Posts Tagged: startups

What makes a great investor?

As someone who is still relatively early in his investing career, I often think about what qualities set successful investors apart from the rest. Good investing doesn’t just happen. And while luck may help at times, it’s not the answer. Here are few key ingredients that I consider important for being a great investor:

Live in the future

Paul Graham advised start-ups to “Live in the future, then build what’s missing.” Once you’re living at the leading edge of a rapidly changing field, you’ll see things that are missing…challenges or frustrations that need to be solved. And, once these problems are solved, they’ll seem very obvious in retrospect. This same advice applies to investors as well. You can only create above-average returns if you invest in companies that are ahead of the mainstream.

Have a well-defined investment thesis

Fred Wilson once wrote, “So many folks in the venture capital business are sheep that just want to follow the herd. They are momentum investors purchasing highly illiquid investments. That is a recipe for disaster.”

In order to not follow the herd, you need a strong set of convictions to serve as the foundation for making bets, and then following through on them. For Version One, I’ve created a map of what particular areas we should focus on and where they’re going over the next few years. Then, I can evaluate each potential investment within the context of this map/thesis.

Stick with it

Not every investment is going to be wildly successful right away and one of the hardest things to do in the venture capital is hence to stick with a struggling investment. However, if you’re going to be successful as an investor, you need to realize that once you are in, you’re in. There’s no turning back, or ignoring a flailing start-up until it just goes away. Of course, it’s much easier to stick with your guns, if you’ve made the initial investment based on your own core principles/investment thesis, rather than simply reacting to market trends and current momentum (point three).

Be both a cheerleader and a critic

There will be times when your portfolio teams need an enthusiastic backer and a quick pep talk. Then, there are other times when honest, sometimes even harsh, feedback is necessary. I think an investor needs to be a start-up’s biggest cheerleader and their most honest critic. You can’t just be one or the other: praise without honesty are just empty words. Yet, a constant focus on the negative won’t generate the results you want either.

Remember who runs the company

Successful investors are usually active investors; they show up at board meetings, respond to emails and phone calls from the founders, and constantly think about the company and the ways they can help. However, the exact level of participation is a delicate balance; an investor should never cross the boundary of getting too involved. At the end of the day, the entrepreneurs run the company; the investor is an active bystander. Founders make the ultimate decisions; investors can only advise.

Those are the five essential ingredients that I’ve been thinking about lately. If you have other thoughts, share them in the comments below…

 

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The easiest path to growth and profit is up: why startups should focus on the long-tail

The easiest path to growth and profit is up, and the most deadly attacks come from below 

This quote from Clayton M. Christensen’s The Innovator’s Dilemma perfectly encapsulates how startups can find success over incumbents in their markets. Incumbents often look left, right, and above – yet sometimes they’re most vulnerable from below. The tiny market niches and startups who play there are often too small to capture an incumbent’s attention. However, it’s these small startups that begin in the long tail that have the capacity to disrupt over time.

For example, Hootsuite started as a free Twitter tool for small/medium business and casual users; it’s now a social media dashboard serving Fortune 500 companies like Seagate and Pepsico. Zendesk initially focused on tech startups and now has more than 30,000 clients including global giants like Disney and Vodafone.

For startups, the message is that you should develop your business in the long tail, focusing on those customers in your market that the incumbents don’t care about. For example, Clio, a company in my portfolio, first focused on providing legal practice management for solo lawyers and very small firms (today, Clio is now serving firms with over 50 lawyers).

Narrowing your focus to a smaller piece of the pie offers several advantages. First, customers in the long tail usually require a smaller feature set which means that you can get a MVP into the market faster. Second, you have the unique opportunity to tailor your solution for a few particular use cases… and thus make a superior solution for a certain segment of the market (one that’s much more useful than a one-size-fits-all tool from an incumbent). This will enable you to build a community of loyal, passionate customers.

In addition, by focusing on selling to smaller companies in the long tail, you’ll benefit from shorter sales cycles. Smaller businesses are far more agile when it comes to purchasing and deploying a new technology than Fortune 500 companies. It would have been a much different story had Clio first tried selling a cloud-based management tool to large legal firms (which are notoriously slow to adopt anything new).

As you build out your product and develop a brand in the long tail, your reputation in the market will spread. Enterprise SaaS products can be viral, as companies are tightly connected to dozens/hundreds/thousands of suppliers, customers, and partners. High utility products are shared, enabling you to extend from the long tail to win larger accounts and move up.

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Hiring for startups 101 – new blog series

How to hire for your startup is one of the most crucial (if not the crucial) tasks for any startup founder but rarely gets the attention it deserves from bloggers. There are probably more posts a day on how to pitch your company than about best practices for hiring for your company in a month.

Cover of "Hiring"

Cover of Hiring

So I decided to try to change this a bit and create a series of blog posts on hiring. “Hiring for startups 101” plans to cover everything from finding great leads to running a smooth interview process to making an offer and converting a candidate.

I am hoping to get input from as many people as possible in this process and looking forward to your feed-back. Watch out for the first post in the upcoming days.

 

 

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How to hire for your start-up

I recently read a great article about Google’s recruiting machine that described in some detail how Google’s hiring success is based on 4 elements: “data, money (lots of it), sophisticated programming, and an army of young, eager recruiters.” And while Google plays in a league by itself (and can throw tons of money at the problem), every start-up should consider 2 lessons learned from Google’s approach.

1. Be aggressive about filling the funnel:

One of the most important elements of running a successful hiring process is a company’s ability to feed the top of the funnel. Posting on job boards, offering internship programs, leveraging your existing team for referrals, networking and targeted PR are some of the basic strategies but the most successful is still to actively go after potential candidates. Identifying, contacting and qualifying them is a lot of manual work and unless you put serious resources against it, you will not make enough progress. Those resources can either be internal or contractors with the latter group having worked very well for Google.

Who are Google’s recruiters? They’re young, highly paid and, often, on a six month contract. “They’re probably the company that I’ve seen that uses the most [contractors],” says Michael A. Morell, co-founder and managing partner of Silicon Valley recruiting firm Riviera Partners. “There’s a lot to be said for new people trying to prove themselves in the first six to 12 months.” It’s difficult to find an accurate or exact employee-to-recruiter ratio at the company, the number of recruiters varies dramatically. At any given time, Sullivan says, 70% of the recruiting staff might be on contract.

2. Qualifying the leads

The other important element of the hiring process is to qualify the leads by using a systematic, data-driven approach. You can either look at past performance (e.g. GPA and standardized testing scores if a candidate has recently graduated) or have your candidates perform internal tests (like coding, writing or even Excel tests, depending on the position you try to fill). A really good example for an unique quantitative approach is Hubspot’s hiring process for inside sales.

There are many other important elements of a successful hiring process but aggressively thinking about the top of the funnel and using more data in the qualification of leads are probably the two areas where most start-ups can make an immediate difference to their hiring success rate.

 

 

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An amazing year

2011 was an amazing year – made 10 new investments (most ever!), sold one company (Sparkbuy to Google) and started GrowLab with an exceptional team of co-founders.

But more importantly, it was an amazing year for Canada’s start-up ecosystem – there is a new generation of angels and VC’s emerging in this country, more and more US VC’s are leading large financings rounds in Canadian start-ups, local start-ups are nailing it in SaaS, a few wordclass incubators have sprung up, organizations like the C100 are starting to make a real impact, and we have had a very healthy M&A activity this past year. What we still don’t have – and are probably many years away – are enough anchor companies.

2012 will most likely be a much tougher year for start-ups worldwide. We might have seen the end of the easy access to early-stage money and a recession might be around the corner in Europe and North-America. But despite these short-term challenges, I remain extremely bullish on the opportunities for Internet companies. We are still only at the very beginning of the Internet cycle so keep your heads down, focus on your long-term vision, build product, listen to your customers – and build those missing anchor companies!

Happy holidays to all of you and to an even better 2012!

 

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