Fred Destin

In search of Stillness, or why personal high availability is a (generally) a bug

These days, 2.3 seconds seems to be the average time between sending out an email and getting a response.  We live in a world of immediate interaction and a general information immersion and real-time availability. 

Generationally I am pre digital native but I embraced the new communication and media consumptions paradigms early on, and though I have never had the patience or passion to be a bleeding edge adopter, I am a fast follower.   End result is a blog and an active Twitter presence and all the trappings of the world weary tech world participant (the multiple filtered gmail accounts, the Dropbox, a fully digitised personal life that I keep carefully  away from the public eye).

 

Real time is best left to Twitter

I have had a number of debates over the last few years with Max Niederhofer about whether high availability (the notion that one responds to emails within seconds) is "a feature or a bug".  Max thinks it's a feature; I am more batch oriented.  I thin it may be a feature in him but a bug in most.

For every person that manages "efficient high availability" well, I find 10 who respond too fast and with insufficient information and hence create more overhead and interaction than the problem at hand would warrant.  The result is a deluge of IM like conversation between pushed over email, SMS or twitter and leading to a feeling of busy-ness but a clear loss of control.  Dealing too fast with emails that were written too fast is a good recipe for absolute entropy and a fatal divergence that could I assume lead the world into an abyss of information chaos.  Thank god you can scroll down 300 emails, hit "Del" and see what comes back (the important stuff).   Entropy reduction at the touch of a key, heaven, it's like an emergency exit door.  A guilty pleasure :-)

 

Multitasking efficiency is a myth

There is a fair amount of research coming out that is highlighting what common sense would tell you is true: the human brain cannot deal sustainably with "continuous partial attention" and the perception that one achieves more is wrong: general efficiency on the tasks individually is decreased and overall output is of a lower quality (see this fantastic Frontline broadcast on the topic including a humbling moment for Stanford grad students and great insights from Douglas Rushkoff). 

In other words, cognitive ability goes down the drain and so does actual output, whilst the feeling of busy-ness creates an addictive misperception of hyper performance.  Hooked on fast tasks but achieving nothing much.  As Linda Stone puts it: "over-stimulation and lack of fulfillment".  [For a more structured and intellectual look at the issue, head over to Edge Annual Question 2010 and see contributions from Carr, O'Reilly, Shirky and others].

 

Slow can be (very) good

I was reminded of the negotiation we undertook when Stefan Dolezalek of VantagePoint Venture Partners invested in Inxight Software (since acquired by BOBJ).  Stefan would take his time answering emails even in the heart of the deal discussions.  It used to infuriate our CEO John Laing who was a high octane sales guy and could not get his arms around this particular close.  But Stefan would always come back with a thoughtful, studied response that would meaningfully move the negotiation forward with a good eye for win-win outcomes.  He would also get some benefit from letting us stew for a few days:-)  Net-net, he was an incredibly efficient communicator and once you understood that delay did not equate with dropping the ball, it was a great way to work.

Don't get we wrong, there are many aspects of real-time goodness I love.  But the web used to be something we do and now it's part of who we are.  So isn't it time to reassess how we interact with it ?  

 

Get back in control and write your own rules

• We need to reclaim real downtime: Kids need downtime for their imagination to develop;  they thrive on boredom.  In the same way we need downtime and we need disconnected time to let the synapses reset and refresh.  Shoot email on holiday, it's an addiction and a disease.  The world can survive without you for a week, you're not that important.  "Don't try to reach me on holiday, you will figure it out without me".
• Stop confusing speed and efficiency: momentum matters but it has little to do with your average response time to email.  Be precise, thoughtful, deep and action oriented.  if you want something done (such as setting up a meeting) spend the time to determine timeframe / urgency / participants / objectives / timeslots instead of exchanging 255 coordination emails and clogging everyone's inbox.
• Prioritise and focus on outcomes: VC's are masters at creating entropy.  VC's only function on information (we don't actually "do" anything besides manage information and money flows) and hence information is perceived to be power.  So we spend an awful lof of time staying on top of said information, and hence asking other people (typically our overworked management teams) to produce this for us.  The right way to go is to to ruthlessly determine which are the priorities of the company (a certain milestone, a change of culture, a new release) and what specific action you are going to take within a measurable timeframe (a recruitment, a strategy session, a bus dev deal).  I try to determine 1-2 things a month or even a quarter that I want to get done with a company, communicate this to the CEO and get it done.  The rest is noise in the system. 
• Allow yourself to reach the zone:  I am still struggling with the illusion that I can efficient and multi-task.  In recent months I have gone back to a more disciplined approach when taking phone calls -- I take notes.  It forces me to stay absolutely focused on the task at hand. It takes me about 10-15 minutes to really reach a point of "flow" and any interruption can break that.
• Automate information production: Information production should be systematized and automated.  Board meetings should be run without powerpoint slides and take a few hours to prepare.  Anything that can be mediated by tech should be.
• Segregate (and mostly ignore) breaking news: one of the biggest drain on my neuronal ability has been "breaking news".  An unending daily stream of non-critical information that has social value ("did you hear...") but creates way too many open loops in my brain and ultimately serves no lasting purpose whatsoever.  I have now bifurcated my news consumption between real-time for anything that concerns the companies I look after (e.g. DMGT buys Globrix is relevant to Zoopla with immediate impact) and weekly or monthly consumption of everything else.  At the risk of shocking you, I did not not follow the Haiti developments day-by-day as the crisis unfolded.  I find the body counting and dramatic pictures are a way of making you feel better (you are driving your own awareness of the people; feeling "concerned" makes most people feel better about themselves), whereas the reality is you are better served getting a complete overview of the crisis ten days into and deciding where you may want to send charity money based on the actual needs as they are emerging.
• Have a Continuous Partial Attention slot: it's fun and game-like to immerse yourself in the flow of twitter and facebook updates and to dip into the real time river.  A time to reconnect and socialise and waste time browsing around.  Just accept that your brain can only do so much of it and that you are not, actually, being productive.  You're hanging out. 

I don't care about the latest acquisition by X or investment by Y.  I will let you know when I am on holidays and you will do without me for a week.  I don't care about answering comments on my blog as they get posted.  I decide where and when and how I interact.  I decide when I am online and not the other way around. 

[Voila.  Written in one go with web shut off, 30 minutes, 15 minutes to find links and edit.  45 minutes round trip, but fun and interesting.  And now back to work :-)]

Moving to Boston !

Over the summer I will be moving over to Boston to join my partners there.  I found a house in Brookline which I am hoping will be a great place to raise all three of my kiddo's and for my wife to find her next gig.  The garden is big enough to do nice dinosaur hunts (a favourite with my son),which was their main concern, so they've OK-ed the move.   Only downside: I will now have to live in the shadow of Fred and just be ... the Other Fred ? EuroFred ? :-)

The Rationale

As a team, we made a decision that it was time for us to be all in one location.  The logic behind is quite simple; we operate at our best as a unit when we can take decisions fast, sit around the table together and act as unit of one.  We are an early stage firm; for us, small is beautiful.   We will also look at adding a Partner on the tech side.

Euro Blues ?

I have been asked a few times whether this reflected a negative view on the Euro venture market.  The answer is quite simply no.  We will continue to invest in Europe.  In our current portfolio, we have some great gems developing.  Companies I am involved with on the digital media / e-commerce side include Seatwave, Zoopla, PriceMinister or DailyMotion.  On the SaaS front, NTR and KDS.  These are all strong opportunities that I believe will drive good returns.  

We also sold Novexel for over $500M in December, a nice Christmas present from our Life Sciences team.

Our house view (and my personal view) is that Europe continues to be relatively under-banked market with increasingly strong opportunities to make real returns happen.  I am sure the next two years will present their shares of large and compelling exits.  Building an ecosystem takes time, ours is improving daily.

The Investing Tech Team

• Axel Bichara
• Jeff Fagnan
• Me
• One TBH

Onward !

 

Covered elsewhere:

PEHub

PaidContent

xconomy

Techcrunch

Communist China, the misbehaving superpower

On the back of the Google - China standoff, I am taking the liberty of recycling content from the oft brilliant Mark Anderson at SNS.  This is a short digest of the excellent article that you can find at: www.abrightfire.com.  Whilst I think we have to watch the Western tendency to take advantage of the rule of law when it suits our purpose but neglect it at other times (recent wars come to mind...), I do think this article raises the stakes on the China debate in a smart way.  Whilst China is trying to gain moral kudos and intellectual leadership on issues like global emissions (whilst sabotaging part of Copenhagen), it is healthy to take a slightly cynical view of who we are dealing with here.

Over to Mr Anderson:

It is time to look at China, not for what it says, but for what it does, and to judge it accordingly.  China, [which] Nobelist Paul Krugman calls “a misbehaving superpower", is not what we hope it could be. China is what it is.

Sloppy Western optimists assume that China is just a Big America, or a Big Vietnam, or a Fast India – or their Next Big Business Partner.  In fact, China has designed an economic model designed to gut its trading partners.

Although the politics of China remains communist, the economics might be called Advanced Mercantilist. China has taken the lessons of Japan and South Korea in dealing with the West and modified them with “Chinese characteristics.”

Basic tenets of the Chinese Model

1. Steal Intellectual Property.
2. Use Slave Labor Rates to Become the Low-Cost Producer of All Goods and Services
3. Sell Stolen IP Back As Global Exports
4. Industrial Policy: Subsidize Key Industries
5. Prevent (or Restrict) Unwanted Imports
6. Use Currency Manipulation
7. Price for Export, Suppress Domestic Consumption
8. Create the Appearance of Free and Fair Trade, Without the Fact. The global community somehow allowed China to join the World Trade Organization, although, in fact, China  has not signed off on all of the WTO requirements
9. Encourage Foreign Direct Investment – But Don’t Allow Controlling Ownership.

Does this combined policy set sound anything like free markets, or free trade? Not at all.  Is there any part of this that is legal in international terms, or that should be applauded by the world community?  Not that I can determine.

When will the world catch up to this kind of charade? The answer just might be: now.

The danger of a command economy in the modern world.

The global outcome of a fast-growing command economy has been the government-determined explosion of asset bubbles all over the world – not because China is growing, the cause assumed by most economists, but because the government is buying resources (and their future options) on the global market, forward for 5-20 years. The result: instant commodity asset bubbles, worldwide, and further destabilization for non-Chinese consumers of these commodities. Of course, if the Chinese play the bubbles wrong, they will lose even more as prices collapse.

Could the Chinese create a global catastrophe by commanding all of this leverage into the wrong assets at the wrong time, by deflating the value of high-IP goods, by forcing global competition against unsustainable cost bases, and destroying non-Chinese business infrastructure? Sure. In fact, this is almost a “when,” and not an “if,” question. What could possibly be more dangerous to the world than a command economic system run on a global scale?

Investment and innovation themes from the Defrag conference

I am lucky enough to work with a guy who, on top of  (or in spite of) his aristocratic good looks, is also a very smart cookie and former entrepreneur called Max  Niederhofer (aka Graf Max).  As he likes to spend our hard earned management fees on long distance flights, it was natural for him to check out Defrag 2009.  My recent rant on Twitter reminded me of this interesting writeup he sent.  So with some delay, I thought I would share with you the insights he gleaned from the conference. 

Here are some the themes:

• Making email better. Email still the center of our work communication/collaboration and social interaction. Invest in tools that make email more collaborative, reduce overload, embrace using email as to-do lists, integrate email into the social graph. Microsoft has a large internal effort devoted to this. Xobni is the most high-profile start-up in the area. Incremental efforts seem to do better than full-on innovation (Gmail vs Wave).
• Making lifestreams relevant. Activity streams are changing our lives. Constant sense of presence of one’s social and professional network. Twitter works because it appeals to some base social needs (knowing what’s going on, being able to have a self-assert) without the constraint of having to “friend” both ways. Right now, Twitter is mostly “just microbursts of dopamine.” Key question is again how to filter and prioritize the firehose. Situational relevancy, e.g. through geo-location or by changing streams depending on activity, may be key. Foursquare is the hottest startup there. Twitter inside the enterprise (Yammer) seems to be working well for creative/services SME's.
• Measuring and monetizing influence. You can measure friends and followers but it’s harder to measure influence or effect. Brands want to court influencers. Hottest startup here is Klout.
• Extranets. Rather than yet another startup targeting internal collaboration, address industry verticals that are either naturally fragmented or fragmenting because of internet’s lower transaction costs.
• Selling data. Collecting, interpreting and packaging data becomes a lower barrier to entry business given how much data is freely available online/through API's. Several startups targeting e.g. Gnip. Sometimes just archiving and making available can be a good entry-level business.
• Meaning is the new search. Search was based on scarcity: hard-to-find documents. Now information is ubiquitous and hence finely grained relevancy becomes much more important. The next Google will not look like Google - it will be something that delivers information based on some trigger - behavior, location, etc.
• Breaking the corporate IT environment. Many people feel happier and more productive when choosing their own tools of work. How do we enable corporate IT departments to do away with “one” infrastructure. Let groups choose their own computers, phones and apps. Key questions on provisioning accounts, managing data silos, data security, compliance.
• Education. We’re stuck in the university lecture and exam paradigm. Online learning and degrees will happen. Question about investing in enablers versus replacements.
• Application Marketplaces. Based on the iPhone App Store, many ideas around application marketplaces that combine SSO, data sharing and social graph within one framework on the web.
• Identity Metasystem. Facebook Connect, OpenID, Twitter/OAuth - something will emerge as dominant over the next few years. Verified identity is still a problem and could be used for some interesting applications. Best talk here was from Kim Cameron at Microsoft (http://www.identityblog.com/).

This is the last one for the road for 2009.  See you next year.

Take guidance, not orders

Repost of my post at Nivi and Naval's great VentureHacks.  Every entrepreneur should get VentureHacks for Christmas.

 

There is a behaviour I witness in some first-time CEO's that I meet, not necessarily the younger and more mavericky generation, that I do not think is necessary nor helpful.  It's an insidious but frequent tendency to let the board decide rather than advise or approve. It goes like this:

Because VC's have blocking rights on some important decisions (approving the budget, your comp, raising money), they are often able to wield way more power than their 20% ownership would suggest they should have.  As a result, entrepreneurs often talk of coming to the board with their slides in hand asking "what does the board want me to do ?", which is code-speak for "I am here to ask for permission from my investors to do what I need to do".

They will present the strategy they believe in but essentially allow the board (read: the investors) to walk straight through the carefully thought out action plan and redesign the entire strategy in one swell meeting.  The investor probably walks away feeling like he provided value and the entrepreneur now goes back to his team to explain that his investors puked over the team's strategy and that the priorities have changed. 

That may be the product of investor behaviour, but I would argue this is the CEO's fault.  Nature hates a leadership vacuum, and VC's will fill that gap if you don't.

If you really believe in what you are doing, you come to the board telling board members what you are planning to do, taking considered advice on whether this is the right strategy, considering that advice and executing on what is, in your best judgement, the right path for the business.  That's what you are there to do. Take decisions fast, don't fall for analysis-paralysis, trust your gut, execute and iterate.  As Tim Ferriss would say, ask for forgiveness, not permission.

Guy Kawasaki does lists all the time and it seems to work for him so I thought I would try one too: Here are the top five lighthearted reasons why VC's should not drive your strategy:

• We forget 50% of what we said at the last board
• We don't know the people inside the company and hence have no clue what the team can really execute
• We meet many smart people and hence we have way too many ideas that you cannot possibly implement
• We are focused on the 5 year vision, yet we are focused on the quarter too, even we are confused
• We don't need to deliver on it, you do.  We come and collect when the job is done.

You want to leverae your board, and you don't want to get fired for being a solo player either.  Personally I really like what my partner Jeff refers to as a culture of "champion and challenge". I guess you have to be born in the USA to say phrases like that but it's spot on.  If I really disagree with a strategy decision, trust me, we will have a serious discussion about it.    But come and champion what you believe in, take ownership, step into the role.  Ultimately, I backed you because I believe in you, and you know better. 

On Twitter drift, hype and the infancy of the real-time web

My gripe of the month concerns Twitter.  The one with the bird on it.

Why Twitter at all ?

First of all, I love Twitter. It has killed my limited Facebook usage and slowly replaces Skype IM.  I find it is a filtered, interesting view of the world, contrary to most public gripes about the tool.  I get fantastic insights from the likes of @parkparadigm, @azeem, @robinklein, @aainslie, @venturehacks (some of the more careful and select twitterers in the list of 200 or so that I follow).  The key benefit is simple: I choose who I want to see, it's RSS on acid.  People I follow mostly drive me towards interesting long-form content.   If you still ignore this tool (or concept) as a fad (and I know many people who do), I think you should be Scobleized.  I follow about 200 and have about 1,500 followers, spend zero time configuring and get great value and entertainment out of it.

I also think it's just a first iteration of what the whole real time web should be about, and only a part of the puzzle.  

I read twitter as follows:

• As elegant as SMS
• A great filtering mechanism (it's the 10,000 channels you choose to watch)
• Makes you feel close to the people you follow even though you do not know them
• Possibly a distribution / broadcasting protocol

Twitter is not a lifestreaming tool

I got really annoyed over the last few days by:

• a great creative thinker trying to run an entire conversation on what "value" means and as a result  "twitter spamming" his followers and their followers
• a friend of mine using a tool to autotwitter concerts he "might like to see" using SongKick, leading to a regular stream of "I might like to see bon Iver in concert" or whatever.
• another friend using a similar tool to share his movie ratings on Lovefilm

If they do that for 3 days, I am unfollowing.  If the whole world starts linking twitter to various update tools to let me know what they would like for Xmas, I am turning it off.   I am not sure about facebook updates yet,feels like it's thw wrong way around.  But I certainly don't want Twitter to become friendfeed.

For twitter to become a carrier protocol for the real time web, it's going to need much smarter tools or intefaces than the simple act of "follow", and this may threaten its simple elegance.

IMO there is much more to be invented here, this is clearly not the endgame in real time web experience.  I think early use of Twitter as a lifestreamer was besides the point in terms of its true value and potential.

If you think of Twitter is an asymmetric, social short messaging protocol, it probably encompasses a number of uses such as microblogging and lifestreaming, news/links broadcasting and re-broadcasting, messaging, etc all with followers wanting different elements from the folks they follow.  

As ever on the web, the glorious mess derived from the simplest (most elegant) product paradigm produces the greatest richness of use.

Corollaries

• Twitter is not a microblogging platform, this is a misnomer, microblogging is a usage subset
• Twitter can only be grasped by looking at its uses and it's ecosystem (Tweetdeck for me) as it keeps evolving
• Facebook is a more complete interface that owns your social profile (ultimately everyone ends up on Facebook / Linked In) and may "own" or aggregate your various streams including twitter
• Facebook will always have more (human) users than twitter and who cares

It's not complicated but it is complex

Since I am whining today, what annoys me in general with the web and the whole 2.0 "industry" is this misguided notion that every new wave kills the previous one.  Content Meme of 2009: "Oh, blogging is dead, it's now all about the real time web".  Hum.  Maybe blogging is a relatively small self-publishing industry that is getting subsumed into publishing in general, but it's certainly not dead.  Just as twitter does not "replace" blogging, print media will shrink but not disappear and content farming will not kill handcrafted editorial.  They all do different things.

People seem to continuously lament the fact that industrialists take over their innovations and appropriate them (e.g. so called A-list bloggers were replaced with professional publishers, celebrities are now the biggest twitterers, and so on...) even though the very process is what helps them build large companies.  By default if we decide all content is republishable, shareable, should hardly be attributed, we are inviting the automation of content production and migration of value to the ones who control the (supposedly hapless) audiences.

Guess what, we all hoped the web would lead to enlightenment, but it may not really be changing that much in the end... I would almost want to extend that debate into attacking the entire notion that technology per se is good or that it represents by default positive progress, but that will take more time than I have now and I need to think about this a bit more.  One for the new year I think :-) 

In the meantime I am with Doc Searls here: whatever else happens, great content is there to be crafted and read, enjoyed and shared.

The Arrogant VC: A View From the Trenches (full length version)

Below is the summary of all the answers I received to my recent post entitled "tell me why VCs are disliked by entrepreneurs".  There is a shorter and easier to stomach version on Xconomy if you prefer, here.  I have tried to keep my role as editor limited to re-organising, so this remains true to the commentary.  I would add that most or all of these entrepreneurs had real, hands-on experience with (often prominent) VC's, sometimes through multiples companies and fundraising.  And yes, I also plan on writing a feature about the "good side" soon...

The VC - Entrepeneur relationship seems damaged.  Whilst business partnerships gone bad and company failure can lead to fallout, this is dfferent.  I wanted to find out why that was and used the blog to ping the entrepreneur community to try and understand this better, listen to my audience as it were, and share the feedback.

As with all articles of this kind, it is plagued by generalisations and simplifications.  In trying to do justice to the sixty detailed and mostly confidential responses that I got, I probably lost some of the colour and detail.  But for anyone interested in rebuilding the social contract with entrepreneurs and getting our VC mojo back, however, the scale of the problem should be apparent.  Clearly as VC's our job is not be loved but to contribute in building great business and return money to our shareholders.  Read on regardless; as you will see, status quo is not an option. 

A common answer I got was "sour grapes".  As Richard Jordan put it "failures breeds frustration and there is a natural tendency to spray the blame around.  Externalise guilt as resentment, combine it with some old fashioned finger pointing, and there you go."  Many VC's excel at that too.  Sometimes anger stems from the "sheer exhaustion from being told "no" too many times".  Now let's dig deeper.

Poor first impressions

Richard Jordan (read him) says: "probably more than half of the VC pitches I have done have involved participants on the VC side who have behaved in a rude and disrespectful manner".  Arriving late, cutting out early, reading blackberry, constantly interrupting pitches, taking calls, you name it.  Some of the pitching experiences border on the ridiculous, as evidenced by a young founder who got invited to pitch for fifteen (yes, fifteen) minutes with five minutes Q&A, only to find the meeting started ten minutes late and was not to be extended...

The absence of feedback loop is a common theme with entrepreneurs griping about "dozens of unanswered calls and mails, from people they met.  If nothing else works, what are your PA's for ?".  Another common gripe is the need to be dealing with the associate who needs to sell his deal internally and is often insecure and not clear himself on his chances of getting the deal done. 

Even in early meetings, the lack of "empathy with and experience of the startup and the sacrifices involved" can leave entrepreneurs fuming.  Finally, many entrepreneurs complain about a lack of confidentiality with their pitches sometimes "landing on competitors' desks days after the meeting".  In a recent example, a well known General Partner interrupts 50 minutes of cross questioning with this casual statement: "by the way, I am personally invested in a new startup who are targeting this segment ".

Getting strung along or left at the altar

"Raising capital depletes far more energy than investors realize", says one entrepreneur.  "Getting a "no" is actually fine from an entrepreneur point of view (one has to be rejection-proof anyway), but to preserve their opportunities many VC's tend to string along entrepreneurs forever, blatantly lying about deal status only to let it fall apart at the last minute , wasting an entrepreneur's time and energy". 

Many investors appear to be "vague on their decision and engagement process, which tends to be liquid".  Some VC's promise term-sheet which never come, others withdraw at closing (the worst I personally heard was an SMS turndown by a "tier one" VC followed by a competitive investment), others still don't bother checking conflicts of interest.  "VCs are too opportunistic in their behaviour" says one experienced entrepreneur.

A common gripe concerns the lack of clarity (or absence) in the rules of the game.  Some companies are forced to jump through endless hoops to get a tiny round done whilst others raise a ton of money at seed with no substance.  VC's pretend to do seed but then say no to everything that is early and want revenues, customers, a business model and a team.  Entrepreneurs are confused and sometimes angry about this, as they feel fundraising is like a marathon with no end, when the hills keep getting steeper along the course. "The whole process leaves me with this feeling that landing funding is nothing more than getting lucky with the right pitch on the right day with the right person in the room" says D.  It makes you feel like "a sort of magic and certain incantations and artistry is required, yet despite that "investors often still fail to ask the right questions, the hard questions".

Getting a raw deal

"Taking capital does feel a bit like making a deal with the devil after all".   Entrepreneurs fundamentally want to change the world and dealing with the Money Men is often a compromise they would rather do without.

"The entrepreneur is a bit like a child who's just learned the rules of chess - he's studying the current move intently, but he's rarely thinking far ahead.  The VC is an old hand at this game - he knows its patterns intimately and can see how it'll develop far into the future.  The entrepreneur tries to play well, but the terms he fights for often turn out not to be important, while the terms he thinks are innocuous can surprise him in unexpected ways.  Unless things at the company go astoundingly well, the entrepreneur comes away feeling like he was played - taken advantage of by someone far, far more experienced at this particular game."  Clauses like participative liquidation preferences, anti-dilution, aggressive reverse vesting, board control or simply shareholders' rights come up frequently, with good reason.

"My own VC's have been great. That said - like many entrepreneurs, I've only realized some of the longer-term implications of the documents I've signed well after the fact.  This was enough to make me wary".

Great (but misguided) Expectations

"Many entrepreneurs want an investor to fund the idea (equivalent to a tv production house looking for funds from a commissioning editor to make a show, and generate a profit from it). It often takes them a long time to realise that such VCs don’t exist. By which time they are bitter and tired and blame the VCs, rather than their own lack of understanding" of what it takes to get VC funding.

David Smuts believes there are two kinds of VC's: "Careerists VC's" and "Entrepreneur VC's" and two kinds of Entrepreneurs: "Real Entrepreneurs" and "Wannabe Entrepreneurs". "Entrepreneur VC's behave in the best interests of the business they are investing in" whereas Careerist VC's put their own career prospects first". "Wannabe Entrepreneurs either hate all VC's because they reject their business idea", or "suck up to all VCs because they want their money".  Long story short: The goal is to match Real Entrepreneurs with Entrepreneur VC's.

Unwanted advice, poor communication and lack of operational sense

"While VCs are always happy to dish out advice, this feels disingenuous from people who have never actually built a company or had a knockout success as an investor.  Learning from mistakes is far less useful than emulating success".  One entrepreneur goes further in accusing VC's of seeing everything through the lens of money: "often time they have zero operational experience (how to launch a company/product or manage customers), don't understand marketing beyond just building their own brand, and see money as their ticket for everything."

VC's are often ex lawyers or bankers and some have a tendency to feel safe with "experienced suits" that sometimes do nothing but drive the burn rate up and compound cash-flows problems.  Entrepreneurs are often "driven, creative types who want out of larger organizations" and whose traits map poorly to those of many VC's.  Ultimately since many of them don't understand the businesses deeply, they "try to make up this particular information asymmetry with legal enforcement (sic)".   

Some VC's are not that shy about it.  One partner in a tier I fund described his role in this way: "Industry experience is not that important. I see my role on a board is to challenge every decision the management make".  Here's a variant on the same theme: "I don't give a s**t about the company's strategy, my job is to come here once a month and check what you are doing with my money".  QED.

Different objectives and timeframes

"It takes patience and time to build a great business, and target returns and timeframes (e.g. five times in five years) can get in the way. On the other side, entrepreneurs burn out and blow up all the time, so it's tough to keep both sides aligned and together for a long time."

Sigurd says "short investor timeframes to meaningful exits means forcing businesses to scale too much and too fast (and offsetting this risk through a portfolio approach), whereas the entrepreneur must offset the market and product risk by slower movement and something akin to agile development."  David agrees on this natural misalignment of interests: "VCs need home runs, and entrepreneurs need singles at least on their first couple of companies."

The going really gets tough when entrepreneurs lose their original sponsor.  "The new guy is either too junior, does not know the business or feels he has the right to wash his hands of the mess left by his departing partner".

Arrogance and lack of empathy

At the end of the day, most entrepreneurs completely understand that objectives are not always to be aligned, and that VC's work for funds that need to return capital.  What they have trouble with regardless, are "double standards".  One entrepreneur who has raised money multiple times says: "a lot of VCs do things no regular employee would dare to do but are largely unaccountable for those behaviours: forgetting about board meetings, showing up 20 minutes late, bullying the team or CEO, being generally unavailable, paying no attention in meetings because they are arranging a golf game on their blackberry, failing to read the board pack before the meeting, so the actual meeting is remedial in nature."  the message seems to be: "don't treat me the way I see fit to treat you".

Net-net, VC's are too often "out of touch with the reality of entrepreneurs".  "They are often times elitist, clashing with the very scrappiness of their entrepreneurs".  Arrogance is the word.  "I was told forcefully "you will fail" and that I should join another startup ... funded by the very same VC".  "I spent 4 years in poverty ignoring my family and my friends to get the company to this point, and now they want me to vest my shares."  Yet another:  "I have mortgaged my house, I have spent all my money, my family lives on pizza coupons and now you are telling me you want customers and a live product to boot ?  Why don't I call you back when I have gone public, bozo.  You call yourself a risk taker ?  You want 30% of my company when all the risk has been taken out ?"  (I added the pizza coupon piece for effect, but you get the idea). 

Finally, entrepreneurs feel VC's are "crap at sharing the wealth", recognising "how tough it is to create value" or "properly re-incentivising managers who gave up many years of their lives, effectively abusing a position of power and often manipulating entrepreneurs by threatening their reputation".

Bottom line: "VC's really don't take any personal risk but expect everyone else to..".

Add to this some "dumb practices" such as demanding board remuneration and monitoring fees or "submitting ridiculous expenses" to complete a picture that betrays a complete lack of empathy.

Dark Side of the Force

Finally, some ugly business behaviour.  A fairly common practice seems to be what you might call "slow strangulation", whether by design or not.  "An equity investor will knowingly under-capitalize your startup only to gain control of it once the opportunity manifests itself by use of a wash-out round; milestone financing and abusive board control are used for similar tactics.  As a consequence, myself and others now prefer to bootstrap/self-fund rather than taking any amount of early-stage capital that will not *clearly* take the company to the next level."

This is a common gripe with smaller funds, who have badly under-performing portfolios and little follow-on reserves, and who fall back on such slow strangulation of businesses they fund by trickling money, gradually washing every one else out, and hoping that 50% ownership for little money invested will somehow pay back for the rest of their portfolio.  Smaller regional, government-backed funds get a particularly bad rep in this area.  Lacking experience and confidence, they rely on punishing paperwork and self-anointed gurus to help them through the hard process of building successful companies.

Entrepreneurs have come forth with other dubious practices, including outright lying about the state of the business when refinancing, disclosing confidential information or personal confidences, negotiating on behalf of management and forcing deals through, making a mockery of governance rules.  One systemic problem appears to be a failure to represent the interests of the company in board meetings, but rather short-term investor interests. "This is a plague on the industry and makes the board worse than useless to the company." 

Another entrepreneur identifies what he calls "classic VC tricks" such as "firing the team just before an acquisition, term sheet bombs, hiding or obscuring key information, manipulating the team to try to change ownership or board composition, changing deal terms just before closing". He adds: "These destroy alignment and trust, and without some alignment and trust the necessary working relationship and motivation is destroyed".

The worst I got related to VC's pushing to recover shares from the heirs of a deceased co-founder under a reverse vesting provision.  As the contributor put it, "it will take a lot of good karma from a lot of VC's to make up for this one".  I was stunned.

Conclusion

Last words to entrepreneurs from Rory Bernard: "Choose your VC's with care.  Good ones transform your business, bad ones wreck it".  

And to VC's: "tread softly, remember that in a position of power, you can do many sensible things but a few stupid ones and end up with a "George Bush" problem, and as a result the approval rating of Dubya."  

CA Venture terms starting to recover

Fenwick & West's venture barometer always provides useful insights into terms used in venture financing in Silicon Valley / the Bay Area.  The good news for entrepreneurs is that Q3 seems to provide an inflection point for the better.

Let's dig in:

• More uprounds (41%) than downrounds (36%) for the first time this year.  Digital media very strong in this area with 70% uprounds (time to move on then...).  Downrounds mostly affect later stage companies.  Inside rounds are down 10% to 33%.
• Series A is back to normal with 17% of rounds (from 8% in Q2)
• Liquidation Preferences are used in half the rounds done, with multiple liquidation preferences still uses in 21% of cases (mostly 1.5 to 2X), a marked decrease from Q1 (28%).  There was a Participation feature to the Liquidation Preference in 53% of cases
• Anti-dilution in the Bay Area is 97% of the time of the mild form (weighted average, not detailed by type), with only 3% of deals involving full-ratchet (a message to European entrepreneurs here!).
• The number of deals that involved corporate reorganisations was down to 8% from a high of 13%

Three things you should never tell a VC when fundraising

isclosure is a good thing.  Early disclosure of thorny issues is a very good thing (such as, "I am embroiled in a legal dispute with my co-founder over ownership of the company and here is why").  That does NOT mean, however, that you should be totally transparent during fundraising. 

In particular, there are three things you should be extremely selective in disclosing:

• How much cash you have and when you are running out of money.  The answer should ALWAYS be along the lines of: "we are well funded for now and our investors are supportive" no matter how desperate for cash you are.  Or "we have a very low burn rate and can sustain ourselves for the time being".   Not: "we are out of money on two months and getting desperate".  There are other ways to create a forcing function and admitting you are going bust or telling investors when you will be is no way to optimise your outcome.  ADD: You should clearly talk about your financial profile and how much you are burning per month, I just do no think it is wise to provide the VC with the exact date from which any lowball offer will become hard for you to turn down...
• Other investors you are talking to.  I always ask, and I always get a very detailed response: well, Index has done two meetings and Atomico is close to term-sheet etc etc.  Why ??? I don't exploit that information except to pace myself but how many stories have you heard of VC's ganging up to avoid competing with each other ?  The management of KDS agreed to collapse us into the Accel Partners term-sheet when we invested there, but it was their decision.  The other issue you face is that VC's may say "if you get Investor X to lead I will join them" or you get top tier VCs (say the mysterious Investor X) thinking "well investor Y and Z are really crap and if they are interested it cannot be that good".  Sounds stupid, but I have seen this happen.
• Your detailed cap table and your last round valuation.  You are telling me now (a) which investors I should be influencing to win the deal and (b) how much upside I should give them, and that may not be in your best interest.  Management ownership matters but be coy and don't reveal more than you need to.

You should keep your cards close to your chest, maintain information asymmetry.  The key is to do this without seeming to be secretive or pretentious, but with confidence: "we are talking to a few select investors, strong brands, and are currently making good progress towards a close".

Some VCs spend their entire time talking to others and asking them forcefully "whether they are looking at company Y and what they think of it and should we not do this together".

The question to ask yourself is: "is this information relevant to the VC's assesment of whether they do or do not want to invest in my business and at what price".  If it's not and it helps the other party's negotiation leverage, you do not have an obligation to answer.

Trust me on this, and always keep your options open.

UPDATE: to be clearer, I am suggesting that this information is valuable and important and that you should be "selective" in disclosing it.  Yes, it gets subtle.  For example, a VC should be able to put the outline of an offer together without knowing your detailed cap table.  However, he won't be able to write you a detailed term-sheet without the full details (voting thresholds and board composition, to take two examples, depend on it).  I thought I would clarify after noting this comment by pg on Hacker News.  In any event, 100% transparency all the time is not the way to go.  This post should have been entitled "Information you should be careful with when talking to VCs".  Not catchy, me no like.  

UPDATE II: I think we should drop my last point on cap table.  I had a specific instance in mind where this was important when writing this, but it's far from universal.  I would not necessarily comment early on last round price when it was very LOW, as this can set the bar too low for the current round of negotiation.  If your last round was overpriced, well this is something you need to address preferably before you are talking to new investors to get existing shareholders aligned.  I invite you to read Eileen for the counter and Reid Curley for a balanced view.

Tell me why VCs are so disliked by entrepreneurs

You have to listen to your audience right ?  I would like entrepreneurs to help me understand what it is about VC's that irks them and what behaviour they have witnessed that makes them a poor development partner.

One of my (blunter) posts was recently reposted on Silicon Alley and generated some aggressive commentary, some of which seemed to stem from people who actually had extensive experience in building succesful companies and had built a really deep sense of, how shall I put it, hatred for the VC community in general.  Not just sour grapes from losers then... (that was joke, I feel I have to highlight them these days).

Now I am not a naive newcomer who thinks money grows on trees or that all VCs are really nice guys just trying hard.  In fact a fair portion of my industry irks me too.  I have done my fair share of screwups (typically saying no too late and dropping some balls). I also recognise that the fabric of some deals (e.g. raise a ton of dilution-protected money at high prices on inflated expectations) fundamentally lays the foundation for some serious investor - entrepreneur fallout when the market turns (as has been happening this year and nasty washout rounds come into play).  And if I was the founder of, say, Glowria, effectively robbed of my company, I would not be feeling any love for my brethren right now...

But going beyond that, there seems to be something broken in the entrepreneur-VC relationship even though both parties should want the same outcome (to build a great business), even though no one does this (purely) for money but in large part because of the pleasure derived from working with innovation and creating successes, and even though long-term reputation matters.

What is going on ?

I would love for people to share their views back to me in complete anonymity to my fdestin at gmail account.  I will summarise, edit, keep the warts and spew back.  I want precise, actionable items, the more detail the better (legal clauses, board behaviour, issues experienced by the commentator) as well the softer qualitative aspect of what makes the relationship fall down.  It would be helpful to understand what kind of VC you were dealing with (big name firm, regional fund, VCT or FCPI or other tax enhanced etc).

I have received the first few answers and am discovering some completely new aspects...

<--- self-deprecation (a Belgian pastime by default)

How a great entrepreneur deals with complexity

I aksed Joe Cohen at Seatwave how he deals with the ongoing complexity and varied demands on his time that come from managing a hypergrowth company, and I thought I would share the thoughts he jotted down for me:

1. Oversimplify and execute well.  If you make a mistake in strategy you can generally correct it by executing well even if you execute something else
2. Only do what only you can do - this is really hard but if anyone in your company is able to do something the CEO should not, by defnition, do it
3. Ignore the first request for everything.  If it's really important then they will ask again
4. Push your team beyond what you and they think they are capable of - they will be more empowered and will be able to complete more on their own if they are reaching for a high bar
5. I have 0 emails in my in box when I leave the office each day.  Anything that I am cc'd on I will read on the weekend (separate folder) so I am only dealing with emails sent TO me each day
6. At least once per week leave the office in the middle of the day and have lunch with my wife or go to my kids school - even if only for 30 minutes

Simple and sound advice.