• Hired CEO: “We’re on a Clear Path to $1 Billion-Plus in Revenue”

    MattSome people think great hires come through networking. Hired, a two-year-old, San Francisco-based company focused primarily on technical talent, thinks much more of the process can and should be automated, and it’s seemingly on to something. More than 1,100 employers – from American Express to Secret — are now using its platform and it has facilitated more than $3.3 billion in job offers, it says. As tellingly, most of a $15 million round that Hired raised earlier this year remains untouched in the bank, according to the company.

    Should boutique agency recruiters be nervous? Maybe. Many still use tech minimally, throwing people on phones and email, while Hired tries wringing every inefficiency out of the process through data analysis, providing high-touch experiences on top.

    Certainly, it’s a big market to disrupt. U.S. companies alone pay out $124 billion each year to third-party recruiting services. We talked yesterday with Hired’s CEO, serial entrepreneur Matt Mickiewicz, to learn how he’s trying to nab a piece of that pie.

    There are lots of recruiting startups. What are some big differentiators that companies and prospects should know about Hired?

    We’re basically flipping the funnel. Traditional recruiters sell into companies and get client contracts. We’re focused on candidates and building a consumer brand, so when you’re ready for a new challenge, you come to us because you know you’ll get offers from a spectrum of companies with minimum fuss.

    How are you reaching these elusive engineering job candidates?

    Thirty percent is through paid advertising – like sponsoring online developer communities and hackathons and meetups. Thirty percent is through organic sources and 30 percent comes through direct referrals.

    How many candidates have you placed?

    We don’t disclose that number but it’s multiple people per day.

    How are companies paying you to find them?

    There’s no initial cost for employers. It’s a pay-for-success model and employers can either pay 15 percent of [a new employee’s] base salary, which is typically around $20,000, or they can pay 1 percent per month [of that person’s salary] for up to 24 months, amortizing the cost across the life span of the employee.

    That’s [roughly a third] more money for you.

    In recruiting, traditionally, all the cost is front loaded, but the value is delivered over time. So if you’re growing fast and hiring 10 people a quarter, that’s a lot of money in up-front expense. With the 1 percent plan, companies can better manage their cash flows. It also aligns our interests. In the traditional model, if a person leaves after eight months, the company is still on the hook [for the recruiting fee]. If that happens with our model, the company [stops paying us].

    What makes you so sure you’re finding the right matches?

    We filter for quality – whether [candidates have] attended top schools, worked for top venture-backed startups, contributed to hackathons – and typically accept just 5 percent of applicants. We also screen for intent, meaning how likely it is that this person will go on interviews with companies based on how long they’ve been with their current employer, how realistic the candidate is . . .

    Where is Hired today? Give us some metrics.

    Six months after raising our Series A, we’re on an eight-figure annual run rate, which is crazy. Our employee count is 57 [up from 25 a year ago], and we’re now opening a new office every six weeks and becoming profitable [at that office] within 30 to 60 days. It’s a great product-market fit.

    You have offices in in San Francisco, Seattle, L.A., and New York. Where do you go next?

    We’re scaling out in the U.S. and internationally, so Boston is opening this month and we’ll be in London by the end of this year.

    You talk a big game about customer service. What’s an example of going above and beyond for a job candidate?

    If someone flies an engineer to New York but doesn’t reimburse that person right away, we’ll pay that bill ourselves.

    You previously cofounded the fast-growing freelance marketplace 99Designs, among other companies. Think Hired will be the biggest company for you?

    Yes. We’re solving a problem at scale and it works. We’re on a clear path to a billion dollars plus in revenue.

    Connie

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  • A Billionaire Brawl in Silicon Valley

    boxing-kidsIt’s no secret that Uber and Lyft don’t like each other much. In just one kerfuffle of late, Lyft told CNN that over a recent 10-month period, Uber employees had requested, then canceled, more than 5,000 rides from Lyft drivers. Uber quickly punched back, claiming that Lyft’s employees had canceled more than twice as many trips on Uber.

    Investors in the rival ride-sharing services have mostly stayed above the fray through such public scuffles. But now, they’re starting to sling mud, too.

    The trouble started yesterday morning, when at a TechCrunch conference in San Francisco, TechCrunch founder Michael Arrington interviewed Uber CEO Travis Kalanick in what appeared to be an effort to publicly rehabilitate Kalanick, who the press has begun to portray as something of a bully.

    Arrington asked, for example, if it wasn’t true that Lyft is a copycat, partly because Uber and Lyft announced carpool options within a day of each other in early August. Kalanick, who typically seizes opportunities to trash competitors, humbly offered: “Here’s maybe a little bit of a hat tip: I don’t think Lyft copied this particular feature; companies are often working on similar things.” (According to New York magazine, Lyft began work on its program in April, but “before the Lyft news had landed,” Uber published a blog post announcing a “virtually identical service.”)

    Arrington also uniformly dismissed Uber’s competitors as “ankle biters” and called Lyft “annoying because you have to sit in the front and talk, and they have those mustaches.” Said Arrington to Kalanick: “They seem to be constantly whining that [Uber is] beating them. Would you consider buying Lyft to shut them up?” (The audience laughed as Kalanick told him that Uber isn’t acquiring companies right now.)

    Initially, the interview seemed a coup for Uber. Noting Kalanick’s gentler demeanor — Kalanick repeatedly called himself “scrappy” and misunderstood — TechCrunch reported that if “Uber can buck its perception as a ruthless, greedy company trying to put cabbies out of work and instead show the softer side of on-demand services, it could succeed far beyond taxis.” Meanwhile, the San Francisco Chronicle noted Kalanick’s “pains to exhibit his kinder, gentler side” during the on-stage interview.

    But the cozy interview almost immediately drew criticism on Twitter, with comments from people like Wall Street Journal reporter Doug MacMillan and Founders Fund partner Geoff Lewis, both of whom noted that Arrington is an investor in Uber through his investment firm CrunchFund, an affiliation that was never raised during his interview with Kalanick. Lewis, whose firm has invested in Lyft, was particularly pointed in his tweets, calling Arrington’s interview “shameful,” given its absence of any relevant disclosures.

    Things only grew more heated several hours later, when during an on-stage interview with TechCrunch’s Alexia Tsotsis, Peter Thiel of Founders Fund described Uber as “without question, the most ethically challenged company in Silicon Valley.”

    (As Twitter lit up over Thiel’s remark, venture capitalist Marc Andreessen, whose firm also owns a stake in Lyft, joyfully jumped into the fray, tweeting: “A big thank you to @arrington for all the unsolicited free publicity for Lyft this morning at Disrupt!” He also published a discount code for Lyft — DISRUPT — and in Andreessen fashion, punctuated his tweet with a disarming smiley face.)

    Arrington seemingly tried to stifle the conversation by tweeting to Lewis, “Let’s just cut to the ‘and the horse your rode in on’ and go our separate ways, you worthless d__k.” Perhaps realizing the tweet would only garner more attention, Arrington then tweeted that Thiel is an investor in Uber through Arrington’s fund, CrunchFund, and that Arrington is himself an investor in Lyft through Andreessen Horowitz, where he is a limited partner.

    By then, though, Valleywag had caught the flavor of the story, calling out Arrington and Thiel for fighting over Uber “like boys with toys.” And Arrington’s efforts to help alter Kalanick’s public reputation as a brawler were largely forgotten.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

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  • Ariel Poler: I Don’t Want to Become a Professional Investor

    arielpolerheadshotFor 15 years, Ariel Poler did the entrepreneur slog, founding I/PRO, an early web analytics company; Topica, an email community; and the mobile marketing startup TextMarks. Then, in 2010, Poler decided to turn his attention entirely to angel investing, a pastime in which he’d long dabbled and that has also proved lucrative for him thanks to numerous hits, including AdMob (acquired by Google) and StumbleUpon (acquired by eBay and taken private again).

    Poler’s investing career took shape in the late ’90s when he began helping out the boards of several startups, including Kana Software and LinkExchange, in exchange for equity. He still doesn’t think of himself as an “investor,” though, or plan to raise a fund. “It’s just not what I want to do for a living.” He explained during a recent chat.

    How many startups do you invest in per year and what size checks do you write?

    I don’t have a target but it’s worked out to be between three and five per year. In terms of the size of check, the average is probably $50,000.

    You’re involved with a lot of “hot” companies, including the cycling and running app company Strava. Why not raise a fund like everyone else in your position?

    I don’t think of myself as an investor. I won’t invest in an entrepreneur who I won’t have over for dinner. I don’t want to have to optimize for financial return. To become a professional investor, it’s just not what I want to do for a living. It’s not why I do it.

    You want to like the people you’re backing. How do you decide if it’s a good fit?

    It’s becoming harder. Because the speed at which startups get built and funded has accelerated significantly in recent years, there’s generally less time for people to understand if there’s a good fit. On rare occasions, I think [something] will be a good fit, then discover it isn’t. But that’s another benefit of [not being obligated to outside investors]. When that happens, I hold on to my shares, but I won’t proactively spend my time with the startup.

    What I try to do is interact a little bit in a way that’s proactive for entrepreneurs [like via] working meetings. I recently met with some founders who needed to pick a vertical for their product and needed help prioritizing, and I said, “Let’s pretend I’m a member of the team,” and we spent an hour and a half [on the issue], and I enjoyed it and they enjoyed it. That’s how it starts. Because everything is moving so quickly right now, you might not have the luxury of [spending a few weeks or more with a team], but I still try.

    You were on the board of Odeo, a platform for podcasters out of which Twitter was eventually spun, and you let founder Evan Williams buy back your shares. Was there a lesson in that experience?

    Everybody got their money back. It wasn’t an option. It wasn’t like some said, “Give me my money,” and others didn’t. Evan wanted to own 100 percent of Odeo and he bought everyone out. Then months later, he did a financing for Twitter and a small group of those who’d been investors in Odeo participated in the Twitter round. For me, when I was deciding, I thought Twitter had potential; I did feel pretty good about it. But there were other reasons I decided not to invest and they’re reasons that were pretty valid and go with my investment philosophy.

    That was the worst professional decision of my career, no question about that. [Laughs.] But if you look at most of the very successful companies, it’s very hard to predict [their rise]. When Evan came to the board and said, “I don’t want to do this anymore,” Twitter was already part of Odeo. We [the board] said, “The founder doesn’t want to do it. We don’t have any traction. We should try to sell it.” It was my job as a board member to find an investment bank, and I did. I was thinking Twitter could help MySpace compete against Facebook. But no one would take it for free — not for a dollar. That’s when Evan said, “I’ll do an incubator [and restart].”

    Many investors seem to think it makes sense to just back an entrepreneur like Williams an infinite number of times.

    That’s a common takeaway. But sometimes they try again and it works, and sometimes they try and it doesn’t. We all thought Twitter could be great but it wasn’t a slam dunk.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

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  • This Four-Year-Old Internet Startup Just Landed $63 Million in Series A Funding

    Ian_Siegel_CEO_ZipRecruiterYou probably haven’t heard yet of four-year-old ZipRecruiter, a profitable, L.A.-based online hiring platform for small and medium-size businesses. In recent months, though, plenty of growth-stage equity firms were kicking its tires and hoping the company might bring them aboard as investors. In the end, its four cofounders agreed to a $63 million round led by Institutional Venture Partners, with participation from Industry Ventures and the brand-new L.A. firm Basepoint. I talked with one of those cofounders, ZipRecruiter CEO Ian Siegel, last week about the company’s low-flying trajectory so far.

    You spent 20 years working for L.A.-based startups. Why start ZipRecruiter when you did?

    My experience and my cofounders’ experience was the same. Because the companies were so small where we were working, there was no HR department, no one to do hiring for you but you. So I was the only one posting jobs. I was the one vetting candidates and making decisions about who and when to hire. Part of the reason those companies stayed small was it was so painful to bring another person on board. We weren’t HR professionals. We just thought, Let’s build something that would be useful for us. And it took off. We’ve been profitable since our first month.

    What’s so special about your technology?

    What ZipRecruiter does is take a set of services that have been used by Fortune 500 companies, from an applicant job tracking system to easy-to-search databases, and [offers these technologies] to small and medium-size businesses. The value for our customers is they can post a job to many job boards at once — Monster, Twitter, Glassdoor; more than 50 at once — then we present them with candidates from all of those places in one, easy-to-review [interface] so they can screen and track candidates.

    This is a SaaS business. How much do you charge users?

    We charge $129 [per month] and scale up depending on how many jobs a company has to post. Some customers post [a lot of] jobs, and it’s more than $1,000 per month.

    You say you’ve been growing like a weed. Give us some metrics.

    At the beginning, it was pretty much four founders who were rotating between each other’s kitchens. I took every customer support email and phone call. A dog would be going crazy in the background, and I’d say, “I don’t hear a dog, do you hear a dog?” Now, we’re moving into a 40,000-square-foot space in Santa Monica. We have 150 employees, tens of millions of dollars in annual revenue and we’ll have more new subscribers this year than in all previous years combined. We’ll have 100,000 customers in the relatively new future.

    You’re already very profitable, by your own account. How will you use the money you’ve just raised?

    More than 7,000 new businesses create an account on ZipRecruiter each month and the primary person [who signs up] is the person who manages HR. And that person is responsible for hiring, but also, potentially, for payroll, insurance, vacation tracking, and for on-boarding. So we’ll do a bit of development into new areas and see what the reaction is. When you’re bootstrapping, everything has to come back to bottom line. Taking investment really frees us as to how much more can we do to make the job of HR managers easier.

    How are you reaching all of these far-flung customers?

    It was all driven through [search engine marketing] initially. As we grew, we began to benefit from word of mouth — a substantial double digit percentage of our new users come without a marketing source attached to them. But because the product sells so well, we’ve been able to branch into direct mail, TV commercials, and radio. The challenge of going after a disaggregated market is finding [all your customers]. You can’t just buy ads on Google.

    Photo of Ian Siegel courtesy of ZipRecruiter

    Connie

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  • Micky Malka Doubles Down: “I Don’t Believe in Diversification”

    malka_meyerIn a crowded market, venture capitalists tend to talk up particular investment angles to differentiate themselves from their peers. When Ribbit Capital founder Micky Malka talks financial services, though, it isn’t for marketing purposes. Malka has been living and breathing finance since co-founding his first company in 1993, a broker dealer that evolved into an online financial services portal and sold in 2000, just before the bubble burst, to the Spanish bank Banco Santander.

    LPs clearly like his credentials. Ribbit, in Palo Alto, closed its first fund with $100 million last year and officially closed on a second, $125 million fund last week. I chatted with Malka on Friday to learn more about what those investors — including Silicon Valley Bank, the Spain-based lender Banco Bilbao VIzcaya Argentaria, and individuals from the financial services world — find so compelling about what Malka is doing.

    You’re Venezuelan and spent most of your life in South America. When did you come to the U.S. and why?

    I came here seven years ago this month. I’d started all kinds of consumer financial services companies in Europe and Latin America and did very well for myself, but I felt like I was playing in the AAA leagues and that Silicon Valley was the majors.

    You came to be an entrepreneur, though, not an investor.

    Yes, I moved with my family to build another company, again around consumer financial services – around mobile payments. Bling Nation was right on the vision but so wrong on the strategy, wrong on the protocols. It took us a couple of years to figure it out, though. At that point, we went to our VCs and said, “It’s not working and we have two options. We can return your money and lose our own personal money that we’d put in. Or you can give us six months to figure it out.” To my surprise, the investors said, “We backed you guys, not the idea. Take six months to figure it out.” It was really big [of them]. We launched a company called Lemon, a financial app, and we sold it last year to a public company.

    Had you had it with startups at that point? Why form Ribbit?

    I’d listen to this guy say, “I’m doing this lending business in the U.K.,” and I’d say, “I’d love to be involved.” Then I’d learn of a new financial advisor in the U.S., and I’d think that was interesting. I realized there was an investment thesis going on that was broader than what people were thinking about. Also, I’ve started companies on four continents, and there aren’t many VCs who really know financial services in different jurisdictions. It’s a very particular DNA around which to start a firm.

    So much is happening on the financial services front right now. Where in the cycle are we?

    Financial services innovate when there’s a new channel and when users or clients are tired of existing brands. Well, people aren’t wearing their Goldman Sachs or Citibank hats anymore. Meanwhile, mobile has taken off dramatically, and banks and insurance companies don’t think in mobile terms. I’m not saying the brands we know will disappear, but who will be the Capital One or Charles Schwab of this generation? It’s early, and there are a lot of unique innovators in different subsets of the universe.

    Where are you investing your capital geographically?

    Our mandate is global. We look for opportunities in seven markets: The U.S. and Canada, Brazil, the U.K., Germany, South Africa, Turkey, and India, which are all markets where there are entrepreneurs and investment partners who I’ve known for 15 years.

    Where have you made some of your biggest bets to date?

    We’re the largest bitcoin VC in world. Let Marc [Andreessen] be Marc [in being so public about bitcoin]; we’ve been investing since 2012. Back then, there were no bitcoin entrepreneurs so we had to buy bitcoin directly. Later, we found our first entrepreneurs, including at [bitcoin exchange service] Coinbase [which Ribbit backed last year]. We’ve now made five investments in bitcoin [startups]: Two here in the U.S., one in Hong Kong, one in Brazil and one in Slovenia.

    You made 10 investments out of your first fund, and you’ve made six from your second fund, only one of which, Wealthfront, has been announced. Are you still focused narrowly on consumer-facing financial startups?

    Yes. We’ve done lending businesses, personal finance, wealth management, accounting and invoicing, and bitcoin, and now we’re going to add insurance, which we’ve spent the last year researching. We just see too many opportunities that we like.

    What size checks are you writing?

    We make very concentrated bets. Our checks are usually between $3 million to $4 million and $20 million. When we find what we like, we have a lot of conviction. I don’t believe in diversification.

    Image courtesy of the upcoming Money 20/20 conference.

    Connie

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  • Is Keith Teare Crazy, or Crazy Like a Fox?

    KeithTeare-youtube-400x242In Silicon Valley, entrepreneurs and investors are often rewarded for having outsize ambitions. Perhaps it’s no wonder then that tech industry veteran Keith Teare — who hasn’t managed any institutional money in his career – has set his sights on raising two new investment funds that he expects will total $800 million.

    The first $400 million fund that Teare plans to open to investors next month is Micro Fund Capital, a fund of funds that will target micro funds; a second fund that’s also targeting $400 million will make direct investments in the first portfolio’s breakout successes. Its name: 2nd Round Capital.

    Certainly, LPs could do worse than listen to Teare, whose background makes him as well-suited to invest hundreds of millions of dollars as many VCs in the business. In 1994, for example, he cofounded one of Britain’s first consumer-facing ISPs, EasyNet, which remains a large DSL carrier. Among other things, Teare also cofounded the Internet keyword company RealNames; the classified ad company edgeio; the media company TechCrunch; and Archimedes Labs, a small outfit that incubates, invests in and advises tech startups.

    Not all of Teare’s companies have been unmitigated successes. RealNames was poised to go public just as the dot com bubble burst; it shut down operations in 2002. Teare’s startup edgeio, cofounded with famed blogger Michael Arrington, also landed in the so-called deadpool in 2007. The pair did much better with TechCrunch, which sold to AOL in 2010 for a reported $30 million.

    Archimedes Labs –originally a joint endeavor of Arrington and Teare and today a company operated by six other business executives, including Kambiz Hooshmand — has also had hits and misses, though its portfolio holds promise. For example, Archimedes furnished M.dot, a mobile site building app, with its first check. (M.dot was acquired last year by GoDaddy in a mostly stock deal that could prove lucrative if GoDaddy goes public as expected.) Archimedes was also the first investor in Quixley, an app search engine that has raised roughly $75 million over the last five years, including a $50 million round led by Alibaba last fall.

    The big question, naturally, is why Teare thinks investors will give him hundreds of millions of dollars to invest for his newest act. While he has raised some outside money for Archimedes, he characterizes the amount as “very small.” (Archimedes typically writes checks of between $25,000 and $100,000 and has 14 companies in its portfolio.) Most operators with a similar profile — including Arrington — start small and raise progressively larger pools as they prove out their theses.

    Teare says that he; Hooshmand; and a third partner, Patrick Gannon, a founder at LendingClub, originally planned to raise a $25 million microfund. In fact, he says that “within about two weeks, we had $6 million in commitments.” But he says the interest was coming entirely from small investors — which gave him an idea.

    “It’s clear that microfunds are too small for institutional investors” other than the few fund of funds that target them expressly, including Cendana Capital and Weathergage Capital, says Teare. With such firms already overwhelmed by requests — and many nascent startups left with a shortage of post-seed, pre-Series A funding choices, he says, “We thought: Why not do what [Cendana] is doing on a much bigger scale? Why not go and raise a serious amount of money for microfunds?”

    Teare says he knows raising the money won’t necessarily be a walk in the park. “I’m a smart guy who knows which way the wind is blowing, but I’d say I’m highly challenged to justify to the world that I can be an investor in other people’s companies except [for showing] what I’ve done at Archimedes.”

    Then again, the whole idea of investing in already successful micro fund managers is to “mitigate” investors’ risk, he says. “The issue isn’t whether I can pick companies but whether you think [top micro fund managers] can. No individual can really do better than the market.”

    I ask Teare what happens if the leading micro VCs don’t take his money. I ask if he has shared his plans with several whose names he raises during our conversation.

    He says he hasn’t. He doesn’t seem terribly concerned that he’ll be turned away, though. “These are people who I admire and know for the most part. The personal risk for me is, can I get access to these fund and companies? And that comes down to personal relationships, which I already have.”

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

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  • Elad Gil on Angel Investing, AngelList, and His New, Stealth Startup

    elad-gilBy Semil Shah

    In 2009, Elad Gil sold his company, Mixer Labs, to Twitter, where he worked another two-and-a-half years as a VP before plunging back into the world of startups — and startup investing. Recently we talked with Gil about how, more precisely, he’s spending his time these days.

    ​As an individual investor — what stage do you prefer to invest in today, and how has that changed over time?

    I’ve always been pretty stage agnostic as an investor, which I think is a bit contrarian in the individual angel market. Most of my investments have been seed rounds, but I’ve also invested in a reasonable number of Series A, B and C rounds.

    One of the reasons I’ve always invested in a broader range of companies is my background as an operator. My role at Twitter was effectively to help scale the company. Since I was involved in a lot of aspects of managing hockey-stick growth — internationalization, user growth, scaling recruiting process, M&A, analytics, product, etc. — a number of later-stage breakout companies have asked me to get involved as an investor or advisor as I have been through the same terrifying growth curve they are now seeing.

    From a purely financial perspective, I only invest invest in companies that I think may have anywhere from 10x to 1000x upside left. Obviously that’s easier as an early-stage investor.

    How do you plan to use a platform like AngelList in the future, if at all?

    AngelList is going to transform whether branded individual angels eventually transition to larger firms. If an individual angel has the access and deal flow, we’re very close to the day where they can effectively run a fund in a friction-free manner on top of AngelList. AngelList helps with the fundraising, as well as takes care of the ongoing back office — accounting, legal, fund set-up, carry management, etc. — for the angel. Already, you see people like Scott and Cyan Bannister and Gil Penchina making use of AngelList as an LP and back-office platform.

    For newer angels, AngelList provides any angel the opportunity to have an instant fund — in other words, the syndicate — back the angel. The angel can take carry this on, while AngelList manages that person’s back office. So it may also create the opportunity for new angels, with much less personal capital, to start effectively a micro-VC firm. I wouldn’t be surprised if some interesting dynamics emerged on the platform, like if every YC batch had one founder who raised an AngelList-based fund to invest in all of his or her YC batch mates. Maybe [AngelList] turns YC into an inadvertent launching pad for micro-VCs as well.

    You’re working on a new startup. Without giving up too many details, can you share what space you’re working in and what you anticipate happening in the industry over the next three to five years?​

    My prior startup was a developer platform product that Twitter acquired. More recently I co-founded a genomics company and, in particular, software to make genetic testing and genomics widely available. This industry has seen a 10,000x drop in cost over the last few years, but software and other aspects of these services haven’t kept up. While I’m skeptical that anything fundamental has shifted in biotech as a whole to make it more attractive investing-wise, I’m very bullish on the shifts occurring in genomics.

    Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

    Connie

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  • What I’ve Learned in My First 18 Months of Investing

    Semil ShahI’ve been investing for a year and a half, and I’ve learned more than I would’ve imagined by just jumping into the game. Now, I’m playing with very small amounts of capital, and whatever lessons I’ve gathered for myself aren’t necessarily “right” and aren’t generally applicable to everyone. With that disclaimer, I wanted to briefly share what the key learnings (so far) have been for me in this final column for my guest run with StrictlyVC:

    Polite But Clear, Direct Language: When I’ve been talking to a founder and decide I’d like to invest, I will usually write in email: “I would love to invest in the company if you’d have me.” In a way, it is asking for permission. The investor is not in control; the founders grant access. For every investment, there are many “no’s” to deliver. I try to do these quickly over email or even in a meeting. I’ve received so many “no’s” before that it helps me deliver them, too — I hope. I also briefly describe how I expect to help once the check is deposited. As a small investor at the table, I generally ask founders to contact me anytime they need to, and I will proactively focus on helping set up the company up for future financings.

    Following Founders Versus Predicting the Future: When I started, I thought: “Hey, I’ll pick some spaces I like.” Wrong. Founders define the future and dollars simply follow. Originally, I thought I’d take a portfolio approach and focus in some areas, but as things have evolved, I just focus on the people I get to meet and make sure I pay attention to every word, every pixel, and every slide. I cannot predict the future, so I try to find people who can invent it.

    Pro Rata is a Privilege, Not a Right: Pro-rata rights are very important for small, early-stage investors. I don’t ask for them, because I don’t think I’d get them, and mostly because I don’t feel like I deserve them. Without pro rata, early-stage investments suffer quite a bit of dilution, so there’s extra pressure to be a “high-contact” hitter who hits for batting average. Over time, I hope I earn the right to ask for pro rata.

    Dialogue Over Time Pressure: I will trade many emails with a founder to ask key questions and learn more. I like email as a medium. Most people would rather talk in person or at least on the phone, but my personal preference is to get up to speed via email and then engage in live conversation. This doesn’t work for everyone, and I’ll miss things because of that, but that’s one of the things I’ve just come to accept.

    Tough Love Over Coddling: I don’t talk or write about it much, but I was a founder of a life sciences technology company before coming to the Bay Area. It was both a great and painful experience, and in part why I’ve held off starting something again. I kind of just fell into it, and I wasn’t ready. Back then, in the Boston area, there wasn’t anyone around to support or coddle us. Then, I came here and got my a__ kicked for 11 months straight. It was bad. All of these experiences make me think about existential risk. I see an early-stage company and think: “Hey, you’re awesome, but hey, you could run out of funds pretty quickly and then evaporate.” So, in the course of early-stage investing, yeah — at times, you sense existential risk for others, and then if you’re outspoken and direct like me, you have the delicate job of pointing out that existential risk. In those moments, I tend to be driven by tough love over coddling. It’s not right or wrong, and there’s always room to improve, but that’s how I’m wired, for better or worse.

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    Connie

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  • Elad Gil on the Angel Investing Lifecycle

    Elad GilBy Semil Shah

    Elad Gil is like a lot like other smart, accomplished Silicon Valley angel investors. His credentials include an advanced degree from M.I.T. He has worked at both small and big companies, from Plaxo to Google (where the mobile wireless team he started acquired Android). He’s also an entrepreneur himself, starting Mixer Labs, a service that helped developers build geo-location apps.

    When Twitter acquired the company in 2009, Gil stayed on as a Twitter VP for two-and-a-half years, becoming an active angel investor — or a “startup helper,” as he describes himself on LinkedIn — more than two years ago. Unlike a lot of his peers, Gil is content to remain an angel investor for the foreseeable future, too, for a variety of reasons. We’ll delve into some of them early next week. In the meantime, here’s Gil on why angel investors tend to pursue certain, predictable trajectories.

    There aren’t many true individual angels left. Why is that?

    It seems like there is a natural lifecycle to individual angel investors, especially if they stop being operators. At some point many individual angels who were successful investing chose one of two paths — raise your own fund, or join a traditional venture firm. This isn’t something I’m planning on, but many have, and I think this transition has a few drivers:

    1.) People want leverage on time or run out of capital. If you’re an individual angel writing small checks, eventually you may realize you are investing an enormous amount of time working hard for your portfolio companies. But you may not have a lot of skin in the game relative to other, less engaged investors. In my own case, there are a number of companies I am involved with where I have put in a lot more work then people with 10X or even 100X the financial position. At some point, angels may want to have more leverage on their time. If an angel is putting in so much work, why not also participate more in the upside by investing a larger amount? Or, an angel may want to expand their role to be able to lead seed or larger rounds and to set terms. This is actually starting to be enabled by AngelList.

    Alternatively, you may at some point tap out financially or be too illiquid to keep investing your own money. This supposedly happened to Elon Musk for a period when he had all his capital tied up in SpaceX and Tesla and neither company was public. So raising a fund or joining a VC is a way to keep investing without tying up all your own cash.

    2.) People want to learn or do something new. Some institutional venture capitalists have a really strong process or perspective on investing. Benchmark and Sequoia are two that come to mind. Some individual angels feel they have a lot to learn at these institutions. [It’s also the case] that many individual angels don’t take board seats or get involved with other aspects of a company, and joining a traditional venture firm allows them to do things they have not done before.

    3.) People stop operating. Running a company can be exhausting. Many individual angels are often former operators. Once an entrepreneur or executive gives up their day job, they may want to still to be involved with startups day to day. A firm — either their own or one they join — provides them with a regular outlet and a job without the soul-crushing 24/7 grind of an operating role.

    4.) People get lonely. It’s nice to have other people to bounce ideas off of. As an individual angel, if you spend time bouncing investment ideas off of other angels, you may be violating the confidentiality of the startup — or you may fall into group think. An institution provides people with a framework for tapping into other folks regularly and having a firm and culture to be part of. (That said, I hear that many VCs feel they are “lone wolves” and the job of the VC is not one where you spend a lot of time with your partners. I guess all things are relative.)

    5.) Prestige. Some people are really attracted the societal prestige associated with being a venture capitalist. It is sort of like the people who join Goldman Sachs straight out of school so they can brag about it to their friends.

    One of the cool things about Silicon Valley is the ongoing cycle of capital and talent. The pool of individual angels keeps getting renewed and refreshed as entrepreneurs or early hires at breakout companies make enough money to start angel investing. A small handful of these folks end up either generating a sizable brand or a good return and reputation, many of whom then transition into VC. (Of course many individual angels end up loosing money and dropping out before building a reputation, so there is also the “dark side” of being an angel).

    Y Combinator has its own interesting version of this, where a number of YC alumni cycle back as partners at YC and/or raise their own funds. So YC is functioning as a farm system for its own investors, which reenforces it.

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    Connie

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  • Homer Is a Good Idea; Now, Will It Work?

    App StoreA week ago, the latest creation to come out of Max Levchin’s R&D lab, HVF, was publicly released. Unfortunately for Levchin, a widely read review suggested the app, called Homer, was “creepily intimate” because it allows users to view other people’s home screens.

    Given that users have to choose to upload their own home screens with Homer and have full control over what apps they share, it’s hard to see how the app is truly intrusive. On the contrary, in an era where an endless supply of apps now compete for attention, Homer can help users discover useful new apps that their friends enjoy. It also comes with more privacy protections than that initial review suggested.

    Homer’s bigger problem, seemingly, is that it wasn’t ready for prime time when it launched. Though some VCs immediately began talking up the iOS app, users weren’t so charitable, giving Homer three out of five stars. Two called it “very buggy,” and a third commented, “Nice concept but can’t even use the app.” Perhaps not surprisingly, HVF says it doesn’t have a timeline for an Android version.

    In an interview earlier this week, Homer’s creators, fellow Stanford grads Elliot Babchick and Jason Riggs, quickly volunteered that the app, which they began working on in April, isn’t perfect. “We’re still working on it full-time,” said Riggs. “There’s still plenty to do, like making it faster and fixing bugs … this is basically a [minimum viable product], and we’re making it better.”

    The question is whether they’ll get another shot from users. Apple’s approval process can take days; it can also take weeks. That’s a lot of time for a buggy app to be out in the wild.

    There’s also a slight risk that Apple will decide it doesn’t like the app after all, especially given the early public impression that it’s somehow meddlesome. Babchick noted that while “someone at Apple did check a box and let us through,” its guidelines are somewhat squishy. “Years ago, the rule was that you weren’t allowed to feature any other app within your app. Since then, the clause has evolved to say that you can’t promote an app unless it’s to a specific set of people for a specific use case.” Apple, he added, “is leaving itself the opportunity to interpret [new apps] how they wish.”

    HVF is a member of Apple’s affiliate program — reason for the team to feel some degree of confidence. In fact, Homer can “technically be making money off apps that we refer people to,” though “we’re not doing that yet,” Babchick says.

    Asked how long it makes sense to give an app a chance, Babchick told me, “We don’t set an arbitrary guideline that we’ll work on [this or that project] for an amount of time and if it doesn’t make it, [we’ll move on]. Once you start seeing solid retention, for a significant period of time, that’s when you know you have a thing. For something that [came out last Friday], we don’t have the answer.”

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