As a Seed Investor, Do I Want Softbank to Invest In My Best Companies Or Not?

Oh boy, conference season in the venture world and one enduring question this year has been “What to do about the Vision Fund?” It’s been a topic of lobby conversations, off-the-record chats and sometimes even an honest public panel!

What’s my answer to The Softbank Effect? First you need to separate the investments into two categories:

Mature Growth Investments a la Uber: Multi-billion dollar commitments to companies that are already at scale. So far at least these investments seem to contain some secondary sales. Which means as a seed investor, I’m thrilled to see Softbank invest. Yippee, go Masayoshi Son!!! It’s essentially a private IPO where early investors, founders and employees get some liquidity and Softbank gets minority ownership, maybe a Board seat. Cool, cool.

Early Stage Hybrid Buyout a la Wag, Brandless, DoorDash: Softbank becomes the largest investor on the cap table, sometimes clears out the Board, and, if reporting is correct, doesn’t broadly offer secondary to earlier investors. *This* is a more complicated situation for seed investors. You’re basically along for the ride with an investor who has very different incentives than you do – a different time frame, the AUM business vs IRR business, and requiring a scale in outcome that’s just astronomical

What do I think is happening in #2? Vision Fund is selecting categories where they believe a $10-100b company/conglomerate can be built and investing in the tip of that spear. Wag represents pets, Brandless CPG and DoorDash delivery/logistics, OpenDoor home buying, etc. Picking Categories and trying to make Category Killers.

Over time they’ll grow these companies w Amazon-like rapacity. Through internal efforts, through acquisition, through investment. Very exciting if you’re an entrepreneur, perhaps less exciting if you’re a seed fund (or even Series A VC). My guess is obviously don’t do your pro rata into the Softbank round and are left to go along for the ride, hoping to end up owning a very small piece of a very big thing. For the multistage VC it’s more complicated but I bet one reason the Sequoia’s of the world are raising mulitbillion dollar growth funds isn’t to coinvest along Softbank, but to protect their ownership in Sequoia core companies.

From my perspective – and we haven’t been involved in any Vision Fund deals yet – the outcome of a Softbank investment can be inconsistent with our investment model. I want to own a larger piece of a company that we hope can go public but more realistically, in a success scenario, will be bought by another company at a premium. And I worry about the impact of too much capital on a youngish startup. 

What would be the most provocative ‘hot take’ I could write about Scenario #2 above? Probably something like “if you’re a seed investor, you want Softbank to invest in your second best companies, not your best” or “a solid venture investment strategy might be to immediately invest in the strongest competitor to a company that Softbank has funded.” I don’t fully believe this but I’m also not sure it’s pure hyperbole. And I *like* everyone I’ve met on the Vision Fund team. It’s not about people, it’s about models. 

Anyway, that’s just my POV right now from a hallway conversation occurring in lots of halls at the moment. 

Finding Yourself In Places That Weren’t Built For You

“I’m tall, male, white, straight and wealthy. If it wasn’t for that ‘Jewish’ thing, I’d be fine,” I’d joked to another politically progressive friend on Friday morning ruminating about the state of America. Tragic irony that 24 hours later I woke to a reminder about how that ‘Jewish thing’ leads some to believe we don’t deserve to be Americans, or to live at all.

On Saturday’s flight home I finished Rebecca Traister’s Good and Mad: The Revolutionary Power of Women’s Anger. Traister has been on the self-described “women’s anger” beat since the 2016 elections and the book is a kaleidoscope of sorts: political history of female protest; sociological analysis of patriarchy’s impact upon the emotional framework that women are allowed; #MeToo memoir; and race’s impact on gender solidarity.

It’s a good read. Took me back to my undergrad at Vassar. I spent four years at a place that wasn’t built for me. One that, until a few decades earlier, explicitly forbid me. It survived and thrived for more than 100 years without me. Vassar was my first experience being somewhere where I wasn’t just the statistical minority (my childhood suburb was heavily Jewish) but at an institution where I was the interloper, the violator of a heritage. No number of coeducational decades can change the fact Vassar was a women’s college first. It’s in the walls, the trees, the soil.

Every once in a while I drop into the DMs of a friend on Twitter. “Hey, do you mind me asking you something…” it usually starts. I think by now they know that means “Hunter is about to ask me something about that tweet” and they’re gracious enough to educate me. Sometimes it’s a simple cultural reference that flew over my head. Often it’s an unpleasant reality that their identity – or intersectionality of identities – exposes them to but I’ve never seen or recognized. And I thank them for bringing me into a world that was hidden to me because I get to emerge more aware and connected to their human experience.

Later this week I’m flying to Nevada to canvass for Jacky Rosen’s Senate bid. I’m a little nervous about residents asking me if I live in their state and accusing me of being a carpetbagger, or someone who should mind their own business. I’m hoping to come up with a funny, disarming response before Thursday.

Can everyone vote on November 6th? And help America continue its bumpy journey towards being a place that wasn’t just built for those who arrived by a certain previous date. Or sound, or look, or pray a certain way. And if you want to go beyond voting, The Last Weekend can help mobilize you prior to Election Day. It matters.

Dear Future Team Member, I Originally Didn’t Want You But I’m Glad You’re Here (aka Homebrew is Hiring)

Dear [NAME] – Welcome to Homebrew! I’m so glad you decided to join our team. I’ve done a ton of hiring and truly believe People Choose Companies, not the other way around. You left an awesome gig and passed up lots of other options to bet on us, and I’ll work really hard to repay that 10x to you. But because you now have access to Homebrew’s Slack and are reading messages about this role, I wanted to admit something before you come across it on your own: I was originally pretty dead-set against bringing you on board. Not “you” in particular of course, but more so the idea of growing at all. I was worried it would impact our culture, increase complexity.

What changed my mind? A few things. As we begin investing out of our third fund, Satya and I believe there are now enough portfolio companies (and learnings from our work with them) to take portions of the help we provide one-off and think about how to scale it. We’ve also found that during the pre-investment process, certain types of diligence we do not just helps to qualify an investment but actually provides value to the entrepreneur and lets us hit the ground running post-close, so we want to increase our capacity to get that work done efficiently. But that’s the practical stuff that you read about in the spec. There’s also a host of benefits we believe our firm can realize by adding an additional POV around the table. That’s one reason we didn’t decide on a job title before hiring you – we wanted to collaboratively create the opportunity and make sure we were attracting people across a range of backgrounds and aspirations.

I’m also glad we got to know each other well during the process. As we’ve emphasized, Homebrew isn’t just a checkbook. We have strong beliefs about our model, especially how we can support the founders we back to build not just successful companies, but ones they are proud of. There’s a reason I have our logo as a tattoo and not just on my business card. I also appreciate that you admitted that you weren’t sure whether VC was something you even wanted to try out. Me too! I do venture because I do Homebrew, not the other way around.

So again, thanks for joining us. I know it’s going to be a great next few years and the impact you make on us and our investments is going to live on way beyond your tenure.

With warmth and respect,

Hunter

(oh hey, if it wasn’t clear, we’re hiring)

 

A Strong Cold Email Always Beats A Weak Warm One

The “always find a warm intro to a VC” axiom is misunderstood. Its intent was to suggest that a mutual connection who can vouch for an entrepreneur’s abilities, experience and perseverance would be of value to the process. This is still true. It did not mean “find someone who happens to have the VC’s contact info and get them to forward an email without much context or relevance.” At least one third, and maybe as much as 50%, of the “warm introductions” I receive fall into this category.

What happens in this case? Something like the following…

Me: Hey thanks for the forward. Are you vouching for this person or just passing along? Are you investing as an angel, or would you if you could?

“Warm” Intro: Met him at an event somewhere but don’t really know him… Worked with her but she’s actually not that good… [or variation of these]

Me: ……

From my standpoint, it’s a negative signal for an entrepreneur to take this route. It suggests lack of self-awareness or strategic thinking – you prized someone having my email address (which is publicly available anyway) versus knowing what that person would actually say about you. It’s like supplying a bad reference to a potential employer.

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What would I prefer instead? Send me a great cold email. One which tells me why you’re reaching out, directs my attention to something, and suggests what you’d like as a next step. Provide proof, rather than claims (show me code, a blog post, a deck). And don’t start off by apologizing for sending me a cold email.

I’ve funded companies off of cold emails. I’ve taken coffees off of cold emails. I’ve sent (hopefully) thoughtful replies to cold emails. There’s nothing wrong with a solid cold email.

Gee, Male: Using My Inbox As a Window To Gender Bias

If you can’t see it, you can’t be it. That’s why role models and representation is so important in changing the ratios of tech as we seek to build a more inclusive community that resembles society, and not our industry stereotypes. Last night I attended an AllRaise event where table discussion included male and female venture capitalists noting the differences in gender breakdown of their inbound dealflow. You can guess how it skews, no surprises here. We track our own gender stats at Homebrew and while we invest in female founders 3-5x more than the industry average, we know that as a two man fund, we don’t fully represent the transformation that we hope to help assist.

If you don’t know her, you can’t fund her. A few years back Google Ventures’ partner Rick Klau ran an experiment on his Twitter follow list and noticed he underfollowed women because his phone contact list (what is often used to bootstrap social graphs) biased male. He took steps to fix it.

Rick’s project reminded me of studies to better quantify representation, namely the Institute on Gender in Media, which analyzes the speaking time that women get in films, tv as well as educating against stereotypes and other imbalances. More casually you have concepts such as the Bechdel test, which asks whether a work contains scenes where two women are talking substantially about something other than a man.

If you don’t communicate with her, you can’t work with her. My inbox and my calendar are the ground truth for where I spend my time and attention. Unfortunately they still gives me very little feedback to understand, or even improve, these allocations. What does this have to do with gender? Well, both Gmail and Google Calendar should be able to provide summary level stats of the amount of time (meetings, email) that I spend with men vs women. What percentage of my meetings don’t include a woman. What are the words I tend to use in communications with women vs me vs mixed gender threads. And a host of other data that could expose me to unconscious bias and help me change my behavior over time.

But where does the gender data come from? As I understand it, Google+ profiles support a wide expression of gender identities. As a Gmail user you already have a Google Account/Profile regardless of whether it’s publicly available or not. Letting people opt-in to contributing their gender data for this research could be an easy call to action. Especially if Google is thoughtful about pronoun usage. Even without user contributed data, I’m fairly certain Google could use names, Gmail text and your Google cookie to make some assumptions about gender. I’m not suggesting that they “prefill” your gender identity in a way that presents to anyone generally -or- that the gender interaction data I suggest tracking above is available in any individually-specific/PII manner – just in aggregate.

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Gender research isn’t an area that I hold any expertise in – probably naive somewhat to be honest – but I’m curious if this type of data collection and presentation would be useful and what some of the design considerations should/could be in order to maximize effectiveness without creating any harm.

Second Seeds: The New Normal But Know This…

I delete my tweets periodically, so wanted to capture some good discussions regarding seed bridges and founder/investor expectations.

These two previous blog posts provide context

The Three Types of “Second Seed” Rounds: Too Cold, Too Hot and Just Right

For Fundraising, Seed is No Longer a Round, It’s a Phase

So what can mess up a seed extension process? Expectations gap!

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Then folks like Science’s Peter Pham and Breather’s CEO noted this maddening point about data

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As a seed investor, I find myself both as “existing investor” and “potential investor” depending on the situation!

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And as Agrilyst’s CEO points out, early stage pricing is almost always a “who knows?!?”

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Whatever your situation, just hope to play on and stay in the game! 

Investing Outside Of Silicon Valley: Now More Than Ever (Where “Ever” = 2013)

Homebrew is making more investments outside of Silicon Valley than we have in our history! That statement might be more dramatic if our firm was founded in 1983 instead of 2013, but speaks to a handful of changes in seed investing. Some of these are generalizable and our friend Semil Shah does a nice job covering several in his post “Investing Outside the Bay Area.”

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What I want to emphasize though, is we don’t think about this as “value shopping” (trying to get cheaper valuations elsewhere) or “competitive pressure” (we believe our product is preferred by a subset of great entrepreneurs and there’s more than enough opportunities to deploy our funds solely in the Bay Area if we chose to do so). No, instead we are simply looking for minimally the right team to solve a big problem and even more opportunistically, companies that might actually be advantaged by a non-NorCal homebase.

Satya and I tend to approach strategy in a framework and here’s how we’ve managed the question “where will Homebrew invest?”

Phase 1 Bay Area + NYC (2013-14)

Starting out we really wanted to ensure we got our offering correct – could we effectively deploy capital + sweat + reputation to work with great seed stage founders for the first 3-5 years of their company. Could we ensure to support them as people, not just as executives. And could we increase the velocity and probability of their success.

Homebrew is basically built to make these goals our priority and it comes with a set of tradeoffs, for example, our fund size probably has a ceiling. Early on we also self-imposed a geographic constraint because we didn’t want to spread ourselves too thin and risk disappointing the founders we backed. So we said, outside of very special circumstances [hi amazing SaaS company Weave in Salt Lake City], let’s only invest in the Bay Area and NYC (here’s a 2013 post which answers ‘why NYC’).

Did we miss some great companies in places like Seattle, Los Angeles, Denver and so on? Yes we did! But we were optimizing for building a foundation for Homebrew, not chasing every deal everywhere.

Phase 2 California + NYC (2015-2017)

As we started investing out of our second fund in the middle of 2015 we felt like we had our sea legs under us operationally. And at the same time, came upon a handful of amazing opportunities in Southern California (two in LA, one in San Diego). Pull and push simultaneously caused us to expand our “target geos” to SoCal (defined as we hold ourselves accountable to be proactive there from a dealflow perspective). It also gave us reasons to be in Los Angeles more frequently. Which is nice. [sidenote: I had teams in LA for the entirety of my 9+ years at Google and spent a summer internship earlier in my career so I’ve always been #LongLA].

But even with creeping the Homebrew business down LA-way we still routinely said “No” to companies elsewhere, even when they looked interesting, because we wanted to get to “capacity” in terms of our commitments and Board Seats before judging whether we could properly go beyond these two states and still meet our goals for Homebrew.

Phase 3 US and Canada (2017+)

Where are we now? Literally a broader mindset. Two LA, one San Diego, one Salt Lake City, two Boston, seven New York City. And our next two investments look likely to be in two cities new to Homebrew. We’re more confidently investing in the best companies no matter where they’re located in the US or Canada. We feel like we have a non-local playbook in place – not just for opportunity sourcing but more importantly, startup-servicing ongoing. Our success isn’t dependent upon being geographically diverse but we don’t see a reason now to artificially constrain ourselves. How will this play out? Will we ever invest internationally? Is the Bay Area still the absolutely best place to start a company of potential significance? I’ll let you know in a few years 🙂

 

 

“The folks who have the most outsized successes are the least likely people to have been doing it for the money” – Jason Shellen Reflecting On His Time At Google, Startups

Jason Shellen and I overlapped at Google but for some reason, our best conversations always happened outside of the Plex – like on a bus heading to Google’s pre-TED dinner in Monterey, or some random startup event in San Francisco. Jason joined Google when Pyra Labs (the company behind Blogger) was acquired. We’re now both out of Google for enough to time to sit back and reflect on our careers, and the most important question of course, WHO KILLED GOOGLE READER (Jason was its founding PM).

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Hunter Walk: So Jason, now that we’re old and can reflect a bit, what have you found – for better or worse – as a common thread in the career decisions you make?

Jason Shellen: I’ve always tried to work on problems I can’t stop talking about. Early in my career, I was compelled by clichéd notions of “changing the world thru technology,” but it was true! My last year of college, I took a class called “Web Publishing”, and I was transfixed. I thought everyone should have the ability to publish to the web. When the opportunity to work on Blogger came along, my values lined up so well that I essentially volunteered for a while because it was so satisfying to see it come to life. Getting to work on a product you love is motivating.

I’m incredibly fortunate to be able to choose what I work on now. Sometimes that means building an exciting idea into a product and sometimes a company. Often, it means selling that product or company to join a larger company. In those cases, I usually ask myself “Am I going to be able to make a positive impact on the company?” and “Can I get into trouble?”. Good trouble: new products, prototyping the future and defining a new way to build products. I like having room to grow and develop in whatever I do.

I’ve had opportunities come up in gaming, banking or the gig economy but when I don’t connect with the core problem, I usually move along even if it’s not in my financial best interest. Recognizing that I have a “Not To Do” list makes it easier to pass those along to friends who are a much better fit.

HW: We were fortunate enough to “grow up” in tech around a bunch of people who are now Bold Face Names – you know, magazine covers, lots of wealth, etc. Is it weird seeing people you know get famous in that way?

JS: I grew up in Silicon Valley and had always found technology fascinating, but I never thought we would be at this point of stardom for founders and tech execs. Now I get to play “Who does Dad know?” at the magazine rack with my kids. A lot of it is refreshing to see since it’s a more inclusive and diverse crowd than just “People that look like Dad.”

The wealth is fascinating because many times the folks who have the most outsized successes are the least likely people to have been doing it for the money. The most impressive of these are the ones who recognize that they should put tech (and their wealth or notoriety) to work for traditionally under-represented voices and lay the groundwork for the next generation of philanthropy.

HW: It’s 11 years since you left Google. Should you just have stayed?

JS: During the harder parts of startup life, I asked myself that question more than a few times. I still have a soft spot in my heart for Google (especially the days of under 1000 employees). It was a launch pad for many pivotal points in my career and an intellectually stimulating place to spend my time.

Before I left, I had a moment of realization that Larry & Sergey had their time in the garage and I wanted the same thing. I wanted to go back to building with a handful of people committed to solving problems in new ways. I have been able to do that a few times over, and it’s rewarding. I wouldn’t swap that for the last eleven years.

When I was forming a new company, I wondered “who do I want to work with?” and a considerable amount of former Google collaborators and colleagues had all moved on to start their own companies. It’s a weird problem to have. It felt like we had all traded to different teams.

HW: You’ve raised VC funding a few times, and I know always had multiple investors interested in backing you. How’d you choose who to work with?

JS: The honest answer is the first time I raised money after I left Google I didn’t know how to choose a VC. I didn’t talk to a lot of the usual suspects because I thought that my ideas were too small or not ambitious enough. I had a lot of inbound interest, and luckily some of those people turned out to be great business partners.

I’ve found that a smart investor is someone you’ll spend a lot of time talking with about your core principles and how you see the world. Your idea may change, the product may change, the company may change so you’ll need to be able to pick up the phone and talk with someone you trust about what comes next. It’s not just about the money. It’s whether they provide sound advice, ask great questions and make helpful connections.

HW: Seriously though, who killed Google Reader?

JS: I wasn’t consulted! I left Google and then five years later they retired it. I heard it might have been a Google Plus executive but he’s not there anymore. From what I understand, by the time Reader was killed, the usage numbers were not on an upward trajectory. Pair that with blogging on the decline in the face of Facebook and Twitter and you have a murky situation. It was also at a time when Google Plus had been given a lot of resources and then hadn’t lived up to internal expectations, so maybe it just drew the shortest straw.

Reader never had an easy time. It was nearly killed before launch in the annual product priorities process. I think it was on a list of “Top 100 projects that should probably not launch” in the summer of 2005. In October 2005, after the beta launch, my manager told me that I should probably disband the team and stop hurting the careers of the engineers involved and find a new project to join. I did not disband the team, and things improved quickly with rapid product iterations (and lots of users).

I’m still proud of the team behind Reader and have fond memories of that time in building a new product at Google. It would be amazing to see what Reader would have become if it made it through the chasm like Google Photos was allowed to do.

Thanks Jason – follow him on the Twitter

 

A Handmade & Instagrammable Happy Birthday To You! (aka Punkpost App Makes Beautiful Greeting Cards *First One Free*)

My instagram feed is a combination of coffee roasters, 80s pro wrestling, @IronMaiden and #BulletJournals/Doodlers/StudyNotes. That last one might need explaining if you’re unfamiliar with the culture. Buzzfeed’s helpful WTF is a Bullet Journal provides a bit of an overview, but really you can simply look at this image and get a pretty good sense.

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I just love the personality dripping from structured handwriting, sketches, doodles and the like (note, there are also a bunch of fun Instagram doodle accounts – you can see who I follow if interested). So, not surprisingly, when a friend introduced me to Punkpost, it kinda blew my mind.

Punkpost lets you send handwritten cards – birthday, get well, congrats, anything! – drawn by artists and mailed directly to whomever you want. These unique creations are a flat $6 (plus any add-ons like glitter confetti or prints of photos you’ve uploaded) which isn’t much more than the drab stock cards lining your pharmacy aisles. Punkpost’s founders are a wife and husband team here in San Francisco and they’ve truly thrown their whole selves into this business.

I urge you to try them out and see what you think. They’re available via the web and an iPhone app (using app your first card is FREE).  

Very few products surprise and delight me like Punkpost has – thank you Lex and Santiago for your hard work! And best of luck with your startup.

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The 20% Rule: Some Success Porn From Theo Epstein That’s Actually Pretty Good

I didn’t click on that fake Warren Buffett tweet and I don’t stan for success porn like “Five Things Successful People Do In Their 20s.”

Buuuuuuuuuut, this advice from Chicago Cubs President Theo Epstein is pretty good.

“Whoever your boss is, or your bosses are, they have 20 percent of their job that they just don’t like. So if you can ask them or figure out what that 20 percent is, and figure out a way to do it for them, you’ll make them really happy, improve their quality of life and their work experience.”

He’s not saying “work 120% to get ahead” or kiss your bosses’ ass by doing their grunt work. It’s a bit more subtle than that. And a tactic that matches getting exposure to new opportunities with understanding the nuts & bolts of what your boss’ job *is,* so that you can ascend to a similar role sooner.

Oh, and GO YANKEES!

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