Babbling VC

Folks Have Figured Out Finance...What About Insurance?

2013-04-30T12:05:43+02:00

Since we're focused on FinTech at our company, we love to see that the markets have finally realized that the finance sector is absolutely ripe for disruption. Be it in payments, invoicing, international money transfers, banking software, you name it....the start-ups are popping up. VC's too have seen that this space is hot and are piling in. You simply have to attend a conference such as Finovate to see how much is happening (and it's not all that recent a development).

On the other hand, so little seems to be evolving in the insurance sector. Think of the hassle you have with your own insurance, be it medical, auto, homeowners or a slew of other available policies. A total nightmare in my opinion. I'm sure there are some attempts at disrupting this sector (see Friendsurance) yet they remain few and far between and none really seem to cut too deep.

One should also look beyond the standard insurance space to see where the opportunities lay. Think about health insurance and payments in the medical sector. So much of what happens there can be optimized and automated. It's not sexy but there is a ton of money in play. You only need to get a piece of the pie to be relevant. Further, this segment is switching over ever more to technology, be it via connected devices or tablets.

Getting even more granular, think about the quantified self movement and what kinds of information this will soon generate about individuals. People are worried about Scoble taking a pic of them with his Google Glasses. Wait a while and see how much more exposed you are to your insurance company if you are using quantified self devices measuring everything you do. (This is why I also believe more in an iWatch than Google Glass.)

Can you imagine what happens with insurance if they can prove you exercised too little, ate too much junk and led too stressful a lifestyle. On the other hand, think about how you could reduce your costs by wearing certain devices and proving you are active, eating healthy and able to relax. I just have so many ideas where you could combine health, insurance and payments. Thinking about cars and the blackboxes going into them, imagine how easily you could reduce your car insurance if you could prove that you are a safe driver (I'd be screwed but the general public would benefit from this!) Everything being measurable plays such a key component in the insurance sector where often decisions are based on interpretation of facts verses the actual facts.

Finally, in Germany where everyone is insured up the wazoo, you have a very keen public for any new developments. You can definitely use the local market to first test appetite for something and then take it global. In the insurance space, I truly believe that the German market offers an opportunity here that may actually be ahead of other regions. I remain optimistic that this soon may happen.

Skin In The Game and Other Games VC's Play

2013-04-29T14:15:09+02:00

I was reminded of one pet peeve I had from my past in venture capital when reading about Spark's newest development. I highly recommend that you read the article about these guys picking up their own legal fees. I too felt that it was always quite ridiculous to charge legal fees of a VC fund back to the portfolio company after you financed them. I hated this almost as much as VC's who used to charge closing fees on top of this. That was an absolute crime if you really think about how it was the VC fund taking their investor's money and funneling it directly into their own pockets via the management company.

What I want you to watch out for is the dubious term "skin in the game" or some form of it. Unfortunately, many VC's will throw this at you as risk prevention. They will tell you that they want you to have "skin in the game" and expect you to have your own money at play when investing. It keeps you from bailing out too early and leaving them holding the remains. This is where this gets tricky. I too think it makes sense that you initially bootstrap your business and only go to VC's once you need growth capital. If you can't even scrape the first 10k together then good luck ever having any success when it comes to sales. Nevertheless, I don't believe a young entrepreneur who may not even have 5k to his name should be forced to go out and try to get 25k or even 50k together to "participate" in a round so that he has "skin in the game". He tends to have enough at play if he is only Ramen profitable. Older founders who have 5 to 10 years prior experience should obviously be able to put in a bit more of their own capital but again....if they're expected to be putting up 100k or 200k without having had an exit already, it's questionable.

I've seen this practice in the past and didn't feel right about it at all. What it does is put the entrepreneur in a very precarious position of being completely screwed if things fail. Yes, he has "skin in the game" but if the company fails (which may not always be his fault) he may be ruined financially for quite some time. This doesn't even take into consideration the additional problems of raising money from friends and family that rear their ugly head when things go south. It also leads to extremely streneuous decision making. If at all times the founder has to worry about going broke, he may be forced to take the less risky road which obviously doesn't deliver the returns expected.

What can you do about this when raising capital? Well, avoid the VC's who want you to be in a position where you are completely ruined if things go south. The VC's have skin in the game by being investors in their funds but one misstep doesn't cost them all their net worth. If you are asked to put yourself in a positon where you are ruined by a couple things going wrong, question the ethics of your VC. Ask yourself if you really are getting into a partnership or are just at the wrong end of a bad bet!

Why You Should be Raising Money NOW

2013-04-22T14:17:59+02:00

I've been watching in amusement some recent financings and realized the getting has never been so good when it comes to venture capital. If as a startup you're even remotely considering raising money, you should be out in the market. If for no other reason than to see what your business may be worth, get a business plan banged together and send it to some VC's.

Why do I think this is the case? Well, very simply put, it's all about desperation and full accounts. At one end of the spectrum you have the funds flush with capital. They have to be out there putting their money to work. They are all hunting for deals and are willing to take greater risks than at other times due to lack of investment opportunities. The competition is extraordinary and you may be able to squeeze into a fund you'd otherwise have no chance of getting into. This includes both existing, traditional top tier funds or newly formed VC's with no track-record yet but capital to invest.

On the other end of the spectrum, you having dying funds. Many VC's are running on fumes at this point yet still have capital which they can invest. Further, they are going for the hail mary passes right now. If they don't get a homerun in the portfolio fast, their fund has no chance of ever raising additional money or even returning money to their LP's. Again, your chance to squeeze into a deal. Yes, there are a ton of factors for choosing the right investor but if you are just in need of capital, get it while you can.

Outside of the VC's, a lot of angels remain in the market looking for deals as well and the corporate VC's have all ramped up operations or launched new vehicles. Everyone is chasing venture deals and there definitely are opportunities for second tier startups to get funded. If you can't get top tier VC's on board, you can always hit the second and third tier guys or the angels and corporate funds. If that isn't opportunity I don't know what is.

The VC's obviously aren't going to like reading this but you as an entrepreneur don't necessarily have to play fair. The tide will turn and we will soon revert back to a market where the entrepreneur is the one being taken advantage of. The VC's never cry about giving you bad deal terms so don't worry about taking advantage of them when the market is in your favor. That's the nature of the game and if anyone tells you otherwise, they are delusional.

Just don't forget that for every action there is an equal or greater reaction. Getting poor investors on board always has it's consequences and likewise, being a sub-par startup funded by a top tier fund brings with it the risk of being dropped quickly when markets turn.

Back to Being An Entrepreneur

2013-04-15T11:27:40+02:00

I had a bunch of discussions recently with folks asking me how things were going since I've left the VC space. I had originally planned to write about this down the road.....a couple years down the road but maybe now is an opportune time. It's been over a year now that I left the VC gig and went back to being operational. You may find my thoughts interesting, regardless of whether you are in the VC space or considering your own startup.

What's the main difference between being a VC and being an entrepreneur? Well it's hard to pinpoint one specific thing but I'd say it's the sporadic nature of your day. As a VC, I was far more scheduled and rigorous about my agenda. As an entrepreneur, you are constantly pulled in multiple directions and have to deal with things on all fronts. I find that I hardly ever stick to plan since something always shows up which has priority and has to be dealt with.

Further, dealing with HR issues plays a far greater role in your day than when a VC. HR is not a small thing.....it's the core of your business and you have to constantly pay attention to your employees. They also constantly pay attention to you as they are looking to you for direction or need something from you.

Finally, there's the constant readjusting of your company's course. I'd bet we changed or adapted three of four times in the past year. We set out with a general goal in mind but adjusted every time we realized we were doing something wrong. You have no choice but to often throw things overboard and you have to learn how to do so quickly. As a VC, you hardly ever completely change course more than once in a fund generation.

There are a hundred other things which differentiate the roles but most importantly for me is the realization that I probably was no longer well positioned as a VC. With over 12 years experience in the VC space when I left, I had become stale. I could talk about every fund minutiae or termsheet detail with you but I probably was no longer qualified to really discuss even basic details about the day-to-day of the entrepreneur. I'm sure a bunch of VC's are turning their noses up right about now but I would bet that the majority of VC's who haven't been operational in the past 10 years or less have no clue what entrepreneurs are really doing in their businesses. There are exceptions and those who have always stayed close to their portfolios. They kept adapting to the environment and are still relevant sounding boards for the companies they fund. Here I think of folks like Fred Wilson at Union Square Ventures who have been pure VC's their whole career. Unfortunately, most aren't and are shooting from the hip when dealing with start-ups. I think this post talking about Andreessen Horowitz and how all partners have operating expereince is a clear indication of what I am feeling. I know for sure that I had become one of those VC's who was too long out of the operating game to add the value that I wanted to deliver.

What's the take-away here? I know for a fact that I as a VC now would immediately have far more compassion when it comes to the entrepreneur. Although I've only been out of the direct VC game for a year, the time spent so far running a business again has been eye-opening. I'm having a blast doing it and don't miss the VC role just yet. I know for sure too that were I to go back to VC down the road, the hands-on experience would be a godsend . I'd deal with my portfolio differently than I did in the past. The discussions would focus far more on product details, HR issues and the day-to-day verses taking a very high-level view of the business and analyzing spreadsheets. Another thing I'd completely avoid is even considering telling the entrepreneur what to do. A good VC listens, gives feedback and offers support. Thinking that you know better what the entrepreneur is doing daily from a board position is nonsense. It's actually completely contradictory to what most VC's claim. They say they invest in teams but if they are defining what is to be done at board level, they obviously don't believe they've picked the best team for the job.

If you're an entrepreneur, hats off for what you've been doing day in and day out. It's hard and I have a far greater respect for what you are dealing with. If you're a VC, I sure hope you are one of the group that is addressed in the Techcrunch article linked to above. Otherwise, I feel your days may be numbered. If they are, go start a company and you'll understand why.

Always Go Prepared

2013-04-11T08:47:21+02:00

Today I'm quite pissed at myself. I made an amateur mistake of going into a meeting this week where I wasn't properly prepared. I didn't do enough homework on what had happened to date before said meeting and I didn't prepare a list of goals or things I wanted to achieve with this meeting.

I'm using myself as an example because I shouldn't of made this mistake. It's one of those things where you have no one but yourself to blame for most likely being lazy or not putting enough weight on a meeting. The meeting itself was a typical sales call and there were enough people involved where one could of had a far better lay of the land before heading in. Further, my colleague and I weren't aligned as to exactly what we wanted to achieve. We knew kind of what the goal was but we didn't think about the details and when we came to certain points, we stumbled.

Not all is lost. We still did pretty well but we could have done far better. The next time you go into a meeting to sell something or to negotiate details, consider the following (as common sense as it may seem):

1. Who is participating and do I know what each of them wants to get out of this meeting?

2. What are my goals and what's the minimum that I want to achieve?

3. Can I give in on certain points?

4. Are there issues I won't budge on?

5. What are next steps after the meeting?

6. Who will ultimately decide whether I get what I want or not?

7. Are there things I don't want to lay out on the table and not discuss in this meeting?

8. Who should do most of the talking?

You probably know all of this already. I sure do. We often forget it though nevertheless and it remains something to consider before walking into your next sales call.

You Have to Move

2013-03-22T07:11:20+01:00

Nope, this is not a post about excercise. It's about relocation. I was reading an article this morning about JC Penny's CEO who didn't relocate to Texas and continues to commute weekly from Palo Alto via Gulfstream. Not only does he parachute in, so does most of his executive team. Yet people ask themselves why the turnaround at JC Penny isn't going as planned?

Although I have to admit I've never had an executive who flew in regularly via Gulfstream......nor will I ever but I've had my share of remote execs in positions at startups or in my teams. One simple point to make: it never WORKED!!!!

As much as people will argue with you that they will be THERE from Monday to Fridar (or Thursday) it just isn't the same as living there. Quite simply, in the evenings you are alone and away from your family. This stresses the executive out mid-term. Further, you are not here on the weekends and you usually are never around for the semi-work type events which take place outside of the normal daily grind. These two factors alone usually lead to failure of this setup. I am sure there are exceptions to the rule but my experience over the past 20 years shows otherwise.

As an executive (or even regular employee) you have to commit. Remaining remote leaves the air of an exit option. It's a backdoor in other people's minds. It also keeps you from getting attached. Let's presume you actually love your job. Why would you complicate things if it's for the long haul? Sure, it's tough to relocate the kids or make your spouse find a new job. But if you plan on doing something 100% and not just short term, you have to make the move. Conversely, if you don't make the move as fast as possible, you're only deferring your full commitment to the new role. Get off your butt and move!

Career Advice: Seek Out A$$holes and Go Work For Them

2013-03-17T11:43:24+01:00

You just "haven't lived" as an employee if you have yet to work for an asshole. I don't need to define how an asshole behaves when he's your boss. You've either had that type of boss......and you know exactly what I mean.....or you haven't. It's as easy as that.

So you now wonder why in the world you should work for an asshole? Pretty simple......it hardens you and teaches you how to deal with crap (pun intended!) This is essential to become good at what you do, work for a successful company or run your own. The current crop of employees out there who are under 30 may have never worked for a real asshole and they are suffering for it. They are "soft" and often delusional in their expectations of work. The touchy-feely environment out there of the past decade hasn't had the effects many expected. Sure, you now get fed and pampered at work but when everything goes to shit, employees cry......seriously, I've often seen a lot of crying when the response should of been problem solving. Having a boss who's shoulder you can cry on, catered lunches, the newest Macs and having a masseuse come in daily will not get you out of the hole when your largest client just fired you and you won't make payroll this month.

Now don't get me wrong. Assholes are just that.....assholes! They can make your life miserable and trust me, I've had my share of such experiences. Surprisingly though I feel like I've learned the most when working for such types. Coincidentally the biggest assholes I worked for were also quite brilliant executives. Somehow this goes together more often than not. Not only did they teach me a ton about the industry but they forced me to "suck it up" when I just basically wanted to bash their face in. For this, I am forever thankful.

You see, what most people don't realize about startups or founders is that it is a head game. Yes, luck too is involved but the best of the best have their own minds under control. Things go wrong so often that if you can't deal with crap, you will quickly be sorted out. Ultimately you want to be high up enough in the hierarchy to not have to work for assholes. If you don't move up or start your own business, the chances are far greater too that you will continue working for assholes. Train your mind and work the "suck it up" muscle by having a difficult boss or two at some point in your career. My only plea? When you do get to the top, remember all those bosses whose face you wanted to smash in. Don't be them!!!

Why I Believe More in an iWatch vs Google Glass

2013-03-14T07:18:17+01:00

This is a tough comparison to make considering that an iWatch is only a rumor at this point. Google Glass has already launched and people have started using the product. Nevertheless, I believe Apple will launch an iWatch or something along those lines because it simply makes far more sense in terms of company strategy.

First, why am I skeptical of Google Glass? Well it's an extension of your smartphone. It also works in conjunction with your smartphone and requires you to continually touch your face to do certain tasks. Further, when wearing the device, it's always on....why would you otherwise have it on your face. This will inevitably lead to information overload. Finally, after paying somewhere between 200 and 700 Euro for their smartphone (without carrier subsidy), will people be willing to spend another 1500 Euro on top? Sure, that price would likely come down but it's an additional purchase to the smartphone everyone will buy.

Hence, why believe more in an iWatch? I simply feel that Apple will want to disrupt again. People have also stopped wearing watches and that real estate is empty! Just as they changed the whole concept of smartphones with the iPhone (and tablets with their iPad), they too will want to change the idea of a watch. If I were to bet on this, I'd say they would put personal metrics capabilities into their watch. This has already been pondered elsewhere and it really makes sense. Allow and iWatch to work together with my phone and measure everything about me such as heartrate, calories burned, steps taken and so forth....as is the case now with the Jawbone Up, Fitbit or Fuelband from Nike. I'm sure there are additional features which Apple could throw into the package to make this a must have accessory.

Finally, I believe it would be something selling for around 500 Euro. Sure, that's a hefty price but think about it. Would you rather have additional information which is relevant to your health and well-being and have this work in conjunction with your smartphone or on its own? Or do you prefer to have a pair of glasses on bombarding you with even more SMS's, calls and information which you only sometimes need and have available anyway via your smartphone?

If I were Apple, I'd go with the iWatch and personal metrics vs information overload to the face!

How I Spend My Weekends

2013-03-12T16:25:21+01:00

Chris Dixon had an interesting post up about what the smartest people do on the weekends. It's quite short but had me thinking as well about what I spend my time on. Further, it had me wondering what other people were doing and how my weekend activities have changed over the years.

In addition to my regular routine, which tends to be the same most days, my weekends aren't about "relaxing". My almost daily routine, including weekends, always involves sports of some sort as well as walking the dog nowadays. This still leaves a ton of time to get other stuff done on Saturday and Sunday......I sleep max 6 to 7 hours and get up by 6am the latest, even on weekends.

I have to admit that since starting Liquid Labs, a lot more of my work has spilled over into weekend time. Nevertheless, I don't see this as a negative. I find that I can concentrate far better if I set aside a specific amount of time to bang stuff out. Further, I tend to leave the majority of long reads for weekends as well. I prefer to sit for a couple hours and digest everything I've saved to Pocket. Finally, I try to usually blog on weekends if I'm up for it but it's definitely not a set routine.

One thing which has changed though is that I find myself far more often on the road when it comes to weekends. Be it Barcamps, Startup Weekends or a multitude of other events, things spill over. Often it's a Friday and a Saturday, bridging the two. Funny about this fact is that I did far less of this as a VC and technically would of thought that as an entrepreneur, it would be far less so. The exact opposite has turned out to be the case.

I discover the most inspiring stuff interacting with other entrepreneurs and find myself "giving back" far more. Most of the stuff people are interested in revolves around the VC field. I still get a laugh out of the fact that I've probably given far more direct advice about VC in the year and half of not being a VC than I did as a VC. For me, at least, it has turned out to be the best use of my time when it comes to weekends. How are you spending your time?

Crap Deal Terms: How to Decide Whether to Take Them

2013-02-25T15:34:22+01:00

I had a fairly short conversation today with an entrepreneur friend. He has been bootstrapping his startup for some time and wanted my advice. He received a deal put on the table by an early stage VC and in my opinion the terms stink. They weren't criminal but damn near it when you know what is standard in the market.

At the same time, he told me he's soon to run out of money, his CTO hasn't been paid for a couple of months and he's already financing some things with a loan. I've heard at least twenty variations of this situation and have been often asked what to do.

I'll usually very quickly go through options with whomever I have on the line or in front of me. Typical questions will include:

1. Do you have any other options as to financing (VC's, Angels, FFF's, loans)?

2. How much burn do you have left?

3. Are any of your customers willing to pay you up front for product or services delivered at a later date?

4. Can your employees go any longer without salary?

5. Is it possible to cut other costs quickly (rent, expenses, whatever)?

Since people are usually always at the point where they've hashed out all options, the answer to the questions above is usually "no". This then always leads to my very clear answer, which hardly ever is different. So how do you decide what to do? It's not easy but it's simple.

Are you passionate about your product? Do you believe in yourself and your product above all else? Are you willing to do whatever it takes to succeed? If yes, tell the VC to go pound dirt and pursue options. There are always options and if you aren't willing to give up, they will eventually appear.

At the same time, maybe you're a gambling man or woman. Do you want to "give it a go"? Are you also wondering whether the product will be successful? Do you have your doubts and aren't really sure how bad you want it? You get my point! If all your other options haven't panned out and you yourself aren't dead-sure you want to fight it out, sign the termsheet. As long as you don't put yourself in a situation where you are giving up more than the chance to fight another day, it's better to risk poor terms than to just give up. If you're successful, you'll have a bit more leverage even with bad terms.

Yes, there are times to simply give up and there are a ton of posts about that. This post is focusing on crap terms from an investor. If you want to keep at it and are simply torn between taking a deal or not, use my above criteria. Never forget that as an entrepreneur and founder, you usually aren't easily replaced if succesful. If you are responsible for the performance of your business, you'll most likely have more leverage at a later date than you have today so go ahead and take the deal.