There is no honor in this deal

At a lunch with a friend who is running his own company and working to raise money, the topic of termsheets came up (First Round is not an investor in his company and he was not talking to me about an investment) but it got me thinking about deal terms. It is no secret that investment dollars are flowing and the number of deals being done is rising.  Along with this increase in the pace of funding, more termsheets are being put in front of entrepreneurs on each deal. In this environment, I encouraged him to look for simple terms that are easy to understand, straightforward to negotiate and that create long-term interest alignment. I told him to look for honorable terms.

My first experience with the value of simple terms came my freshman year in college. I went to Haverford College, a small Quaker school outside Philadelphia. The Haverford community is managed by a simple Honor Code that governs academic and social life at the college. It can be summarized as, “Be respectful. Be Honest.”

This sounds like utopia and I was skeptical until my first exam. The test was set for 90 minutes and was closed book, closed notes. I came to class prepared for the exam and was surprised as the professor began to teach a full lecture. At the end of class she asked us to pick up an exam, reminded us of the closed book, closed notes status and the time limit. She then asked us to return the exam by the end of the week.

With this responsibility, and the ability to take the exam in my room with the door closed, I experienced the value of simple terms and clear expectations. I took the exam with my book closed and without my notes. I did not finish in time and chose to stop. The lesson in that moment was far more valuable than anything I learned the rest of the semester. Honor is expected in governance by simple terms.

When I think about investment deal terms, I am convinced that no level of contract engineering can protect you as much as mutual respect and transparency. The simplest investment terms would be agreement on valuation based on the entrepreneur’s vision and the investor’s assessment of risk, a handshake and a check.

Any complexity beyond this represents protection in the event things go wrong. This protection is for both sides and is necessary, but the level of downside protection your investors ask for, embodied in the terms of the deal, tells you something about their approach to your business. Your level of comfort sitting across the table before an investment is made is the best indicator of the confidence you will have sitting on the same side of the table in the future. How investors (and entrepreneurs) negotiate terms is the way they will manage and advise the company.

This early interaction is signal, not noise. When you raise money you should look for signals that indicate a long-term partnership rather than a transaction, you should look for a partnership based on simple terms like, “Be respectful. Be Honest.”

Alignment with your investors is crucial. Adjustments are available if you ask questions before you sign the term sheet

When you are fund-raising, your job becomes getting cash into your company. However, the best entrepreneurs don’t just get funded, but find funding alignment with their investors in terms of values, vision and approach. Since joining First Round Capital I have met with hundreds of entrepreneurs and many of them never ask me any questions about our process or our approach to working with our portfolio.

I know the fund-raising process is really, really hard. It is an emotional roller-coaster. It demands 100% of your energy, your time and your heart but you should be asking questions, interviewing your potential investors, and choosing your investors.

It is important to know you have alignment in terms of financial interests and that you are not only working toward the same outcome but also have agreement on how to get there. If you do this, you will experience many of the commonly listed benefits of chiropractic treatment:

1. It is completely safe

There should be no penalty for asking questions and if there is, you probably don’t want to work with those guys anyway.

2. Allows better sleep

The fundraising process is hard for many reasons, but the thing I hated most was being evaluated over and over in a process where I felt I had little to no control. Asking questions about your investor’s expectations and approach put you in the driver’s seat and will help you feel comfortable when you accept the term sheet.

3. Corrects the cause of pain rather than treating the symptoms

Treating the symptoms of misaligned exit expectations or disagreements around strategic vision is always painful to you and to the company. Don’t set yourself up to suffer through the distraction and pain of on-going treatment of symptoms. Correct the cause of the problem by asking questions prior to accepting the investment.

4. Relieves stress and tension

Alignment with your investors on values, vision and approach allows you to build trust and treat your investors as partners with no hidden agenda. You will get much more strategic value as you work to build your business and steer your company to success if you are not fighting the people who backed you along the way. It will also be much more fun and probably more successful.

5. Improves posture

Your investors will become one of the most powerful signals about your position in a market, your prospects for the future and the overall quality of the operations of your business. Alignment of interests will create a powerful posture for your business and insure you are all pulling in the same direction when it becomes time to get back on the roller-coaster and raise your next round.

The benefits of Chiropractic treatment are touted by some and dismissed by others, but when it comes to raising money, I am a believer. Take your VC to the chiropractor and find alignment or keep looking for other sources of capital.

If you have benefited from alignment with your investors or have suffered through the opposite, I would love to discuss it in the comments.

there are always (at least) two paths...

The 20+ inches of snow outside have me remembering bits and pieces of Robert Frost and thinking about choices at 5:45am on a Sunday:

“Two roads diverged in a wood, and I–I took the one less traveled by,
And that has made all the difference.”

Recently I had the opportunity to introduce two current MBA students from top 3 schools to a company that is looking for smart people to help them do some market research. Each student spoke to the founder and then their paths diverged like the roads in the woods.

One student took the opportunity to respond with a thank you and an outline of the project already written-up as an independent study project. He also included the comments from the professor who would be sponsoring him in the research. He asked the founder to comment on the proposed project so he could make any required changes and expressed his excitement about the company. He concluded with an offer to do the work with or without the academic credit and mentioned his ability to engage full-time during school vacations. Compensation never came up.

The other responded as follows:

“The firm you are starting seems viable but I do have some questions and would like to
cover a few items. Most of the points are to clarify the agreement between us so we are both clear about how this could work…

My desire is to join the company as part of the founding team, not just an intern…

I can commit to a maximum of 15 hours per week, but to do so would require me dropping my other commitments that I have worked hard to cultivate…

I would want to be compensated $3,000 a month…

I truly believe that I can deliver real value to your venture and I think that you will find me to be a good team member that will help build your vision…

Let me know your thoughts…

The founder could have responded with this:

“The woods are lovely, dark and deep.
But I have promises to keep,
And miles to go before I sleep,
And miles to go before I sleep.”

To me, this is about knowing your audience and creating messages that will motivate the desired action from the targeted segment. I would appreciate links to other images/short clips that make this same point — if you have a favorite, leave it in the comments.

What's in a name?

I was talking with an entrepreneur today about messaging and his frustration with having a great product that some customers are struggling to understand reminded me of some kicks I built.

When I was the creative director for footwear at AND 1, Ballers were walking around in soccer slides with socks on before and after games, to the mall, to the B-B-Q and to school. Not a good look, not that functional and your socks get ruined. We wanted to create a slip-on shoe that could be worn before and after games and generally enter the casual athletic market. We built the shoe you see here and called it “the slide.”Comfortable, affordable and way better looking than soccer slides with socks.

I took it up to 155th and 8th to test it. Everyone hated it. I took it to West 4th, they hated it. At playgrounds and malls across the country, everyone hated “the slide.” We tested different colors and fabrics and nothing worked. Kids said we should stick to lace-ups or make a soccer slide.

The shoe was a failed experiment until our audience helped us with the messaging.

On my last testing stop before heading back to Asia to finalize the line I was at the Northline Mall in Houston, TX and didn’t notice the kid holding The Slide until the argument started. 30ish high school kids, boys and girls, surrounded the shoes and 29 of them were laughing at the one holding the shoe. He argued with them with no success until he said, “No, stupid. It’s not to hoop-in yo, it’s to-chill-in.” The other kids were silent. Then, one by one, they agreed. In this group “the slide” was the best shoe.

I delayed my trip to Asia by a week and went back to all the other places we tested product, but this time I did not bring “The Slide” I brought the “Tochillin.” It tested off the charts and we included it to the line. Within 12 months we had a $50M Tochillin business with multiple styles and the original Tochillin Low went on to sell over a million pairs in 3 years.

The name of a product or service or how it is positioned through marketing and customer messaging can determine its success or failure. Don’t assume to know your audience, listen to the market to discover the right message. If you have an example of messaging changes that drove significant changes in consumer acceptance I would love to read it in the comments. If you own a pair of ToChillin’s, post it here or on twitter with the #todayskicks tag.

Know what you are fishing for...

Following the recent meme on sources of seed funds with contributions from Chris Dixon, Charlie O’Donnell, Mark Suster and Brad Feld and the related topic of We need to own baloney from Fred Wilson and Josh Kopelman has reminded me of some advice I got after my first company failed.

A good friend and the founder of AND 1 told me you get to make three choices as an entrepreneur:

1. You get to choose your idea
2. You get to choose your business partners
3. You get to choose your investors

I happened to be one for three because I did not invest the time to do more than a cursory reference check on my business partner and my investors. Everything that I discovered as my business disintegrated, was discoverable prior to building and funding my business. I just didn’t ask the questions.

There is no recipe for success in these choices, but learning as much as you can about your prospects is a good start.

To be clear, when you decide to take on outside investment, you are bringing a new partner into your business. Their business model and approach will have a significant impact on your business, your strategies and your prospects for success. No matter how many times Fred “calls bullshit” on VC’s who say they “need to own x percent,” fund math is real and there will always be investors who push out value added syndicate partners in order to “own enough” even though they hurt the entrepreneur (and the business — including their investment) in the process.

Mark and Brad offer excellent perspective on seed investing in their posts (links above). The type of questions Brad encourages founders to ask of their investors and the diligence Mark recommends (including contacting existing portfolio CEO’s) are exactly right and I wish I had this advice years ago. This process is difficult, but crucial because for each entrepreneur, there is a different ideal investor. For some, taking seed money from a large fund and the “freedom” that comes with a passive investment may be ideal. For others an extremely active angel who does not plan to participate in later financing may be a perfect source of guidance and capital. For many the balance lies somewhere in between and future participation is based on meeting specific milestones that should be well understood by both sides of the table.

I don’t believe is possible to say one funding path is superior to another, but I do believe your choice of funding is one of the most important decisions you will make and you should know what you are signing up for prior to signing the term sheet. Investors should be chosen based on their alignment with your interests and vision for the company. It is critical to understand the investor’s expectations and ability to assist you in living up to these expectations prior to accepting funding and allowing them to join you as a partner. You should ask each investor you meet with to articulate their investment model, their ability to add value to your business and force them to pitch you on accepting their money and their advice. Similar to choosing your business partners, complete reference checks and look at their past actions in both successes and failures. If you sense that you do not share a vision or an approach to managing your business, as hard as it is, keep looking for other sources of funding.

a friend of mine captured the quote here

I jotted it down in my notebook and followed with an open question: “What does that say about how we should think about community?”

The same day Chris Dickson posted to NextNY and the NY Tech Meet-up communities about open office space for start-ups with the goal of “creating a vibrant, thriving start-up hub” with a “great motivating community everyone would benefit from.”  His post is available on Hacker News here.

The free-rider problem here is the reverse of social games — everyone who gets a desk is a paying customer, but how many will contribute and actually play the game? How do the members of the community motivate participation and create structure that encourages everyone to engage in each project within the community?

In my experience, community spaces succeed or fail based on the membership and the belief of each individual that they are stronger for contributing to the efforts of others. When you decide to take a desk in a space like this, it is important to recognize the opportunity to create a virtuous cycle. The more you invest in the value proposition offered by the community by giving your time, thoughts and creative efforts to the others working around you and the more you are open to constructive criticism from your peers, the stronger the community that supports you will be and the further you and your ideas will go.

This type of thinking applies to the broader tech community in the city and is part of why I love that Chris is doing this and will certainly be recommending his space to entrepreneurs I meet with in the city.

Who's the MVP?

On Wednesday night I had the opportunity to attend the Lean Start-up meet-up in NYC to talk about best practices in Minimum Viable Product development practices as described by Eric Ries. The iterative process of the MVP development cycle makes a ton of sense for early stage technology companies and I would encourage anyone building a web service or other product that can be updated with frequent releases to pursue the minimum viable product strategy.

Beyond my reading and my experience managing the development of websites and interactive media strategies and my reading about MVP, the conversation at the meet-up took me back to my roots in product development when I was carrying a bag of samples for AND 1 Basketball in 1998. I spent a lot of time in Footlockers and at playgrounds talking to kids about the shoes I had in the bag. I would lay the shoes out on a bench and watch the kids check them out. Some would talk and others would just look, but everyone had an opinion.

For me, this exercise became like a language study. I had to learn how to hear the meaning behind the words and find the common patterns and key themes that could inform our product development efforts. I would take my notes from these product testing sessions and head to Asia where I would work with the factories to build “what the kids want.” While samples were being built, I would spend time in Japan and Europe looking for trends and working with designers to sketch concepts based on what I saw. When the samples were complete, I would meet the Fed Ex truck at my hotel in NYC and head back up to 155^th and 8^th to talk to the kids again.

Soon these consumer conversations were allowing me to provide direction to the design team, to help the development team focus on the most relevant new processes to achieve new looks, support the factories in Asia with execution by limiting the sample requests through a more refined market perspective and elevate the brand by delivering more relevant products that were closer to the consumers’ needs and desires.

Looking outside your industry can be a source of inspiration and lead to real innovation and the tech world should learn from the best practices of consumer products companies that have been practicing MVP development for years. I have never had the handle to be the MVP at Rucker Park but if you are building technology and think my experience at AND 1 could help you implement the MVP process, I would love to talk.

There is no i in team, unless you are talking investment

There are two sections from Brad’s post that apply to the entire curve

a)    Team

b)   Fit with the fund

Team:

Once an investor understands the business and has formed conclusions about the biggest potential pit-falls, the next step is to identify the members of the team who have experienced similar challenges in the past and learned from them. When practicing your presentation around team, try to match the strengths of your team with the areas of concern or weakness in your plan. Your investor knows that you will need to adjust along the way. The strength of the team is the key to identifying the proper time to adjust and the new path to follow. The discussion of the team is also a time to show your prospective investor that you know what you do not know and a plan for the learning process.

WHO IS YOUR MANAGEMENT TEAM?

-Who is the management team?

-What is their experience?

-What pieces are missing and what is the plan for filling them?

The numbers may be a waste of time, but the calculations are not

Fit with the fund:

As a founder the most valuable resource you have is time and fundraising can be a massive drag on this resource. It is extremely important to maximize the efficiency of this process and select potential investors to target based on a sense of how well your company fits with the fund. This includes understanding the portfolio as a whole, the specific investments that a given investment professional is involved with and the expertise of a firm or specific investor. Understanding of the shape of your curve and a sense of how close it is to other investments that the firm has participated in historically is a good filter as well. This analysis starts (and often ends) with an answer to the question, “How much are you looking to raise?” Brad’s list on fit is below, and I have added one to the end.

HOW DO YOU FIT WITH THE PROSPECTIVE INVESTOR?
- How does this fit w/ the investor’s portfolio and expertise?
- What synergies, competition exist with the investor’s existing portfolio?

-**Does the shape of your curve match those of the investor’s existing portfolio?

Friends who read this blog have told me that this series is too wonky and that what is really important is great entrepreneurs with big ideas. It is also true that at the early stage where I focus my time at First Round, every number in a financial projection is going to be wrong – either high or low – and so detailed projections are often a waste of time for founders who could be focused on building cool product. While this is true, ultimately the investor is buying shares in a company, not the consumer product or service and must believe in your ability as an entrepreneur to deliver a shape that fits the fund by focusing your energy in the space you have chosen for your innovation.

The view is unknown, but understanding the possibilities can help you choose your path to the top

For the fifth entry in this series of posts about why investors ask the questions they ask I am focusing on competition and other things that could erode the value you have worked to create. To start from the begining, please go here.

The defensibility of your business speaks to its long-term value as a stand alone entity or as an acquisition target. As you are building a company, it is important to know what is on the other side of the cliff you are scaling. Building a business is one of the hardest and most rewarding thing you can do professionally and thinking about the view at the top while you climb can help you choose the best path. Your strategic decisions will be different if you believe you will enjoy green fields at the top of a mesa or be faced with a steep and dangerous decent forcing a traverse along a knife edge ridge (aka – Pivot).

When you speak with a potential investment partner, competition should be well researched and conclusions about the strategy they will pursue should be supported with historical evidence or facts about their dependencies. When an investor is asking about competition and other surprises that may exist in the business they are looking for both specifics about your business as well as your general knowledge and approach to the industry.

WHAT IS YOUR VISION?
- What is your big vision?
- What problem are you solving and for whom?
- Where do you want to be in the future?

WHO IS YOUR COMPETITION?
- Who is your existing & likely competition?
- Who is adjacent to you (in the market) that could enter your market (and compete) or could be a co-opted partner?
- What are their strengths/weaknesses?
- Why are you different?

WHAT PARTNERSHIPS DO YOU HAVE?
- Who are your key distribution and technology partners (current & future)?
- How dependent are you on these partners?

OTHER
- What assumptions are key to the success of the business?
- What “gotchas” could change the business overnight? New technologies, new market entrants, change in standards or regulations?
- What are your company’s weak links?

As an entrepreneur it is your job to see what others do not and to innovate around your vision. A business strategy is a best guess, and honesty about this, knowing what you do not know, is good. If you can also articulate a plan for learning what is currently unknown while keeping your options open, this is even better.

**My friend Jon Steinberg has written about this in the past and I agree with his push for execution and product focus, but would include potential consumer shifts such as the healthy trend that hurt Coke as one of the red arrows in my diagram above.**

For the last post in this series I will talk about the two areas investors care about that apply to the whole curve, team and fit with the portfolio.

Blazing a trail to the top

This is the fourth in a series of posts written to expose the analysis behind investor questions and to propose a simple framework to help entrepreneurs guide pitch meetings more effectively. I invite you to read the first, second and third posts as well.

The size of the opportunity and your ability to capture it are the drivers of investment and are the primary focus of my conversations with entrepreneurs. When we have both done our homework, this is the most enjoyable part of my day because I get to learn about a new technology or service that may change the world from the person who is passionate about making it happen. When I was out raising money, this was my favorite part of the pitch because I got to talk about my passions and the cool thing I was building.

Investors will typically lead with these questions because the opportunity size is a primary screen. If the market is not big enough, there is no need to evaluate the risks of a given investment or come to any conclusion about the ability of the team to capture it.When you pitch, you know that accurately sizing the market and understanding the key drivers of customer adoption help frame the opportunity for an investor. Because of this, clarity about what you are building, how you will sell/distribute it and comfort with both top-down and bottom-up estimates of the market are extremely valuable. Starting off a meeting by showing that you are attacking a big ass market with a kick ass team (Rob Hayes’s “two asses” theory) is the best way to frame the conversation. Your excitement for what you are doing and the reasons you have been compelled to build a company around your idea needs to carry you through the parts of the meeting focused on evaluating the investment risks. This is your time to shine as a founder.

DESCRIBE YOUR PRODUCT/SERVICE
- What is your product/service?
- How does it solve your customer’s problem?
- What is unique about your product/service?

WHAT IS YOUR VALUE PROPOSITION?
- What is your value proposition to the customer?
- What kind of ROI can your customer expect by using buying your product/service?
- What pain are you eliminating?
- Are you selling vitamins, aspirin or antibiotics? (I.e. a luxury, a nice-to-have, or a need-to-have)

WHAT IS YOUR MARKET OPPORTUNITY AND HOW BIG IS IT?
- How big is the market opportunity you are pursuing and how fast is it growing?
- How established (or nascent) is the market?
- Do you have a credible claim on being one of the top two or three players in the market?

One you have chosen a path and climbed the mountain, staying on top, defending the business from competition and copy-cats through continued innovation and customer loyalty will become the primary focus. The next post in this series will look at some questions investors ask to understand your approach to maintaining the value you have created.

How are we going to take this hill? How will you know when it is time to go to plan B?

Investors will usually ask what you believe it will take for the business to achieve the transitions from revenue generating to cash flow positive to monthly, quarterly and annual profitability and the key development milestones along the way. The actual outcome has a significant impact on the type of investment the fund is making, but your sense of the road ahead is the most valuable piece of information. It is impossible to predict with much accuracy so understanding the team’s approach to discovering the optimal path for the business (i.e. is it lean start-up?) is the goal of these questions in an early stage meeting.

When learning about a new business, questions about the business model and the market should really illuminate the entrepreneur’s approach to learning about the market and the customer and adjusting to create product/market fit.  The projected period between funding and revenue and the associated product milestones can reveal the emphasis being placed on market feedback and iteration as well as the ability to identify appropriate pivot points. As most start-up successes come from the pivot, not the blueprint that was funded, clarity around the process for discovering market fit and potential revenue models is key to evaluating the risk in an investment.

As you answer the questions below, imagine crossing a river with your investment partner by jumping rock to rock. With each question, he is trying to judge the distance to the next rock and decide if the team can make it without falling in the water. He is also trying to see how you choose your path and how you learn from your previous choices.

WHAT STAGE OF DEVELOPMENT ARE YOU AT?
- What is your stage of development? Technology/product? Team? Financial metrics/revenue?
- What has been the progress to date (make reality and future clear)?
- What are your future milestones?

WHO IS YOUR CUSTOMER?
- Who are your existing customers?
- Who is your target customer?
- What defines an “ideal” customer prospect?
- Who actually writes you the check?
- Use specific customer examples where possible

HOW ARE YOU SELLING?
- What does the sales process look like and how long is the sales cycle?
- How will you reach the target customer? What does it cost to “acquire” a customer?
- What is your sales, marketing and distribution strategy?
- What is the current sales pipeline?

In part 4, I plan to talk about identifying the opportunity size. This is where the investment conversation typically starts.

How deep is the hole?

one quetsion before I jump...How far down is it?

Early stage investing is about the excitement generated by a big idea in a big market being built by a great team. But it is also about understanding how much capital the company will require over its life and what this means for the value of the current investment in terms of dilution (or required follow-on to avoid dilution). These questions also helps set reasonable expectations for the entrepreneur’s ability to de-risk the business with the current financing. For example, a business currently raising 10% of its total projected capital needs may not be able to significantly de-risk the business prior to raising additional capital and may want to think about getting a little more runway to be able to make more progress before raising more money.

The outside capital needs of a business help investors assess the level of “fit” that the business has with the investment model. In my time with First Round, I have seen lots of great ideas that we were not able to fund because of the long-term capital needs of the business or industry.

When an investor asks some of the following questions from Brad’s post, they are really peering down a hole and looking for the bottom.

WHAT ARE YOUR PLANS FOR FUND RAISING?
- What funds have already been raised?
- How much money are you raising and at what valuation?
- How will the money be spent?
- How long will it last and where will the company “be” on its milestones progress at that time?
- How much additional funding do you anticipate raising & when?

HOW DO YOU ACQUIRE CUSTOMERS?
- What is your cost to acquire a customer?
- How will this acquisition cost change over time and why?
- What is the lifetime value of a customer?

WHAT IS YOUR REVENUE MODEL?
- How do you make money?
- What is your revenue model?

As an entrepreneur, targeting potential investors who are comfortable with the capital requirements of your business and have knowledge of the industry you are entering will make this part of your meeting much more successful. You will find the fit with someone who understands why you are raising the level of your current round, agrees with how you plan to utilize the money and the time you are allowing your team to iterate and learn in order to show meaningful progress prior to the next round of fund-raising begins.

The next step is figuring out how long we will be working to climb to success and if the core methodology of the team will allow for the learning required to discover product/market fit. Eric Ries has written about this here and here.  I hope to add to this conversation when I put together my thoughts on the climb toward sustainability tomorrow.

If you force the fit you may lose the feel

Over the past few months I have looked at hundreds of potential investments and I have had to say no to all of them. I knew this would be the case when I made the transition from entrepreneur to investor (see Josh Kopelman’s thoughts on this here). In a meeting with an entrepreneur last week, he told me that another VC had described their job as saying no. I disagree. The job is to say yes, but finding the right fit is difficult. Over the years many people who are much smarter and who have much more experience as investors have written about the questions that an entrepreneur should expect from a VC and I have linked to my favorite example from Brad Feld, here. I love what Brad wrote and have looked to it as a guide for my meetings with founders. But after I have answers to these 15 questions, in the work after the meeting, the analysis and decision making, I am really focused on five questions that determine how well a given investment opportunity fits with our model at First Round.

1. How deep is the hole we are climbing into?
2. How long will it take us to climb out (to sustainability)?
3. How far to the summit?
4. How is the view?
5. Is it a match?

The first four questions are loosely based on the return on invested capital curve developed by David Wessels in his book on valuation.

Return on Invested Capital = (Net Income – Dividends)/Total Capital and is reported as a percentage. The goal of investments is to generate ROIC that is higher than the weighted average cost of capital (hurdle rate or WACC). Andy Metrick’s research (chapter four in his book) suggests that the WACC in VC is about 15% and so I have labeled the graph that way, but this can be anything north of the risk free rate in reality.  The curve below illustrate the ROIC over the life of a company assuming outside equity investment and long-term success.

It's a hell of a ride

I will try to group Brad’s 15 conversational questions with by the five investment analysis questions over the rest of this week in separate posts. I hope the series of posts serves as a form of translation tool and helps provide incremental transparency into the VC decision making process for entrepreneurs. I also hope it helps founders think through how to sell investors on the value in their company, not just the product or service the company is selling.

This is never productive

I made the trek from east to west today and had a relatively pleasant experience on Untied Airlines. However, upon arrival in San Francisco, my post-flight e-mail and twitter check was interrupted by someone who was clearly not having the same luck and who had become completely undone by their travel situation. Apparently there was a delay in a flight leaving San Francisco significant enough to make a planned international connection in Chicago impossible. The gate agent’s explanation that “air traffic control” had caused the delay and that she would do her best to get the man on the next flights to his planned destination apparently translated to “I have control over your life today and have decided in my sole discretion to delay your vacation because I feel like it.”

Needless to say the man went ballistic and demanded to make his original flight out of Chicago. Equally needless to say, this was not going to happen. We have all been frustrated by the airlines, and it has been bad enough for Brad Feld that he has decided a month of no air travel is required to recover his sanity.

I admire Brad’s approach because it reflects an acceptance of the reality of air travel today and a clear understanding of solutions that he has control over. When confronted with frustrating situations, maintaining a clear sense of your sphere of influence and restricting your sphere of concern to the things you can control is a powerful skill. I have seen this approach work in countless negotiations and lead to highly positive outcomes in situations that started out headed for obvious disaster. To me, the most important thing is to recognize that you ALWAYS have control over your actions and to take a long-term view. Avoid arrogance and the draw of short-term gains in the form of small, emotional or financial victories and always be willing to admit that you are wrong as soon as you recognize a weakness in your position. The next verse in the Start-Up I Ching describes an approach to conflict that has worked well for me:

WHEN FACED WITH CONFLICT SEEK BALANCE. Every conflict is an opportunity for growth because conflict is only ended with mutually beneficial solutions. Make every effort to find balance when conflict arises. Your first action should be to join with others. If you cannot find support, recognize you may be wrong and that aggressive action will not lead to success but to deeper failure. You must act on your convictions but also within your means. Never negotiate on pride because you are certain to lose more than your pride is worth. Try to be strong enough to recognize when a situation is impossible and have the awareness to withdraw gracefully.

The key to being fully present

When I was fund-raising for my fitness video game company there was nothing more frustrating than talking into the vacuum of the mute button or hearing a keyboard in the background. Other than being late, there is nothing more disrespectful than not being present. My solution to being present in each meeting of the day is to mind the gaps between meetings and protect them by starting and ending on-time every time.

With so much in-bound information and the reality of needing to prepare and re-focus for each entrepreneur that I speak with I have started creating 15 minute gaps between meetings. Without these gaps, I find it difficult to properly prepare and make the most out of the time I have with an entrepreneur. First, I am unable to spend the 5-10 minutes needed to digest the conversation from the previous meeting and second, I am unable to re-acquaint myself with the material that will be covered in the upcoming meeting. The result is that both end up taking place during my next meeting instead of on my time. This is a dis-service to the entrepreneur and to First Round as it makes me less effective in my efforts to learn about the business and to understand the investment opportunity.

With this in mind, and with the goal of being fully present in each moment of the work day, I am going to try to be very strict about my calendar and the time allowed for each task throughout the day. It may mean that I look at the clock more while listening to a new investment pitch or that I schedule time in the future to continue a conversation rather than extending a call for 10 or 15 minutes, but I think it will make time that others choose to share with me more valuable to them and ultimately to me as well.

This new effort is inspired by another verse in the start-up I Ching and I think it applies to both sides of the investment table.

FOCUS. FOLLOW EACH TASK TO COMPLETION. The urge to do many things at once is very strong. The danger is the partial completion of many tasks at the expense of completing any one. There is no value in this approach. You will be faced with complex situations that do not have a simple solution. You must be willing to break large challenges into manageable pieces to avoid indecision and a loss of self-control. Confusion will not last if you are able to recognize reality and visualize your goal. You must identify each integral part of the solution and focus on each one until it is complete to realize the broader victory.

Recently, one of the experienced investors I was speaking to suggested that it is important to form your own view and to express it because if, “two people always have the same opinion, one of them is not necessary.” He reminded me of a verse in the Start-up I Ching and I have included it below:

LEARN, GROW, BUT DO NOT CONFORM. You must maintain an open-mind and cultivate a genuine respect for the people around you. Act within this context, with inner-strength and outward self-restraint, and you will experience cooperation and acceptance. Learning will follow. In your efforts, beware of emulating others as this is a shallow illustration of respect and is deeply disrespectful to the self. You must discover ways to show your respect for others while protecting your individuality. If you become conditioned to conform you will not be able to take risks nor experience the consequences, positive or negative that lead to the most effective learning.

Traditional Ecosystem

This past week I had the opportunity to spend an entire day in New York meeting with entrepreneurs who were not actively seeking funding and others who have dedicated their efforts to supporting the entrepreneurial community in New York through organizing conferences or focusing their legal expertise on corporate formation, IP and negotiating founder friendly initial investment structures. I was invigorated by the opportunity to brainstorm with them, suggest resources for them and absorb their energy and enthusiasm for what they are working on.

My motivation to spend a day this way came from reading Charlie’s post on the NYC ecosystem here and he was one of the people who made time to hang out. We had a really positive conversation and I am going to try to be in the city once a week to follow through on much of what we discussed. I will be at the Entrepreneurs Round Table and Digital Dumbo Dinks this week. If you think I can add value to your business based on my background and want to get together in the city, let me know.

Domestique Armstrong?

As my classmates and I leave school and re-enter the real world, many of us will be joining new teams and taking on new roles. We will be expected to apply what we learned in school to the goals and aspirations of a new firm. We will report to new leaders, have new collegues and some will manage new groups. In almost every case, we entered school at the top of our respective games and will now be emerging from a two year hiatus with more potential than ability. Much like an athlete emerging from retirement, we must choose to seek past glory or look to the future for new achievement. We have all changed over the past two years, but our opportunity to grow will come as we begin on our new path, and will depend on our ability to understand our circumstances and recognize our limitations as well as our abilities.

On the second page of the Sports Section in Monday’s New York Times, there was a short article about the Giro d’Italia and Lance Armstrong’s role as a support rider. The article mentions Armstrong fetching water bottles for his teammates and riding out in front in mountain stages. It is clear to most that Armstrong will not likely play the support role in July, but his willingness to re-enter the sport as a domestique on a world stage shows his capacity for self-evaluation and commitment to a long-term view of success. His teammates see his efforts as a chance for Armstrong to payback for all the support he had during his push for 7 Tour titles. I see the true spirit of a champion in his efforts and a deep respect for the meritocracy of (clean) cycling, the institution that has given him so much. Lance is once again showing the world how to accept change and grow from it rather than fighting to return to a past that is no longer reality.

Armstrong has a well-documented history of moving forward and growing in the face of adversity. However, I find his role at the Giro to be equally inspiring and to offer a much more tangible lesson in personal growth. My interpretation of the 4th verse in the I Ching tries to capture what Lance is currently teaching with his actions:

CHANGE IS PASSIVE. GROWTH IS ACTIVE. Change will occur but growth must be actively pursued. To grow you must move forward and evolve with awareness of self and of your environment. You must be observant and able to identify sources of trouble disguised by their unfamiliarity. When change causes confusion, grow by delegating responsibility and accepting help but do not neglect your duty to learn from these situations and those who help you. If you do this, you will remain sure of yourself and you will not only change, you will grow.

Lance has ridden a similar route before and I would not be surprised to see him grow into the Maillot Jaune by the time he reaches Paris this year. My hope is that my classmates and I can find inspiration in this example and make the choices that lead to growth and our own Yellow Jersey.

“DISCOVER WHAT YOU LOVE, WORK AT IT. SUCCESS WILL FOLLOW. When you are engaged in a labor of love, your efforts are extremely efficient and your natural abilities are utilized to the fullest. You are engaged by the work and the love of the product, not ego and the love of self. This confidence results in the power to lead while appearing to follow and the service and devotion of your team.”

Traditionally, the MBA is a degree that helps you mitigate risk and the process of acquiring the degree pushes you to become increasingly risk averse as the recruiting waves wash over each class. Professors have told me that every year they hear about students who are determined to “do a start-up” and “make it work” before they are “forced” to report to their job at a consulting firm or a bank. Inevitably, after calculating the expected NPV of each option, the newly minted MBA spends their signing bonus on travel and new suites not incorporation documents and rent-a-coder. This year is different because many of us do not have jobs (or the signing bonus) and are choosing between a passion project and a job search that may continue well beyond the summer. I hope most of these highly capable people are able to see the opportunity in the economy and feel the freedom of following a passion. I respect anyone who decides to pursue the most interesting thing they can imagine and I think long-term success lies in making this type of decision multiple times in a career.