Monthly Archives: February 2016

Simplicity short of obscurity

I was recently speaking with one of our entrepreneurs. We were reviewing the company’s fundraising efforts so far and discussing our key learnings from the process.

The entrepreneur shared that, if he could go back in time, he would do one thing differently. Specifically, rather than talk about both of the growth initiatives that the company is pursuing, he would focus on just one initiative. The reason is that each new initiative is an opportunity to lose the investor.

From working with the company, I believe that both initiatives will be successful. The preliminary data from both initiatives shows that this is likely to be the case. However, when presenting to an outside investor, sometimes you don’t even get far enough to share the qualitative reasons and preliminary data which support why both of the initiatives will succeed. Investors are overwhelmed with deal flow and this makes us look for reasons to say no wherever we can.

It’s simple math. Even if both initiatives make sense and either initiative on its own would receive a positive reaction from 60% of investors, the chance of an investor accepting both initiatives is 60% * 60% = 36%. And often all it takes to end discussions is one negative reaction. So by presenting both initiatives, you’re increasing your chance of getting at least one negative reaction from 40% to 64%.

If you present 3 growth initiatives your chance of getting at least one negative reaction rises to 100% – 60% * 60% * 60% = 78%. You can see how presenting more initiatives can quickly lower your chance of getting funded.

The flip side of this argument is that not sharing each of your growth initiatives limits the potential upside that you can present to the investor. And if the potential upside isn’t enough, they won’t invest. So you need to make sure that if you choose to present just one initiative, it’s strong enough to provide the investor with the upside necessary to invest.

To generalize, your investor pitch needs to be simple enough to understand and accept, but not so simple that it obscures your company’s potential.

Doers and talkers

For every person who does something, there are multiple people who talk about doing it.

The first reason why this imbalance exists is because there’s a cost to doing something, both in terms of time and in terms of the risk you take while doing the activity. There is however no cost to talking about doing something.

On the benefits side, the personal benefits of doing something include the positive feelings you get from taking ownership of something and seeing its results. Depending on the context, they may also include any financial rewards you get from the activity if things work out.

However, there is a second source of benefits. These are the social benefits you get from the activity. You identify yourself, and others identify you, with the activity and this gives you a sense of social recognition.

The problem is that you can get the social benefits of doing an activity without actually doing it. You can gain the social recognition associated with the activity just by talking about doing it. And for most people this social recognition provides a sufficiently positive self-image that they don’t feel the need to actually do the activity. For most people, the social benefits of an activity are greater than its personal benefits.

This is great news for people for whom the personal benefits of an activity are greater than its social benefits. In other words, this is great news for doers. The shortage of doers relative to talkers places a premium on the returns, both intrinsic and extrinsic, available to doers. You just have to make sure that a talker doesn’t take the credit for your doing.

Turkey’s VC fund of funds

The Turkish Treasury and The Union of Chambers and Commodity Exchanges (TOBB) this week announced the launch of a fund of funds (Turkey Investment Fund, or TIF) to invest as an LP in local VC funds. The initial fund size is 150M TL (~$50M), of which 100M TL (~$33M) is being contributed by TOBB and 50M TL (~$17M) is being put forth by the Treasury. The fund size is expected to grow to 250M TL (~$83M) over the next 2 years.

This is very important news for Turkey. First, it’s a clear demonstration of the public sector’s intent to support the VC sector and hence entrepreneurship in the country.

Second, the means by which the public sector is offering this support is correct. Specifically, rather than attempt to make direct investments themselves, the Treasury and TOBB are entrusting the private sector to make these investments. By serving as an LP rather than a GP, the Treasury and TOBB are increasing the ammunition available to existing VC’s and helping cultivate new VC’s. Putting investment decision making in the hands of VC’s who do this as a full-time job makes it more likely that the funds back the best startups.

In addition to TIF, the Turkish Growth and Innovation Fund (TGIF) is a second fund of funds whose plan is to support local VC’s. TGIF will be a 200M Euro (~$220M) fund backed by the Treasury, The European Investment Fund (EIF), The Small and Medium Enterprises Development Organization (KOSGEB), and The Industrial Development Bank (TSKB).

TGIF is a follow on to the Istanbul Venture Capital Initiative (iVCi). The iVCi fund was a 155M Euro (~$170M) fund of funds launched in 2007 with the goal of investing in VC funds. However, with the exception of $25M which it invested in Earlybird and 6M Euro (~$7M) which it invested in 3TS, most of the money went to private equity funds. There simply weren’t many VC’s to back from the original fund, but that has since changed.

When both TIF and TGIF reach their full potential, this will inject over $300M of new VC funding to Turkey. There’s about $200M of VC funding dedicated to Turkey right now, so this will bring the total capacity of VC funding in the country to $500M.

A lot more startups will be funded, startups with existing funding will have more money to grow, and we’ll see many more successful examples of entrepreneurship in Turkey.

Sharing founder-investor disagreements with potential investors

I was recently on the phone with a venture investor evaluating one of our startups. He wanted to get my take on the company’s performance, future plans, and fundraising.

Such discussions can be delicate. On one hand, it’s important for founders and existing investors to present a unified story to new investors. This means being consistent on how we think about the company’s performance, and aligned on how much money the company needs and what it will do with the money. It’s difficult enough to convince someone new to your business to invest in a company that founders and existing investors may be tempted to conceal any disagreements they may have on these issues.

On the other hand, for a post-investment partnership to be fruitful, founders and existing investors need to build a trustworthy relationship with the new investor. The pre-investment process is the best place to do this. This requires sharing what you believe to be true, rather than putting together a carefully crafted story that attempts to embellish the company.

Disagreements between founders and existing investors about how a company is performing right now, what it needs to do in the future, and how much money it should raise are all natural. In fact, they’re signs that there is a healthy relationship between founders and existing investors. If everyone agrees on everything, this signals that the company culture either doesn’t promote debates, or that the company is putting on a facade to attract new investors. Both are negative signals.

For these reasons, when an investor who is researching one of our companies asks for my thoughts about the company, I share my candid thoughts on each of the startup’s performance, its future plans, and its fundraising. These thoughts are often aligned with those of the founder because we’ve talked about these issues before and arrived at reasonable conclusions that we can all stand behind.

However, sometimes there’s a disagreement between what a founder believes is best for the company and what I believe. In these cases, rather than conceal the disagreement, I share it with the potential investor. By doing so, we not only earn their trust, but also prompt a discussion around the issue together with their participation. This is exactly what’s necessary to see how we would work together if we were to become partners, so it’s a very valuable exercise for all parties.


Most of our investments are in companies with traction. We’ve invested in a handful of companies at the product stage, and an exceptional few pre-product.

For those companies where we’ve invested at the product stage, and to a somewhat lesser extent those companies where we’ve invested based on traction, the product is one of the most important factors in our decision. I place it right up there together with the identity of the founders, the company’s approach to its target market, and, if it exists, demonstrated traction.

The reason why a company’s product is so important is because it gives me a glimpse of how founders think and their ability to execute. For example, is the product intuitive to use, does it have a clean design, does it have any bugs, can I find all that I’m looking for, does it overwhelm me with features, or does it surprise me with elegant solutions to problems that I hadn’t even thought about? Most importantly, how does using the product make me feel?

The company’s product is the output of the thousands of theoretical decisions that founders and their teams make together, and the team’s ability and motivation to execute on these decisions in practice. As such, it reflects the team’s intelligence, common sense, work ethic, ownership, and cohesion.

This doesn’t mean that a startup with a sub-par product at a specific moment in time can’t be worthy of investment. Products are continuous iterations and as long as teams see their product in this way, they’ll be able to build better versions in the future. There’s a big difference between a company with a sub-par product 3 months after it has been founded and one with the same product 3 years in.

In addition, there are many examples of very successful companies which have what I believe are sub-par products. One person’s view of a product can be very different from that of the majority, and sometimes a product fills such an important market need that it can succeed even if most people agree that it’s sub-par.

However, despite these caveats, a product tells you a lot about the startup behind it. Understanding why a product is the way it is lets you get into the minds of the founders and their team, and develop a view on their combined ability to turn their ideas into reality. As such, it’s a very important factor for investment decisions.

VC backgrounds

There was a TechCrunch article his week entitled Who is a VC? It’s written by Richard Kerby, a Vice President at venture firm Venrock. The article sheds light on the demographic, work, and educational backgrounds of over 1,500 VC’s independent of their position (partner, principal, or associate).

The first findings of the report are about demographic diversity, or the lack thereof, in venture capital. The report finds that 74% of VC’s are white and 23% are Asian. This means that only 3% of VC’s are from other ethnic groups.

In addition, the report finds that 89% of VC’s are male and only 11% are female.

Combined, these findings show that non-whites, non-Asians, and females are heavily underrepresented in the VC industry. This lack of demographic diversity has received a lot of attention over the last few months and drawing attention to a problem is the first step to addressing it. I hope that we see more demographic diversity in VC in the future.

However, I found the second part of the report equally interesting. Specifically, the report finds that 72% of VC’s don’t have an engineering degree and 59% of them don’t have operating experience. Some leading examples include Michael Moritz, Bill Gurley, and Peter Fenton. From the fact that VC’s invest in tech startups, in the absence of these findings, many people could have assumed that the people making these investments have startup experience and tech training. This is not the case.

I believe that the reason why an engineering background isn’t required to be a VC is because VC’s are responsible for identifying the engineering talent that can build a tech business. This requires understanding the technical infrastructure that a startup needs to be successful. It doesn’t require building the engineering organization and infrastructure yourself.

And the reason why operating experience isn’t a prerequisite to be a VC is because the skills required to identify promising tech startups are different than the skills required to successfully run a tech startup. At the risk of overgeneralizing, the first requires that you be good at evaluating people and performing extensive research and systematic thinking before taking action whereas the second requires that you be good at motivating people and enjoy taking action at least as much as you enjoy performing research and thinking.

How to operate

Today’s post is about a great talk on how to run a company and manage people. It’s called How to Operate and it’s from a presentation that Keith Rabois gave to students of CS183B, a Stanford course run by Y Combinator President Sam Altman, in November 2014.

Keith is currently co-founder of online home selling and buying site OpenDoor and an investor at Khosla Ventures. He was formerly the COO of Square and VP of Business Development at LinkedIn and Paypal.

In the talk, Keith shares his views about company operations. Although some of the views are unconventional, I agree with each one.

  1. Building a company is hard because it requires managing people and people are irrational. Operations are necessary to set up the systems to address these irrationalities.
  2. Managers should let their employees make mistakes in those areas where the consequences of a mistake are low as this will help their employees learn.
  3. Using the analogy of a gun, most people are ammunition. This is because they help the company make progress towards predetermined objectives. But what really moves companies forward are barrels. Barrels are people who can identify an opportunity and set up the systems which, when filled with the ammunition, enable the company to capitalize on the opportunity.
  4. Success is the byproduct of performing excellent work on each detail every day. When this comes from the top, this creates a culture of excellence that cascades throughout the organization.
  5. Creating a great company not only takes a lot of effort, but is also very stressful. If you never feel like everything might turn out wrong, you’re probably not trying hard enough.

You can watch the full presentation below.

Turkey’s late stage funding gap

Our ticket sizes reflect the fact that we’re a seed and early stage investor. Our past investments have ranged from $100K to $2.5M in any individual funding round.

When asked where there’s the biggest funding gap in the Turkish tech startup market, I always respond that it’s at the late stage. My definition of late stage investments for Turkey is round sizes north of $5M.

However, until recently, I didn’t have the data to back up my intuition. Given our positioning as a seed and early stage investor, my answer may have simply been interpreted as being self serving. I may have been looking to avoid competition at the stages where we invest while attracting $5M+ rounds of follow-on capital to our startups.

Thanks to, I now have data to back up my claim.’s 2015 Investment Activities report shares that 75 out of 80, or 93.75%, of the funding rounds for Turkish tech startups in 2015 were for rounds where less than $2.5M was raised.

Here’s another way to look at it. $36.2M, or 65% of the total $55.7M which was invested in Turkish startups last year, went to rounds less than $2.5M.

The fact that we need to define a late stage funding round as one where more than $2.5M is raised shows the extent of the problem. This cutoff should be much higher.

But even using this aggressive definition, late stage funding accounted for only 6.25% of the rounds and 35% of the capital invested in Turkish startups last year. This data confirms the big gap for late stage funding in Turkey.

Mobilotoservis’ quality and price transparency

Our portfolio company Mobilotoservis (“mobile auto service” in Turkish) is a car repair and maintenance service that visits your home or office to perform the service. Mobilotoservis’ most striking value proposition is therefore that it saves you a trip to the service location.

However, Mobilotoservis also delivers value to customers in a second important way. This is by bringing quality and price transparency to the spare parts used in car servicing. Since the average car owner gets their car serviced only 1 to 2 times a year, they don’t spend much time to research the quality and price of different spare parts. And many car services take advantage of this information asymmetry by overcharging for the spare parts they use. This involves a combination of not disclosing the low quality spare parts they’re using and using higher margin branded spare parts that offer no quality difference over their unbranded equivalents.

Until recently, Mobilotoservis solved this problem by performing all of their services in full view of the customer, using unbranded spare parts whenever there is no quality trade-off, and clearly stating why they needed to use branded spare parts when this was the case.

Most recently, Mobilotoservis took another important step towards bringing quality and price transparency to the car servicing process. Specifically, Mobilotoservis launched its spare parts e-commerce catalogue under the Yedek Parca (“spare parts” in Turkish) section of its website. Now, even if you’re not a Mobilotoservis customer, you can input your car’s make and model and immediately see the prices of hundreds of spare parts specific to your car. These prices also benefit from the volume agreements which Mobilotoservis’ service arm has in place with spare parts manufacturers.

You can then cross-check these prices with the prices which your car service is quoting. If you discover that your car service is overcharging you for the spare parts, you can either order the spare parts yourself and pay your service only for the labor, or have Mobilotoservis perform your car’s service using the transparent spare parts prices available on its website.


Flipps is one of our US investments. It’s a mobile app that lets you stream content which you select from the app directly from the cloud to your smart TV. You can think of it as an over the top content provider like Apple TV or Google Chromecast without the additional hardware requirement.

With over 15 million downloads, Flipps has struck a chord with viewers looking for different types of content across a wide range of verticals including news, sports, music, and movies. To build on the success of its existing horizontal app, Flipps decided to launch a vertical app delivering a specific type of content.

We had three requirements for the vertical app. It needed to have a lot of demand from viewers, the content needed to leverage Flipps’ core value proposition of delivering a better experience when viewed on a large TV screen rather than on a small smartphone screen, and we needed to be able to secure content rights at reasonable prices. After researching different verticals, we settled on fighting sports which meets all three requirements. Fighting sports include mixed martial arts, wrestling, and boxing.

After several months of business and product development, yesterday Flipps launched FITE TV, its app dedicated to delivering fighting sports content. You can download the iOS app here and the Android app here.

FITE TV has some great content at launch and this content will get even better with time. We’re excited for the future of the app.