Monthly Archives: September 2016

Investor communications done right

I was recently reading the investor update email of one of our startups. The startup’s founder pays a lot of attention to keeping investors in the loop and requesting their support. I really appreciate that, and I’m sure most of the other investors do as well. From the 3-5 investors that the founder highlights in each update for having helped her out, this seems to be the case.

One consequence of the founder’s emphasis on having healthy communications with her investors is that the update emails can be pretty long. And the most recent update was even longer than usual. The founder recognized this, and prefaced her update email by stating that she’d be very glad if we would read it all. But just in case we weren’t able to, she also wrote a summary of the most important points.

There are two important takeaways from our founder’s actions.

The first is the value of keeping your investors updated. As shown in this case, doing so makes it more likely that your investors find ways to help you out. It also makes your investors more likely to continue to invest in your company in the future. Our founder’s approach serves as a great example of investor communications done right.

The second takeaway is that, if a founder spends the time to keep you updated on the progress of their company, and you’ve invested in that company, the least you can do is to fully read their updates. The update is the result of the thousands of hours of work that the founder and their team have put into the company, and the multiple hours that they have spent summarizing the outputs of that work for you. The least we can do as investors is to spend the 30-60 minutes necessary to read the update and think about how we can help out.

When you don’t know what’s going on at a company you invested in

From the outside, one might think that venture investors know about all of the important developments at their companies before those developments are made public.

Very often, this is the case. For example, when you’re the largest investor in the company’s most recent funding round, you know about most of the company’s financials and key metrics, the important product features that the company is working on, and the important hires that it’s looking to make. It also helps if the entrepreneur believes that you’re likely to invest in their next round as this gives them a greater incentive to share this information with you.

However, if you’re a smaller investor in a specific round, or if you were the largest investor in an earlier round but new rounds have taken place such that the new investors have a greater financial stake and rights in the company, and the entrepreneur believes that you’re unlikely to lead a future funding round, you may no longer know about what’s going on at the company before the public does.

As an investor, this takes a while to internalize. After all, even if you invested just a small amount in a company in an earlier round, you could readily make the case that you expect to know about what’s going on at the company in near real-time because of the impact that these developments will have on the value of your investment. However, that’s not how things work.

If an investor doesn’t have information rights (which are usually round-specific and go only to major investors), an entrepreneur running a private company isn’t obliged to share information with that investor. And even if the investor does have information rights, there’s a wide range in the extent to which entrepreneurs actually share information.

Given that that’s how things are, you need to operate with that reality in mind. Whenever you’re making an investment, you need to foresee that there may come a time when you don’t know what’s going on at the company any more than the public does.

And that’s why an entrepreneur’s ethics and judgment are so important. If the time comes when you don’t know what’s going on at the company, are you still going to be comfortable that the entrepreneur is acting ethically and making good decisions? Or are you going to have trouble sleeping at night?

Answering that question before making an investment makes you a better investor.

Nassim Nicholas Taleb

Nassim Nicholas Taleb is a student of probability and the author of The Black Swan and Antifragile.

In The Black Swan, Nassim shows that we consistently underestimate the probability of occurrence and resulting impact of extreme tail events, yet readily come up with rational explanations for them after they’ve occurred.

In Antifragile, Nassim shows how some things are resilient to and even benefit from these tail events, and recommends that we construct our lives and the things around us to take advantage of this property.

Nassim recently gave the 2016 commencement address at the American University in Beirut and shared the text version of it online. It’s a great read and I encourage you to read it all.

Here are some excerpts:

“For I have a single definition of success: you look in the mirror every evening, and wonder if you disappoint the person you were at 18 …”

“If something is nonsense, you say it and say it loud. You will be harmed a little but will be antifragile — in the long run people who need to trust you will trust you.”

“If I had to relive my life I would be even more stubborn and uncompromising than I have been.”

Tech basics

I studied economics and management science as an undergraduate before getting an MBA. I’m therefore not an engineer or computer scientist.

My background has its advantages. A big one is understanding the power of underlying motivations and incentives in driving people’s behavior. This is an important skill when evaluating early stage startups.

However, my background also has its disadvantages. One is that I’m not deeply familiar with the components and processes which govern the behavior of computers and the internet. Although I don’t need to be an expert in these areas, it’s useful to have a high-level understanding of them to have productive conversations with people who have backgrounds in engineering or computer science, which is a lot of people in the tech sector.

This is where the Tech Tuesday series of posts by Albert Wenger of Union Square Ventures is very useful. In the series, Albert describes the key components of computers, the internet, and programming languages using analogies to activities that we can all relate to (like the data storage and processing capabilities of our brain).

The posts won’t make you an expert engineer or computer scientist, but they’re of great value to non-engineers and non-computer scientists who want to better understand how the fundamental tools that they’re working with actually work.

Slow life, fast life

We’re on holiday with my wife in Cephalonia, a Greek island in the Ionian Sea. We’ve been here for 5 days and will be here for 2 more.

Life is slow here. We have breakfast, spend the morning at the beach or at a tourist destination, have lunch, spend the afternoon at the beach or at another tourist destination, have dinner, do some work, reading, and exercise at various times during the day, and usually end up watching a movie before heading to bed.

Life is slow not only for tourists like us, but also locals. There isn’t much in terms of business activity and most of the locals are simply happy to make a living that lets them get by while enjoying their calm life.

It’s a very different lifestyle than the impact, ambitions, and competition which characterize life in big cities. And there’s no right or wrong answer for how to go about your life. You simply make a lifestyle choice which reflects who you are and the time period of your life that you’re in.

At this moment in my life, Cephalonia is too slow. I usually get bored and want to get back to work after 3 to 4 days of vacation, and that feeling has started emerging now. We made an exception to the shorter vacations we take this time around, but I’m already looking forward to getting back to a faster pace.

On the other end of the spectrum, there are people who would get bored after spending just 1 or 2 days in Cephalonia. They look for an even faster pace than I do.

Fulfillment comes from knowing who you are at the phase of your life that you’re going through and adopting a lifestyle that fits that person.


Carbon, where we’re investors, is looking to become the world’s largest hospital without owning any hospital buildings.

In practice, this means that Carbon serves as a technology layer that takes care of the administrative tasks like registration, billing, and providing shared access to medical records which are currently the responsibility of hospitals, while letting doctors focus exclusively on what they do best, that is giving the actual care.

The company is co-founded by Eren Bali, a co-founder of Udemy, the world’s largest school which doesn’t own any classrooms.

The company recently presented at TechCrunch Disrupt, and you can watch the full presentation below.

When you need a CFO

Many of the companies that we invest in don’t have a Chief Financial Officer (CFO) at the time of our investment. The reason is that the companies are in the product or early traction stage, and have yet to achieve product market fit. In other words, they have yet to reach a stage where they have enough confidence in the market demand for their product that they begin spending dollars to scale the company’s team and marketing activities.

When you have yet to achieve product market fit, your primary goal is to achieve it. As a result, you keep your net burn rate relatively low. At least, that’s what you should be doing. And as a result of keeping your net burn rate low, you don’t need to have a strong grip on the details of your finances. Being over budget by 20% in a month isn’t ideal, but it also isn’t threatening to the life of your business. So you might delay hiring a CFO to project, manage, and track your company’s finances.

This changes once you’ve achieved product market fit. After that point your goal is to scale your business. This means growing your team and spending to acquire customers while making the investments necessary to retain the original level of service that you were providing them. Each of these actions, which you take with the goal of eventually producing higher revenues and gross profit, initially increase your net burn rate. So much so that being over budget by 20% in a specific month, especially if coupled with an unexpected pullback in demand, can cause your net burn rate to be double what you had planned. And when the numbers are big, a net burn rate double what you had planned means danger.

If you have a great CFO in place, they’ll identify the fact that you’re spending beyond budget and that demand isn’t coming in as strong as you had predicted during the first half of the month. You’ll therefore be able to make the necessary adjustments to avoid your net burn rate coming in twice what you had expected at the end of the month.

If you have a good CFO in place, they’ll look at the end of month results, see that your net burn rate was twice what you had forecast, and you’ll be able to take action for the following months. That’s not quite as good as having a great CFO, but it’s also not life threatening.

If you don’t have a CFO in place, you’ll only discover that you’ve been burning twice what you had forecast after this has been going on for 3 months. So if you thought you had 6 months of runway left 3 months ago, you might all of a sudden discover that you’re out of cash.

That’s why the absolute latest moment when you should onboard a CFO is when you’ve achieved product market fit. Scaling your team and marketing without one is very dangerous.

Practicing with the best competition makes perfect

The US men’s basketball team won the 1992 Olympics in Barcelona. I remember watching the games as a kid.

There was a huge difference between the US team and every other team at the Olympics. In fact the US team beat each of its opponents by at least 38 points in the tournament. For those unfamiliar with basketball, most games end with a margin less than 10 points.

While each of the US players was individually talented, together as a team they were much more than the sum of their parts. Their performance during the games was simply the outcome of the underlying practice sessions that they had in the run up to the Olympics. In fact, in the video below Michael Jordan refers to the scrimmages they had during these practice sessions as the best basketball games that he has ever played in. This is because he was competing against the likes of Magic Johnson and Larry Bird.

Practice doesn’t make perfect. Practicing with the best competition does.

An entrepreneur’s role

One of the toughest challenges that entrepreneurs face is understanding their role in the company. Specifically, many entrepreneurs try to have all the answers themselves and try to either get everything done themselves or sign off on everything that gets done. This is especially true for first-time entrepreneurs.

You can get by with this approach for the first few weeks of your startup while you’re working on the idea and the product (if you’re a developer), but that’s about it. Once your company starts to grow, you need people to help you decide what to do (at least on most topics; the ultimate decision for very important topics can rest with you) and do it.

If you think about a company as an organization that takes inputs (customer demands, market conditions, …) and builds outputs (product, pricing, marketing strategy, …) to best respond to these inputs, your role as entrepreneur is to be on top of the inputs, provide an environment where your team can openly debate what the outputs should look like, and support your team as they build and deploy the outputs. Your role is not to single handedly decide on what each output should look like (although you can have the final say on very important issues), and it is certainly not to build the outputs.

Internalizing your role has two big benefits. The first is that it makes you more likely to succeed. The second and equally important benefit is that it makes you less stressed at work. The stress won’t go away, as being an entrepreneur is very stressful. But it will make it more likely that you build the great team that’s necessary to lower the pressure on you. And the less stressed you are, the more likely your company will be to succeed.

In a nutshell – Kurzgesagt

My wife shared the following video about CRISPR with me earlier last week.

Basically, CRISPR is a gene editing technology that’s much cheaper, faster, and more accurate than prior technologies. Although it has yet to achieve a sufficiently low error rate to be widely applied to humans, the initial results are promising. The potential use cases of accurate gene editing to prevent disease and enhance humans are mind boggling.

I really liked the simplicity with which the video communicated an otherwise complex topic like CRISPR, how it works, and its potential implications. So I looked up the producer and found out that it’s the In a Nutshell – Kurzgesagt (Kurzgesagt means “In a nutshell” in German) group. They’re a small team who produce explanatory videos which distill complex scientific topics to their basics for us all to understand.

Since they’re a small team with limited resources, they currently produce only one video per month. With more money they could be more active. And that’s why they’re currently running a crowdfunding campaign on Patreon.

I think that they’re providing a very valuable service, so I decided to back them. Take a look at some of the videos they’ve produced. If you like what they’re doing, I hope that you’ll consider backing them as well.