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What a New VC’s Goals Look Like: Homebrew’s First Two Years

“The days are long but the years are short.” I was told this several times about becoming a parent but the same can be true about the life of a founder. Although the way we spend our days are different than the teams we’ve backed, Homebrew started in Jan 2013 with the goal of feeling like a startup, just one which writes checks instead of code. Our initial quarter together was spent fundraising: hustling to get meetings with potential investors, telling our story, hearing some “no’s” and, fortunately, “yes” enough times to quickly close a $35 million Fund I.

In one particular way, being a venture investor is simple: your ultimate metric for success is in the financial return you deliver to your investors. There may be a thousand different paths to this success and you might be judged on the quality or repeatability of the path your select, but there’s no vanity metric to hide behind. Our audited financials don’t tally the number of blog posts I’ve written or retweets received. They don’t give me bonus credit for spending time with our founders daily, weekly, monthly. I don’t get a free pass because I’m a “nice guy” if Homebrew underperforms. So Satya and I take an operator’s approach to ensuring we hit our targets – that is, attempt to measure and improve on time cycles much shorter than the 5-10 years it will ultimately take to judge our performance. There are two meta-ways we do this.

First, we have roadmaps which are independent of our need to fundraise every 2-3 years. We have 20 year roadmaps for Credibility in the marketplace, Community building with founders, co-investors and the broader world, and Counsel, mechanisms to provide scalable and effective assistance to companies.

Second, we have Goals, our version of OKRs. At the broadest level we had three goals spanning Years One and Two.

  1. Get Homebrew operations up and running
  2. Close the brand awareness gap between ourselves and the other top seed funds (who are 1-3 fund cycles ahead of us)
  3. Overdeliver on the promises we made to founders we backed

#3 is the most important – all goodness as an investor at our stage starts with a great reputation among founders. The promise was to be their partners of conviction for the 0-3 years of their company (nominally Seed until B Round). To lean in and help them get to the right answer faster on anything they considered urgent. To be proactive, not just reactive. To increase the velocity and slope of their success, so they could realize the vision in their heads with greater probability. It doesn’t mean being blindly ‘founder friendly’ – I think every person we’ve worked with would say we’ve instigated ‘tough conversations’ at points, but it’s about having mutual trust that our words are backed by an honest assessment, and not pure self-interest (side note: I do think it’s incumbent for investors to proactively ensure founders they back truly understand the expectations of venture dollars. This is a conversation which should happen before the term sheet has been signed).

Since any goal worth having is worth measuring, we’ve got our own version of Net Promoter Score for whether we’re delivering for founders. It’s imperfect but works for us at this stage. We actually haven’t formally measured it while the fund was nascent but as the number of investments has grown now to 17 core companies, it’s something we’re going to assess more explicitly in 2015. Besides “would you ask Homebrew to participate in your next company” and “would you recommend Homebrew to other founders,” we want to make sure a founder would be able to easily recall something we did for them in the previous 30 days which made a meaningful difference for their company. For me, the consistent positive answer to this question moves past the throwaway answer of “yeah, they’re [Homebrew] good guys.” They’re so many ‘good guys’ out there – I don’t want to just be a nice guy who tweets about your company every now and then (ok, maybe, “all the time”). We want to be on your shortlist of people you believe can make a difference beyond the check we can write. And we need to deliver that not just through our hands but utilizing our advisors, other Homebrew founders and the skills of a broader community.

We use these three goals to inform our weekly/monthly/quarterly cadence. We still take on too much – a P2 priority basically means we’ll never get to it – but just like how startups should always have 30 days and +12 months goals, it drives a sense of urgency in a business where the long timescale can frustrate. Satya and I sat down this past Monday and came up with the goals for 2015-2016 (plus the associated subgoals for 2015 specifically). Setting a reminder to post about those in Jan 2017….

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The 10x Angel. The 0x Angel.

10x, as in “10x Engineer,” is a well-trod expression used to suggest there are classes of people who are so much better than average that the results you get from them are an order of magnitude higher. There’s appropriate debate around whether the concept is true enough to turn into a hiring principle and if the concept celebrates the individual at the expense of the team. Hold that aside because I’m not addressing that here. Instead I want to comment on what a “10x Angel” looks like – the type of individual investor who delivers value to the startup in ways that are notably different than the average funder.

One reason Satya and I thought we had Product Market Fit for starting Homebrew was behavior we saw as angel investors. Despite being the smallest line on a founder’s cap table, we were often one of the first calls they made when confronted with a problem to solve or opportunity to consider. Now, I’m not going to break my arm patting myself on the back but it was certainly a principle we took to our seed fund. Be the type of fund we would have wanted to take money from.

Similarly I was exposed to – and continue to see – what I’d call 0x Angels -> people who write a check and then actually erode value. Avoid these folks. You can reference check angels just like you would VCs or employees. If you just need the money, stick unknown angels in an AngelList Syndicate so they have more limited information rights.

What are some differences btw 10x Angels and 0x Angels?

0x Angels forward every TechCrunch article about a competitor to the founder with note “Should we be worried?” or “What’s your take on this?” (and then get offended when there’s not an immediate lengthy response)

10x Angels gather info about the market from non-media sources and only contact the team when it’s actionable, such as “Hey, this PhD was talking about you guys on his blog. Seems like he might be interested in working for you guys.” or “A buddy told me Competitor A is talking with Google about an acquisition. His info is usually pretty reliable. You hear anything similar?”

0x Angels disappear in the tough times, not wanting to be associated with something that isn’t yet a winner.

10x Angels deliver clear feedback and set expectations for how they can, or can’t, help when companies are struggling. They’re willing to spend more time than their ownership % might warrant. This doesn’t mean they tolerate bad behavior or throw good time after bad forever, but they remember they invested in the people. And relationships are long term equities.

0x Angels love to talk about their success on social media, making it about them, not the company.

10x Angels also promote enthusiastically but are careful with their pronouns. “We” didn’t build an amazing company. They did.

0x Angels request advisor shares if they’re asked to make an introduction to someone they know. Or when an exciting A Round may “dilute” them (no, you own less of something much bigger. That’s a good thing.)

10x Angels know that making an investment comes with some commitment of elbow grease and try to be upfront about these expectations with the founders. If the founders want to meaningfully increase that amount of work ongoing, 10x Angels have open conversations about whether they can assist and if so, how to make meaningfully valuable. Or they suggest advisors, contractors or potential hires that might have more time.

0x Angels don’t use bcc

10x Angels take long emails offline because face-to-face is easier to collaborate, solve problems, etc than a founder<>investors chain letter

Any other differences you’ve seen between 10x Angels and 0x Angels?

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New Homebrew Investment Pillow Lets Short-Term Rental Hosts & Guests Sleep Easy

Today, Pillow announced their seed financing which we led in 2014 along with a great syndicate including our friends at Sherpa Ventures and Homebrew advisor Lee Linden. Pillow works to solve some pain points for the short-term property rental market, namely how to make it easier for home owners to earn predictable income from their property and know the operational components of hosting (cleaning, supplies, etc) will be taken care of professionally. A Pillow-serviced property also provides guests peace of mind that their stay will be wonderful.

We share a bit more background on our investment via the Homebrew blog and is also nicely summarized in this SF Chronicle article about Pillow’s funding:

“That merging of online and real-world operations is one of the most exiting startup trends of the past few years,” said Hunter Walk, a partner at Homebrew, which led the seed round. He thinks Pillow can help increase Airbnb listings by handling all the hassles for hosts. “Your average busy person may not want to take on the operational burden of cleaning, managing and essentially becoming a sole proprietorship,” he said.

So if you are a property owner in San Francisco or Los Angeles, and you want to see what Pillow can do for you – including an income guarantee – check them out.

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Blue Collar Jobs Deserve White Collar Respect

More service-industry businesses are coming to realize that treating non-management workers with dignity and respect is going to win longterm. For example, here’s a restaurant that’s eliminate tipping in exchange for giving workers dependable schedule, living wage and benefits.

“He wanted to give employees health care coverage while also increasing efficiency to make it through the long run. Employees living off of tips and working ever-changing schedules were top on the list of inefficiencies.”

I was talking with a reporter earlier this week pursuing a theory that most of the on-demand economy startups would work only if they used contractors to keep pay and benefits low. While I’ve definitely encountered some pitches where margin comes primarily from making depressing assumptions about labor costs, many use contract and part-time labor not to avoid payroll taxes and benefits, but to avoid fixed costs – ie to keep customer SLA consistent through peak and slow times. It’s Labor as a Service – you can dial the knob up or down based on customer demand. For example, the on-demand parking startups surely have peak hours.

At Homebrew we’ve backed two on-demand startups, both of whom have made investing in their 1099s part of their core values. Shyp looks to pay a fair wage, provide mobility paths into full and part-time employment with benefits, have given company equity to certain of their warehouse job classes, and so on. That’s why it doesn’t surprise me that TechCrunch’s Josh Constine encountered a happy Shyp team member who, along with the rest of his bandmates, works for the company when they’re not touring.

Similarly, Managed by Q, out of NYC, provides their Operators health benefits and open career paths to become team leads, new Operator trainers, and so on. Q is a modern office management service which allows companies to schedule cleaning, maintenance, supplies, etc through an iPad, and their Operators are the folks who deliver some of these services to clients.

It’s not just the ‘right thing to do’ – these founders believe it’s how they’ll attract and retain talented employees. In a world where we focus on pixel-perfect design for you app, how can you not deliver ‘pixel-perfect’ service quality when the workers delivering your services interact with customers?

And, just in case the world doesn’t move as fast as Shyp and Q do, we also invested in Even, which helps part-time workers with steady employment, but uneven week-to-week schedules, stabilize their take home pay.

Employment footprints are changing quickly, driven by the shift from Industrial Capitalism to Technology Capitalism. There will be dislocations, disruptions and new types of skills required from people. Homebrew thinks some of the most exciting companies will be built on top of helping manage this transition effectively and humanely.

What We’re Curious About at Homebrew…

Every day we meet amazing founders sharing their ideas for how the future will evolve. In fact, we see about 150 new companies each month. Where do these teams originate from? Roughly 65% are referred to us by other founders or people we know. 25% are introductions via investors – either angels or VCs. The remaining 10% are a combination of cold inbound/outbound sourcing, often based upon a specific area we’re investigating. So recently we asked ourselves a question “is there strategic value in keeping our list of interests to ourselves?” That didn’t seem like a very good idea if our goal is to connect with thoughtful founders or inspire conversation. And thus http://bit.ly/HomebrewWhatIfs

What Ifs will be an dynamic list of ideas, questions and technologies that we are curious about and specifically want to connect with entrepreneurs to discuss and learn. We’ll edit, add and remove items as appropriate and link to our longer blog posts when it makes sense.

If you’re a founder in one of these areas or someone with domain expertise, we hope you’ll reach out. Do we hope to find new investments this way? Sure, but we’re also happy to just learn and hopefully help.

Deals Homebrew Lost: 2014 Edition

Blake asked for a follow-up to my post on the two deals we lost in 2013. Thanks for bringing up such painful memories!

2014 was a great year for Homebrew (or at least I *think* it was – check back in 10 years and I’ll tell you definitively). Bunch of new companies (currently 17 core investments) and five of our earlier startups raised additional financing. We also felt really good about the conversations with founders – “dealflow” = life blood of any investor. But rather than just viewing it as transactional, we approach it as a mutual decision where founders and Homebrew are trying to decide if we’d be great partners. In 2014 we didn’t have any traditional losses but we did see “piggy rounds” impact our ability/desire to work with founders in three instances. (Piggy rounds are what I’m calling a single investor doing the entirety or majority of a seed round. Here’s why I think they’re occurring more frequently.).

In two cases we wanted to invest somewhere between $750k – $1m as part of a ~$2m seed round, but the founders went with a single firm committing ~$1.25m – $2m (in one case it was a seed fund, in the other a larger multistage VC). We believe in strong syndicates for seed stage companies – getting a good coalition of investors around the table matters. If an entrepreneur is worried about just getting money in the bank, we’re willing to consider closing on our lead check prior to rest of syndicate coming together. That’s what being a ‘partner of conviction’ means. But I don’t anticipate us ever doing 75% of the round ourselves when total raised is >$1.5m.

In one case, two firms paired to turn a seed deal into a “direct to A” – we were looking to lead a ~$1.5m round (at ~$6m pre) and it turned into a $4-5m raise at ~$18-20m pre. While we had a lot of respect for the entrepreneurs we didn’t feel those levels were right for us or where they were in their business. Companies which raise too much too early might think they’re de-risking their funding but also may intro a host of other issues (separate blog post).

In 2015 I believe we’ll continue to spend more time ensuring that we’re meeting great teams early rather than worrying about competition – ie limit deals not seen vs concern re: competition.

Facebook’s Hidden Commerce Business

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“What iPhone case should I buy?” That was the question I posted to Facebook and within 24 hours had a dozen+ responses from trusted connections. Facebook (and Twitter) have tremendous commerce businesses, it’s just today they’re hidden from view. They occur in comments and questions. They sometimes contain links – so at least there’s referral traffic – but often it’s cut/paste of text recommending a gadget, a band, a book.

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Today Twitter, Facebook just sell ads against this data or adjacent to these types of posts but it’s inevitable that they’ll remove friction from transaction flow over time (Twitter commerce cards!). On top of that it’ll be interesting to see how they can use this data not just for targeting but to make their search boxes more valuable. Today my iPhone case discussion is pretty much lost to the world once it’s no longer deemed current in people’s timelines, but the contents actually have value to anyone doing similar research. Maybe that’s just not their DNA but man, I’d love to see what a bunch of search engineers and data scientists could do with this info….