Standard terms

Entrepreneurs see just a few term sheets while building their startups. This is especially true for first time entrepreneurs.

Since investors work with many companies, they see many more term sheets.

As a result of this discrepancy, entrepreneurs often come across term sheet terms that they don’t understand, find clear, see the purpose of, or find fair.

When this happens, one of these three scenarios plays out.

1. The entrepreneur doesn’t ask about the term with the goal of trying to understand it. This is the worst possible scenario because what you don’t understand or find clear often comes back to haunt you in the future.

2. The entrepreneur asks about the term and digs in until he really understands and accepts the reasoning behind it. If it’s a red line he absolutely doesn’t want to cross, he refuses the term.

3. The entrepreneur asks about the term, is told that it’s a standard term, and accepts this. This is just as bad as not asking about the term because it results in the same lack of understanding. There is no such thing as a standard term. Even if a term is indeed found on most term sheets, it’s there because it addresses a possible future scenario where there may be a divergence between the objectives of the entrepreneur and those of the investor. With the benefit of having seen many term sheets in the past, it’s the investor’s responsibility to explain the reasoning behind each term that the entrepreneur seeks to understand. If the investor says that it’s just a standard term, they either don’t understand it or don’t want to share the reason for it. Both are red flags.

Building an iPhone

Yesterday, I shared a post which gives an overview of what it’s like to work in an iPhone factory.

Today’s video shows how an individual can build an iPhone from scratch. It’s not exactly from scratch because parts like the logic board are sourced as an assembled product rather than as individual end components.

However, as the video shows, widely used hardware components are quick to commoditize. After this hardware commoditization, software remains the differentiator.

You can watch the 24 minute video below.

Working in an iPhone factory

This was a fascinating read about what it’s like to work in an iPhone factory. Although it was possible to predict that this is what it would be like, having this prediction confirmed by the account of an actual worker made the feeling much more poignant.

I had three key takeaways from the piece:

1. Most great things we consume or experience have large hidden costs of production where the benefit-to-cost ratio of producing varies greatly among producers. And there is merit in taking action to lower this free market driven cost of production to balance the well being of producers with low benefit-to-cost ratios.

2. Manufacturing is likely to sustainably shift to geographies with higher labor costs only when robots with negligible operating costs undercut the labor costs in low cost geographies. Attempts to bring back manufacturing jobs to higher cost geographies will be short-lived in the absence of automation. And the very definition of automation means that when this occurs, the absence of manufacturing jobs will be a global phenomenon.

3. We should be grateful to be able to work in roles where we can express our creativity under good working conditions.

Just like you

Our portfolio company Modanisa is the world’s leading e-commerce site dedicated to female Muslim fashion.

The company recently shared a short video dedicated to the women that it serves. What’s unique about the video is that it features the participation of non-Muslim women who wanted to show their support for the active lifestyles of Muslim women.

This is why the video is called Just Like You.

I don’t know

When someone asks you for your thoughts on something, sometimes you’re knowledgeable about the topic and can answer confidently.

However, many times you don’t know about the topic, or even if you do your thoughts aren’t sufficiently well formed to carry valuable insights for the questioner.

What do you do in this case?

Most of the time, most people choose to feign knowledge. This comes from seeing a lack of knowledge and informed views on a specific topic as a weakness which should therefore be concealed.

While this behavior is observed most often in domains where there is significant uncertainty and therefore not a single right answer, it also takes place in domains with a clear single correct answer. Business and politics are examples of the former. The range of responses you get when asking for directions to a specific location is an example of the latter.

In fact, saying “I don’t know enough about this topic to provide an informed and valuable answer”, or simply “I don’t know” is a sign of strength, not weakness. The reason is that there are too many different subject matters and too much knowledge being continuously created within each subject matter for any one of us to know and have informed views on multiple topics.

What we don’t know is far greater than what we do.

So if someone, including yourself, never says “I don’t know” no matter what you ask them, you can be sure that some of what they’re telling you isn’t sufficiently well informed to be valuable.

Tapu’s new round

Tapu, an online real estate auction marketplace where we’re investors, announced its new $1.2M funding round earlier this week.

The funding round which was led by existing investor Earlybird also included participation from existing investors Can Yucaoglu and Banu Kucukel.

Tapu has grown the number of online property sales that are completed on its marketplace to over 50 per month. Given the high price and lack of commoditization of these properties, that’s an impressive number.

Together with the new round, Tapu is well positioned to further grow this number by selling a greater number of properties on behalf of its existing partner banks while also attracting the properties of new business partners to its marketplace.

We value the continued support which our co-investors are showing the company and congratulate the Tapu team for their crisp execution and steady growth.

When no reply means no

I was recently speaking with an entrepreneur who shared that he hasn’t received a reply from an investor to whom he reached out for funding. The entrepreneur had sent the investor a reminder email about a week after the initial contact, over a week had passed since the second email, and since he had yet to receive a reply he wanted to know whether he should try a third time.

I’ve faced similar situations when fundraisi g from limited partners. Around 90% of investors who eventually end up investing reply to your first email. Every once in a while, let’s say 10% of the time, there are valid reasons (personal or a very busy time period professionally) why an eventual investor doesn’t respond to your first outreach but does respond to your second. I haven’t come across an investor who didn’t respond to my first two outreaches respond to the third and end up investing.

So here’s my recommendation:

Try once. If you don’t get a reply, try again a week or two later. If you still don’t get a reply, understand that no reply means no.

The nuance of reality

If you believe that something is good, it’s easy to find evidence to support your view.

Similarly, if you believe that something is bad, it’s to easy to find evidence to support that view.

In other words, our tendency is to draw conclusions and then look for evidence to support those conclusions.

Reality, however, is much more nuanced. Most good things have bad characteristics and most bad things have good characteristics.

So seeing reality calls for the reverse approach. We first need to look for evidence along different dimensions and then draw dimension-specific conclusions based on this evidence.

Almost inevitably, some evidence will support a good view along certain dimensions and other evidence will support a bad view along other dimensions. That’s the nuance of reality.

C-level team members presenting to the board

I was recently speaking with an entrepreneur about his C-level team. He was trying to evaluate whether they were performing well enough or whether he should look for fresh blood for some of the roles.

Not knowing the team, I couldn’t provide specific comments on any individual. Instead, I offered this.

I told the entrepreneur that he should feel confident having each of his C-level team members present the function that they’re responsible for to the company’s board. For example, the CMO would present the company’s marketing activities and the CFO would present the company’s financial activities.

This approach requires that each team member know their function very well while also possessing the confidence and communication skills necessary for them to successfully lead the function. In fact, many companies with strong C-level teams use exactly this approach.

If you wouldn’t feel comfortable having a C-level team member present their function to your board, you likely don’t think that they’re performing sufficiently well in their role.

Personal branding

I recently listened to an Andreessen Horowitz podcast on personal branding.

Another way to say personal branding is self-marketing. And since self-marketing sounds selfish, many people have a negative initial reaction to it. They don’t want to do it.

The problem is that if you don’t do it yourself, other people do it for you.

The podcast explains how this comes to be and why, as a result, personal branding is important.