In school we’re taught to provide the right answers to given questions. We’re instructed to assume that the questions we’re asked are the right ones. As a result, school doesn’t provide us sufficient training in the skill of asking the right questions.
However, much of our happiness and success later in life comes from asking the right questions. Some of these right questions are universal for a given domain and some vary from individual to individual.
For example, in the field of happiness, I used to think that the right question is “what makes you happy?” I then discovered that, at least for me, the right question is “what’s meaningful without taking away too much of your happiness?”
In the field of success, asking yourself “how can I best apply my skills in the context of market realities to produce something that others want?” is a better question than asking “what am I passionate about?”
In the context of venture capital investments, the right question is not “is this a good idea?” but “what will this team do with this idea?”
In the context of building startups, the right question is not “how much money do we need?” but “what do we want to achieve before hitting profitability or raising more money, and how much money will it take to get there?”
You can make substantial progress in asking the right questions by consciously reminding yourself to do so. However, sometimes the only way to get there is to first ask the wrong question, arrive at the right answer but for the wrong question, and then learn from your experiences.
If you’re a fast growing startup, there can be a considerable difference between your KPI’s and financials at the time when you receive an investment offer and when the investment is completed. I’ve seen companies grow their gross profit by as much as 1.5X from the time of receiving an offer until the time the round is completed. The longer this time period, the larger this change in performance is likely to be.
However, the increase (or decrease) in a company’s performance during this time period rarely produces a corresponding change in investment terms. The terms agreed upon at the time of the offer remain the terms at which the investment is completed. For a fast growing startup, this can mean leaving considerable money on the table.
The solution is to, at the outset of your investment talks, set the terms of the investment to be contingent on the company’s performance in the time period immediately prior to the closing. For example, if a company’s valuation at the time of the offer is based on a combination of a gross profit multiple and an annual growth rate, the valuation at the time of the closing would be updated to reflect the company’s most recent gross profit and annual growth rate.
Whether investors accept this approach depends on the specific investor and the specific company. If you’re a fast growing company with interest from multiple investors, you’re likely to be able to negotiate this approach with most of them.
Turkish basketball club Fenerbahce won Europe’s top basketball club competition, the Euroleague, yesterday evening by beating Olympiakos of Greece convincingly, 80 to 64.
Fenerbahce was fortunate that this year’s final four and hence final took place in Istanbul, Turkey. The location of the final four and hence final is determined at the beginning of the season and a finalist team from the country where the final is played ends up enjoying the overwhelming support of the local crowd. This was certainly the case for Fenerbahce yesterday night.
But while the crowd contributed to the large 16 point victory, Fenerbahce would have likely won wherever the game was played. They simply outplayed their opponents from start to finish.
I congratulate the Fenerbahce players, club, and fans on their excellent season long performance and well deserved victory.
When you run into a negative outcome, sometimes you’re the only one responsible. But in many cases responsibility for the outcome is shared across multiple people.
In the latter case, even if the negative outcome is not just your responsibility, it’s useful to take full ownership for it.
The first benefit of this approach is that it lets you identify each of your contributions to the negative outcome. This is the first step to fixing your mistakes in the future. You can’t fix what you don’t acknowledge to be broken.
Second, taking full ownership often causes others to own up to their mistakes as well. Many people have an innate sense of fairness that makes them feel bad from having a single person take all the blame. This makes them step forth to rightfully share it.
Independent of whether the second benefit manifests itself or not, the first is enough to justify taking full ownership of negative outcomes.
I was recently speaking with the co-founder of a successful regional tech business. We’re not investors in the company, and the co-founder was looking for insights into the Turkish market.
In the middle of the discussion, I was caught by surprise when the co-founder asked whether I’d like to join the company. This is the first time that I’ve been on the receiving end of a startup co-founder offering an investor a job.
I like investing too much to make the shift, so I politely declined.
However, the anecdote is a great reminder that great founders are always recruiting.
In April 2015, after AngelList launched pre-funded syndicates, I published a post about AngelList’s future direction. In the post, I wrote that “I wouldn’t be surprised if syndicate leads first remove an investor’s ability to opt out of investing in specific startups, and then start raising an aggregate amount of capital to invest in a number of startups during a fixed period of time (a fund) rather than on a deal-by-deal basis. In other words, AngelList may become the very system it was looking to displace.”
Fast forward 2 years and AngelList announced that it is indeed beginning to launch new VC funds on its marketplace. The fund sizes are small for now (sometimes as small as $0.5M-$1M), but will likely grow larger as the model begins to show results. This will attract more institutional capital like Bain Capital Ventures which is already backing some of the new funds. The funds are also beginning with a fixed 1 year life, but once again this is also likely to grow longer as the model is proven to work.
What I did not predict was that the general partners of these VC funds would primarily be current operators. This is the natural result of AngelList decoupling a general partner’s ability to add value from their ability to raise money. This favors current operators whose experiences give them an edge in the former area while their limited time makes it challenging for them to do the latter.
However, AngelList’s new program is unlikely to be limited to current operators in the future. Anyone who has the ability and work ethic to add value to startups but could use some help with fundraising is a great candidate for the program.
The program will help shift the skills necessary to be a successful venture capitalist away from the ability to fundraise from limited partners towards the ability to add value to companies. And that will increase the number of successful startups, which is a good thing.
There are several differences between investing in a private market like venture capital and public markets. For exampe, the former is less liquid and features much wider bid ask spreads due to this lower liquidity.
However, I think the biggest difference is the availability of information to investors. Specifically, public markets require that companies make available the same comprehensive information equally to all investors. Private markets, in contrast, don’t.
In private markets, companies choose what information to share with investors and can choose to share different amounts of information with different investors.
In addition, different investors have access to different amounts of information that isn’t shared by the company. This depends primarily on the investor’s network of relationships with parties like the company’s current and former employees, customers, suppliers, and other investors. The wider and the more relevant the network that the investor leverages, the more comprehensive information they’re likely to have.
Because private companies choose what information to share with investors, it’s important for private market investors to be trustworthy, helpful, and kind in order to receive this information.
And because there will still remain information that isn’t shared by the company, it’s important for investors to have and seek the input of a wide and relevant network to fill in the gaps.
In an earlier post, I wrote about the meaning which you get from producing, and how I believe that it’s worth trading off some short-term happiness for that meaning.
This post is a short observation on the other side of the equation, that is consuming. Consuming doesn’t generate meaning but it does produce a short-term burst of happiness.
When consuming something that you need to pay for, there’s a general correlation between how much you pay and the short-term happiness that you get from the product. For must product categories, the more you pay the higher the quality of the product that you’re able to consume and therefore the greater the short-term happiness that you get from consuming it.
However, in many product categories, this correlation breaks down after a certain point. After a certain point, you’re no longer paying for the higher quality of the product but the social signal that using that product sends to other people, or more accurately the social signal that you believe using that product sends to other people.
When you cross the line where you begin to pay more for a product because of its social signaling value, you’ve effectively agreed to make your happiness dependent on other people’s perception of you. And that’s a fickle source of happiness.