Finally, The Walk Has Come Back to 20 Minute VC

TheRock

FINALLY, THE WALK HAS COME BACK TO 20 MINUTE VC!!!! Wait, ok, so until this most recently episode, I’d actually never appeared before on Harry Stebbing’s 20 Minute VC podcast but it felt momentous to me and Harry for two reasons:

  1. We’d talked about it for a long time. Harry says he was “stalking” me, which might be a little dramatic….
  2. Harry let me turn the tables on him at the end by becoming the interviewer and asking questions. He better not have edited it out!

Download here:

iTunes: http://bit.ly/20vcitunes 

Here are some of the topics we discussed ->

1.) How Hunter made the transition from Google to VC with the founding of Homebrew?

2.) How does Hunter view the bridge round? Does he agree with Mike Maples @ Floodgate in stating, ‘it is often not a bridge but a pier to nowhere’?

3.) How does Hunter look to package his portfolio companies for the next round of investors? Does Hunter agree with Jason Lemkin in stating, ‘the best investors are those that specifically know the metrics required to achieve the next round’?

4.) Why does Hunter not believe there is a Series A crunch? How can founders look to describe their story in a narrative that is attractive for VCs? What one trait does Hunter look for in founders more than any other?

5.) What is the biggest challenge in the coming year for Hunter with Homebrew? How does he measure his success as a VC?

Thanks Harry. I hope I brought it.

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A Question About Risk That Founders Forget to Ask VCs

Here’s a question I recommend founders ask Seed or Series A VCs during their fundraising: “What’s a risk you’re more comfortable with than the average VC?” In four years and hundreds (1,000?) of pitch meetings, I’m not sure it’s been asked of me. But I think it’s a good question  ¯\_(ツ)_/¯

Why? At the early stages, EVERY company still has significant risks associated with it. A seed or Series A investor should be able to articulate the risks they perceive with a particular investment and why that risk is one they’re willing to take. Potentially the best founder <> fund matches come when both parties are clear about what needs to still be proven out -and- the venture investor has some ability to assist the founder in de-risking. If the investor is taking on a risk that fundamentally makes them uncomfortable, they’re going to pressure the founder to mitigate that risk as soon as possible, which *might* not be the right priority for the specific company.

Additionally, I find low conversion among investors who can’t articulate their specific investment thesis for a given opportunity and what they hope to discover during diligence. Whereas firms that can say, here’s the risks we care about and here are the ones we don’t, are coming to the discussions with a prepared mind.

What would I say for Homebrew? Here are two:

We’re more comfortable with certain types of founder risk (first time, non-traditional) than some funds.

We’re more comfortable that the startup’s story won’t yet be widely understood by the venture community at the A Round.

And here’s what a few other investors told me when I asked them this question:

Aileen Lee, Cowboy Ventures: “(a) comfortable with pre-product, pre market adoption risk, (b) comfortable with risk of founders being a couple or married, (c) comfortable with risk the most likely outcome is <$1bn”

[hunter note: (a) & (c), I’d claim we have equal comfort as Aileen, but (b), honestly, I’m not as comfortable with. See, this is interesting even in co-investors, because I’d want to do a couple/married deal with Aileen versus just by ourselves.]

Kirsten Green, Forerunner Ventures: “Customer risk….we think we bring an edge in understanding the consumer and what will resonate with them”

[hunter note: borne out by her early investments in Dollar Shave Club, Warby Parker and others!]

Ethan Kurzweil, Bessemer Venture Partners:

“There are a bunch of risks we think through when evaluating a new startup:

  • Team risk
  • Technical risk
  • Scaling risk
  • Distribution / growth risk
  • Market risk
  • Financing risk

We’ve taken all of these risks at one point or another. For consumer startups, the hardest risk to take is distribution / growth risk since 99.9% of companies aren’t able to mitigate this one. We take it when we think the entrepreneur has an unfair advantage here that we believe may be sustainable (so more than a series of growth hacks). We’re comfortable with pretty much all of the others at Series A but we spend a lot of time thinking about and evaluating team risk and market risk since it’s hard to pivot your way around these if they pop up as major roadblocks later on!”

[hunter note: Leave it to the Series A investor to be the most “framework-oriented” of the three I asked 😉 ]

Why We’re Paying for Content These Days

In a recent New York Times column, Farhad Manjoo celebrated the fact that more consumers seem to be paying for content, which A Good Thing. Patreon’s CEO Jack Conte says “I do think something has changed culturally. This new generation is more concerned with social impact. There’s a desire to vote with your dollars and your time and attention.” I agree but believe several other trends have converged/tipped at the same time to enable this increase in direct payment (vs ad supported). So in addition to millennial culture, in no particular order ->

Comfort With Online Payment: Amazon, the iOS App Store and ecommerce in general has made a critical mass of consumers comfortable with online payments. Additionally the friction of paying online has been reduced with one-click stored credentials, Touch ID and so on.

Paying Creators, Not Corporations: It’s never been easier to pay creators directly (or to feel like you’re supporting them personally) rather than having to transact through a middleman. Crowdfunding/support like Kickstarter, GoFundMe, Pateron, Indiegogo. Direct transaction via Stripe. Marketplaces like Etsy. Tipping mechanisms like Twitch. Ecommerce adjuncts like Ipsy and Michelle Phan. I’m thrilled to give Ben Thompson $100 for his newsletter. It feels very different than paying $100 to News Corp. This is another reason why brand and authenticity matter so much.

Niche Content Needs Higher $ Per Consumer Than Online Ads Can Traditionally Deliver: The internet enables niche content. The reality is that many creators have no choice but to ask directly for dollars from their audience because ad revenue alone wouldn’t be enough to support niche content. You make a few bucks at most annually off your MOST enthusiastic users if you’re just showing them ads. A few bucks more if you have affiliate deals that convert. Just one $10 payment, let alone, say $3/mth, has a much greater LTV.

Google & Facebook Aren’t About Transactions: Ok, here’s something that’s a bit subtle. Facebook and Google, as advertising networks, don’t really do transactions well and don’t want to make them a focus. They *much* rather convince content owners to monetize via ads. Why? Upside. They can increase the revenue from advertising solutions over time by creating more inventory, more advertiser demand and increased targeted effectiveness. These all happen without taxing the consumer and with minimal involvement from the content creator. Also, if they can increase ad effectiveness over time they’ll earn more budgets and attention from advertisers and publishers.

Now play the same game out in a transaction world. The only way to make more money there is to raise prices (bad for consumers) or raise conversion (which usually involves art and science of forcing someone through a conversion funnel – something that FB and Google doesn’t really have the DNA or stomach for). So the fact that Google and Facebook don’t do this well leaves all the transaction-related models open to startups which means creators get lots of experimentation and options, rather than the online advertising duopoly.

Additions:

Parker thinks it’s primarily about scale of people online

Magnet: Delightfully Simple Mac App for Window Mgmt

I recommend Magnet. It’s a simple, cheap MacOS app that helps you manage windows to tile your screen productively. Want to set up the Notes on the right-hand side of screen while video chatting on the left? Want to watch Netflix on the upper half while answering emails on the lower half? And then restore back to your default layout when done? While all of this can be done manually, Magnet is a 10x improvement.

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How To Set Goals Like You’re Google (Even If You’re Not)

Embrace the 10x factor. That is, ask the question, “what would we do differently if we were trying to increase revenue 10x instead of by 10%” or “instead of working on features which improve conversion by a few percentage points, what would we need to do to experience an order of magnitude lift?” It’s simple, and doesn’t always produce immediate breakthroughs, but at least challenge your team to see if there are higher risk bets which could produce commensurate payouts.

This philosophy was drilled into me by Larry Page whose insistence on removing constraints and setting outlandish goals seemed like madness during my first year at Google. But over time, I came to really appreciate, if not always in the moment, the challenge.

Our quarterly meetings to review YouTube’s proposed OKRs were a ripe target. Larry especially hated buffering events during video playback which resulted in momentary pauses (our users hated these too). We tracked these occurrences in the player and browser, trying to categorize the causes (insufficient steady state user bandwidth, connectivity interruption, overworked client CPU, etc) and prioritizing which we could intelligently solve for on our end. Our talented engineering and infrastructure teams consistently improved YouTube’s ability to serve high-quality, uninterrupted streams to 1B people across the world. But one morning the conversation with Larry changed. 

“Larry, this quarter we’re going to aim to reduce buffering events from X to 90% of X through…,” our engineering lead started explaining before Larry looked up from the paper we’d given him.

“You should have zero buffering,” the Google cofounder suggested.

As we detailed why of course that would be impossible because of all the things we can’t control for and the desire to manage our own bandwidth costs, I saw a familiar look settle on Larry’s face. Half-impish (as in “oooh, you really want to go down this rabbit hole with me”) and half-incredulous (as in “Each day I awake with my mind wiped of the fact most people aren’t as smart as I am and then progressively discover during the course of my meetings that you’re all idiots”).

“You should come back with a plan for zero buffering.” End of meeting. (Well, we did review the rest of the OKRs, but it’s less dramatic to write that).

Of course we never got to truly ZERO BUFFERING globally on YouTube, but we did come back to the engineering team with a challenge – if you really wanted to try and get to a 10x improvement, what could we do? A totally private, worldwide high-speed internet with locally cached video and free state-of-the-art PCs for every end user. That might work. Or what if it was more of a design challenge? Imagine a quick transition animation which played when you pressed the Play button that seemed to be a UX affordance but actually allowed us to start caching the video locally so we could tolerate connectivity interruptions in the post-play experience. There were a dozen more vectors we started discussing, none of which were exactly the right plan or the most pragmatic ideas, but overall it did help us identify a best path forward. So while we never did get a plan blessed by Larry which guaranteed ZERO BUFFERING, the next few quarters OKRs were more aggressive than they might have otherwise been and the nature of the discussion was changed by a simple stretch goal exercise. 

So when I talk with any startup – Google scale or not – my easiest recommendation in brainstorming and goal-setting is to not get caught up in just local optimizations, not to stay exclusively in the land of reasonable, but devote some time to 10x Impact conversations. 

GOP’s Voter Suppression Playbook for 2017 Is Real and Treasonous

An admission: as an upper-class white male in an unflinchingly Blue state, I was previously naive about the extent to which voter disenfranchisement had already impacted our country over the past decade. But the 2016 Presidential elections, along with a set of court cases in the aftermath of 2013’s Voter Rights Act changes, convinced me the GOP is accelerating their attempts to limit opposition voting. So for 2017, and beyond, I’m interested in putting sweat and dollars behind voter rights. Attacking the ability for American citizens to easily participate in the political process isn’t just unconscionable, but strikes me as symbolically treasonous.  Since my understanding of these issues is still evolving, here’s how I currently interpret what’s happening:

Ok, if you’re sufficiently pissed, here what you can do:

  1. Let America Vote is a new effort from Jason Kander, former Missouri Secretary of State. They’re just getting started but Jason seems like the real deal.
  2. ACLU counts Voting Rights as one of their major issue areas. So continue donating.
  3. The National Democratic Redistricting Committee is being led by former Obama Attorney General Eric Holder and will be fighting back on gerrymandering. Sign up for more info and donate there as well.
  4. The Brennan Center for Justice is another group focused on voting rights and legislation.
  5. Keep an eye out for voter rights changes at your local state level and fight back

No matter what your political or social beliefs, I hope you will fight for the right of every citizen to vote.

Why Many Companies Mistakingly Think Trolls & Harassment Are Good for Business

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A live mic. They gave me a live mic at last week’s Upfront Summit to interview Reddit’s Alexis Ohanian. Our discussion lasted about 20 minutes but that was sufficient time to cover his open letter on immigration, Reddit’s community standards, his feelings about tech’s role in politics and the opportunity he now has to become more than just “tech famous” if he so desires. But there was one question I’d written down in my notebook that we didn’t have time to cover – did Alexis think the way we measure the success of social products unintentionally result in deprioritizing community safety.

What are the standard KPIs for social, content and community products? The most common for a daily dashboard are a mix of DAU/MAU, page views, impressions, session length, clickthrough, visits per day, engagement. The more sophisticated derivatives of these are retention-related.

What do these measures mostly tell us? That optimizing for clicks, visits, posts and time on site = good. But what happens when these metrics lead us towards more engagement but less happiness?

In the last few months it sure looks like disagreement and flame wars produce more in situ engagement than a simple “like” or read. Your friends rushing to tell off the asshole who just tweeted at you sure looks like a lot of activity when it’s reduced to a daily graph. A hate share of post that makes you go WTF sure does look like virality. Look a lot like a successful product.

But does it make you feel good? Does it make think better or worse of the product you just experienced? Does it increase your NPS for that business? Trolls and harassment drive short-term engagement even though they’re long-term poison.

A few months back I had the chance to speak with the News Product Managers at Facebook. It was when “Trending” felt very TMZ-like (it has since improved in many ways). I told them I clicked on that section a lot but it always left me feeling guilty and shitty for having read some celebrity gossip or inflammatory headline. I clicked more and more until one day I stopped clicking on that section at all. I stopped looking at it. I wished there was a [x] I could use to close the section. It was a piece of candy that Facebook kept putting in front of me. I started off by blaming myself for eating it but you know what, after a while Facebook was to blame as well. Didn’t they care about my health? Didn’t they want the best for me? Then stop giving me candy.

My guess is the best product designers are going to start thinking more and more about the emotional impact of a product feature rather than just the blunt instrument of “did the user interact.” And the next generation of user measurement tools are going to use machine learning to tell us when someone is having a “high engagement, but low quality” experience and try to rescue them before they abandon. Because today I just look like a highly engaged user until the day I stop coming at all.