Cash Money.

In a follow up to my blog post yesterday, Gary the Snowman gives us the low down on the cush life of a Venture Capitalist.

Enjoy.

Innovations in the Venture Capital Industry

Somebody bring me back some money please, hey

I got a million ways to get it, choose one

Hey, bring it back, bring it back

Now double your money and make a stack

I'm on to the next one.

- Jay-Z

I don't know a lot of about the nitty gritty of the Venture Capital industry but I presume that a majority of the decisions are made around optimizing returns for limited partners like large banks and pensions. This is appropriate - it's called a fiduciary duty - because these institutions have to manage the deposits of the customers and have fixed timelines of when they need to have the cash returned, depending on their balance sheets.

Unfortunately, this mechanizes behavior incentives to make investments in companies that would make a lot of money but don't really doing anything because they can easily attract and retain users (Twitter, for example). Because most venture capital funds have a hard deadline of returning the funds within 10 years, a firm must be VERY focussed in its ability to make good investments. Most firms specialize (appropriately) in a particular stage of company growth (seed stage vs late stage) and do not deviate. This forces them to pass up opportunities that are objectively good ones but don't fit into their investment strategy because they have to answer to their LPs and worry about having a good track record so that they can easily raise money for a new fund.

But there are some people innovating in this area:

Union Square Ventures just announced that they raised a new Opportunity Fund to keep capital in reserve for investments that are good opportunities but don't fit within their investment strategy.

Additionally, Andreesen-Horowitz announced a few weeks ago that they raised an astronomical $650M for an all-stage fund. Ben Horowitz, GP for the fund stated on his blog the reason for this:

"As a matter of core philosophy, we invest in companies, not stages. We want to be in business with the best entrepreneurs going after the biggest markets and we do not care whether they need seed money, venture money or growth money. We believe in great entrepreneurs and the products and companies they build. We do not focus on special return profiles for various stages of investment. As a result, our fund is stage agnostic... we are excited about investing $50,000 in new seed deals and we are excited about investing $50,000,000 in companies like Skype."

Specifically with the new Union Square Ventures Opportunity Fund, it is an interesting fund model: non-commitment of the entire fund, pay-for-play fees only on the money that's invested and a loosely defined investment strategy (opportunistic).

It might be interesting to align LPs, VCs, and the ever growing demand/need from entrepeneurs and early-stage companies to have on-demand investment as they pivot their direction towards reaching market validation AND be poised to make an investment to ride the upside once (if) the companies get on rails.

Of course, it's easy to talk about. Much harder to raise. Even harder to manage. USV and Andreesen-Horowitz are rock stars with great track records in building companies and good investment decisions - they have the clout to convince people that they can pull this stuff off. It will be interesting to see if the rest of the industry follows suit and tries to convince the LP community to engage in this type of risk profile in an attempt to align investment incentives with the reality of the entrepreneur.

Simply put: it seems like institutional investment is like traditional education in that they both understand that learning and growth is non-linear but seem to invest and teach in batches (investment round, classes of students) as if it was linear. *Why* we invest in rounds is something that I know nothing about (hopefully someone can tell me). Maybe because on opportunistic investment strategy provides less certainty for GPs as well as LPs and humans naturally opt for structure and the "known" even it is not optimal (ex: investing in bonds vs stocks).

One thing that might be interesting to examine is the relationship between firm performance (revenue/profit growth, probability of an exit, value at exit) and how close to on-demand investment the company receives (smaller round size, frequency of rounds and frequency and size of bridge loans in between rounds).

We have schools of thought around running lean: just-in-time inventory management, on-demand production and lean startup strategy. Why don't we have lean investment?

Maybe it's possible only in certain industries (both the firms mentioned here invest in hi-tech companies). Maybe it's possible only in certain investment stages. Maybe it's not possible at all or it's so hard that it might as well be considered impossible. But it seems like the logical move for the at least part of the industry and I imagine that we'll be seeing some retooling with the business model in the medium term.

Now I'm just a kid and I don't talk to investors and I don't have the professional experience or track record as these guys. So I wouldn't say that I'm the first to ask this question but I think it's an interesting possibility to drill down on and then build up from.

The question for me personally is whether or not anyone could do this. Could anyone follow the template model that Union Square is leading with to build regional micro-VCs? Could I help contribute to this? Anyone else interested in this?

The Foundry - A Graduate's View

It’s a good idea to be yourself, not only because everybody else is taken, but because trying to be anything else doesn’t usually get you very far. - Chris Guillebeau

What is The Foundry?

It's a question that is easy to ask but hard to answer. What's amazing is how glib and cheesy it sounds when you try to describe its state of being its state of being. Foundry is not so much an organization as it is an experience; it focuses more on "doing" rather than "being."

So what is The Foundry? How about I start with what we do:

Participants are trained in the form and function of high-end, lightweight management technology. A high-leverage, precision-execution oriented set of documents that are easy to manage from, communicate the weekly snapshot of the company and allow managers to document their process as they push the frontier of their company forward. We use two documents, each are no longer than two pages. The quarterly planning document is called a MOKR (Mission, Objectives, Key Results) and a weekly planning Management Report that progresses the company to accomplish the quarterly objectives it sets for itself.

CEOs (and Foundry admins) are required to prepare a Management Report each week and upload it to their file within the Foundry Dropbox Folder by 6pm SHARP each Saturday. These documents reviewed by each CEO within a cohort. Each participant views the document with "revision marks" turned on and holds each other accountable for spelling, grammar and format defects. They also review each company's progress, plans and problems, keeping in mind that they are looking to contribute to assisting in any way possible.

On Monday morning they meet at 7:30am SHARP ready to add value to each other by providing insight, solutions or introductions within the their respective networks over the course of an hour so that the group progresses and learns faster together than any one individual would otherwise.

Foundry's role in that meeting is cultivate and batch together commons problems or challenges the cohort is facing ans solve them collectively - often leveraging a group discount or small sponsorship if the solution must be purchased.

The last requirement is to conduct a project review every 4 weeks which serves to model a board meeting. CEOs are encouraged to invite mentors, advisors, potential investors and other participants to engage in a dialoge about the monthly progress (things that are DONE and NOT DONE), personal and organizational learning, forward thinking plans and problems. It's typically a proverbial ass-kicking about your efforts to manage and guide your growing baby.. er, startup. It's an exhausting hour and a half but it provides clarity.

That's it. That's what we do. No fancy pants stratitegery. No superlative "crush it" dialogue. It's that simple. And it's effective.

Here's proof: 7 out 10 startups fail within the first year. 7 out of 10 Foundry companies survive.

So how do we generate the results that we do? The participants do everything. By participating in the Foundry, the act of contributing to each other creates their ownership in its existence. When participants no longer decide that the mechanics laid out above work for them, then we cease to exist. So far it's working.

That's why you can't talk about what it is unless you've been in it. To read and conceptualize what it's like is an order of magnitude different than to actually DO it - just like building a rocket ship out of legos doesn't qualify you to work for NASA.

Yes, we are a cult. Yes, we have rolling enrollment. So with these results and open-source management technology, why doesn't everyone join? The Foundry experience augments the startup experience which, like Fight Club, is confronting. Our management techniques aren't glitzy fancy pants Web 2.0 apps. They are 8x11 pieces of paper and they force you to publicly call yourself out to execute and announce to everyone when you don't. This alone confronts a lot of people who think that "getting the right answer" or "checking off a list" or " appearing to do complicated things with ease" makes them a good person.

For example I have seen experienced entrepreneurs get their asses handed to them in a Project Review or Monday Meeting by a 20-something student founder. And vice versa. This is a culture in which you learn, from everyone - ESPECIALLY when the message is packaged poorly. No one does that naturally, some stick around long enough to be transformed into someone that eventually welcomes this. Which is why most Foundry graduates are seemingly carved out of wood.

All of your inner demons, the thing that you have resistance around, will show up and be present in front of you and everyone else. Those uncomfortable and slimy "realities" that you do a good job of pretending aren't there, start announcing themselves loudly. What you decide to do at that point is what it means to be at risk to learn: you learn something, not about management or your company, but about yourself.

You will do this constantly, day in and day out.

We make a claim about forging entrepreneurs for life. On the surface it looks like company building but it's really the things that one learns when he or she is engages in the trench warfare of starting a company.

This is why Foundry accepts PEOPLE starting companies, NOT companies.

The Man Behind the Myth

This is a funny email conversation that I had late last night with fellow Foundry brother, David Oldham, CEO of O-Codes.

Dave: Would be cool to have a Dropbox folder for resumes/bios where people who wanted to join a startup could post their background and skillset for teams to review and then follow up with the individual if it's a good fit.

Me: Noted. I'll talk to Matt and Rob about that possibility and see if we can get something done formally.

Dave: You are the man behind the myth.

Me: Ha ha, indeed. What is the myth?

Dave: The myth: that a brilliant, ambitious young entrepreneur wander the dimly lit, cubicled halls of the Foundry late at night scheming up the world's next great invention; and if you happen to see him, touch his North Face jacket sleeve and you too will be imbued with magical entrepreneurial powers.

***

The funny thing about this is that I was wearing the exact North Face jacket he was referring to when I read the email this morning.

Let it be known though, that the character I play in life: the ambitious young entrepreneur, is in fact a myth. I am not out to create a world-shifting invention for the sake of personal accolades and bragging rights at cocktail parties. In fact, I'm not out to create a world-shifting invention at all. I just like building things that I find fascinating.

I am just a guy, who likes tinkering with machines that look like entrepreneurial endeavors. The ambition is often misinterpreted as "nerd-fervor" for seeing things come together on a spreadsheet. And young is often misinterpreted as... well actually I am young so there's nothing to say about that. As far as the North Face jacket, it probably won't imbue magical entrepreneurial powers, but it will help protect you against the cold.

So feel free to engage with the man (boy). Because that's who I am.. with a few foibles and flaws. Just like every other human being.

The Theory of Competition

You never know who is going to flip the script,
And take a pass on saying 'Uncle' - Unknown

I had a friend post this video on Facebook a few days ago. I've been hooked on it ever since. I tend to be a suckker for these videos because my experience in sports has always been that as the underdog or longshot comeback. None is more true than the "glory days" of my senior season of football at Skyline High School. After going 5-5 in the regular season, we somehow pulled off miraculous upsets week after week in the playoffs to eventually emerge as the 2005 State Champions. This experience taught me a lot of lessons that I draw from today:

• Crucibles - if you survive them, form bonds within teams that are unbreakable.
• The odds and the newscaster commentary mean nothing - when one team shows up to play and the other doesn't, all bets are off.
• Battles are won not on the field in front of a crowd but in practice and preparation.
• You reap what you sow, just in a a different season - squats in January and running track in March means the difference when you're in man-to-man coverage in November.
• Your strategy must evolve - just because you shut down a running offense one week doesn't mean you should do the same prep for the upcoming passing offense.
• Don't rest on your accolades - no one knows (or cares) about what I did in high school 5 years ago, they care about what I'm doing right now to contribute.

So without further ado, here's the video. Enjoy.

Why I Do It.

"I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain." --- Frank Herbert, Dune - Bene Gesserit Litany Against Fear

There is an unanswered question that has and continues to collectively baffle economists, psychologists and career coaches. The question has existed parallel to the economic system that encourages its asking. A question that many have asked since the idea of capitalism was first penned by Adam Smith himself. The answer is hard to produce and succinctly articulate, even for the entrepreneur: Why do people start new ventures? Put another way:

Why do entrepreneurs do what they do?

Why suffer through the ambiguity and inner turmoil? The feeling of constantly walking on the edge of failure? Why put in hours on the laptop at odd hours of the night, on weekends in coffee shops with free wifi and during the holidays? Why strip yourself of the lifestyle trappings that your peers are enjoying at 40k a year so that you can plow every extra dollar into an idea that everyone says won't work anyway? Why engage in the ditch digging that drains away the person you thought you were?

The sexiest answer, of course, is to get rich. But the only people who buy that answer are students because it was sold to them at Barnes & Noble by corporate marketing teams posing as entrepreneurs - telling them to use their strengths to go "take it to the next level".

The truth is, we all know the money is far from guaranteed and that it will be years before we even see a dime of it. Given the 70% failure rate of new businesses, each entrepreneur answers this question in their own way, because each entrepreneur's situation is different and how they come to grips with the daunting odds is individual to them.

For me personally, I don't do it for fame, fortune or personal prestige. I don't do it to impress people, to "stick it to The Man", prove critics wrong, to look smart or because I like being the underdog.

In all the months that I slugged it out for Dash & Cooper, nothing in my life compares to the ecstasy of seeing my first D&C shirt finally come in from one of my manufacturers. The road that lies between your idea and selling your first product is paved with late nights, missed social functions and the constant whir of your mind as you parse through disparate information, groping for some solid ground. The reason why I do it is for the pure elation that occurs when you are briefly reminded that out of nothing, you built something that people value. You are reminded that this is a fact. Something that no one can refute or take away from you. It is then, and only then, that you become present to the meaning of creation and the truth that ownership is not simply a bunch of papers and signatures.

In order to understand what it's like to bathe in the pure experience of ownership and self-reliance - to feel it pierce through to your bones - you must slog it out in the trenches amongst the mud and much of uncertainty and fear. There is no other way.

That's why I do it: to feel alive.

***

This post was written in part for {Branded} Online Magazine. Feel free to go check it out and see some other things that we are saying over there.

Go to the next blog post: The 2011 Action Plan.

The 2011 Action Plan

Who says I can't get stoned?

Plan a trip to Japan alone.

Doesn't matter if I even go.

- John Mayer

Leading off from my last post about living intentionally and Seth Godin's recent post about how you are your own worst boss I'm going to share about why 2011 is going to be the first year of officially creating and enacting an action plan. I'm going create some of my own language around the use of an action plan (inspired by Seth's blog post):

"You wouldn't go work for a company that made up a yearly plan while hung over, you also wouldn't work for one that would abandon a plan after 2 weeks quoting that they were going to 'figure it out' as they go along.

Why do it: It declares the future that you want to live into. When you say that you are going to do something, what you are really creating is a new life that will be coming at you full on: one that you want to live. It provides the large things that you want to get done and allows you, through an action plan, to work backwards from that reality to today. I personally try to make mine as measurable as possible so that at the end of the year I can see what happened vs what I said was going to happen.

Most importantly I look at why? Was it not as important as I thought it was? Did something catastrophic happen? What? The reason for looking at 'why' is not so much whether or not the reason was valid but who I was in the face of that reason. What the data shows me is me. And I learn something about myself that I didn't see before.

Why no one actually does it: Because it looks like busywork or some homework assignment. They make themselves feel guilty when they break their diet once or forget to go to the gym. And rather than get back on the horse (what's 1 or 2 days, or even a week lost in the context of a year?), they would rather ignore the discomfort of sticking to behavior change than actually feeling the joy of the results they have gotten for themselves. By the way no one is holding you to the commitments you make except you. So if you quit nothing happens, literally.

Wait, one thing does happen: you learn that you are someone who can't be self-directed when no one is watching you.

In other words, you find out that you are person that can't follow through on their own commitments. Don't like how that feels or sounds? Then do the plan. Don't like how that feels or sounds? Well then good luck amounting to anything more than the rat race, my friend. Because the exceptional professionals I know are the ones that can show up and deliver especially when they don't feel like it.

Why I like it: It helps me offload the mental power necessary to remember, find motivation for and actually enact the behavior change. I simply declare what I'm going to get done, create an action plan, input the time into my Google Calendar to do it and then let my calendar dictate what I should be doing. I just follow the plan without thinking and happen to get the results that I want. It's not rocket science. Over time (say 5-10 years) I'll probably think less about the planning (because I'll get better at it) which means that think even less about the "doing", which in turn can allow me to start dabbling in tremendous things before the age of 35. Things in the ilk of Laird Hamilton and Shai Agassi. Why? Because that's what I chose for my life.

My challenge to you is to go check out Chris Guillebeau's blog about How To Conduct Your Own Annual Review. In the comments, let me know some things that you are thinking about working on this year - I might borrow some to try on as I roll out the first draft of my 2011 Action Plan.

Cheers,

Travis