Poking through 13+ years of posts I find information that’s as useful now as when it was written.

Golden Oldies is a collection of the most relevant and timeless posts during that time.

Burn rate is why companies (and people) should budget. Unfortunately, budgeting is often driven by burn rate when it should be vice versa — as most learn the hard way. Hard, but not impossible, just ask the guy who went from a burn rate of over half a million a month to $15,000. Although this post is from 2016 when money was tight and focused on entrepreneurs, it applies to companies of any size, as well as people, no matter their income.

Read other Golden Oldies here.

Last summer David Bladow, co-founder and CEO of flower delivery startup BloomThat, had the worse kind of ah-ha moment after deciphering the company’s accounting — a self-described “convoluted mess.”

What he found was a monthly burn rate of $550K that meant the company would be out of cash in just 4 months.

That knowledge drove a laser focus to change.

Now instead of shutting its doors in November, its self-diagnosed death date, the startup launched nationally on February 3. The company that was burning through half a million a month is now down to $15,000 a month.

BloomThat did early what every founder should be doing now.

Yesterday Mark Suster wrote about how to figure the right burn rate for your company and last week we talked about doing more with less.

Actually, I think the tightening of funding is a very good thing, although it will create a certain amount of carnage, it will force founders and their teams to grow up.

If that sounds harsh, so be it.

Funding based on unproven future sales is driven by hopes that are heavily shaped by outside circumstances — circumstances beyond any founder’s control.

Sam Altman warns that funding is not a guarantee of success and in the next few years David Bladow, Andrew Wilkinson and dozens like them will prove that horses have the staying power that unicorns lack.

Flickr image credit: Tsutomu Takasu

Poking through 11+ years of posts I find information that’s as useful now as when it was written.

Golden Oldies is a collection of the most relevant and timeless posts during that time.

There’s not a lot on TV that I like, but I used to really enjoy Shark Tank. Past tense; haven’t watched in several years. Why? Two words: lifestyle products. With very few exceptions that’s what was being presented, whether an app, a product or a service. I understand that entrepreneurs create stuff that will get funded, and while I’m not saying they are bad investments or that the entrepreneurs don’t mean well, I am saying that I don’t care about them. They won’t change the world or even improve it. Uber and Lyft are good examples; they haven’t decreased traffic, as they claimed they would, in fact, they’ve increased it. Most in the “life style” category are focused on “personal care.” (Have you noticed that sometime in the recent past “personal growth” morphed into “personal care”?) More packaging in the landfills, more time on the screen, more focus on self — so not my mindset.

Read other Golden Oldies here.

Innovation isn’t nearly as mind-boggling today when compared to what startups were doing in the late Seventies/early Eighties when I started working with them.

That’s not surprising when you consider who gets funded these days.

A recent Reuters report found that the majority of Silicon Valley startup founders that receive Series A funding come from the same pedigreed cohort: either they previously worked at a large, well-known tech firm, a well-connected smaller tech company, they previously created a successful startup, or they come from one of three universities—Stanford, Harvard, or MIT.

Not surprising when you consider the attitude of Valley stalwarts like Paul Graham of Y Combinator, who publicly stated that he would be unlikely to fund someone with a strong accent or a woman.

It’s been 15 years since I first wrote about the proclivity of managers to hire people like themselves and more over the years showing it leads to homophily and the negative impact that has on a company.

It seems it’s no different for investors.

They are funding people like themselves who were raised, educated and worked along paths similar to their own who they either know or are introduced to them by a friend.

“Like a lot of the investments [Instacart] that have come our way, a friend of a friend talked to us about it, and told us about it, and encouraged the founder and the CEO to come and chat with us. One thing led to another.” –Sequoia partner Mike Moritz

When you fund from a homogenous group, no matter where they are, creativity and innovation are watered down, because those groups tend to be insular and badly interbred talking mostly to each other.

If you’re fishing from a pond of rich white guys, you’re mostly going to get ideas that address the needs of rich white guys.

AKA, people like themselves.

Image credit: Frits Ahlefeldt

Mega rounds of funding are creating a frenzy in the startup world.

Start-ups raising $100 million or more from investors — known as a mega-round in Silicon Valley — used to be a rarity. But now, they are practically routine, producing a frenzy around tech companies with enough scale and momentum to absorb a large check.

But are they smart?

It may be great for ego and bragging rights, but does it make you richer?

Probably not.

Consider Zappos and Wayfair.

EACH ONE of Wayfair’s two co-founders made as much money as ALL of Zappos’ shareholders combined. (…)  Put another way, Wayfair co-founders made at nearly 10X as much as Hsieh.

Mega rounds hurt employees by substantially diluting their stock and forces you to grow, often at an unreasonable rate.

In these days of frenzied money, some founders, such as Gusto’s founder/CEO Joshua Reeves choose to say no to excessive funding.

Gusto, a payroll and benefits software company, raised $140 million in July, but could have done five times that, according to Joshua Reeves, its chief executive and founder.

Startups seem to have forgotten that the purpose of a company is to make money, not raise it.

Mr. Reeves, of software start-up Gusto, acknowledged that founders who obtain outsize sums of capital can get caught up in a “growth at any cost” mentality. That is why he chose not to maximize his funding round despite the intense interest. “It’s up to the founder to realize that’s a distraction,” he said. “Success is not having more money or a bigger team, but having more customers or revenue.”

Think about it.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

Unlike most folk, when tech types want to improve their sex life they assume there’s an app for that.

If there isn’t they create one.

[Jakub] Konik’s foundational story is a simple one: he was having sex with his girlfriend, and he started wondering how many calories they burned during one particularly memorable session. Stunned to discover there were no existing apps that could answer that rather specific question, he came to the conclusion that he should create one.

Wow! It doesn’t take much thought to see how connected sex toys can make a difference.

And before you laugh, know that at least a couple of the companies received funding.

So, give a cheer for this sexy version of ‘change the world.’

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

Assuming you don’t live in a different galaxy, you’ve followed the aftermath at Uber, since Susan Fowler posted her experiences there.

You just saw the co-founder of Binary Capital resign after women founders claimed harassment and a woman who works at Tesla called the factory a “predator zone.”

So many women coming forward has led to headlines that the Silicon Valley old boy power elite is being toppled.

Ha! Not going to happen in my lifetime — and probably not in yours.

Especially when the bias is so ingrained that even the funding questions, including from women, carry that bias, as do professors of both sexes on college admission evaluations.

And consider this comment on a NYT article.

Laura Castaneda
WA July 1, 2017
These women do themselves a disservice by choosing to appear bare legged, in shorts and casual clothing for this article. Rather, all three ought to have posed in business professional clothing. Women say they want to be accepted as professionals and peers while simultaneously choosing to participate in age old ways of competing: showing some skin. They have even chosen to do it for this article which is about the very acts photos like these encourage. Women who want to be treated equally should hide their sexuality (skin) in the business setting. It’s always been accepted that women who stoop to short skirts and low cut blouses at work are not to be taken seriously. What has changed to make that untrue today, exactly? Magical thinking?

What skin? One woman has on cutoffs? Her partners are in jeans and a skirt (no stockings) and all have on T-shirts. Typical Silicon Valley startup garb.

The comment reminds me of the ageless rape defense: dressed like that she was asking for it.

An op-ed piece in Bloomberg makes a telling point.

But do the people with the least power have to shoulder responsibility for weeding out misconduct by people with the most?

Ryan Pew, who writes Ryan’s Journal here on Thursday, is a former Marine and a millennial father of three girls. I asked him what he thought.

As a father of girls, by my very nature I want them to succeed without their gender being an issue. I understand the differences between the sexes but do see us as equal. However I have also seen how, as a man, you see other men who believe otherwise and are not afraid of speaking to a woman a certain way. One of these posts talks about how one of the VC’s was pushing alcohol and then used that as leverage when he tried his moves. Sounds very frat boy to me. 

Hey, Ryan, it IS frat-boy, AKA, bro culture.

What I’ve never understood, and I’ve asked directly, is why these jerks think what they do is “NBD, business as usual,” but condemn anyone who treats their wife/mother/daughter/friend/etc. the same way.

One more thing. For some phenomenal satire on the subject out Sarah Cooper on Medium, especially Why Do All These Women Keep Accusing Me of Sexual Harassment?

Hi. My name is Brad. You may not have heard of me before, but don’t worry, I’m rich. (…)  Obviously I’m a smart guy, but one thing I can’t for the life of me understand is: why do all these women keep accusing me of sexual harassment? (…) And yeah, I use my position of power to get laid, but who wouldn’t?  (…)  Do I want them to fuck me? Sure I do. Will it affect whether or not I fund their company? Yes, it will. Does that mean I don’t respect them? No! Well yes. But it’s not personal, it’s business.

From ‘77 to ‘97 I was a tech recruiter and can’t count the times I was hit on by VCs and managers. I’m here to tell you that harassment isn’t about sex any more than rape is.

It’s about power, control, money, and insecure male egos that are terrified of women who dare.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

In June we learned the right way to close a company and last month we got a lesson in the wrong way to do it.

Right, wrong; what’s left?

(Allegedly) crooked.

How crooked?

Penny Kim is a marketing professional who relocated from Dallas in July to work for WrkRiot (formerly known as 1for.one and apparently also known as JobSonic) for $135,000 a year plus equity and a $10,000 signing bonus for relocation expenses,

It ended with her dismissal in August after she filed a complaint with the Division of Labor Standards Enforcement over failure to properly pay her

If you wonder whether she’s just another disgruntled employee, she’s not.

Not when the CEO gives everyone faked documentation of wage payment.

“Thursday, August 4th was D-Day … That afternoon in the office, Michael emailed each employee a personalized PDF receipt of a Wells Fargo wire transfer with the message: ‘Here is the receipt. It has been calculated for the taxes on your semi-monthly salary and signing bonus. The money is arriving either today or tomorrow. I am sorry about the delay.'”

But the receipts were fake.

Al Brown, former CTO and one of the founders, confirmed much of her account, even the most outrageous accusation: The CEO she dubbed “Michael,” whose LinkedIn profile identifies him as Isaac Choi, gave employees fake receipts for money wire transfers to convince them the company had paid their back wages when in fact it hadn’t.

Not even a good fake, since the photoshopped receipts said 2014.

Even after that two employees lent the company an additional $65K.

All told, Choi burned through $695,000 (his own initial $400,000, Brown’s $230,000 and the borrowed $65,000) in less than a year.

A comment on Hacker News should serve as a bona fide caveat emptor for everyone in the global startup world, not just in Silicon Valley.

“Welcome to the club. It’s pretty much a rite of passage here to spend some time with a psychopath VC, a completely self absorbed CTO with a rich investor dad that fuels his fantasies, or an idiotic CEO with an ego problem, and to pay the price for it (just time if you’re lucky, time+money if you’re not).”

This isn’t a warning not to join, just a note to do so with your eyes open.

There’s a reason it’s called “due diligence” and it’s as much for employees as it is for founders and investors.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

As an entrepreneur, the constant stress around money in vs. money can at times be overwhelming and deeply emotional. Anxiety/angst/anguish/fear-and-loathing, and all synonyms thereof, best describe the feelings swirling in and around the entrepreneurial community these days when the subject of money, AKA funding, comes up — although not so much if you are one of the “chosen”, i.e. connected/entitled.

That said…

Bambi Roizen, Vator Founder and Managing Partner of Vator Investment Club, actually sees more money available. (Here is the video and full transcript of her talk at Splash one year ago. The quote is edited for clarity.)

There were about 20 post seed venture funds; now my friend Paul Martino counts probably 200 and there’re going to be a lot more funds. If you think that there’s going to be a crunch, don’t worry about it. I have a feeling there’s going to be a lot more funds coming to fill that void. I think there’s going to be a lot more specialized funds. (…) I think that’s we’re actually going to see local funds. Local funds investing in local businesses.

Because remember, this is the opening up of title 3 to the average investor. (…) It’s so hard sometimes to look at companies, because they’re so good at telling stories these days. I knew that was going to happen — you’re such great storytellers, you have to be, because you have to sell your vision. But it makes it really hard for investors to know what to invest in, so they’re going to invest in everyone, right? Money is available.

I asked KG what he thought from his perch as a serial entrepreneur who has raised funds in very different economies and attitudes over the years.

 “What she says is interesting. However, what we’re seeing is the financialization of the startup/entrepreneurship industry, with the consequence that financial investors will get involved earlier, take larger stakes and leave less for the entrepreneur and the team. 

One could say that it is good that capital may become easier to access (if this is true), but the cost of that capital is also increasing since there are now two layers of return that has to be provided much earlier than before — that to the VC and also to the VC’s LPs. 

In other words, entrepreneurs are coming earlier into the VC model where only a few outsized returns matter and the majority of companies are pushed/allowed to fail.”

Many VCs treat startups the same way commercial agriculture treats seedlings — once they get to a certain size they are thinned in order to concentrate resources on fewer plants that will yield a larger harvest.

“This may actually be negative for a whole host of companies that have no way of maturing before being put under the pressure of the VC return machine.”

However, newly emergent investors may bring change to the game. Kobe Bryant and Jeff Stibel have invested together since 2013 and have started a new fund with their own money.

Dozens of other musicians, actors and athletes are investing directly or through funds they started or joined.

Hopefully, that money will be more patient and come with a different mindset than the typical Silicon Valley focus on the connected and entitled.

It would be good to see at least some of the new funding go to the unconnected — especially people of color.

But no matter how much money is out there, I’m willing to bet that will take a lot more than vision/great story/rapid user growth to access it.

These days investors want a solid business plan focused on generating revenue, and, in many cases, a strong spotlight on social responsibility/giving back.

Image credit: HikingArtist

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

It’s a know fact that the more you are “teacher’s pet” or a “favored player” the more you will be called on in class and the more playing time you’ll get.

Even in families, the most-favored-child typically succeeds more than their siblings.

So it should come as no great shock that when VCs invest in similar companies, which they often do, they will favor one above the other.

And that favoritism usually results in more money, more introductions, more involvement, in fact, more everything, which results in substantially more innovation.

The data showed that companies tied to a competitor by at least one VC firm in common were indeed less innovative than those unencumbered by such ties; in fact, they were 30 percent less likely to introduce a new product in any given year.

It gets worse.

The UNfavored startups were 55 percent less likely to introduce a product.

Proximity mattered, too; those farther away from a shared investor were 56 percent less likely to introduce a new product.

What if your VC is part of the “golden circle?”

Companies tied to VCs in the top 25 percent of reputation indexes were significantly less likely to introduce new products in any given year.

Oops.

And I’m willing to bet similar stats apply to super angels, regular angels, incubators and the rest of the funding world.

Rory McDonald’s research is just one more reason not to be blinded by the money and to make sure your due diligence is super-diligent when evaluating funding offers.

Image credit: HikingArtist

Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here.

In 2011 serial entrepreneur Matt Weeks described what he calls the “startup social contract”. In it he talks about the tradeoff of salary for equity and that the basic premise is that the employees have the company’s back, the company has theirs and what happens if it is violated.

If the workers and/or the exec team come to disrespect, disbelieve or ignore this social contract, the company is lost.

Zach Ware, managing partner of VTF Capital, adds another dimension to what it means to have your people’s back and it’s crucial information as funding tightens.

“There is absolutely no reason for a company to shut down overnight. That’s a result of a selfish set of decisions a founder made.”

Ware spells it out by comparing what he did in his own startup, Shift vs. what Maren Kate Donovan, when she shut down Zirtual and laid off 400 people by email.

To start with,  Donavon claimed her CFO gave her incorrect numbers (he denies it) and that she was pitching to the last minute.

“The reason we couldn’t give more notice was that up until the 11th hour, I did everything I could to raise more money and right the ship.”

In actuality she bet 400 other people’s lives on a roll of the funding dice and then took the coward’s way out using email.

Ware finds her reasoning specious.

“Every founder should have a real-time understanding of their business. It doesn’t matter who does it. You have to know it. You have to know your horizons,”

Choosing to not only be a founder, but also CEO, means that, when all is said and done, the buck stops with you. Period.

No reasons, no excuses.

Image credit: HikingArtist

When it comes to marketing, it’s always important to separate the reality from the hype.

Millennials are supposed to be especially good at ignoring the hype and are supposedly brand-immune.

But not when it comes to funding their dream.

When they’re hot for a deal, VCs will promise all kinds of active help, from introductions and actual engineering help to workspace and wisdom.

And when they’re wining, dining, waving their checkbooks and promising anything you ask it’s hard to remember your dudil.

That’s when it’s most important.

But don’t listen to me, listen to Vineet Jain, CEO and cofounder of cloud storage firm Egnyte.

“Most VC firms say we give you more than money. That’s complete hogwash.”

The same holds true for angels.

So, how do you do dudil on an angel or VC?

Search their name along with words, such as ‘sucks’, that are commonly used for complaints.

Ask your peers; not just the portfolio CEOs, but any who have been raising funds or been around for awhile.

And when you ask, shut up; don’t disagree and don’t argue. Just listen.

Plenty of time later to sort out what you’ve been told.

All relationships are based on trust; if an investor says what you want to hear, or what’s convenient, just to get the deal, then you should have a pretty good idea of just how much help they’ll be down the line.

Flickr image credit: 401kcalculator.org