mikkel ended his speech saying something along the lines of: “Kudos to Christoph for investing in us back in 2008 – I would never have invested in these three guys”, referring to his co-founders Morten, Alexander and himself. My response was: “Kudos to you for taking money from me – I never would have taken money from me”. I think there’s no better way to sum it up. :-)

After the financing is before the financing

Following our first meeting, we very quickly concluded that it would make sense to work together, agreed on the terms, and voilĂ , a six-figure dollar amount changed hands. I was excited, but it was also a little bit scary because it was my first angel investment (aside from a few small investments that I had made many years earlier). I didn’t have a diversified portfolio, and I didn’t know if I’d ever have one because I had no idea when I’d make my second investment. I didn’t have deal-flow, and I’m not even sure if I knew the term deal-flow.

I didn’t worry too much about it though, and the mood was good. Quoting Mikkel from the book:
We now had a new direction. The investment from this seed round inspired a new mindset and created a big change in pace. Christoph helped us with a business plan and helped us build out what would be the first attempt at describing the financial model of our business. [...] He helped us think about scale—and about the possibilities.
The seed round, including the friends & family investments and my own investment, was only $500,000 though. It was enough for the founders to take a modest paycheck and to hire a few people, but it was clear that we’d need a much larger round soon. That’s when things started to become worrisome for me, since it quickly became clear that raising a Series A round would be very difficult.

This was the first part. Part two coming soon.
[Update: Here is part two.]


Startupland – How three guys risked everything to turn an idea into a global business

As some of you may know, my friend Mikkel, founder and CEO of Zendesk, wrote a book. It’s called “Startupland: How Three Guys Risked Everything to Turn an Idea into a Global Business” and you can learn more about it here. The hardcover version will be released in about two weeks, but the Kindle version just became available on Amazon and I was lucky enough to get my hands on a draft a few weeks ago.

The book is a well-written and very personal look back at Zendesk’s amazing success story, which began in a loft in Copenhagen and culminated in the company’s Wall Street IPO earlier this year. It’s both autobiography and “tips & tricks" guide: First and foremost it’s a suspenseful chronicle of the journey of Mikkel and his co-founders Alex and Morten that lets you witness some of the many ups and downs which startupland has in store for entrepreneurs, but it also contains a lot of actionable advice for other founders.

It’s an entertaining read, too, and as someone who was fortunate enough to have played a small role in Zendesk’s beginnings, reading about those early days put a smile on my face many times. In some cases, it also made me laugh out loud, e.g. when Mikkel writes about my conversation with Michael Arrington.

One of the reasons why "Startupland" is such a great read is that it’s honest and humble. When other authors write things like “I didn’t know anything about XYZ” it often feels like fishing for compliments. When Mikkel writes it, you know that he really means it that way.

I highly recommend the book to any startup founder, and in particular to all founders from Europe who consider making the move to the US.


Friday, November 21, 2014

When deers morph into elephants, SaaS nirvana is nigh

By now you’re probably sick of my infamous animal analogies. Sorry. But I just love them and want to resort to them one more time. :) Namely, what I want to talk about are deers that can morph into elephants, or more generally, smaller animals that can morph into bigger animals. (1) In other words, I want to talk about account expansions, which are the result of a successful “land and expand” strategy.

The premise of this strategy is that it’s usually easier to get a minor commitment from a customer first and then work your way up towards a larger ACV, rather than trying to get a large deal from the get-go. There are different ways how SaaS companies have successfully employed land-and-expand strategies:
 
  • Yammer is a classic example. Typically a small team in a company starts to use Yammer for internal communication. Then they add more and more people, usage might spills over to other teams or departments, and eventually Yammer’s sales team can come in and upsell the customer to an enterprise account. It’s hard to imagine a hotter, more qualified lead than a company where dozens or hundreds of people are using your product already!
  • Dropbox is similar, but the difference is that you can start using Dropbox even as single user. Plus, they have another great growth vector, since people keep adding more and more files to their file storage.
  • EchoSign: In this Quora post, EchoSign founder Jason M. Lemkin (one of the top SaaS experts and our co-investor in Algolia and Front) describes how EchoSign grew many departmental deployments into large, six-figure accounts over time (he also gives you the caveats).

Another way to get bigger and bigger accounts over time is of course to target startups and grow with your customers. Zendesk is extremely successful at employing land-and-expand strategies, but the company has also been fortunate enough to acquire customers such as Twitter, Uber and many others when they were still pretty small.

If your land-and-expand strategy works so well that your account expansions offset churn, then your MRR churn rate becomes negative – a state which I’ve previously described as the holy grail of SaaS. It’s hard to overstate how transformative this can be to a SaaS company. Think about it: Negative MRR churn means that even if you’re not growing, you’re still growing. More precisely, even if you stopped acquiring new customers tomorrow your recurring revenue would still continue to grow.

It’s no surprise that SaaS investors start to salivate when they see SaaS companies with negative MRR churn. Just a few days ago, Tomasz Tunguz of Redpoint highlighted that New Relic, which has filed to go public, has a negative MRR churn rate of about 14% per year. Especially for later-stage public SaaS companies, revenue churn is one of the most important metrics to look at. You cannot understand a company like Box, which is spending seemingly crazy amounts of money on customer acquisition, without understanding this metric. (2)



(1) If you have no idea what I'm talking about, please read this post.
(2) And yet, I have the impression that this metric hasn’t fully arrived in the world of financial analysts and accountants yet. There doesn’t yet seem to be a standard way of reporting it – every company defines the metric a little different, and some aren’t reporting it at all.




Tuesday, November 04, 2014

Three more ways to build a $100 million business

It seems like my recent post about five ways to build a $100 million business resonated very well with a lot of people. I also got some really good comments and suggestions, and so I'd like to follow-up with another post on the topic.

Introducing: the Brontosaurus!

A reader by the name of "Vonsydow" commented that another way to get to $100 million is by having 100 customers, each paying you $1 million per year, and mentioned Veeva as an example. True! Veeva's ACV is around $780,000. That's almost an order of magnitude higher than the $100,000 ACV of the "elephants" category, so it's a different kind of animal. I'd suggest that we call Veeva's customers Brontosaurus (or Apatosaurus, which seems to be the correct name) but I'm open to other suggestions by people who know more about biology (or paleontology) than me.

Interestingly, it seems like there are only two Brontosaurus hunters in the SaaS world, Veeva and Workday*. What does that mean for SaaS entrepreneurs? Take a look at the backgrounds of the founders of Veeva and the founders of Workday. If your background looks similar – 20+ years of experience selling enterprise software, domain expertise and an extremely strong network in your target industry – get into the Brontosaurus hunting business. If you don't have a background like this, I think it's likely that you're better off starting with smaller animals (but I'd be happy to be proven wrong!).

Whale hunting?

Whale hunting is not the best topic for jokes, but if you know me (who has become a vegetarian a few years ago) you know that I can only mean this figuratively. And the category that I'm going to talk about now just has to be named after the blue whale, the largest animal ever known to have lived on Earth. I'm talking about companies with an ACV of $10 million. If you can sell a SaaS solution at an ARPA of $10 million per year, you need only ten customers and bada-bing, you've got a unicorn.

Does that make it easy? Of course not. I'm aware of only one SaaS company which might have an ACV in the neighborhood of $10 million: Palantir, as pointed out by Jindou Lee. In his excellent book "Zero to One", Peter Thiel writes that Palantir's "deal sizes range from $1 million to $100 million". I don't know if these amounts refer to the price of an annual subscription and I don't know which part of it is non-SaaS revenue, but it sounds like Palantir's ACV could be in the $10 million ballpark. Either way, the conclusion along the lines of the conclusion of the Brontosaurus category is: If you're Peter Thiel, hunt whales. If not, chances are that you should start at a lower end of the market.

Hunting microbes

I'd like to add another species at the other end of the spectrum, too. Jeff Judge pointed out that WhatsApp monetizes its users at about $0.06-$0.07 per active user per year. That means that even if Facebook increases monetization by a factor of ~15 (which I'm sure they can do if they want to) and reaches $1 per active user per year, that's still an order of magnitude below the $10 per active user per year that I've described in the "flies" category, so another category is justified: microbes. If you're making only $1 per active user per year, you need 100 million active users to build a $100 million business. That means you'll need hundreds of millions of downloads or signups, which requires an insanely high viral coefficient. If it happens, awesome, but hard to bet on it in advance.

With that, here's the updated chart, which now shows eight ways to build a $100M business:




The y-axis shows the average revenue per account (ARPA) per year. In the x-axis you can see how many customers you need, for a given ARPA, to get to $100 million in annual revenues. Both axes use a logarithmic scale.

PS: One of my best childhood friends saw my post, and I don't want to withhold from you what he wrote me: "Mathematically, there are many more ways to build a $100 million business. The easiest one is to start with a $200 million business and lose $100 million".


________________

* Salesforce.com has a number of Brontosaurus as well as some whale customers. As far as I know, with few exceptions these customers were acquired at a time when Salesforce.com was a $100 million business already. Since this post is focused on ways to build a $100 million business in the first place, I haven't included Salesforce.com in the Brontosaurus and whale category.


Sunday, November 02, 2014

Good VCs, bad VCs

Inspired by Ben Horowitz’ excellent “Good product managers, bad product managers” post and Stefan Smalla’s “Good leader, bad leader” masterpiece I’ve tried to put together my thoughts on what I think makes a great venture capital investor. Thanks go to my colleagues at Point Nine Capital for their invaluable feedback, in particular Michael, Mathias and Rodrigo, who reviewed an early draft of this post and provided lots of great comments.

This post represents our current thinking, which may evolve our time, and some parts are still work in progress. Feedback and discussion with other VCs and entrepreneurs is very welcome.

We’re fully aware that we don’t always live up to the ideal of the “good VC” described below, but as Stefan Smalla said in response to a comment on his leadership manifesto: “Nobody is exactly like that, but it's good to move towards that ambition. Inch by inch.”

A good VC does everything she possibly can to support her portfolio companies

A good VC is truly value-add

A good VC is available for her portfolio companies almost 24/7. If a portfolio founder needs her, she will do everything she can – roll up her sleeves, use her social capital, get on a plane – to help. A good VC is sometimes a recruiter, sometimes a beta tester, sometimes a personal mentor, and isn’t afraid of getting her hands dirty. Not scalable? Screw scalability. If a portfolio founder needs your help in putting out fires, the last thing he or she cares about is how this scales from a VC business model perspective.

A good VC doesn’t only react to requests from the founders. A good VC knows the current challenges of her portfolio companies and is proactively looking for solutions all the time.

Good VCs create firms where portfolio founders have equal access to all partners and not just to “their” partner.

Knowing that there are limits to the help she can provide to founders herself, a good VC tries to leverage the knowledge and expertise of other people. In particular, she facilitates knowledge exchange between the founders of her portfolio through various forums, online and offline.

A bad VC overpromises in the deal-making phase and under-delivers once the deal is done.


“We view ourselves as a services firm. We try to earn our reputation and brand every day. We practice the art of adding value and we want to be the highest executing board member that founder has and we’re out there everyday trying to earn that reputation.”
Bill Gurley
General Partner, Benchmark Capital


A good VC is humble and doesn’t try to run the show

A good VC is aware that there is a huge information gap between founders and VCs with respect to the founder’s business. He understands that the founder has thousands of hours of experience in his industry and with his customers and intimately knows the people on his team, whereas the VC’s knowledge of the startup is often much more superficial. He understands that many if not most of the ideas he will come up with are things that the founder has already considered and knows that while he can provide great input, advice and a different perspective, he should neither try to micro-manage nor try to make decisions for the founders.

A good VC knows that managing investors can be time-consuming for founders and tries to find the right balance between being close and providing value on the one hand and getting out of the way on the other hand.

A bad VC overestimates his insights, tries to micro-manage, tries to exercise control and becomes a maintenance burden for the founders.

A good VC goes all-in and avoids conflict within the portfolio

A good VC doesn’t invest in two or more companies that are directly competing against each other.

A bad VC, instead of going all-in into one company and giving his undivided attention and support to her portfolio company, tries to hedge her bets by investing in several companies in the same space.

A good VC tries to maximize the size of the cake vs. his slice of the cake

If a company wants to bring on board other investors, whether in the same round in which the VC invests in the company or at a later stage, a good VC helps the founders to attract great co-investors. A good VC also does this pro-actively – suggesting to invite value-add co-investors to a financing round whenever he sees a great potential fit for a company.

A bad VC worries that if co-investors join a company, he will get a smaller stake in the company. So he discourages founders from working with other investors, maximizing his stake in the company rather than trying to do what’s best for the company as a whole.

A good VC doesn’t take unfair advantage of the founders she invests in

A good VC uses simple term sheets. A good VC may negotiate hard, but she doesn’t try to screw founders by sneaking in hard to understand provisions that can hurt founders. A good VC tries to keep contracts simple, knowing that in an industry where the bulk of returns is produced by the best outcomes, there’s not much value in trying to protect herself against everything which can go wrong anyway.

A good VC also doesn’t overly use leverage, which she might gain over portfolio founders in different situations throughout the company’s life.

When a bad VC negotiates a term sheet, she spends way too much time (and legal fees) on micro-optimizations of all kinds of unlikely scenarios. She may even try to fleece the founders by imposing terms that are unfair, unusual and hard to understand.

Whenever she gets leverage over a portfolio company, e.g. when the company runs out of cash and asks its investors for a bridge financing, a bad VC exploits her leverage to improve her position.


A good VC treats every entrepreneur with utmost respect

A good VC respects the value of the founder’s time at all times

A good VC rarely re-schedules meetings with founders and is almost always on time. In meetings with founders, his phone stays in his pocket.

A bad VC re-schedules meetings with founders all the time, often at the last minute. Once the meeting finally happens, he often arrives late. In the meeting, he will start to check his email (or Facebook feed) on his phone the minute he gets bored.


“If anybody is not on time I will fine them $10 a minute. That comes from my experience as an entrepreneur. When you are an entrepreneur you are living and dying with your company. You are working extremely hard and the last thing you need to do with your time is to sit in the lobby of a venture capital office.”
Ben Horowitz
General Partner, Andressen Horowitz


A good VC handles “passes” professionally

Knowing that she has to pass at least 99% of the time, a good VC has built a team and established a deal assessment process that ensures that founders get timely responses. A good VC also tries to give an explanation on why a company is not a match for her, although unfortunately time constraints may make detailed feedback impossible in every case.

A bad VC takes forever to respond to inquiries, and often she doesn’t reply at all. When she passes on a potential investment, she doesn’t try to give the entrepreneur useful feedback. A bad VC also often delays the decision forever, trying to keep her options open.

Side note: This is the area where the distance between reality and ambition is the largest for us at Point Nine. We're trying to get better, but with ~ 200 potential investments to evaluate per month, it's tough.

A good VC only signs a term sheet when he’s going to make the deal

A good VC only signs a term sheet when he’s going to make the investment. After having signed a term sheet he only bails out if really bad things come up in the due diligence, which happens extremely rarely. A good VC also tries to be transparent in the deal evaluation phase before, trying to give the founders a realistic assessment of his interest level and timing requirements.

A bad VC sometimes signs a term sheet to secure the option to invest – at a point in time at which he is not yet sure about his intent to invest. A bad VC often also conveys a misleading impression as to how close he is to making a positive decision and how fast he can move.


A good VC aligns her interests with the interests of her LPs

A good VC is incentivized by carry, not by management fee

A good VC optimizes for higher carry and lower management fee. A good VC also invests most of the management fee in a way where it leverages her ability to make great investments and helps her portfolio companies (e.g. by building a team of associates and advisors and by providing resources to the portfolio) rather than drawing a large salary. A good VC invests heavily into her fund and doesn’t view the GP commitment (1) as a burden.

A bad VC wants to make a lot of money even when she doesn’t make her LPs(2) a lot of money. She tries to minimize her GP commitment while trying to maximize her salary.


A good VC is focused, courageous, humble and desires diversity

A good VC is focused

A good VC is focused on one or more investment theses built around expertise in a certain stage, geography and/or industry.

A bad VC invests broadly across all stages, geographies and industries. Rather than knowing a lot about a few things he knows nothing about everything, which prevents him from providing effective portfolio support and from seeing the best investments in the first place.

A good VC is courageous

A good VC makes bold moves. She has strong opinions, and although she values other investors’ opinions she often invests in companies which many other investors have passed on. A good VC also isn’t afraid of admitting mistakes and failures.

A bad VC’s main driver is FOMO (“fear of missing out”). She doesn’t have the expertise or courage to think independently, but as soon as other investors want to invest in a deal she gets excited. If an investment fails, she tries to produce a PR story to make it look like a success.

A good VC is humble

A good VC knows that luck and serendipity play a big role in investing. He knows that he has to constantly prove his value and that he’s only as good as his last investments. A good VC also doesn’t have a big ego, is a great listener and says “I don’t know” very frequently.

A bad VC, after having made one or two lucky shots, thinks he’s a genius. A bad VC has a big ego and is one of those people who make Board Meetings inefficient because they love to hear themselves talk.

A good VC desires and appreciates diversity

A good VC wants to work with people and invest in founders from a wide variety of languages, cultures, color, origin, gender, religion, age, personality and orientation. He knows that “these people can open up new markets and new geographies, and create potential outsize investment returns from opportunities that others may overlook or not want to risk going after”, to quote Dave McClure.

A bad VC prefers to invest in people who are like him.


“Our Commitment to Diversity stems from an irresistible desire to explore, from a burning curiosity to learn more about the world, from a moral imperative & intellectual humility to help both others and ourselves become part of a larger, more enlightened global community and global family.” 
Dave McClure
Founding Partner, 500Startups


A good VC invests for the long-term and gives back

A good VC invests in long-term relationships

A good VC optimizes for the long run in everything she does. She knows that you “always meet twice in life”, as the German saying goes, and tries to create win-win situations.

A bad VC tries to gain short-term advantages over other people, sacrificing relationships and long term gains.

A good VC shares knowledge (but keeps private information confidential)

A good VC openly shares knowledge with startups and investors, knowing that the tech community is not a zero-sum game.

A good VC never, ever shares confidential information like pitch decks with people outside of his firm, unless the founder explicitly gave him permission to do so.

A bad VC is secretive when it comes to sharing knowledge with the community – and leaky with respect to confidential information.

A good VC wants to make the world a better place

A good VC cares about others and knows that there’s more in life than financial returns alone. Whether it’s investing in clean technologies, giving to charity, doing community work or something else – she has a strong urge to make the world a better place.  When she’s made money she doesn’t forget that as much as her wealth is the result of decades of hard work, it’s also the result of being born and raised in the right place and having had opportunities that billions of people on the planet never have.

A bad VC has an exaggerated sense of entitlement, a lack of compassion for the poor and forgets that there are other things in life.


And last but definitely not least…

A good VC delivers sustainable superior performance.

A bad VC doesn’t.


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1) GP commitment = the investment made into the VC fund by the fund’s managers, often called “GPs” (General Partner)
2) LPs = Limited Partners, the people and funds which invest into VC funds


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