The benefits of an offsite for a startup include:

1. Challenging assumptions.  In a startup it’s always about executing.  Part of the elegance of the startups machine is that there are explicit and implicit assumptions which under which people are empowered to make the right choices and judgment calls on everyday decisions.  It’s helpful to challenge them sometimes, not to waiver in strategy, but ensure that they’re on right track and course-correct if need be.
2. Shifting thinking & responsibility out of silos into where it’s more appropriate.  It’s natural for people become heads down and worry about only what they’re supposed to do, even in small nimble organizations.  That’s their job.  But in a startup, things are fluid.  Product is marketing is technology is operations is sales; they’re really not wholly separate functions.  Bringing everyone together to talk about direction of the company places all these functions under a collective brain-trust.
3. Helping identify what’s missing.  As an individual in an organization, it’s harder to see what isn’t being done than it is to see what is being done (sometimes incorrectly).  Again, collective minds together can overcome what one person (often even the CEO) can’t perceive.
4. Empowering leaders to set real stretch but achievable goals.  When everyone is on the same page about what constitutes success for the overall company, it’s easier to set lofty but achievable functional goals because there is context to them.
5. Re-energizing excitement.  Even in a startup, daily activity can cloud what everyone together is building towards.  An offsite reminds people of bigger picture and helps with intrinsic motivation.  And yes, it can build a team atmosphere even without water-baloon toss.

The challenge with startup offsites is all of the demands of a company of this nature don’t stop that day.  I think especially because of that fact, it’s important to physically get out of the office, even if it’s to the conference room of an investor or that of another friendly local startup.  It is called an offsite for a reason, after all.  (While we’re atypical ourselves at NextView Ventures as a “startup VC,” we think offsites are essential and conduct them consistently quarterly - always somewhere outsite the office.)

Also, I believe that it’s necessary to having someone planning and drive an agenda to lead sessions, otherwise there’s real risk of wasting productive time.  Leadership buy-in into an offsite is key, and not just from founders/CEO, but everyone evolved investing in the day’s process.  (As an investor and board member, I’ve participated in startup offsites for portfolio companies, which can be helpful in adding an additional partially-outside perspective, but nowhere near essential and sometimes perhaps distracting.)  I’ve seen many portfolio companies hold offsites of various sizes and shapes (in terms of people involved & structure), all tailored to the unique situation of their company.  In the end, what is put into a startup offsite directly corresponds into what comes out of it, which if done effectively, is quite a bit.

There’s been a lot of spilled ink in the blogosphere about getting the right introduction to a VC, and the signal value that’s associated with the right person facilitating that connection. Yes, there’s a real message in who makes a specific introduction, but I personally think that attribute is over-valued. Either an intro is from an extremely trusted source and a VC will pay specific attention, or it’s from a respectable source and a VC will take the opportunity at face value… I don’t think there’s much signal in the greys in between.

More subtly, however, there are a myriad of smaller items which affect how a VC feels about a potential investment before even going into the meeting:

• Interactions over email (and with an assistant).
• First glance at the website (or lack thereof).
• Quick flip-though whatever materials are included in introduction (or again, lack thereof).
• Internal point-of-view on a specific space/category. For example, I know some firms which systematically won’t do anything travel or dating-related, but will still take meetings. Or, some firms have very specific theses about particular spaces and are actively seeking companies which fit into those maps.
• “Profile” of the entrepreneur or company – first-time or experienced, background, graduating(/ed) from a particular accelerator, etc.
• Whether he’s “heard” of the company prior to getting together. This includes both his perception that it’s “hot” through PR or VC scuttlebutt, as well as if he believes the investment opportunity has been “shopped around.”
• Where the company would “fit” well into the firm’s existing portfolio, filling in gaps from a stage or sector standpoint.
• Knowledge about the (existing or future) syndicate composition or other deal dynamics which are favorable or unfavorable.
• How much board-level capacity the individual partner has remaining – is he overloaded with board commitments or is he in investment-seeking mode?

The above list is illustrative but in no way intended to be exhaustive. The point is that some of the above factors are within an entrepreneur’s locus of control and some of them are certainly not. (At NextView, we deliberately aspire to go into each entrepreneur conversation with a “blank canvas” perspective, one of the stated aspects of our firm’s ethos.)  The takeaway is for entrepreneurs to recognize that before an opening slide is even shown, a VC has begun to form a point-of-view of whether it’s an attractive investment; and by attuning to any intangible initial signals in the opening dialog, modify the pitch accordingly.

Rather than age or the length of a resume, the more important quality which we look at is authenticity, one of the core aspects of our Ethos here at NextView.  What we mean is that we identify best with entrepreneurs driven to solve problems realized through their own genuine experiences.

Younger entrepreneurs are “digital natives,” having had the unique background of growing up entirely with the internet as a presence in their lives.  That perspective goes a very long way into creating a service which can be truly transformative yet integrated in how people inherently interact with the web.

For founders who have more working experience in large companies or at startups, those who resonate with authenticity are most often those who are addressing problems/opportunities which they have observed first-hand.  From that observation, they are creating a real solution, not just a business for the sake of financial gain.  It always baffles me when we see pitches from entrepreneurs who have some great deep-domain expertise in their backgrounds and they’ve deliberately decided to pursue something in a different space.   Great ideas search for a great entrepreneur; great entrepreneurs don’t search for a great idea.  That is not to say that truly exceptional serial entrepreneurs can’t be successful with new endeavors outside the domain of their earlier startup(s), but there is a clear distinction between eschewing past experience and pursuing true opportunity.  Authenticity isn’t about a verticalized understanding of an industry, it’s about having a genuine narrative of why you’re pursuing a specific endeavor and what in your personal story can be leveraged to give you an unfair advantage for success.

So if you look at all of the founding teams in our portfolio, the one typical profile which is common throughout is the experience of having an authentic passion for creating something that is uniquely true to the context of their own individual lives.

But now with the IPO markets opening up for the strongest of players to go public (– though certainly at a higher bar than a decade ago pre-SOX), there is reason for some optimism.  That optimism, even, can extend beyond the IPO markets to M&A as well.  If you examine the four largest recent (soon-to-be-)public consumer internet companies – LinkedIn, GroupOn, Zynga, and of course Facebook – there’s a clear positive pattern which is emerging about their acquisitiveness.  Over the past three years, the number of startups which have been acquired by these four companies is trending upwards.  The following chart details the number of startups that LinkedIn, GroupOn, Zynga, and GroupOn have acquired annually since 2009 (source: Crunchbase; 2012 total straight-line extrapolated from Q1).

While the above upward trajectory is demonstrated on a numbers basis, not a dollars basis, the former is still a direct proxy for these companies increasing their internal M&A functions.  And last week’s $200M OMGPOP acquisition by Zynga is the starting-gun fire for deals that aren’t just “acquihires,” but real meaningful ones.  Likely soon after their IPO, Facebook will leap out of the starting-block on that race as well.

With these new acquirers in the ring, Google will not be the only game in town with a purse and appetite for sizeable consumer internet acquisitions.  The result will be more deals overall, larger deals, and more competition for them (resulting in higher exit prices).  Overall, a much more positive picture than the late 2000’s.

This trend of a new generation of acquirers isn’t just relevant to consumer internet; for example, Salesforce is ramping up their own acquisition machine with three $100M+ acquisitions (Radian6, Heroku, & Jigsaw) within the past two years.  In addition, these four companies aren’t the only “new” ones utilizing M&A… still-private companies like Twitter (9 acquisitions in the last year) and recently public ones (Homeaway) have a penchant for acquiring talent and real organizations that could become on the go-to short-list of strategic exits for startups.

Looking in the rearview mirror, there are reports of VCs’ confidence continuing to fall, but all of the above is cause for cautious optimism about what’s in store on the road ahead.

• john@startup.com <– The first-name convention projects that the company values the individual in a truly personal manner.  Or, it wants to ascribe internal prestige to the early employees (i.e. “I was the first John”) that will not whither as the company grows .
• jsmith@startup.com <– This convention conveys the importance of scalability in the organization, even from the founding stage… most likely stemming from a technical founder.
• johnsmith@startup.com <– Precision trumps brevity in this startup.
• johns@startup.com <– The founder’s last name is too long or hard to spell, and so nobody else at the company will list theirs either.
• johnny@startup.com <– It’s a casual, yet hip atmosphere… the office eschews chairs for beanbags, shared tables for offices & cubes, and there’s not a Windows PC to be found.
• john.smith@startup.com <– The founding team is all from Microsoft and can’t shake it if they tried.
• founders@startup.com <– The founding team is alumni from one of the Techstars programs.
• chiefninja@startup.com or chiefcrazytitle@startup.com <– The founder over-communicates in a somewhat conventional manner that he wants to defy all conventions.
• info@startup.com <– The team is running in stealth-mode to look inconspicuous, but really wants people to ask.
• john-smith114@gmail.com <– The founders can’t even figure out how to buy their own domain name.
• jsmith@startup-inc.com <– The founders are so convinced that they’re taking over the world that they want to leave the option of issuing @startup.com email addresses to their consumer users.
• js@startup.com <– The founder is a Lean Startup disciple who wanted to put out a Minimum Viable email address.

What else am I missing?

In the past month or two, it’s become especially salient to me that the release of the Microsoft Kinect Developer Platform last summer is something fundamentally game-changing.  Between conversations in I’ve had in the past few weeks with folks at Microsoft NERD in Cambridge about the February release of Kinect for Windows, to all the recent media coverage like this Economist article about gesture-driven interfaces and Bloomberg coverage about the device specifically, to last week Gather Education absolutely wow’ing the crowd with its Kinect-powered virtual classroom to win the Audience Choice award at the Web Innovators Group event which I host quarterly, I am realizing the real potential of this platform outside the gaming environment.  Anytime a fundamentally new platform is introduced, it creates white-space… especially for startups.

So I thought I’d think aloud in generating a thesis set about the profile set of early successful companies on the platform will look like.  I think that the first couple breakout Kinect-enabled non-gaming startups will possess four qualities:

1. Integration of Kinect into the entire experience, not as an afterthought.   Although early versions of the mouse as an input device appeared in the early 60’s, it wasn’t until twenty years later in 1984 with its inclusion in the Apple Macintosh box did it really hit the mainstream – and it’s largely due to that the GUI utilized a mouse in a way that was integrated into how the entire operating system worked.  Similarly, a breakout Kinect-powered startup will go beyond just the “wow & cool” factor as a feature and meaningfully integrate the functionality of the gesture-driven controls into product itself.
2. Transcend gaming but with users from this same demographic of install-base.  As of this past January, there were already 12M installations of the Kinect device on gaming consoles.  While Microsoft is touting that over 350 companies are working with Microsoft on custom Kinect applications ranging from in the medical field to manufacturing, I suspect that the real first killer-app outside gaming for the Kinect won’t far too far afield from its current install base.  Afterall, there are literally millions of console gamers already using the product, and early Kinect for Windows buyers will be gamers as well.  It’s much easier to have end-user consumers utilize a device which they already have for another function than spur adoption of a new set of end-users to purchase a product entirely de novo.
3. Inherently social.   Two Kinects are better than one, it seems.  Given the technology helps “humanize” how people interact with computing in a natural way, I believe that the first breakout apps will leverage one of the most human of human activity – social interaction.  Given that base plus the inherent viral component to these social apps, it seems natural that the first overnight success of a Kinect-powered app will be a social one.
4. Mash-up of many other technology platforms.  The Kinect platform is a building block which isn’t an end in and of itself, but rather it by definition needs other components.  I suspect the first breakout hits will be something that starts out just as a mini-project (perhaps on a hack weekend) that “merely” mashes up a couple interesting APIs to make a whole sum greater than its component parts.  As Chris Dixon is fond of saying, “the next big thing will start out looking like a toy.”  The easiest way to create something perceived (initially) as a “toy” is to quickly conceive and execute a project with a number of component parts off of the shelf.

Though the program is 3000 miles away, I am especially excited to see what startups emerge from the TechStars Kinect Accelerator program which is going to be held in this spring in Seattle.  Given the emerging trendline of the startups which graduate from this series of programs (of which I am a mentor here in Boston), this TechStars class focused on a particular input platform is especially unique.  Luckily, we have the Kinect Boston Meetup here locally.

As merely a participant but not a creator in the technology innovation ecosystem, it’s challenging for me to clearly articulate where the real innovation is going to sprout.  But I am confident in saying that there we’re on the precipice of something big here with the Kinect platform, whether it’s in the next couple months or next couple years.

Jerry Neuman had a great blog post a couple weeks ago on giving feedback to entrepreneurs who pitch him for investment in which he categorizes his reactions about why he’s not going to pursue it.  His eventual conclusion is “I am not looking for a reason to say no; I am looking for a reason to say yes.”   That statement is certainly the case for all venture investors.  We enter meetings with entrepreneurs not looking for reasons to say no, but rather with the hope of hearing a story which is truly exciting.  When that spark doesn’t happen for whatever reason, it can become a challenge to clearly articulate in words why that is the case.  In many situations, a startup pitch just lacks that one additional compelling factor that empowers an investor to take that leap of faith… and it’s challenging to crystallize what’s exactly missing.

But lack of concise rationale for not pursuing an investment isn’t the reason most VCs don’t share real feedback with entrepreneurs, or in many cases, follow-up after a meeting at all.  Instead, it’s typically because one or a combination of the following reasons:

1. It takes time and effort to circle back with deliberate thoughts in a profession where both of those resources are scarce.
2. It’s challenging from an inter-personal skillset to deliver difficult news constructively rather than not.  And possessing that skillset is not a necessary one to become a good investor.
3. VCs occasionally encounter extremely hostile and unpleasant reactions to negative feedback from entrepreneurs.   Ask any VC and they’ll share a horror story.
4. Some entrepreneurs view a conversation about feedback as another opportunity to pitch rather than listen.  A decision has clearly been made, but they view the dialog as an opportunity to try to re-open process at that very moment and sell against specific objections.
5. VCs have a bias towards preserving (the perception of) “optionality” with any potential investment.  The more negative the feedback (even if genuinely constructive), the less likely an entrepreneur will return to a venture investor whenever his business and/or financing details have markedly progressed.  A VC doesn’t like to even entertain the thought of “missing out” on a good opportunity if it isn’t required.

The first and second reasons, while I can understand, I think are largely inexcusable.  In a business where the entrepreneur is the customer of a venture capital firm, good customer-service (so to speak) is paramount.  Respecting an entrepreneur’s time with the courtesy to share thoughts after they’ve taken the time to open the kimono on their business is a reasonable exchange in the unspoken informal contract of the fundraising process.  The third reason, while certainly a hazard, happens infrequently enough that it shouldn’t be a factor.

On points four and five, I’ve come to learn with experience that these are not bugs in the process but rather features.  Good entrepreneurs may either try to re-convince a VC who has passed given another conversation, or view the “no” as a transactional and move on.  But great entrepreneurs use the opportunity to hear critiques as a learning opportunity to refining their business or how they effectively communicate about it.  Great entrepreneurs also value people who are honest and direct about their concerns, and use those points as a foundation for addressing them to build a relationship over time.  At NextView, we’re looking to invest in the truly great entrepreneurs.

So I always try to share at a detail-level of feedback with a founder who pitches us to invest in their seed round commensurate with the amount of time we spent together.  My aim is to do so as constructively as possible, always with the caveat that it is only my personal perspective and merely one datapoint.  Sometimes the feedback is overly blunt and not easy to hear, but the intent is for it to be valuable in some fashion.  And if that feedback opens the door for a long-term dialog, then that’s just an additional benefit.

It’s fairly telling to note, that of the fifteen portfolio companies we’ve invested in here at NextView, between the three of us partners we had said “no” to the founders at some point on eight of them.  Whether it was with their current venture or a previous one, whether at our previous firms or at NextView… more than half of our investments we passed on an opportunity to work with the founder initially, but used that dialog as a basis for further developing a relationship.  (Along those lines, my partner Lee has an entire separate post about the difference between “no” and “not yet.”)

So I strive to offer direct and honest feedback with every entrepreneur I meet with (and am humble to say that while I often do, I don’t always succeed.)  And I am encouraged when that exchange is a one which is valued; that can be the beginning of a relationship, not the end of one.

For VC-backed startups, there is a fine but bright line between a company with individuals in remote (home) office location(s) and a company that is completely virtual & distributed.  Fairly often I hear entrepreneurs pitch that their startup doesn’t have a headquarters – everyone works remotely and it works.  That situation certainly can work very well early on in a company’s life-cycle when there are a dozen or less employees.  Perhaps it can work even in larger organizations in which the nature of the work is inherently distributed by nature.

But VCs want to know where a company is (going to be) located after they fund it.  Where is its center of gravity?  It’s not about being able to see a hanging on a door to an office or just because that’s the way it’s always been done.  Rather, VCs want to know that an entrepreneur is thinking big enough about their idea that the organization which they’re creating will grow to a point where a central location is a requirement.   Having a place that a startup calls HQ (even if the majority of employees are physically present elsewhere) is a litmus test for VCs to gauge whether a founder wants to create a small profitable business or a truly transformative one.

Of course with technology-enabled startups, the goal s of a company are not to add employees.  In fact, hiring is only done when it’s out of necessity.  But the most meaningful of companies which are on the path towards an IPO invest in human capital ahead of the anticipation of enhanced resulting cash-flow.  And with additional talent comes leadership and a management team, which direct the activities of an array of people contributing.  I’d argue that it’s incumbent on an organization to have a majority of the management team co-located to foster communication and develop a sense of trust that only consistent in-person interaction can provide.

So when entrepreneurs begin a venture capital fundraising process, they don’t need to have a headquarters… yet… but they do need to share a story about the city where they’re going to build the locus of their company in the future.   A decision about the one central place where at least most of the management team is going to coalesce demonstrates that there’s a vision about not only where the company is going in the next year, but about what it is to become in the long run.

Our website’s page on Tribe starts with the statement, “Building and investing in great companies is not a solo sport.” And we subscribe to the concept of Tribe to address that truism. Merriam Webster defines tribe as “a group of persons having a common character or interest.” For us, we’ve joined a number of Tribes which are part of our Ethos.

First, we consider our NextView partnership to be a Tribe. The three of us strive to have our behavior and interactions with entrepreneurs exhibit that common character which we share, as Rob talked about in our Invited Guest post. But the concept of Tribe also extends beyond a sense of responsibility we have when we’re meeting with new entrepreneurs; it includes how we act as a cooperative partnership. All venture capital partnerships fall along a spectrum where on one pole are individual contributors hunting on a shared platform, to the other end where the partners act in unison a real team. At NextView, we aim to be on the far end of the latter side. This stance translates from the language we use, as well as how we act (which Rob has detailed in a previous post). And most importantly, we make investment decisions as a team, and we then stand by them as a unified team. That means that even when an investment decision itself is contentious, once a company becomes part of our portfolio, all of us act in 110% support of it regardless of how we felt about the original selection. There is no second-guessing or I-told-you-so’s whenever any of these startups face (inevitable) challenges. We are instead a Tribe with equal common interest of striving to help make each one of our portfolio companies a success.

So the sense of Tribe, then, extends beyond our partnership to our family of entrepreneurs with whom we work. Rob, Lee, and I actively become involved operationally with each and every one of our investments, especially at the seed stage. And through internal collaboration tools and forums we’ve introduced, Founders and CEOs of NextView portfolio companies help each other out with advice, support, and connections. It’s been enriching to see multiple instances where portfolio companies have assisted each other in the pursuit of good for the entire NextView Tribe.

Lastly, we at NextView consider ourselves to be part of a greater Tribe within the entrepreneurial web and mobile community. It is a belief that it is our responsibility not just be participants in, but rather active contributors to the overall ecosystem. This belief translates into all three of us engaging in activities that aren’t necessarily tied to just finding our next investment, but instead to really enhancing the overall entrepreneurial landscape. For example, in the past year, we have partnered with, spoken at, or participated in events/organizations at Harvard, MIT, Babson, Northeastern, BC, BU, MassChallenge, Dogpatch Labs, TechStars, Betaspring, Bostinno, General Assembly, and the Web Innovators Group; just to name a few. It’s these and the other many smaller but impactful things we do to contribute which lead us to consider ourselves part of the greater Tribe.

For us, the idea of Tribe is really a set of concentric circles – expanding from our partnership, to our portfolio family, to the broader community. In each area, we look to pursue that common interest in fostering every group.

• The Super Angel.  Much has been written about this category, so I won’t belabor the description beyond that the defining characteristic is the large number of investments that he makes.  PROs of taking his angel money are the feeder system to venture financing of the next round and the vast network of portfolio CEOs which can be tapped into for connections and help.  CONS of an investment from a Super Angel include potential lack of “value add” because his time is spread so thin amongst many portfolio companies.
• The Domain Angel.  Investors in this category are usually operating executives who have spent their entire careers in a specific industry vertical, like internet travel, for example.   They will have the ability to “see” the opportunity that the startup is going after unlike anyone else, save the entrepreneur because they inherently get the space.  PROS: Industry-insider who serves as a validator for the rest of the investment syndicate, extremely helpful advice and network connections.  CONS: May be more proactive in “offering” advice that is uninvited.
• The Previous-Colleague Angel.  Having someone who the entrepreneur(ial team) has worked with before can be a good validator to other syndicate investors and future investors that they all work well together.  PROS: Nice signal value.  CONS: Potentially not much value-add beyond initial financing round.
• The Friends & Family Angel.   These are the proverbial first-commit investors.  PROS: Known quantities who are usually the first people to be willing to write a check.  CONS: No value-add subsequently, and can potentially needlessly interject into operations or future financings that are destructive for the company.
• The Grouped  Angels.  Especially here on the East Coast, angel investors have formally grouped themselves together for various reasons.  This can benefit entrepreneurs because of a one-pitch-many-investors process, but can be challenging too.  Elaborating on both the pros and cons here are probably the topic of another post.
• The Fellow-Entrepreneur Angel.  Entrepreneurs know other entrepreneurial endeavors best, and can be great backers of other businesses – they’re likely to be one of the first to take the leap of faith and the first to help, which are just two of the PROS.   CONS:  depending on the size of their previous wins, they may not have a large checkbook; if the relationship is more of a peer than an advisor, they may not be constructively critical.
• The “True Believer” Angel.  These angels are can as difficult to find as a diamond in the rough, but there are those angels out there who hear startup’s story, instantly believe, and want to immediately invest sometimes in spite of the financial risks.  PROS: Over-the-top encouragement and support, a cheerleader as a balancing voice amongst what-have-you-done-for-me-lately investor syndicates.  CONS: Lack critical eye and challenge to push an entrepreneur after the investment has closed.
• The Financial Angel.  There is a small cadre of angels out there who are diligently and intentionally, but also quietly, building a diverse of early stage startup investments through the lens of a portfolio allocation model.  Rather than investing in a fund manager to do the work for them, they are instead doing it themselves for the purposes of disbursing their personal capital into a portfolio purely aimed at financial return.   PROS: Validation for other financially-savvy syndicate investors, lack of intrusion to let the entrepreneur run his own business.  CONS: often very little help or involvement with the company post-investment, if at all.
• The “Sport Fisherman” Angel.  These mega-wealthy individuals, sometimes not from the startup world, invest an extremely small portion of their net wealth into early-stage startups so that they have something to talk about with their friends at cocktail parties.  They do it merely for the entertainment-value of participating and care very little if their investments actually yield a return (though that would make for even better conversation fodder).  PROS: Sometimes these individuals are well-connected or have a public persona which could be helpful to the business.  CONS: Potential lack of concern for the entrepreneur or the company, as there is always another fish to try to catch.
• The Foolish Angel.  Often bucketed with others above into a “Friends, Family, & Fools” category, I think that the truly naïve blind supporter angel deserves his own category.  PROS: Money is money.  CONS:  Many, as a foolish owner of your business can influence it in foolish ways.

If, as an entrepreneur, you’re currently seeking and pitching angel investors, and he doesn’t fit into one of the above categories, then there’s a good chance it’s going to be tough to get him over the line and commit to writing a check.  All of the people in the above categories have their own different motivations, but they at least have those as drivers towards investing.  Without a specific rationale, it’s an uphill battle to convince an angel investor part with his own personal capital.

Conversely, when starting a financing process which includes raising money from individual angels, using the above schema as a guide to thinking about who within your network (and your network’s network) might be interested in participating as an early investor is a good first step.

At the end of the day, all money is green.  But if you have the fortunate ability to be oversubscribed in a seed round and are selecting who you are going to let into limited space within the round, it’s important to think about composing a syndicate of angel investors which come from a deliberate range of the above categories so that you can maximize the benefits and hopefully diffuse some of the potential drawbacks.  Here at NextView, we welcome investing alongside individual angels, especially when they’re going to be constructive in some way.  A vast majority of the seed rounds in our portfolio have angel participation; and as my partner Rob explained in a recent overview, a third of our initial investments are syndicates comprised of just the NextView Ventures fund plus individual angel investors.