Monthly Archives: July 2016

What’s worth fighting for

From the perspective of any individual person, the world is a very big place. There’s a lot going on and the vast majority of it is beyond our control. In order to have an impact on even a limited slice of life, we need to dedicate most of our life to it. And even then, we only gain partial control over the outcome in that area.

With so much beyond our control, it’s important to distinguish between what’s worth fighting for and what isn’t. We can’t fix everything. So we need to decide what to fight for. Specifically, we need to fight for those things where there’s a lot of value at stake and where we have the greatest ability to impact the eventual outcome.

When looked at this way, the list of things worth fighting for for any individual person produces a pretty limited list. For most people, it includes yourself and your close family and friends. For a minority of people, it also includes some societal or humanitarian goals.

It’s important to know what’s on your list and what isn’t, to do your best to improve the outcomes for those things that are on your list, and to learn to accept the outcomes for those things that aren’t.

Co-investing with local investors

We invest in two markets, Turkey and the US. However, we’re located in Turkey and I spend 11 months of the year in Istanbul. As a result, our investment strategies in Turkey and the US are very different.

In Turkey, we are a local investor. This gives us the market knowledge, ability to perform extensive research, network, and access that are necessary to be a successful investor.

In the US, we have a weaker position along each of these dimensions. As a result, we co-invest with local investors who fill each of these gaps.

As I shared in an earlier post on the importance of performing fundamental research, this is a suboptimal strategy. The VC business is a local business and it’s much more difficult to perform the fundamental research you need to be very successful without having a local presence. However, we still invest in the US even though we know that our strategy won’t let us perform as well as the top 10% of US investors because, by co-investing with the top 10%, we believe we can be in the top 25%. And this is good enough.

Because of our experiences investing from Turkey into US startups, I had a different reaction than our entrepreneur when an international investor recently looked into investing in one of our Turkish startups. In order to participate, the international investor required that a local investor lead the round.

Our entrepreneur viewed the investor’s search for local social proof as a poor signal about the quality of the investor. He believed that the investor should be performing their own fundamental research and arriving at an independent investment decision.

If the investor were a local investor, I would have agreed. However, since it’s an international investor, I disagreed. I think that the international investor’s search for a local investor to lead the round sends a positive signal about the quality of the investor. Although this strategy won’t let the international investor perform at the level of the top 10% of local investors, it can land them in the top 25%. It’s exactly our approach in the US.

Thank you for telling me the truth

As an investor, my job is to back and advise entrepreneurs. This post is about the second part.

I believe that the advice that I give needs to be truthful, concise, and actionable. I think I achieve the second and third goals most of the time, but there are instances when I can improve. The first goal, however, can’t be compromised. It’s my responsibility to always tell the truth.

Sometimes telling the truth creates pleasure. The truth is aligned with what the entrepreneur wants to hear so there’s no potential for disagreement.

But sometimes telling the truth creates pain. The truth is something that the entrepreneur doesn’t want to hear and ignoring it lets them avoid short term pain.

But telling the truth is something that I can’t compromise, and so I tell it. Often, since the entrepreneur doesn’t want to experience the short term pain, they don’t accept the truth. Sometimes they reject it gracefully, and sometimes adversarially.

And sometimes they accept it. Sometimes they say “You’re right. Thank you for telling me the truth. You’re doing me a big favor”. Although this happens more rarely, when it does, you realize that all the adversarial reactions are worth it.

Powerpoints and products

Pattern recognition is an important part of investing. History doesn’t repeat itself exactly, but it does rhyme. And identifying these rhymes can make you a better investor.

In startup investments, one of these rhymes is the correlation between a startup’s Powerpoint presentation and its product.

A bad Powerpoint presentation is correlated with a bad product. When a Powerpoint isn’t well structured, doesn’t have a storyline, and doesn’t contain well-reasoned arguments which are backed by data whenever possible, the startup behind the poor Powerpoint is also likely to produce a poor product. This isn’t surprising.

Similarly, a good Powerpoint is correlated with a good product. This isn’t surprising either.

What’s more surprising is that the correlation between a better Powerpoint and a better product eventually breaks down. After a certain point, a better Powerpoint doesn’t produce a better product but a worse one. The reason is that time spent developing a good Powerpoint into a great one is time not spent developing a good product into a great one. And startups succeed by building great products, not great Powerpoints.

A great Powerpoint signals that a startup isn’t spending its time on what matters.

Utopia and dystopia

Founders Fund recently released a podcast series called Anatomy of Next. The series consists of 5 sessions, one on each of nuclear energy, biological engineering, robots, artificial intelligence, and virtual reality.

There are two common themes which unite each of these areas. The first is that the adoption of these technologies each represents a big change from our current status quo. The second is that they each carry the potential for big positive and negative outcomes.

However, when the potential for big change comes together with the possibility for big positive and negative outcomes, we tend to focus our attention on the downside risks rather than the upside potential. Big change means moving into the unknown, and our fear of the unknown makes us default to thinking about the negative outcomes.

The podcasts attempt to go beyond this default inclination by highlighting not only the dystopian, but also the utopian possibilities brought about by each of these technologies. For example, nuclear energy could destroy the world, but it also has the power to solve our energy problem. Biological engineering could create a race of superhumans that dominate over non-superhumans, but it could also be used to cure all sorts of diseases. Robots could kill us, or they could take care of our repetitive tasks so that we focus on creative ones. Virtual reality could turn us into isolated individuals who try to escape the real world, or it could provide us with a great source of entertainment while also letting people interact with others thousands of miles away in a way that allows for many more use cases than the phone and video calls that are currently available to us.

Most important, as the podcasts emphasize, it is humans who will decide which outcomes will prevail. As Irish statesman Edmund Burke said, “The only thing necessary for the triumph of evil is for good men to do nothing.”

You can listen to each of the podcasts here.

Military coup attempt in Turkey

Yesterday night at around 10PM, a military coup attempt began in Turkey. Here are some facts:

The coup wasn’t led by the head of the military Hulusi Akar, who was actually held in custody by those orchestrating the coup, but by a smaller faction within the army.

Among other locations, tanks took their positions around government buildings in Ankara, the state TV broadcaster TRT, the Ataturk and Sabiha Gokcen airports in Istanbul, and the two bridges connecting the European and Asian sides of the city.

Since the coup attempt began at 10PM, most people hadn’t gone to bed, and were able to follow the proceedings live on TV and social media throughout the evening.

Around 11PM, an announcement was made over TRT that the country was under martial law.

The orchestrators of the coup hadn’t captured any of the government officials they were looking to overthrow prior to announcing the coup, and they didn’t capture any of them during the coup attempt.

With the exception of the state TV broadcaster TRT and the CNN Turk channel, the orchestrators of the coup let the country’s other main TV channels continue to broadcast freely.

Around midnight, President Erdogan delivered a video message over what looked like FaceTime which was aired on Turkey’s TV channels with the exception of TRT. He called for the Turkish people to not obey the martial law announcement, leave their homes, and protest at Istanbul and Ankara’s main hubs where those conducting the military coup were located. Indeed, TV channels soon began to show many people taking to the streets and, together with the police who took the other side of the coup attempt, successfully taking those military personnel attempting the coup into custody.

It’s 9AM the next morning as I write this. News reports suggest that the head of the military Hulusi Akar has been freed, the members of the army attempting the coup have been taken into custody, and the streets are being emptied of the tanks.

The media currently reports that there are at least 60 dead.

Fortunately, it seems like the attempted coup failed.

Note: The original version of this post was updated to reflect the fact that the orchestrators of the coup also cut off the broadcasting of the CNN Turk TV channel.

Third party service providers

Since we have over 30 companies in our Turkish portfolio, we get many requests from third party service providers who want our companies to become their customers. Examples of these service providers include digital marketing agencies, PR firms, payment service providers, and executive recruiting agencies. They reach out to us in order to offer their services to all of our companies at once rather than have to approach each company individually.

When we receive such a request, we first check to see if any of our companies has worked with the service provider. We look for at least one positive reference in order to recommend the service provider to our portfolio. We believe that this is a reasonable request given that we’ve invested in over 30 companies.

If the service provider has at least one positive reference, we include it in our shared “Third Party Services” spreadsheet together with the name of the recommending party. This spreadsheet shows our founders the service providers that come recommended by us and other portfolio companies by service category. This is a reactive way to reach our startups because it requires that our startup review the spreadsheet to find a service provider.

If the service provider would like to proactively reach our startups, we request that they make an offer that’s valid for each company in our portfolio. We use the strength of the over 30 companies to which this approach provides instant access to secure attractive commercial terms for our companies.

However, when a service provider makes such a proactive offer, we do not guarantee that our startups will begin to use its services. Although sometimes service providers request this, this isn’t a request that we can meet because we’re minority investors that don’t run the daily operations of our startups. The ultimate decision is up to the founders of each startup.

As a result, the extent to which a service provider’s offer converts into customers depends on the quality of the offer. We’ve seen great offers convert over half of our portfolio while less attractive offers have converted only a few companies. If we can’t agree with the service provider on terms that we believe are sufficiently attractive to convert at least a few companies, we save everyone time by not sharing the offer with our portfolio.

Who should reach out to potential investors?

I was recently speaking with one of our entrepreneurs about their fundraising round. The fundraising process is being coordinated by a financial advisor and we were talking about how to go about reaching out to individual investors.

There are pros and cons to having a financial advisor run your fundraising process. But that’s the subject of another post.

In this case, the topic of our discussion was who should reach out to each investor on our shortlist. When a financial advisor is running your fundraising process, there are three potential people who can perform each outreach. They are you (the entrepreneur), your existing investors (if you have them), and the financial advisor.

Financial advisors often recommend that they reach out to each shortlisted investor. After all, that’s one of the two key parts of their job description. The first is helping you build your story, presentation, and financials, and the second is reaching out to each shortlisted investor.

However, I’ve found that having your financial advisor reach out to each person on the shortlist isn’t the best approach. Specifically, sometimes the entrepreneur or an existing investor has a better relationship with a shortlisted potential investor. If this is the case, reaching out to the potential investor through the financial advisor can backfire. Here’s why.

I’ve been on the receiving end of such approaches by the financial advisors of companies whose entrepreneurs and investors I already knew. Each time this happens, I ask myself why the entrepreneur or the investor didn’t reach out to me directly. The two possible explanations are that they either don’t feel that we have a good enough relationship, or they didn’t want to spend the time to reach out themselves. Neither explanation sends a good signal.

The same reasoning holds true for situations where your investor, rather than a financial advisor, is running your fundraising process.

Whoever has the strongest relationship with a shortlisted potential investor should be the one who performs that specific outreach. That’s what the potential investor expects and meeting this expectation makes sure you start off your discussions on the right foot.

Dugun acquires Anneysen

Two of our portfolio companies just joined forces. Dugun, Turkey’s leading online wedding marketplace connecting couples with merchants during their wedding planning process, acquired Anneysen, Turkey’s leading content site for aspiring and current moms.

The acquisition makes a lot of sense for both parties. Thinking about having babies, and often eventually having them, is a natural progression from getting married. So it makes sense for users to be able to access information about and navigate both of these very important life events on the same platform.

I congratulate Pinar and Aylin, the founders of Anneysen, and their team on the sale. I also congratulate Emek, the founder of Dugun, and his team on the strategically important acquisition.

Interesting but irrelevant

In a recent post, I wrote about Bill Gates’ prescient thoughts on email from back in 1994. Towards the end of The New Yorker article linked to in the post, Gates shares an insightful approach for how he manages his time.

Basically, since there are an effectively infinite number of interesting things going on in the world and since we have finite time to explore them, it’s important for us to explore those things that are not only interesting but also relevant to us. And a great way to do this is to take sources of interesting but irrelevant things out of our life.

There are natural limits to this approach because we get some of our greatest insights in areas that are relevant to us when we’re doing seemingly irrelevant things. But the gist of the idea is correct.

Here’s the full extract:

“TV is neat. I don’t have a TV at home, because I would probably watch it, and I prefer to spend that time thinking—or, mostly, reading. So I’m pretty conscious about not letting myself get used to certain things.

O.K., it’s a little bit like this. I go to a baseball game, and I’m having a good time, watching the game, but then I feel myself getting drawn in. I start wondering, Who are these guys? Who are the good ones? How much are they paid? How are the other teams compared to this one? How have the rules changed? How do these guys compare to the guys twenty years ago? It just gets so interesting. I know if I let myself go to ten games I’d be addicted, and I’d want to go more. And there’s only so much time in the day. And, frankly, it’s easy for me to get interested in anything.

So there’s all these choices, but time is this very scarce resource.”