I recently spoke at the Blue Glass conference on the topic of marketing.

I’ll write up some thoughts in a blog post format soon. I’ve been spending time looking at marketing conversion metrics at portfolio companies lately. We’ve been testing things like:

• How do Facebook “Likes” perform relative to FB ads that drive you directly to a web page
• How do brand pages convert relative to the Timeline
• How do integrated Twitter campaigns work relative to “promoted Tweets”?
• How well do YouTube ad campaigns work? (hint: remove Bit.ly links and they convert much better. I don’t know why … it just is – or so the data I’ve seen has shown)
• How well do “sponsored stories” work? Are they authentic enough?
• Can you do brand integration on YouTube? (hint: yes, it is performing off the charts well.  crazy well.)
• Do vanity metrics matter? (likes, fans, clicks) … (hint: use awe.sm – I’m an investor along with Foundry Group. But I promise the data will show you how well you convert versus tracking just clicks).
• Do celebrity endorsements work?

I talked about these topics in this presentation. Hopefully you can get a sense from the PPT. Hopefully I will teach myself Keynote soon and give up PPT. Hopefully I’ll remember that my high school teacher told me not to use the word “hopefully” this way but it still sounds better than her suggestion, “It is hoped.”

Anyway, if you want me to cover one topic before another feel free to drop me suggestions in the comments. I’ll try to pick up on some of these themes over the coming month or two.

Here’s the deck on DocStoc
Final BlueGlass _April 2012_

It’s Wednesday late afternoon. I’m aboard Delta flight 1833 from Cincinnati (actually, Northern Kentucky for what it’s worth) to Los Angeles.

I had a very enjoyable day in Cincinnati meeting many local entrepreneurs, angels and accelerators. I was here to see one of our LPs (limited partners are the people who invest money in VC funds) called Fort Washington. They’ve been a long-term investor in our fund – GRP Partners – and it was important to me to spend time with them in their home market and meet the people with whom they deal locally.

We had lunch at a restaurant that sits atop the old Riverfront Stadium  where the Cincinnati Reds played ball when I was a kid and the site where Pete Rose broke the record for lifetime hits. I felt nostalgic. They have a marker where first base was and where Pete Rose hit his record-breaking 4,192nd hit. If I wasn’t on a flight I would post the pic I took but when I land I’ll put it on Instagram.

I met with Dave Knox whom I had previously met when he worked at P&G in marketing. He is now involved with an acceleraotor called Brandery in Cincinnati who focuses on helping local startups get off the ground and figure out how to get access to the huge brand dollars unlocked by working with big ad agencies and with brands directly.

I met with local seed fund investors like Mike Venerable who is the MD of CincyTech (a local seed stage fund), Tony Shipley who is a director of Queen City Angels as well as some local entrepreneurs including Blake Shipley of CoupSmart and Sameer Mungur of ZipScene.

It’s easy to discount Cincy – it’s a “flyover state.” And those in CA and NY are quick to dismiss that which doesn’t feel like home. But I found resonance in meeting the local investors and startups. They spoke of a need to prove out revenues in order to raise capital and a stark contrast to many Silicon Valley firms whose goal is user numbers over revenues. In that sense it felt very LA.

And when I heard them speak of how they organize as angels (pools of capital – up to $2m per deal) and accelerators (direct access to large Fortune 100 companies) I must admit it sounded as sophisticated as what we’re trying to achieve in LA.

Already this week I’ve been in Dallas, Austin, Houston, Dayton and as I mentioned Cincinnati. It’s Wedneday. I have a full calendar in LA Thurs/Friday and then I spend Tues-Friday of next week in the Bay Area.

I mention this for a reason.

In the age of Skype, email, cheap telephony and collaboration tools it’s all too easy to sit in your office and connect with people remotely. It’s even easy to justify it to yourself, “it’s such a productivity drain to spend time on the road and I can accomplish everything I need using modern tools.”

Yeah, that’s tempting.

I hate travel, too. I have two little boys and a wife I adore. I hate being away from them. I hate crappy hotels. I hate flying. I detest airports. I’m sick of rental cars. I eat out too much. I’m sleep deprived. My ride picked me up this morning at 3.30am California time. I have bags under my eyes (or so everybody always tells me).

Still. You can’t make any impact in business without shaking hands and kissing babies. You need to be out amongst people. You need to press the flesh. On the first level it’s how you learn. It’s how you avoid your local echo chamber. It’s how you gain customer insights. All of that matters.

But the deeper point is that all business is built upon human relationships. I’ve built my career by 20+ years of looking people in the eyes, making promises and then delivering against what I said I would do. You don’t build trust, friendship and human bonds on Skype.

The interesting thing about pressing the flesh is that once you’ve broken bread with people and spent personal time getting to know them it is then much easier to build long-term relationships through email, phone, Twitter, Skype and the like. There is a certain trust that exists and a certain leeway granted to you since they really “know you.” I believe in the Blink perspective where we as humans are really programmed to know whether to trust people by the short amounts of time we spend in person with them.

But you can’t meet once and have infinite chemistry. Time weakens bonds in the way that your high school friends whom you haven’t seen in years seem like distant friends until you reconnect in person and remember why it was you were so tight in the first place (or not).

Relationships have elasticity. They stretch over time and you need to replenish their strength. You do need to travel. You do need to rekindle bonds. You need to look into eyes.

You need to shake hands and kiss babies. It’s part of being a leader.

Why am I going off on this tangent?

I was in Houston on Monday night. I was spending the evening eating room service so that I could meet with a potential investor for my fund the next morning. We’re a couple of months away from closing our 4th fund as has already been reported in the press.

I could have easily done a phone call. Or a Skype. Or relied upon the fact that he had already met my three partners. But he was very important to me. I wanted to meet in person.

And as I was out of town it was a great chance to attempt to get caught up on email. I received a note from a friend who was raising a seed round. He asked me for an intro to an investor friend of mine. I wrote to my friend asking if the intro was OK. He said yes.

So I did the intro.

The founder whom I intro’d wrote in the email to the investor, “let me know if you’d like to set up a phone call or we could meet in person.”

I was bcc’d.

I wrote back to the founder (in private), “no fucking way. There’s no chance you’re doing a phone call. You asked me for an introduction. I was happy to do so because I believe in you. Now get your ass on the road and go meet them in person. Don’t give them an easy out to do it as a quick call.”

I know the potential seed investor wasn’t bothered by a call. In fact, it’s probably easier. You commit less time and feel less obligated – most people hate to make other people travel. It makes you feel obligated.

But a phone call for a first meeting is SO under optimized. You MUST be there in person. It’s a cost of doing business. It’s a learning process. It’s how you build long-term relationships.

You need to shake hands and kiss babies.

Yes, there is inefficiency to physical travel. Get over it or keep your day job. Plan your travel and see multiple people and companies while you’re there.

“But, Mark, the [investor, biz dev parter, customer, M&A buyer] told me a telephone call would be fine for the first meeting!”

OF COURSE! They don’t want to feel obligated. If they feel they put you out then they feel they owe you something. Of course they don’t. They shouldn’t. But it’s human nature. We’re reciprocity machines.

So I never make travel a big deal. Of course I’ll be in Austin next week. I need to be there anyways. I travel there regularly. Not a problem. Hey, I already need to go to Dallas anyways so it’s no skin off my nose to come see you.

I went even further when I was an entrepreneur. If I had really important clients I would call them and say, “I need to be in Chicago in 4 weeks. Which date that week would be best for you?”

Of course I needed to be in Chicago to meet THEM but I didn’t word it that way. If they couldn’t do that week then I would change my trip to the following week.

Ok, so this is starting to feel like a rant. I don’t mean it that way. I mean this as a soft kick in the arse not to take the easy route. Not to be lazy. Not to succumb to the false argument that Skype is good enough (it is, of course, once you have a relationship).

So get out there. Stare people in the eyeballs. Make commitments that you know you will keep. Shake hands. Press flesh. Kiss babies. Find out how local markets differ from yours. Win over customers. Raise cash more easily.

And stop buying into conventional wisdom. It’s true that distance has collapsed. But it’s also true that humans are programmed to judge other people by being able to meet them directly.

I promise it will be enriching to your experiences.

And remember – “Business travel is sexy. To those who never do it.” For the rest of us, it’s a necessary process to become successful.

When you work inside a startup with lots of clever and motivated staff you’re never short of good ideas that you can implement.

It’s tempting to take on new projects, new features, new geographies, new speaking opportunities, whatever. Each one incrementally sounds like a good idea, yet collectively they end up punishing undisciplined teams. I like to counsel that the best teams are often defined by what they choose not to do.

Let me explain.

As a VC I regularly meet with companies and listen to their plans. It’s a very common occurrence that a young startup with sub 20 staff and sub $2m in financing is racing around doing too many things. This level of complexity always worries me. A significant number of the companies I meet with get some form of feedback from me that:

“I’m a bit worried that you’re doing too many THINGS. You run the risk of being a mile wide and an inch deep. It’s hard enough to do X really well and succeed. I’m not sure how you do all these other things and yet I think they may end up being a distraction to X.”

I already know your response. Trust me. I hear it every week

“Yeah, but I’m just going to execute this [channel sales deal, international license of my product, new industry, new operating system, biz dev deal] and then it will pretty much run itself.”

It never does. That channel deal that you thought would take no times ends up burning scarce calories. The 3rd-party tries to sell your software – they just need your help with tech assistance to close the deal. They just need you to update your marketing materials. They got your last version working but since your latest release they couldn’t get it to work. That test you did on launching a RIM version of your product – it was only beta – now has 20 users who need a patch because it’s not working properly.

Every extra set of features that you added that served one narrow use case end up being features you need to support in future releases adding complexity to future development, usability testing, regression testing, etc.

Every team I fund comes across as laser focused on their core mission.

My advice?

I always tell teams I meet with, “The scarcest resource in your company is management bandwidth. Spend it wisely.”

Every company is built by a team and every team member matters. But as you know, a few key people in any business have disproportionate impact on the company’s ultimate success.  And nobody is more important in this regard than senior management. These people need need to be hyper focused on those things that matter the most to the company’s success. It’s why I don’t invest in Conference Ho’s.

Examples from discussions I’ve had this month that might resonate with your internal debates about how to prioritize

• We are giving a version of our product to a team in Europe who will start selling our product internationally
• We are signing up a channel partner to sell our product since we haven’t scaled our internal telesales team yet [yes, we know that they don't have experience selling IT, but they have customer relationships]
• We’re going to put a guy on the ground in the UK to address early leads we’re getting from ad agencies there [true, we haven't thought about employment laws, taxation, currency management, etc.]
• I know our product seems complex but we felt we needed to test lots of features to be sure we knew what would resonate with users … or … we aren’t committed to features x, y, z yet but we know our competitors are planning to so we wanted to be first to market
• We need to hire a team in financial services now to address the needs of that industry [yeah, I know we don't yet have big customers there. ok, I know our product isn't yet verticalized. still, we need to start now or we'll be behind.]

And so on. Trust me – each additional complexity you add before you’re ready decreases your probability of being truly excellent at the things you want to do extraordinarily well.

Instagram didn’t rush to Android. They also didn’t do video. They were truly excellent at what they did do.

What do you want to excel at? How will today’s “toe in the water” initiatives distract you or take your management’s time or attention off of your core business? How likely is your, “won’t take too much time” initiative to come back and bite you in the butt?

Beware. The best teams are hyper focused.

Image courtesy of Fotolia

** A note to readers. Sorry if you received an email with a draft version of this post. I had some problems with my hosting company. They were testing out what the problem was and accidentally hit publish on a draft post.

Brad Feld visited Los Angeles this past week. I always enjoy spending time with Brad as the antidote to the echo chamber. He is a unique human being with original thoughts & ideas and very limited concern for having to fit into other people’s narratives.

And I’ve always remembered a quote from high school, “Non Conformity is the Highest Form of Social Attainment.” That always stuck with me. That seems very Brad to me. It’s what I strive to.

We threw a Launchpad LA dinner to bring the community together as we tend to do 6-10 times a year. Brad was our guest of honor.

After a great 30-minute talk he took questions. Somebody asked the question, “What do you think about the term ‘Silicon Beach?” It was not a planted question by me. My views are pretty well known.

Brad wrote up his answer here – you should read it because it’s very instructive for how I believe communities ought to think about naming conventions.

In his blog he says,

“I responded that I thought it was stupid. I hate Silicon Whatever. LA should be LA.”

Many people on the Westside of Los Angeles are using the term Silicon Beach these days to describe the amazing renaissance that is truly happening here. That’s OK with me. But I think Brad actually has a point. I kind of think LA is just LA and doesn’t need some clever marketing term.

If I were to think about branding our great city I don’t think I would chose the Silicon Beach moniker myself. The way I think about branding anything is simple:

Define the Attributes You Want to Project
The first rule of choosing a brand for anything is to figure out the image you want to project. I recommend that you start by writing down the attributes you would want people to think about when they think about your brand.

Let my try those for Los Angeles as an example:

• Second largest city in America with 13 million people
• Third most powerful economic city in the world after NYC & Tokyo.
• Diverse – in terms of industries, ethnicities and environments
• Creative – we’re a place of writers, directors, producers, musicians, costume designers, make-up artists, graphic artists, 3D modelers.
• A market leader in content, music, entertainment, textiles, engineering, aerospace and trade.
• An innovator in technology, especially monetization. The birthplace of sponsored search (Overture), semantic search (Applied Semantics which became Google AdSense), comparison shopping (ShopZilla, PriceGrabber) and many others.
• World-class education including Caltech, USC and UCLA
• Home of JPL (Jet Propulsion Laboratory), which helps put rockets into space
• Home to the Internet’s first true “accelerator,” Idealab led by Bill Gross
• And of course a place of idyllic weather, culture and a lifestyle

This is the list I would start with. If I took more than 5 minutes I’d fill it in with all of the wonderful things I’m forgetting.

Whatever you’re trying to brand – your company, your community or yourself – this is the first exercise I would recommend that you start with. Outline your key attributes.

For me Silicon Beach doesn’t quite encapsulate the wonderful, dynamic, creative, large, thriving community that is the 13 million proud Angelinos any more than Silicon Alley captures the bustling 2012 community of New York City.

If anything using the word “Silicon” seems a bit derivative to NorCal. Don’t you think?

Interestingly, nobody I know in NorCal EVER calls it Silicon Valley, “Silicon Valley.” It seems to either be “The Peninsula” or “San Francisco” or even just “The Bay Area.”

To me, LA will always be a creative hub for TV, film, music, video games and now technology. We need to be different & unique. Not derivative.

And then there’s “Beach.” I love the beach. I live right near it and I drive by it every day. But “Beach” emphasizes the worst perception that people have about Los Angeles. It emphasizes that we’re not serious. That we’re a party. That we chose to live here simply because of lifestyle, babes, sun and nightlife. Our Bay Area brethren think, “you can have your beach, LA. We’ll work our asses off and build huge companies that will define the next generation of American’s lives.”

And of course it’s not a true assessment. The people I know in LA building serious companies ARE working their asses off. That’s how we’re producing many interesting companies like I’ve never seen before in LA. Here’s a short list that are decidedly East of the 405 freeway (i.e. not near the beach):

• Factual, founded by Gil Elbaz who built AdSense [Century City]
• ZestCash, founded by Douglas Merrill, former CIO of Google [Hollywood]
• Deviant Art, led by Angelo Sotira, which is one of the largest online communities on the Internet [Hollywood]
• ReachLocal, founded by Zorik Gordon, publicly traded company helping small businesses across America use the Internet for marketing [Woodland Hills ... North of the 101]
• Idealab, led by Bill Gross, who founded Overture, CitySearch and MANY other business [Pasadena]
• Oblong, led by Kwin Kramer, which houses more MIT grads per startup than probably any other in LA. They designed the next gen UI for the film The Minority Report. And do so in real life, too. [downtown LA]
• Maker Studios, leading YouTube producer, generating hundreds of millions of video views every month [Los Angeles, near Culver City]

Also East of the 405? Caltech. UCLA. USC.

So, yeah, I would like LA to be LA. I guess Santa Monica is officially “Silicon Beach” in the local people’s minds. Still, I kind like the name, well, um, … Santa Monica.

NYC has gotten a lead on us in the perception of creating a next generation technology hub and with good reason. Every time I’m there I’m blown away by the renewed energy and the thriving communities that have formed around the Flatiron District, Brooklyn and elsewhere. And I never hear local people touting “Silicon Alley” as they did 12 years ago. They’ve grown.

Some Other Thoughts on Branding / Positioning

Think about venture capital. Those that were around 30+ years ago never had to think about branding – there were hardly any other VCs. So many had names of partners (Kleiner Perkins) or local favorite identifiers like trees (Sequoia).

But if you were going to start a venture capital fund today, you’d want to stand out. Of course if you’re already known you could put your name or location on your fund name. But consider the following:

1. First Round Capital – No prizes for guessing what kind of firm they set out to build. You could argue that choosing the name “first round” paints them into a corner in case they want to ever do a late stage fund, but I suspect they named it FRC precisely because they wanted to excel at early-stage investing. And because they’ve been so successful / dominant in this space you could argue that even now they could do later stage with this brand if they ever chose to.

2. IA Ventures – Roger Ehrenberg was doing angel investing before he became a VC. And before that he worked years at hedge funds and more broadly in the financial services industry. He was one of the first guys that I know who laid out his stall and said I want to do “big data” investments that take advantage of the explosion of data now available on the web. So his Twitter handle is @infoarbitrage and his excellent (must read) blog is Information Arbitrage. So no prizes for guessing what IA Ventures stands for. Still, he probably chose a brand like IA that allows the firm to broaden if it needs to at some point.

Whenever I have a business that is big-data oriented and financial services focused he’s my first call. There are other great ones out there but his focus, his relationships and the brand he has built seem to make me think of him first.

3. Founder Collective – If you were an early-stage startup and wanted to be funded by entrepreneurs who had walked in your shoes before, you wouldn’t have to stretch the imagination far to think of what “Founder Collective” is meant to stand for. The two managing partners are Eric Paley & David Frankel (both former entrepreneurs) but they have also aligned themselves with some of the best known startup savvy entrepreneurs including Chris Dixon (Hunch) and Caterina Fake (Flickr, Pinwheel). A quick survey of their portfolio tells you just how many high-profile startups have included them in their rounds. I know that I call them often to co-invest.

4. True Ventures – When I was raising capital for my second company back in 2006 I had talked to many brand-name VCs and had several term sheets. I had decided I wanted to work with a small VC I had never heard of where I would be their 8th investment for this fund (they had previously worked at other VCs). I chose them because they were the most transparent and because they gave me the cleanest term-sheet in an era when most VCs still tried to screw you. The name “True Ventures” sounds very Howard Roark-esque but in fact that’s how dealing with Jon & Phil seemed. Like they truly understood entrepreneurs. And like they were building a next-generation firm. Alas, I sold my company so I never became company 8 but have been a fan ever since. And the name to me speaks of clarity.

5. Andreessen Horowitz – Ok. So if you invented the browser I think you get to name the firm after yourself. The name, the person, sort of speaks for itself. And if you were right there along side the man building companies you’ve also earned the right to the logo

For many companies having “functional names” that encapsulate your key characteristics in the title can be powerful.

And for me. When I chose a name for my blog, I spent days thinking through what I wanted to represent. I thought about some Southern California angle, because this is where > 50% of my investments are. But I thought, “nah, people will figure out that I’m in LA on their own. I want to invest in the best entrepreneurs in the country – regardless of where they’re located.”

So I thought about what was unique about me. Not versus every other VC but versus many. I was a former entrepreneur. I had run 2 companies. I wanted to be hands-on. I wanted to be transparent. I wanted to model myself after Brad Feld and provide advice on dealing with VCs because that is what made me want to work with Brad when I was an entrepreneur.

And I wondered how to best represent that in a brand. I chose Both Sides of the Table because I thought it emphasized this point. I played around with shortening the URL (you can use www.bothsid.es or www.bsott.com by the way) but I figured having the name in full would help people to remember how I wanted to be positioned. And I think it has mostly resonated.

In Summary
When you think about a brand you need to create a name that will represent the kind of organization or community you want to build. You can either have a functional name (i.e. Instagram) or a nonsense name that doesn’t paint you into any particular corner (Twitter) or even a generic name where you fill in the marketing messages to define that brand (Los Angeles).

I can’t help but think that Brad’s words of wisdom to our group were apt – brought on by 20+ years of seeing naming conventions come and go and traveling tirelessly to all regions of the country. I know that the proponents of “Silicon Beach” will continue to promote their term.  That’s fine. I’ve come to accept it.

I’m stick with the un-branding. And letting the amazing performance of our growing community of startups filled with creative professionals, talented engineers and entrepreneurs who have a bias toward monetization – speak for itself.

Instagram. It’s understandably on everybody’s mind these days. Clichés abound about, “You know what would be cool? …”

I’ll write soon on my views of why I believe Instagram took off as a social network and what I think comes next. Instagram happens to be one of the few social networks I regularly use along with Twitter. I use it much more frequently than I’ve ever used Facebook and have done so since inception.

Still, there will be a “next.” I’m just back from Spring Break with the kids so I chose not to weigh in during the fracas. I will weigh in with some thoughts soon.

What I want to talk about today is one of the insider baseball discussions of our industry this past week: The odd fact of the $500 million financing round completed just before the company sold for a B.  This head scratch was best captured by Alexia Tsotsis in her post on TechCrunch.

Was this a good thing?

Did raising money at a $500 million valuation help secure the $1 billion deal? And what can we – as the entrepreneurial community learn from that?

99.9999% of you won’t be contemplating raising capital at $500 million any time soon or selling for a billion. But a healthy percentage of successful startups have potential buyers “showing interest.” And because most startups have 12-18 months’ cash-on-hand at any point in time (usually less that 1 year, actually), the age old neurosis of whether to fund raise now or “wait and see what buyers might propose” comes up.

I’ve lived this personally. It sucks.

My friend Christine Herron of Intel Capital weighed in on the issue

“it’s smart to use an impending investment valuation to drive a higher acquisition valuation”

I would like to amend her statement slightly to read, “it’s smart to use an impending investment valuation to drive an higher acquisition.”

Emphasis placed on both “impending” and removal of “higher.” In this week’s discussion with entrepreneurs I think the word impending wasn’t used often enough.

Christin goes on

“If the company was able to use the Sequoia deal to drive its Facebook acquisition value higher, then in theory the founding team’s smaller share of a larger $ pie is greater than the larger share of a smaller $ pie. A nice play if you can make it.”

A nice play if you can make it. True.

Let me be clear – you cannot. You are not Instagram.

Let me explain

“Impending” valuation

Let’s say your company is currently valued at $15 million. You’ve found yourself in a super hot category and – let’s face it – it’s still a very frothy venture capital funding market so you may have loads of VCs chasing you. You think you are now ready for your $20 million round. In a perfect world you’d like to hit your always-dreamed-of valuation of $100 million pre. In the “worst case” you’d settle for a cool $80 million pre.

But you’ve had tons of inbound interest from potential acquirers. You don’t know what they’d be willing to pay but they’ve been courting you. But they are SO FREAKING SLOW. Maybe you should just close your VC round? They seem to move a bit faster. And maybe that would force the big buyer to finally get off their butts.

And, hey, maybe you could just “Pull an Instagram.” You know, close your $100 million round so buyers will come in at $200 million.

Let me remind readers as I outlined in this post, there are VERY FEW M&A transactions for early-stage startup companies above $100 million. Many – MOST – are done in the $10-30 million range. Closing a VC round might just be the right move for you. But if you raise the money at the big price (or any price) please go in with the expectation that you are going to build a large, long-term business. Not as an enticement to get a buyer to pay up after the deal.

Think about it. You are either bought for stock or for equity.  Let’s say you target LinkedIn to buy you. They’re worth $11 billion as of today. So $200 million would represent 2% of the entire company’s value. Is your crappy little 12-person company really worth they and their shareholders diluting by 2% given more than a decade they’ve put in building one of the Internet’s most solid business social networks? You better be a very clear improvement to their bottom line to pull this off.

Oh, I know – we’ll just ask them for cash!

Doh. Just checked their balance sheet. They have $339 million in cash on their balance sheet. Your $200 million “small acquisition” is a cool 60% of all of their cash. Uh… yeah.

And most likely your potential buyer is some other company with a much lower valuation, much less secure position in the future and probably less cash on hand.

Which is why the mega valuations you read about are almost always by companies with enormous valuations and/or cash on hand: Google, Microsoft, Cisco, etc.

And stating the obvious – Facebook’s valuation is estimated at $100 billion.

Hang on, Mark. You just said, “nobody would take 1-2% dilution.” No, I said you’d have to be really freaking awesome for them to do so. I believe Instagram was. Is. And represents great defensive value for Facebook as Chris Dixon aptly pointed out on Twitter

“Giving up 1% of your market cap to take out biggest threat is a savvy move.”

So my point. Raising a large round at whatever price will almost certainly take many potential buyers off the table. At least for a couple of years until you’ve grown into your new valuation / made enough revenue / captured enough customers / etc. to justify a “strategic” price.

Strategic must be a hugely defensive move or a move that the management team of the buyer believes could drive a huge increase in future revenue to more than cover the costs of having acquired your company.

If you ARE thinking about the possibility of selling – the most important word Christine used (which I fear was lost on the entrepreneurs with whom I spoke recently) was “impending.”

Getting a term sheet on the table is the second most sure way to get a potential acquirer to move faster. The first being a competitive acquisition offer from a fierce competitor. But that’s another story.

A buyer who has been thinking about acquiring your company will suddenly realize that within 30-60 days the potential purchase price for your company will go up significantly and if they want to take a look they had better do it sooner rather than later. I see this all the time.

Are You Screwing These VCs?

Unsurprisingly I recommend transparency with your incoming VCs. I would simply tell them,

“We are deeply committed to building a long-term, valuable business. We wanted you to know that we have, as you would imagine, have inbound interest in acquiring our company. We would like the opportunity to carry on these discussion for 30 days. I doubt we would consummate a deal. But I owe it to my existing investors and co-founders to listen.

In the event that they do purchase us now I would obviously pay all of your legal costs associated with this transaction.

And I want you to know that if we do complete the funding as we intend to – we’re not looking back. We’re not going to keep up the M&A discussions at a small mark-up to your round. We plan to double-down and build the huge company we know we can.”

What about “Higher” – Why Did you Strike That Out?

Well, of course you should use your “impending” valuation to get as high of a price as you can. But often times M&A is a yes or a no. And using the term sheet to get to a “yes” is a huge first step. The justification for the purchase price of the acquirer will likely not be determined by the price the VC was willing to pay.

Appendix

When I write quick posts and don’t have much edit time I feel I am often misunderstood or misquoted. So I want to be clear on a few points

• I am not saying all companies should be for sale. If you’re passionate, are enjoying what you’re doing, believe it can be much bigger – stay heads down. That’s obviously what we’re all shooting for
• I am not saying you should artificially talk to VCs and to game them to get your M&A deals done. That’s bad behavior. You should talk to VCs if you think you will – or might – genuinely raise money. Most startups are always less than 12 months from their next funding round so you are likely always in need of more money to grow. And so this situation of having VCs and acquirers present is a common one.
• If you think you might be acquired by a company – do your homework. Some tech professionals are helplessly naive about financial transactions. They never stop to think, “what is the market cap of my acquirer, how much cash do they have, what would their investors think about dilution, etc.” In most cases the numbers in your head are fantasy land.
• We read, discuss, envy, model behavior after the 0.1% of deals that are enormous outcomes like Instagram. I am a HUGE fan of what they’ve built. If one day that’s you – congratulations. But since it’s not what normally happens I encourage all other companies to do the harder work of finding out what happens in the 99.9% case, which is what is often never written in the annals of the tech news media. But mad knowledge exists inside of every founder who has sold a business. I promise you the answers won’t be anything like what you’d imagine.
• Yes, there must be terrible typos in this post. I’ll fix them all later. Don’t be annoyed. It’s a day with my family at Griffith Observatory today – or – fixing typos. So …

Many MBA programs still cater too much to the needs of large, corporate management jobs or prepare students to enter big consulting companies or investments banks.

If you haven’t read Adam Lashinsky’s awesome new book about Apple, you should. It takes on many of the lessons MBA programs and Corporate America have been teaching about business for the past 50+ years and questions whether lessons from Apple might be more applicable in thinking about the future.

It is with this backdrop that I was really happy to learn from my friend Ethan Anderson (HBS alum & founder of RedBeacon) about an awesome program at HBS run by Tom Eisenmann called Launching Technology Ventures. Here is a sample of the reading list for the course that gives you a flavor for just how modern and practical this course is.

And that leads me to today’s post.

I got an email recently from my friend & fellow VC, Jeff Bussgang from Flybridge Capital Partners in Boston. Jeff (also an HBS alum) co-teaches the LTV course with Professor Eisenmann. He wrote me about a student of theirs who had written a blog post as a class exercise in which she had challenged assertions that I had made in a previous blog post.

That student is Erin McCann, who formerly worked in sales at Google, so she had pretty strong ground to stand on in her sales arguments. Her post is short & well written so definitely worth a read if you’re a startup person and want to hear some sensible views on sales. It’s titled “When Managing Sales People, Stage Matters.”

The fact that the course asks students to write public blog posts is a testament to its more modern teaching style. It’s one thing to write a class paper – it’s another to write a public blog post in which the person you’re challenging gets to respond. Awesome!

The post of mine that Erin took issue with was TEDIC – The Excuse Department is Closed in which I characterized typical sales reps as driven nearly exclusively by cash and very quick to find excuses for sales processes that aren’t working well. My list of excuses includes that seasoned sales people employ include: product, pricing, competition and lack of sales support.

Erin’s main points:

“As a former tech sales executive, I agree with many of [Mark's] lessons — when applied to later-stage, post-traction point startups . However, I advocate a more nuanced approach for early-stage startup teams”

1. Feedback isn’t always an excuse – and often sales people can provide the best feedback to your product teams

2. Sales people aren’t always motivated only by cash – especially in early-stage business you need to focus on equity because cash won’t be plentiful

3. Complaints about support may be real – it might actually be time to scale and give your sales people more leverage

I actually don’t disagree with Erin’s post, which is why I think it’s a great read for you.

That said, I think it is written without taking the full extent of my sales articles into account. My guess is that Erin hadn’t seen some of my earlier posts – so I could understand why she took the positions that she did. My guess is that we are likely in total agreement.

I thought it would be useful for others who maybe missed my sales series to have access to the main arguments in one central place with links out to the details.

Specifically,

1. I don’t recommend that you hire traditional sales people when your company is too early-stage. I wrote about that here – regarding “evangelical sales”. In your earliest stages the founders should do much of the selling precisely for the reasons Erin highlights: you need customer feedback to refine your product, your pricing and your differentiation versus the competition.

2. When you are ready to hire sales staff I don’t recommend bringing in people who are too senior. I wrote separately about that here – regarding “hiring people who punch above their weight class.”  People who have “done it all before” often need bag carriers to assist them, are often accustomed to earning to high of commissions relative to what you can afford and are more equipped to sell once you’re gotten product/market fit and are quick to leave if things take longer to develop than anticipated.

I like to hire (not just for sales, but for all roles) people who aspire to be at the next level and are out to prove they can step up if given the chance.

3. There are different types of sales people; mavericks often work best early on. I wrote about the four types of sales people here. Mavericks have innate sales talent but are not necessarily good at following a process.  This resonates strongly with me because I personally have almost no ability to follow a process.

I think it works well for startups because in startups there are inherently less rules and with customers there is less clarity about your product category. Mavericks thrive in environments like this whereas rule followers may be frustrated by your lack of process.

As you grow you definitely need process-driven people. The leaders will be “superstars” who are inherently great at selling and follow processes religiously. Journeymen don’t have natural sales DNA but can be very effective by following the processes you set up. All of this is covered in the article.

4. As your company starts to grow faster, if you don’t adopt processes you will limit your growth. I wrote about that in my post about scaling sales – arming & aiming: A, B, C’s. and in a related post about objection handling.  As your company grows you need to division of labor based upon different skill sets. Erin talks about that here:

“Sometimes reps just don’t like the grunt work – for me, creating proposals always felt like a huge waste of time compared to closing more deals.”

She’s right.

As your team grows you start to segment sales teams into account executives & sales engineers. The latter tend to be more technical and can do a better job at dealing with all of the technical objections that will come up in the sales process not to mention: Talking about integration, building customer-specific versions of your demo and addresses implementation requests.

You may also build “inside sales reps” that handle phone calls the might either be speculative leads to be qualified for the field sales teams or perhaps they handle lower-value deals.

When you’re even bigger you might build sales ops teams that handle: Territory segmentation, sales compensation planning, forecasting, RFP generation and the like.

It is also common to divide sales executives into two types: Hunters & farmers. The former focuses on winning new customers and the latter on growing revenue at existing ones.

In my posts also talked extensively about the integration of marketing and sales. Marketing’s job in working with sales people is twofold:

A. To arm – which means to give the reps all of the sales collateral they’ll need to effectively win sales campaigns. This includes presentations, ROI calculators, competitive analyses and so forth.

B. To aim – which means helping sales reps figure out which target customers to focus on. It’s about helping weed out the non-serious leads from the urgent ones.

In Summary

I applaud Erin for speaking up against my TEDIC post because in isolation my post isn’t precise enough. I also applaud Tom Eisenmann & Jeff Bussgang for bringing this kind of discussion into an MBA program. Hopefully this post gives a more complete picture of my thoughts on selling at startups.

And finally a reminder: Selling is about listening & reacting and not “pitching.” I encapsulate that in an analogy I had heard years ago. Be careful not to be a crocodile sales person – you know, all mouth and no ears.

I’d be happy to discuss / debate further in the comments section. Happy selling.

Intros. They’re the lifeblood of networking – the currency of mavens. They are your route to angel money. Your entrée to sales meetings.

We couldn’t live without them.

But when misused, overused or abused they can diminish your personal brand, consume your valuable time and waste time of the relationships you value the most.

I would like to make the case for being judicious with your introductions. I would like to encourage you to closely guard your most cherished relationships. And in most cases I would heed Fred Wilson’s advice about the “double opt-in” email for intros – where you ask for permission before green-lighting an unsolicited introductions.

I give introductions frequently.  I also request them for time to time. So please don’t view this post as recommending not to do introductions. It’s a simple reminder that whom you do introduction for and how you do them will have a great impact on your credibility with those relationships you’ve worked so hard to build.

 The Details

Lately I’ve seen some friends and colleagues go nuts with intros. I’ve commented to several of them (so, no, I’m not talking about YOU. I’m talking in aggregate. Promise.) that I don’t understand their motivations.

At best “over introducers” are driven by a sincere desire to help other people. In reality it probably also has some element of ego because sending out many intros gives off the impression that you’re well connected. That you can “make things happen.” That you’re helpful. You’re trying to endear yourself to one side of the intro.

But here’s the thing – every time you send an introduction you’re obligating people. At a minimum you’re obligating them to ignore the email and feel like an arse for not responding to your introduction. More likely they either end up finding an excuse not to meet, delaying a meeting indefinitely or in most cases actually taking a meeting.

Over-introducers also consume a lot of personal time in making intros. It is very time consuming doing intros the right way. Ask yourself the tough question about how you might spend that time more productively getting your job done well.

There are many times when that meeting is a great fit and hugely appreciated. There are also many times where that meeting isn’t really focused or productive. Here are some of the underlying motivators and some thoughts about these introductions.

Helping with a Sales Lead
I do this often. Usually it’s on behalf of a portfolio company. After all, if your VCs won’t help you get access to potential buyers or business development partners – what will they do?

But I also try to help friends / close business associates get access to other people I know.

My personal rules are:

• I must know the individual whom I introducing well enough to vouch for their character and therefore the likelihood that their product or service is of high quality
• I must be able to mentally make a connection of how the person whom I’m introducing my friend / colleague to would benefit. If it’s strictly a favor I will ask before I intro and I will state specifically that it’s a person favor
• In 80% of the cases I will ask permission in advance. Where I don’t it’s usually because I’m highly certain of the relevant of the introduction.

I recognize that each time I ask I’m putting my reputation on the line. If I introduce a time waster or somebody with a crap product then the person whom I introduced them to will necessarily think less of me. If I do it to them twice it may start to affect our relationship or at least their willingness to take more meetings from me.

I carefully guard this privilege that allows me to periodically do high-profile introductions.

Helping Access Money
People need access to angels and VCs. I frequently tell startups that the best way to get a meeting with money is to get a highly-qualified introduction.

But all too frequently people send angels & VCs too many unqualified intros. Regardless – I do my best to respond to as many as I can. The thing about an intro is that I know that one person is trying to help a friend get access to me. So I feel that not acknowledging this is disrespecting the introducers.

And I understand that many people who send VCs deals think they’re doing you a favor. But the reality is that unfiltered intros just create work for the VC. And if you send an intro to a company once without asking – no problem. But if you start the send multiple deals and if the quality of those deals is not super hight then you begin to erode the trust that the VC has in your judgment.

My belief – unless you know the VC really well (you’re a portfolio company of theirs, for example) I’d always ask for permission first. It’s best if you send a deck so that the investor can review it for a fit before the introduction takes place.

If I get a plan I find interesting from somebody I trust I am always hugely appreciative.

And then there is the email blaster / form letter introducer. They think they’re doing the startup a favor by casting a wide net to VCs. By the time I’ve gotten 4-5 of these garbage emails I just start hitting delete (or ask them to remove me from their list). Remember as a startup – the person who sends the intro to the VC matters a lot.

Helping with a Job Opportunity / Career / Information Interview
This is one area where I really try to go out on a limb. It’s a matchmaking service. Companies are always looking for highly qualified talent. Talent is always looking for interesting opportunities.

This is the kind of intro I do most frequently.

It falls into 2 categories:

1. I know the company and the specs they’re generally looking for. I come across a person looking for a new role. This might be somebody I know well (thus the email will come very highly referred) or somebody I just met for which the company will get the “I just met this person. I haven’t referenced him/her. She looks very competent but you’d have to apply your own filter / check reference.

1. I know the individual well and they’re wanting information interviews to find a good home. Here I will usually ask in advance. I will make a clear instruction in the email that the meeting is 30 minutes. I will strongly encourage the person to respect time boundaries and to make sure to send a thank you note.

“You Guys Should Meet”
This is the worst kind. If you find yourself writing this in an email – think twice about sending it. I see way too many of these. You sorta / kinda know s0-and-so because you had a few too many beers together last year as SXSW. You remember that they work for Google / Microsoft / Zynga. You meet somebody new in business. They seem like “a nice guy.”

They mention something about trying to do a deal at Zynga. “Hey, I know a guy at Zynga. I should introduce you guys.”

I know you think I’m exaggerating. The tech world is filled with these kinds of intros. These drive me bonkers. They’re generally disrespectful of all involved unless previously clear with everybody. Even then you’ll find that some people just aren’t good at saying no. But they’ll still likely be frustrated that they now have one less hour of one less day.

In Summary

Introduce people. It’s good karma. But be judicious. Introduce people that would genuinely each benefit from meeting. Whenever possible ask permission. And if you’re tempted to be an “over introducer” please know that you probably damage your personal brand as much by burning people’s time as your perceived positive brand perception by making each individual connection.

I’ve started a series on negotiations in startups. In it I list some books and also link to some of my previous posts. It’s the first functional series I’ve done since sales & marketing.

The very first time I ever negotiated a term sheet (and then legal docs for closing the round) I found the experience very frustrating. I was desperate to get my funding finalized to derisk my business as well as to get capital in the bank to meet our growing cash needs.

But my VC didn’t seem to be in such a rush. Nor did their lawyer.

The process went something like this:

• My lawyer tells me 8 clauses that need to change. He marks up the term sheet. We take a half a day to agree the points and send them over. Seems like the term sheet will be done in a day or so.
• The other law firm gets the docs. They’re traveling that day. They are in a board meeting with clients. We press them 24 hours later. They say, “I haven’t been able to reach my client (the VC) yet.” We hear back in 2 days
• We get back our version. They’ve totally ignored 5 of our requests and marked up the other 3. Four days have now passed.
• I call the VC to discuss. He says, “I’m not sure your lawyer knows what he’s doing. These are strange requests.”
• I talk to my lawyer. He says the other lawyer must never have worked on a startup deal before. We agree where we can live without our points being met. He concedes on one point and sends over our doc re-marked up.
• Rinse. Repeat. 10 days have passed. Four points are open. We finally get focus on those points. We whittle it down to two. I find out my lawyer was digging in on something I thought was important but the more I understood the issue it seemed like an edge case.
• I talk to the VC. We work the two issues. We compromise. We move on. We ask the lawyers to mock up the docs. We sign. 13 days have passed.

Whew. Now the hard part begins. Now we move to definitive documents (long-form legal docs) and the whole freakin process starts again. This is not atypical and I found it very frustrating.

I talked to my co-founder Brian Moran (we launched the company in Ireland) about it. He had been working in the 1990′s for a large global real estate developer called Hines (which he has now rejoined).

He told me that when they needed docs signed they had “signing parties” where they made every party involved with a project fly to a single location and they would all stay in a hotel together until the deal was completed. He said to me,

“We had a lot of money at stake. Delays in a project could cost us millions of dollars.

It was a very small fee for us to pay for everybody to fly together and stay in a hotel relative to the costs of delays.

Naturally when people are located in different places and working on different projects, documents don’t get turned around fast enough and you’re always waiting for somebody.”

So we thought, “Why not have a ‘signing party’ for our company?

We asked the VC, their lawyer and our lawyer to join us for a working session where we could walk through our legal docs page-by-page until they were completed.

I was surprised how reluctant everybody was. I realized that their lawyer much preferred not giving up his working hours. He would prefer to turn the docs at 1am between other stuff he was working on. And by “1am” I mean three days from now. And without agreeing all of our points.

My VC wasn’t that keen either.

But they acquiesced. We spent several hours in a room. We took several breaks for each side to discuss issues privately that were in contention. We made phone calls to others. The VC mostly to come back and say some version of, “In all of the 50 deals we’ve seen in our portfolio we’ve never seen this term approved.”

[side note: please don't fall for that line. either the point makes sense or it doesn't. I have seen VCs hide behind this "we've never done it before" line many times]

Anyway. It was a long day but at the end of the meeting we had a final agreement. The lawyers drafted it within 48 hours and we signed it in 72 hours. 1 week later the market crash of 2000 began and the dot com market began to collapse and financings with it.

It’s not always easy to get the various parties of your deal to agree to be in a room all together at one time. But if you can make it happen I promise it’s a much faster way to get a deal done.

And it obviously doesn’t just apply to a VC financing.

Image courtesy of Fotolia

When I started my first tech company in 1999 I had pretty good tech chops and had led teams but had very little exposure to many other things that matter in a startup including sales, marketing & business development. Like most first-timers, I learned the hard way.

Negotiating was a subset of every activity in a startup – it really was a way of life.

• Getting an office in a tight real estate market.
• Getting a sublet at the right terms when the market crashed.
• Convincing people to join your start. And take less than their big companies paid them and with less security.
• Getting a recruiter to agree to work with you. And not charge you outrageous up-front fees.
• Persuading a journalist to write about you rather than the 1,000 other companies bugging them. Offering them exclusively information as inducement.
• Convincing tech ops to carry a pager on weekends. Finding the right compensation for doing so without pissing off other devs who also worked many weekends. And not breaking the bank.
• Dealing with pesky VCs. And those long contracts they want you to sign with terms that seemed more like Latin than English. And for which I was sure were designed to screw me.

As unpleasant as people find the thought of it – life is a negotiation. And no life is more of a constant negotiation than that of an entrepreneur.

And most of us start with zero training.

One of the big mistakes I used to make (and still sometimes do, frankly) was to negotiate piecemeal. I think it actually comes naturally to the uninitiated and it’s suboptimal.

Luckily I had my colleague and still dear friend Stuart Lander to sort me out. He was a recovering lawyer and has now become a startup operator extraordinaire. His lawyerly training has helped him become an excellent negotiator. Negotiating is part of the training as a corporate lawyer and why you should never negotiate against lawyers unless you yourself have one present.

When Stuart and I first started working together he had just joined the company as a junior business development professional. It was his first job after giving up the well-paid lawyerly career for a low-paying roller coaster ride of a startup. You can imagine how his proud Jewish parents felt about his giving up a job as a lawyer. I wonder if they’ve ever forgiven me?

We were meeting with a potential business partner and Stuart had drafted an agreement between the two companies. The other side had a series of things that they wanted changed. The owner of that company was in the meeting along with his business development lead. On our side it was Stuart and me.

Like a machismo first-time CEO I thought I should handle the negotiation myself. Their CEO was equally bravado and dumb. He openend with his first issue. I listened to why he didn’t agree to that particular term and what he preferred in stead.

Like the problem solver I had been trained as in my software development days, I parsed his issue. I saw where he was coming from and from our side why our ask was what it was. I talked too much. I looked for middle ground. He talked too much. He haggled with me. We both felt good. And smart. We agreed a compromise. Then on to the next issue.

Our list was long. 15 or 20 points.

We worked through the first 4 or 5. Stuart is not a patient man. And never mind that I was the CEO, his frustration with me was visible. He found a good excuse for a break and pulled me aside.

“Mark, you need to stop negotiating point-by-point.

Our goal here isn’t to have a negotiation line-by-line. We want to know what all of their issues are first. You’re compromising on each point and that makes no sense.

Let’s get all of their issues on the table. Let’s then convene privately and rank the issues we care about and which we don’t. 

Let’s be very flexible on the issues that are at the bottom of our rank and they might really care about. Let’s dig in our heels on the issues we care most about. We can trade compromises on issues that aren’t as important to us in exchange for not budging at all on our most important points.

If you negotiate piecemeal you end up compromising on everything. That’s not very smart.”

And it wasn’t. It came both from impatience (who wants to go through an entire list and hear issues without debating them?), inexperience and ego.

Corporate lawyers know better. They’re used to negotiating long agreements. Their modus operandi is, “send us all your comments by marking up our entire document.” That is a form of “let’s negotiate in an entirety rather than piecemeal.” They’re even happier if they don’t have to do it face-to-face.

To me it always seems so harsh. You get back a document that has 5,000 redlines on it. It feels like receiving one big middle finger and I still find it unsettling. To a lawyer it’s just efficiency. They know they’re going to concede on many of those points. But the hassle is … you don’t know up front which ones their client really cares about it and which are BS items designed to wear you down in the negotiation.

Anyway.

The problem with negotiating piecemeal as Stuart taught me is that you trade on every item. You don’t prioritize the issues which you really care about. If you don’t want to give a millimeter on one item you have a hard time doing that point-by-point. Done as a “package deal” you can say, “I gave in on these 5 issues that you asked for. On this issue I can’t give.” That’s much harder to pull off piecemeal.

Piecemeal you might be reasonable in your negotiation on each of those first 5 issues as each came up. You found middle ground on each of them. When the 6th point comes us – the one you really care about – you’ve lost your leverage. You might have been better off not finding middle ground on the first 5 points but rather having given completely on all of them in exchange for not budging an inch on point 6.

I know this will sound like the blinding glimpse of the obvious to the reader.

Trust me when I say that most untrained business people approach these negotiations piecemeal. I think it’s human nature. And to this day I still struggle not to do so myself.

Stuart Lander was promoted within months of this first meeting we had together to run business development for the entire company. Within a year he ran a territory. Within two years he became the COO. And within four he ran global operations across 5 countries including the United States. He’s very talented.

He took the title of “President” which for a Brit was very funny to him. It seemed very overstated like all things American. But perhaps by then his parents forgave me both for taking him away from a “real” profession like being a lawyer.  But probably not. You know the old joke:

For the first time in history a Jewish person is elected as president of the United States.

At his inauguration his mother is sitting in the front row, beaming. The person next to her says, “You must be very proud of your son – becoming the first American Jewish president!”

She replies, “Ah, yes, he’s OK. But you should see my other son. HE is a doctor!”

Stuart is the main guy who persuaded me to start blogging some of the lessons we learned together. He has many of his own. He taught me as much as I taught him. If we could persuade him to tell you all some of his lessons I think you’d learn some interesting insight. But maybe he’s keeping them all to himself? Or maybe he’ll channel them through Suster.

I had this ethical dilemma pop up on one of the first deals I even did as a VC.  I had been looking around at several deals in late 2008 as the markets were tanking.

I had gotten close on a couple of deals but nothing rose to the level of “must do.” I was learning which VCs I wanted to work with, what stage & check size I wanted to commit to and what teams would be a good fit for me.

I got a call from a VC friend of mine who said, “we’re looking at this deal but can’t write the full check. I think you should look at it.”

I’m sure I’m not the only one he called. But I had just seen the company present at a recent tech event and thought highly of what they were building. I was interested in the company but I wasn’t chasing the deal. The call from a fellow VC to “look harder” made me decide to request a site visit. I went and spent a day with the team and loved their vision and their entire team.

It mapped pretty well to my dream team for an A round investment. I decided to write a $2+ million check along with my co-investor who offered $750k.

Since I didn’t originally source the deal I let my co-investor set the terms and negotiate the deal with my consent. The company agreed on a price but felt it was a bit lower than they had hoped for. But it was early 2009 and not many companies were getting new financings at all so I thought they should take the deal.

Another VC called me when they heard from the company that I was going to do the deal. The other VC offered to invest $2 million alongside my $2 million so the company would be getting more money. The potentially new co-investor agreed to increase the price of the deal by nearly 50% so it would have a real impact. He also called the company. He wanted us to drop the original, smaller VC.

The CEO called me. He told me he wondered if we should consider switching partners so the company could get more money and at a higher price.

I told him that if he did he’d have to do the round without me. The truth is that I wasn’t as valuation sensitive as my original VC partner was and I would have been willing to raise price. But my other VC partner had a smaller fund and raising price would have a big impact on his ability to finance the company.

I told the CEO:

“The original VC brought me to the dance. Without him I wouldn’t have travelled to see you and spent as much time as I did getting comfortable with the deal. 

I know it’s tempting to switch partners. The other configuration seems more attractive to you. But part of the reason the other VC called about the deal is that he heard we were doing it in the first place. Had he not heard about our commitment it’s not clear whether he would be rushing to submit a term sheet.

If you decide to go the other way, I’ll understand. But for me I care too much about my long-term reputation. I don’t want my reputation to be built on abandoning friends in good times or bad. If you decide to stick with us you at least know that I’d treat you with the same respect if you were in a difficult situation.”

We closed the deal. We later gave the company another $5 million and my original VC co-investor committed another large check relative to their fund size. They have been a very active and an awesome partner.

This analogy has stood the test of time with me and steers my actions. I saw it first hand in college, which is where I first developed the analogy.

A close friend of mine was looking to ask somebody to her sorority dance. She asked me what I thought about her asking one of my fraternity brothers. He was the son of a Hollywood celebrity and looked like he could have been a star as well (later in life he became nationally known). I mentioned it to my friend and he green-lit the plans for her to ask him to the dance.

She was beautiful, too, so it wasn’t as though he was “out of her leagues” … but he was pretty sought after.

I happened to be at the dance, too. I saw both of my friends. The night started harmless enough. Lots of dancing and a bit too much booze. Pretty typical college evening. But as the night wore on my fraternity friend started forgetting that he was at a dance in which he was invited to. It wasn’t a free for all. He ended up hooking up with another girl and literally left the dance with her.

My friend who had invited him was obviously mortified. She shouldn’t have been. He was the dolt. I lost respect for him. You learn a lot about people in these situations.

So it reminds me of a recent deal in Silicon Valley from 18 months ago or so. I had two friends who had agreed to co-fund a company. I knew the CEO well and heard what was going on from all sources. One of the best known VCs in Silicon Valley had decided to come in at the last minute and fund the company even though a term sheet was already signed.

The CEO said, “how could I not take VC “X” – they’re one of the best brands in the industry?” I disagreed. He has signed a term sheet. A term sheet is your bond. You’re not legally bound by it but you really hurt your reputation when you pull out for any reason other than something truly extra ordinary.

He tried to get new VC and previous VC to split the deal (the third VC didn’t care either way). Previous VC said, “no” – if that’s how you’ll treat us now we know how you’ll treat us down the road. I agree with their position. So new VC did the deal. And they have now given the company A LOT of money. We’ll see what happens. I still think the CEO made a mistake.

In life you’ll be faced with many situations like this – moral dilemmas. You’ll learn that there are many bad actors. You’ll find that there are very few people who still believe in honor. When you find those people they’ll be lifetime friends and business associates.

But you can start with yourself. It’s funny how many people I’ve known for 20+ years keep popping back into my life. It always reminds me the importance of always treating people with respect. You can have disagreement. You can have fights. You can even have people with whom you don’t want to work. But if you act in ways in which people question your ethics – people will have very long memories.

Me? I’d rather walk away from a deal than leave with somebody other than the lady who brought me to the dance. And it’s not for purely “Pollyana-ish” reasons. I believe that your long-term reputation matters more than any individual deal. And life’s too short to work with dicks.