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November 13, 2013

Soft is the new Hard

I live in a world where engineering and technical talent is valued above all others, where the Holy Grail is a “coding ninja” who can crank out oodles of elegant code at a breakneck pace. These people speak a language that is distinct and only understood by those who also speak the language; to everyone else the language is akin to black magic. Myriad programs have sprung up to both preach and teach the gospel of coding, all with an eye towards empowerment. Because as we all know, knowledge is power. It has the ability to lift people up. And this is certainly true. However, I see a risk in all of this that is seldom discussed and will be upon us before we know it: knowledge without empathy.

The medical profession has finally come to this realization, but it continues to be a painful adjustment. Technical brilliance without “bedside manner” - or empathy - is a dangerous profile, as it can lead to both poor customer satisfaction and poor outcomes. Many ailments can be prevented, diagnosed and treated the old fashioned way, through conversation, listening and synthesis. Not everything requires a surgical procedure or a pill. But when it does, it is only after the other means have been exhausted. The “soft skills” of gently questioning, building trust and listening are now complementing the “hard skills” of cutting-edge medical knowledge and expertise in using the latest medications and devices. This will ultimately lead to a greater emphasis on prevention and pre-acute problem solving (once incentives become properly aligned), which is a win for all constituencies.

From an engineer’s standpoint, where technical problem-solving is the default mode, it is seductive to throw code at a “problem” without standing in a customer’s shoes and really understanding what is needed. These customers can be either internal or external: “Do we need to build this dashboard or is it better to rent someone else’s?” “Do customers really need this cool feature on the development road-map or are we doing it because it’s cool and because we can build it?” It’s great to have a vast array of tools at your disposal, but the real skill comes in determining when to use which tools or, perhaps, when one’s tools are not required in addressing a particular need. 

Whether founding a company, leading a team or simply being a team member, communication skills, managerial skills and negotiation skills are essential for long-run success. Simply looking at edge cases such as Mark Zuckerberg or Steve Jobs and modeling oneself along these lines is neither a healthy nor a winning strategy on a risk-adjusted basis. Being a well-rounded person who can interact well with teammates yet has the technical skills to execute complex plans is a much better success mode.

It actually reminds me of my time on Wall Street. Instead of Ruby, Python, R or Java (or any number of others), the mythical and little-understood languages were Derivatives and Quantitative Finance. Bankers quaked in their shoes at the mention of these, certain that the traders were going to rip off their clients (or at the very least recognize the lion’s share of a transaction’s gain in their book instead of banking’s book). It was a land of the knowing and the ignorant, and the we/they cultures of most institutions reflected this reality. But this knowledge gap and lack of a common language eventually helped precipitate a train wreck, one where risk managers and bank senior management were ill-equipped to deal with massive and byzantine risks that traders put on the books. In this case knowledge was indeed power - the power to bring the global financial sector to its knees. 

It is incumbent upon schools, start-ups and larger companies to train today’s technical talent for tomorrow’s world, one which will invariably require the melding of engineering/coding/data science expertise with communication skills, business sense and empathy. The soft skills complement the hard: creating a squadron of coders without context does a disservice to their development and their ability to create a better world.

October 9, 2013

Why should VCs hire Associates?

The question: Why do venture capital funds hire associates to source if most good deals come directly through partners?

This was a question posed on Quora and it resulted in an outpouring of thoughts that were made more lucid by putting them in writing. 

The answer:

a. They teach me stuff and expand my thinking;
b. They add another smart perspective around investment discussions;
c. They allow me to leverage my skills and let me do more of what I’m best at; and
d. They might be my future partner.

I came to venture investing with a very particular set of skills, few of which one would call “conventional” in the venture sense. I didn’t grow up in VC. I am not a serial entrepreneur. I was a fairly well-known angel investor, and that certainly exposed me to many kinds of businesses and enough data to develop a view on the elements of founder success. But I have gaping holes in my knowledge and experience that my partner Brad - and our associates Jesse and Amy - help to fill. And I am thankful for all I learn from them every day. They make me better, without question. So while they are learning and growing at their tender ages, I am doing so as well, albeit at an age somewhat less tender than theirs :-). 

I also find that my younger colleagues have a level of empathy for founders that is both refreshing and helpful, particularly because many of our founders are much closer in age to them than to me. They also dive deep into the guts of our founders’ businesses and those in which we are considering investing, giving them a level of clinical knowledge and “vibe” of companies that is hugely valuable when either deliberating over whether or not to make an investment or to make a specific recommendation to one of our companies. By giving them voice and armed with data and insights from their deep investigations, Jesse and Amy have had and will continue to have a marked impact on the decision-making at IA Ventures, and our Limited Partners should be very thankful for that.

By performing much of the detailed financial modeling and forensic deep-dive into both current and potential portfolio companies, Jesse and Amy allow me to focus on the stuff I do best: coaching founders; helping with C and VP-level recruiting; assisting with strategic business development; working to shape an optimal Board; troubleshooting when required; and helping drive fund raising. While some people are great at everything, I am not. But with Brad’s deep technical skills, mentoring of tech-driven founders and helping build their organizations and Jesse and Amy’s vast array of vertical-specific knowledge and quantitative know-how, we’ve got the bases covered. This is what team is really all about.  

Finally, I am not from the “two years and out” school of thought. I treat junior hires as partners from the perspective of their having a voice and an opportunity to interact directly with founders and senior management of our companies (not to mention receiving carry in the funds). I don’t do this because I’m awesome but because it is just good business. We are painstaking about recruiting precisely because we take the long view, that an analyst hire could, in fact, grow into being a full Partner and take the Firm forward after I leave (and even after Brad leaves someday). Conventional thinking is that junior staff should go out and get operating experience, go to Business school, grow a bunch and have a range of life experiences before returning to venture investing. While I understand this logic, I’ve worked with enough unicorns in my life to know that one-size-does-not-fit-all and that some people don’t need to run the usual gauntlet to add unique value to a founder or a company. And if the associate wants to leave and start their own company, they would find a friend, a supporter and very likely a backer in me. And if they are enjoying the world of venture investing and continuing learning, growing and becoming valued and sought-after by the entrepreneurial community in their own right, then all I can say is: Welcome home.

September 23, 2013

Greener pastures

Today is a day of big change in the IA Ventures family. After nearly five years working together my partner Ben has decided to return to being an operator. While I’ll miss Ben, I’m proud of his decision to follow his heart and take the long-term perspective on his career. With his experiences as a banker, as an operator and as an investor, he has built a set of skills and experiences that will serve him well in his next company.

Ben and I started working together well before IA Ventures. Ben joined me at IA Capital (my angel investment vehicle) straight out of Columbia Business School, and improved the organization and accessibility of my portfolio data. He later became an operations lead at a few of my portfolio companies, most notably the very successful search retargeting firm Magnetic. He was a boon to technical founders who needed help on the business and operations end of things, and was key for helping Magnetic (then called Domdex) between its Seed and Series A rounds. I saw his passion for working closely with founders as well as his love of business operations. And he was very good at it.

Ben’s operating career was derailed by IA Ventures. We raised two funds, built a portfolio I’m proud of, and developed the IA Ventures brand as well. It has been a very good period for the firm, our portfolio companies and our growth and development as investors. However, after deep introspection Ben decided that this was the right time in his career to return to the operating side, something he has always deeply valued, as evidenced by the in-depth way he’d connect with founders and their teams. Now it’s time for him to fully immerse himself in that world, not as an agent but as a principal. I know he’ll do great.

Regardless, Ben will always be part of the IA Ventures family and his contributions during our earliest days will not be forgotten. Thanks for everything, Ben, and all the best as you tackle new and exciting challenges.

April 30, 2013

What I’ve learned from Little League

As my friends know all too well, mine is a life immersed in baseball. Yes, there’s that venture investment stuff, but in between board meetings, team meetings, meeting new companies, staying in touch with my networks and breaking down the barriers to data entrepreneurship at Michigan and Columbia there is baseball. Both my kids are intense baseball players. My wife is a Little League executive (and holds a Ph.D in psychology, which helps) and division coordinator. And I am a long-time manager and coach of teams with kids ranging from ages 7-17, from Junior Minors all the way to Seniors. It has almost become a third career of mine (Wall Street, venture capital, baseball coach). Along the way I have learned a ton about strategy, human psychology - and life.

Newly-minted baseball teams and start-ups have a tremendous amount in common. Every Spring there is a Little League draft and the managers sit around and pick their teams, not dissimilar from kicking off a new start-up. Those of us who have been around Little League a long time know most of the kids, their playing histories, their personalities and their families. But this anecdotal knowledge is augmented with objective data that are generated in a common League-wide tryout the morning of Super Bowl Sunday. Players are scored on their batting, fielding, pitching and catching (if they pitch and catch), and there are various sub-categories in each of these areas. Think of these scores as their resumes and conversations with prior coaches as being reference checks. Drafting players, like hiring team members, is an inexact science but the goal is to get as much quantitative and qualitative data as possible to make the most informed decision you can. Assuming all the mangers work reasonably hard in the data collection process, there is a somewhat common view of how players rank by position based upon skill. But somehow, people’s draft boards look very different post facto. The reason: managers draft for different things.

Year after year, in my experience newer managers tend to underperform more experienced managers. Why is this? My hypothesis is that the newer managers tend to draft based on the theory of “best athlete available that meets my position requirements,” while the old timers tend to draft with a particular team construction in mind. This means taking into account factors such as “Is the kid a team player? Does the player show up for practice on time? Are they humble and do they work hard? Are their parents over-involved and stressing out the kid (and the coaches and other team members in the process)? Is the player a potential leader? Has the player previously been on teams with other kids where they’ve been successful?” In short, the objective function is building the best team, not assembling the most talented group of individual players. And in Little League, as in life, teams win when they function as a single unit and not as an amalgam of autonomous parts. So I have consistently passed up more skilled players in order to draft players who are good, but even more importantly, are good kids and fit within the team concept.

This is a movie I’ve seen many times before in start-ups I’ve backed. There is the seduction of hiring the “rock star, 10x performer, force of nature” contributor, even if they are a prima donna and most assuredly not a team player. I’ve witnessed this from the perspective of whether or not to hire these people as well as whether or not to fire these people who are already in the company. It is a very painful decision to make, but in my experience these people almost never work out in a start-up environment, where every person is so crucial to getting the business off the ground. Positive team chemistry and culture is critical at all times, but especially when a team needs to be working in perfect synchrony, backing each other up and focused as a single unit on the task at hand. Selfish but talented people mess up this dynamic, even if they can write beautiful code but piss off their team members or treat them in a disrespectful way. Fortunately there are talented people who aren’t destructive to a firm’s culture, and these are the people start-ups need to find. Optimizing for team, not simply talent, is the message. 

When building a high-performance team the question you should be asking yourself is: what is the goal and what are the resources I need to get there? Because the goal invariably requires multiple skill sets spread across several individuals, ensuring that you build the connective tissue among these people who are receptive to this “team first” notion is Job #1. It’s not about finding the brightest stars in the sky, it’s about finding those stars that make the constellation you want to call your own.

April 18, 2013

Breaking through

I spend a bunch of time speaking at events, guest lecturing at friends’ classes and mentoring young people. It is something I feel passionately about and enjoy a great deal. I always try to be blunt, honest and unambiguous with my input, hoping that at least some of the take-aways will be employed by those hearing my words. But I continue to be surprised by the number of common mistakes made by start-up founders, and wanted to provide a short list of some of my hot buttons.

Post-presentation behavior: When I (or someone like me, be they an investor, a well-know start-up founder, etc.) speak at a conference, it is commonplace for a group of people to line up to say hi and chat for a minute. All good. Except what often happens is that a (most often young) founder will try to pitch me their idea. I hate this and it generally leaves a bad taste in my mouth. There are too many people and too little time for this to be successful. You do not have my undivided attention. However, the goal should be to be brief, on point and to either say something smart or ask a good question that relates to discussion. This way, you can send me an email at roger@iaventures.com and you might have seeded a dialogue. But if you force a pitch on me at this moment, forget it.

Getting in touch with a VC: The number of blind emails we get with a pitch and a meeting request is extreme. This exercise is a complete waste of time as far as I’m concerned. The signal/noise ratio is simply too high to do all the calls and take all the meetings people want. But there is one way people short-circuit a meaningful part of the deal funnel - getting referred into us by a trusted person. This person can be another investor with whom we’re close and done business. It can be one of our founders. The common thread is someone whom we trust and whose judgement we value. While we don’t take every meeting requested from referrals, the likelihood of getting a close look is infinitely higher than sending in your stuff and hoping that a meeting will take place. So use that entrepreneurial intensity, passion and ingenuity to network to someone who knows me or one of my colleagues and impress them sufficiently such that they’re comfortable making the introduction.

Networking: Even with all that has been written about the importance of networking, I see way too many aspiring entrepreneurs looking for a silver bullet for how to meet domain relevant people for collaboration, recruitment and support. Have you checked out relevant Meetup groups? General Assembly? Do you have specific experience where you might mentor other founders at TechStars or another accelerator program? Have you spent time doing research around events taking place at local colleges and universities? How about starting your own community around your particular area of interest? With even a little effort it is impossible not to find abundant opportunities to network, learn and grow. You’ve just got to do it. I have no simple answer. It just takes time and hard work. Kinda of like what it takes to be a startup founder.

Building your brand: If you are in the start-up world, either as an employee, founder, investor or aspiring to do any of the three, it is important to thoughtfully build your online and offline identity. The beauty is that these efforts are valuable for anything you might want to do, and, in fact, is great practice for what you’ll do when you land your dream role. Develop a thesis and take a stand. How can you add value to the community discussion? Start writing, but with a purpose. It forces clarity of thought, opens up your mind and lets people get to know you better. Create opportunities for speaking in public and sharing your ideas with others. This will help bridge the online/offline gap and build a more personal identity, as well as providing a forum for feedback and debate instead of living inside your head. And of course actively maintain a Twitter account and an up-to-date LinkedIn profile. These are table stakes for people wanting to get a quick snapshot of who you are and what you’re about.

Be passionate, be strong but be deliberate. The fact is that no matter how smart or hungry you are, it just takes time to network, acquire knowledge and experience and to feel comfortable in your own skin as a member of the start-up community. And this is a good thing. Life is a marathon, not a sprint, so be purposeful and focused without feeling like you’re behind where you should be. The worst thing you can do is be unfocused and reactive, letting the environment dictate your roadmap instead of the converse. This doesn’t mean be insular and block out external influences; it means remaining true to your mission. It’s just like my idol W. Edwards Deming used to say (paraphrasing): It’s about understanding the process. If you develop the best processes, positive results will follow. 

It’s all there within your grasp. Just be thoughtful. Listen a lot. And by all means, follow your passions.