My 10 Favorite Startup and Tech Blogs

I subscribe via RSS to way too many blog feeds, most of them in the tech/startup/VC world.  Some of the authors contribute daily, others may write once per week but provide unique and well thought out content.  I’m focusing here mostly on non-news blogs (Techcrunch, Mashable, etc. not on this list) and instead on individuals with deep experience as entrepreneurs.  For a broader perspective on popular blogs by category, check out TechStartHub.  If you run a startup, are seeking funding, beginning a company and seeking advice or simply want to stay apprised of opinions and discussion happening in the tech startup ecosystem, then here are my recommended 10 must-read blog subscription feeds, in no particular order (click on the links to subscribe to RSS feeds):

Feld Thoughts.  Daily blog by VC Brad Feld, he mixes both personal and professional insights into his writing.  Brad has been an immensely successful VC, particularly over the past few years.  Naturally, he’s enjoying life and it comes through in his writing.

Startup Lawyer.  There is a wealth of archived content by lawyer Ryan Roberts that talks about how to structure your company, approach valuation, taking in money from Angels and VCs, etc.  He’s a pretty infrequent poster, but the archived content is valuable.

A VC.  Daily blog by legendary VC Fred Wilson.  Fred is usually on the bleeding edge of technology and has a point of view on just about everything technology, particularly trends in the use of technology and startups that are emerging in line with his thesis.

Both Sides of the Table.  Daily blog by another nationally recognized VC Mark Suster.  Mark is probably the most actively engaged and networked in the tech startup community outside of Robert Scoble and spends a lot of time and energy on his blog writing.  No short posting here, usually his writing is very comprehensive and with a strong point of view on his subject matter.

Ask the VC.  Separate blog curated by Brad Feld, he scours all of the VC blogs and re-posts what he believes is the most useful information that day.  Tremendous archived content here as well.

Digital Quarters.  A pretty infrequently posted blog by Ben Elowitz, founder of Blue Nile, but although infrequent, his writing is insightful and comprehensive around whatever topic he is addressing.

Steve Blank.  A serial entrepreneur and founder of E.piphany and eight or nine other companies, Steve Blank (now a professor) has a large following and impeccable reputation in the startup community.

Blog Maverick.  Always a contrarian view on many subjects by this now famous owner of the Dallas Mavericks, Mark Cuban.  He’s a pretty infrequent poster, but his comments are usually pretty insightful whether you agree with him or not.

On Startups.  Blog dedicated to the entrepreneur and written by Dharmesh Shah, founder of HubSpot and several other companies.

SplatF.  Combination news and blog site by technology writer Dan Frommer, he usually posts multiple times per day on whats going on in tech.  What distinguishes him from other writers is he injects his own point of view into news and current events.

Honorable Mention.  Robert Scoble.  Probably the most prolific and connected tech writer on the planet, so much so that its impossible for me to keep up with him and his posts.  He gets an honorable mention because he writes TOO much, but he typically is on the front lines of reporting.

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Investing Through the Startup Noise

As someone who is both seeking my next professional role in an early stage business and (newly) looking for Angel investment opportunities in startups, it is incredibly difficult to determine the high quality businesses given the sheer volume of startups in the marketplace right now.  While there is unprecedented access and information on startups through sites like AngelList, the consequence of this transparency is a ton of noise – anyone can put their business idea out there regardless of its business viability AND its cheaper than ever to start a technology company as infrastructure, hosting and storage costs have never been cheaper.  Gone are the days of VC proprietary access to deal flow, but also gone are the vetting and screening of startups prior to them becoming discoverable.

I wrote previously on some tips for first time angel investors as communicated by Brad Feld and David Cohen.  But the biggest challenge – how to gain access to high quality startups – was left largely unaddressed.

Take AngelList, a site that launched only 1.5 years ago and claims to have facilitated over 8,000 introductions between founders and investors with 400 companies funded through those introductions.  Nearly 10,000 startups and 2,300 investors are listed and have profiles on the site.  Fantastic for access and transparency, but wow, that’s a lot of noise.

So as a job seeker and potential investor, how do I maximize my probability of gaining access to only the highest quality ideas without having to do an inconceivable amount of research?  Well, its different for job seeking v. investing.  I detailed my process for job seeking in a previous post.  Here, I’ll talk about how, as a new entrant to Angel investing, I’m going about gaining access to quality startups and cutting through the noise.

Letting other active Angels know I’m investing.  There’s a handful of folks in my network that are actively investing in startups and quite frankly, have better access and are better connected into the ecosystem than I am.  Sharing with them my intent to invest, including how much per investment and the kinds of companies I’m most interested in is a way to shortcut access to quality deals.  These people include former colleagues, VC’s who invest personally, seed-stage fund investors and others I’ve met along the way.

Building and managing my online brand.  This involves utilizing and being active on social media networks such as Twitter, Facebook, LinkedIn, Google+ and particularly AngelList and ensuring my profiles are up to date, comprehensive and consistent across platforms.  “Investor” shows up in bios and short descriptions.  Diligence is not a one-way street, the smartest founders and entrepreneurs research their potential investors so I want to be easily discoverable but in a way that I direct and control.

Leveraging the incubator programs.  These programs in some sense do a lot of due diligence for you first by accepting an idea/founder into their program and second by coaching and mentoring their early progress.  Nearly all of the reputable programs, but particularly 500Startups and TechStars, enable broad access to Demo Day presentations through live streams or blogging and then you can access and enter the investment discussion either directly with the founders or through AngelList.

Yesterday I attended Demo Day for the graduating class of 500Startups, an incubator/investment engine that boasts 175 portfolio companies and founded by prolific investor Dave McClure.  It’s a program similar to TechStars and YCombinator with the added dimension that they will make pure seed investments without the requirement of going through their incubator program.

I was actually really impressed by many of the newly formed ventures coming out of the program (and now seeking investment in the $300-500K range).  There were 31 presenting companies and over 1,000 participating audience members (via personal attendance and live stream video).  1,000 potential investors for 31 companies?  That tells you the dynamics of this market and why valuations are bloated right now, with many of these graduating “ideas” garnering pre-money valuations of up to $5M.  But there were 2 companies that were extremely interesting to me, so I reached out to them on AngelList and within a few hours, had access to their investment materials.  This would have been impossible for me just two years ago.

Did I mention AngelList?  Because I’m not “in the club” of elite investors that have automatic access to all the hot startups without the need to do any outreach, I need a way to 1) broadly market or announce my interest in investing and 2) access startups that I’m interested in.  AngelList is the best and only place for a new investor to do both of these things effectively given the critical mass they have achieved.

Make an investment.  While I’ve reviewed a half dozen companies, including meeting with founders, I have yet to find the right opportunity and I’m not going to part with my hard earned cash just because there is a startup gold rush happening right now.  That said, there are a few opportunities with founders I already know well that I anticipate will close in the next few months.  The point here is that building a track record as an investor is, or certainly should be, important for founders to accept your money.  This is particularly true in the current market where entrepreneurs have a choice of investors.  Why not choose money that comes from people who have demonstrated picking winners and who can add value through advising or introductions to their superior networks?

This process has worked pretty well for me, I’m curious to hear how other new investors are getting into the market and accessing high quality startups?

Are You Pulling the Wool Over The Eyes of Your Employees?

Fair warning, this will be a bit of a rant.  There was a story that emerged late last week about how Skype had provisions in their employee stock option agreements that basically rendered stock options worthless for employees.  It spawned a lot of discussion in the media and among bloggers over the weekend, but there were two articles I ran across that gave competing views into the situation:  An employee-centric view and a company “why they did it” view.  Take a moment to get educated.

I’m not going to get mired into the detail of specific employee incidents discussed in these articles.  Rather, I’m focusing on the philosophy of implementing an egregious stock option agreement that provides little to no compensation and ownership value to employees.  And more specifically, doing so when the tech industry norms are vastly different.

In a nutshell, here’s the situation.  Skype’s employee option agreement has a very unusual clause that enables the company to buy back an employee’s options if the employee leaves the company voluntarily or involuntarily.  The buying back of unvested shares upon termination is a standard option agreement clause for most tech companies.  What makes this clause unusual, and reprehensible in my view, is that it just doesn’t cover unvested options, but also vested options.  And here’s the evil kicker – the company has the right to buy back vested shares at the original grant price, not the fair market value that employees presumably contributed to achieving.

There are two problems with this type of agreement that I cannot be convinced are fair and equitable components of tech industry compensation:  1) The company has a right to buy back vested shares upon termination and 2) the Company can buy back vested shares at the original grant price.  This second point is the one that I believe essentially tells employees “Here’s an option grant but if you don’t stay with the company until it sells, regardless of how much value you create, we can terminate the grant.  Oh, and we can fire you before the company sells to ensure the grant is worthless.”

Now, there have been several arguments, although sparse compared to the criticism, in defense of Skype’s treatment of options in their agreement:

  1. Employees should read any agreement before they sign it.  This is a load of crap.  Employees other than the most senior leadership have ZERO ability to negotiate terms in a “standard” company agreement and thus the vast majority of employees have likely never had a lawyer review employment related agreements (confidentiality, non-solicitation, etc.).   The fundamental issue here is not whether an employee should negotiate a better agreement, but rather philosophically how does the company want to incentivize and reward employees, particularly when the industry standard is so different creating a misleading view of how a standard option agreement behaves.  In a world where there is such a deviation from the norm, the company has an obligation to ensure employees fully understand how deviating agreements work.
  2. Skype’s investors are Private Equity and not Venture Capital.  Huh?  What does this have to do with the fundamental notion that employees, not investors, are the primary asset that creates value in ANY company, regardless of who the investors are.  Early stage, later stage, turnaround, it doesn’t matter.  This point does not negate the company’s responsibility to provide clarity to employees about how compensation-related agreements work.
  3. If an employee voluntarily leaves, then they don’t deserve to keep any options.  Again, this is just not the right thing to do.  By way of example, let’s say I joined my company and was granted 40,000 shares vesting over a 4 year period and at a grant or strike price of $0.10, representing the Fair Market Value of the shares at that time.  After two years, the company has made progress and raises capital at a per share price of $0.50.  So, there’s been $.40 of value created during my time at the company.  Now I decide to leave.  Since I worked for two years, I will have vested in 20,000 shares and presumably I’ve contributed in creating that value – if I haven’t, then the company should have fired me a long time ago.  But they didn’t.  The value of my 20,000 vested shares is now $8,000 (20,000 x $0.40 per share).  Under the Skype option plan, the company essentially has the right to terminate all options, so I leave with no stock, despite the fact that I’ve vested in half my position.  Poof, no options!  My belief, and the belief of most companies, is that the employee should have the right to purchase vested options at the original grant price upon leaving the company.  So I pay the company $2,000 and they issue me a stock certificate for 20,000 shares that I take with me.   Again, this is a philosophical debate – I believe in making all employees owners and rewarding people for contributing to increasing corporate value.  Just because someone decides to leave for personal, professional, health or any other reason doesn’t mean they don’t deserve to capture the value increase.

What’s the bottom line?  As a leader in your organization, what value do you place on people, transparency and sharing value creation with those most responsible for creating that value?  Companies have a responsibility for transparency and integrity towards employees.  Create and enforce whatever agreements you like, but be overtly educational about it, particularly in instances where your policies deviate substantially from standard industry practice.  This is where Skype failed in my view.

Looking for Funding? Try AngelList

I recently attended a talk on Angel investing given by Brad Feld and David Cohen at the Boulder TechStars Bunker.  One of the challenges I’ve been unable to get my head around as a prospective startup investor is how do I get access to the most promising startups?  All of the “high profile” startups that are started by the most accomplished entrepreneurs are almost impossible to get access to.  There’s a small community of well known Angels and entrepreneurs that circle these startups and get first dibs at seed level funding.  Makes sense.  If I’m starting a company, I want “smart” money in my deal.  Not just cash, but cash from accomplished business builders and investors who have a track record of helping companies be successful and generating a return on their investment.

So the question is, as an unknown investor with some success starting and building companies, how do I get access to the better deals?

Enter AngelList, an online marketplace for startup entrepreneurs and prospective investors to connect started by serial entrepreneur Naval Ravikant.  Here’s how it works:  Startups can register and create a listings page that contains their product, screenshots, video, team and advisors.  What really makes it interesting is that you can see which prospective investors are “following” the company and which are “endorsing” the company.  Investors must also register and be “qualified”.  To be qualified, an investor will be evaluated one of two ways, either by how many current community investors are Twitter followers or by having a certain number of current investors “endorse” you as someone they would trust and co-invest with.  This qualification process I believe gives the community credibility and its working based on the list of over 2,000 incredibly accomplished investors and entrepreneurs listed on the site.  The latest, unverified stat I heard was that AngelList was adding 20-40 startups per day.

Now, does AngelList by itself give me access to the most high profile deals?  No, but it sure does begin to provide transparency and level the playing field.  Gone are the days when prominent VC’s had proprietary access to deal flow.  Now everyone – entrepreneurs, Angels and VC’s – has to be scrappy and compete.

This level of market transparency is also great for startup entrepreneurs.  They now have access to a broad range of investors and in this era of AngelList and social media, you can get to almost anyone if you can efficiently articulate your pitch and cut through the volume of social media noise.  But access is no longer the issue.

The final implication to consider from this increasingly transparent and open investment environment is on valuations.  I’ve said before that we are not in a “bubble” similar to high-flying times of 1999, but pre-money valuations right now are pretty darn high I think due to numerous factors but certainly at least two:  1) huge success stories like Facebook, the LinkedIn IPO, Zynga, Groupon, etc. have investors over-exuberant about finding the “next big stock” and 2) an increasingly transparent market (via AngelList, Second Market, Sharespost and social media in general) is allowing anyone to invest in startups, creating more demand and driving prices up.

It will be interesting to see if the market becomes more transparent and open, if valuations will continue to rise, stabilize or fall and what effect a fall in valuations might have on the supply/demand equation for startup financing.

Tips for First Time Angel Investors

As part of Boulder Startup Week, David Cohen and Brad Feld held a Q&A for prospective Angel investors at the TechStars Bunker yesterday.  David is a serially successful entrepreneur, Angel investor and current Founder and CEO of TechStars, arguably one of the most successful mentor-driven seed stage investment programs for Internet startups.  Brad is a successful entrepreneur, founding partner in Boulder-based VC firm Foundry Group and co-author with David of Do More Faster.  These two guys know a thing or two about successful Angel investing in Internet businesses.  And as a prospective new Angel investor, I found the session pretty informative.

Here are a few tidbits of advice for those interested in becoming Angels from David and Brad.

First things first, be honest if Angel investing is really for you?  If you don’t have the ability to today write 2-3 $25K checks each year for the next 3-5 years, then don’t do it.  If you can’t lose every penny written from those checks without having a pit in your stomach, then don’t do it.  For you math wizards, that’s having between $150-$425K in cash sitting under your mattress today such that if your mattress spontaneously combusted it would be no big deal.  Why does all that cash need to be accessible today?  Because you will need to make follow on investments in the same companies over time, essentially committing that cash today or putting yourself at risk of not getting a sufficient return on your early investments.

Once you commit, determine the “volume and velocity” of your investments.  There are 3 variables you need to determine up front that must jive with one another:

  1. How many total dollars are you committing to Angel investing?  Example: $600K
  2. Over what time horizon?  Example: 3 years, so $200K per year
  3. How many investments per year do you intend to make (assuming that each investment requires 2 funding rounds over the period)?  Example:  If each investment requires 2 rounds at $25K or $50K total, then you can afford to do 4 investments per year totaling $200K per year, or $600K over the 3-year period.

How does a new Angel get exposure to quality deal flow?  This for me seems like the biggest challenge as I contemplate jumping into investing.  The “best” deals with the most accomplished teams inevitably get funded by the highest profile Angels and VC investors.  And the most discerning entrepreneurs of course prefer experienced Angels with solid reputations and a track record of not just writing checks, but helping their portfolio businesses succeed.  Oh well, gotta start somewhere I guess.  David’s advice was to create a single-page investor profile – type of companies, investment criteria, size of investment, professional accomplishments, references, etc. – and distribute to a few well-connected and accomplished Angels and VC’s as an offer to co-invest with them.  The other way is to join an Angel Group.  But…

Beware of Angel Groups, they can be effective, but do your diligence.  There are good and bad angel groups separated by how active the individual members are at actually writing checks and making investments.  Ask how many investments the group has done in the past year?  What % of the membership is writing checks?  How do they qualify Angels?  If you are considering a group that charges entrepreneurs to make a pitch or for sketchy “boot camps”, run for the hills, its supposed to be the other way around folks.  Innovative groups such as the Open Angel Forum started by Jason Calacanis were created to truly serve the entrepreneurs and put these “bad” Angel Groups out of business.

Determine how involved you want to be in the target company – Leader/Active, Follower/Advisor, Everyone else/Passive.  There is no right answer, this is a personal choice based on how involved you want to be with the management of the target company and helping them raise the rest of the money they need.  If your investment strategy is to make 2 investments per year, then you are likely to take a more active role than if you are making 20 investments per year.  The key point both David and Brad make – be transparent and upfront with the entrepreneurs about the level of involvement you intend to have with the company.  Don’t have company leadership believing you will be actively advising if you intend to write a check and disappear.  And it goes both ways, a meddling or overbearing Angel can put entrepreneurs in difficult and distracting positions.

And finally, in order to be an Angel that doesn’t suck for the entrepreneur, follow these 5 simple rules.

  1. Make a decision on your investment within 24 hours
  2. Take the entrepreneurs phone call, especially when they are upset
  3. Tell 3 other prospective Angels/friends about the Company (to help them close the round)
  4. Clearly communicate your intended level of involvement post-investment
  5. Directly contribute to solving 1 out of the top 3 challenges that keeps the entrepreneur up at night.

Crafting Your Startup Pitch

I participated in a session today during Boulder Startup Week hosted by Jason Mendelson, a Partner in Foundry Group.  The audience was a group of entrepreneurs in various stages of fund raising activity.  Jason had some great advice for the group as a long-time Venture Capitalist who sees over 1,000 pitches per year.  Of the 1,000 he sees, 500 of them are immediately discarded to to bad grammar.  Really?  Of the remaining 500, 300 have an ineffective or even no “Elevator Pitch” – which Jason claims is the most important thing an entrepreneur has to get right to get initial investor attention.

So there you have it, you can be in the top 20% of deals he sees just by 1) mastering the English language and 2) having a concise, well-articulated Elevator Pitch.

What comprises an effective Elevator Pitch?

  1. Proof of a massive problem. What problem are you solving and how big is it?  This should be easy to nail quickly.
  2. How your business solves the massive problem.  What unique solution has been developed or conceived?
  3. Why YOU rock! (as an individual and how you are different than everyone else).  VC’s invest in people, first and foremost, so don’t be shy about why you are the best at what you do and what gives you a special advantage to outlast everyone else.

And all of this communicated before the elevator gets to the 4th floor!

So now that you are in the top 20%, here’s the next set of deliverables to win your prospective VC’s heart and cash.

  1. 5-7 page Executive Summary in written form.  The days of 70-page business plans went out with 8-Track tapes and Betamax.
  2. Product demo or prototype.  Showing your product is ALWAYS the most effective way to get attention.  It shows passion, commitment and enables an investor to share your vision for solving big problems.  It does not, however, eliminate the need for the Executive Summary.
  3. Personal connection.  I thought this was a really interesting and refreshing insight.  In order for Jason to invest, he must build a relationship with the entrepreneur and he expects incredible energy from that relationship, energy that first emanates from the entrepreneur and that increases with each visit as trust is built.  Why?  Because when times get tough, the personal relationship is what gets you through it.  The trust is the fallback for difficult conversations and wrenching decisions.  Personally, I want my VC to act this way, I was super-impressed by this investment philosophy.

Where do most entrepreneurs fall short in their pitches?

  1. Inadequately evaluating or addressing the competitive threat.  Even if there is no one on the planet that is doing exactly the same thing you are doing to solve a particular problem, for you to obtain customers there has to be a compelling reason for them to allocate time to you v. whatever else they could be doing.  Literally, the Internet is your competition in this case.  Don’t ever tell a VC you have no competitors, its the Kiss of Death.
  2. Inadequate attention to Business Model – Both Revenue and Expenses.  The one fundamental truth about Revenue projections?  They are always wrong.  100% of the time they never come true, the business will learn, iterate, pivot and generate revenue in ways that weren’t originally contemplated.  But its OK.  They key is to understand the drivers of revenue – # customers, page views, $/customer – those things that if you can scale, even a few of them, it drives revenue.  Expenses, by contrast, better always be right.  They are controllable and need to be well-thought out.

Finally, how does the entrepreneur find investors and get their attention, particularly VC investors?

Jason’s advice, as someone who is regularly spammed by entrepreneurs who blast out wildly to VC “lists” having done little to no research on the VC’s investment criteria –  do your research in a targeted way and wrestle ONE VC to the ground first.  Get personal, find common ground, ensure they invest in your sector, follow the directions above and generate interest and dialogue.  Once you have one that is responsive, cross-reference what other firms your one firm has co-invested with in the past, which are in the same sector or stage of development from an investment standpoint and create some competition for your stock.  Just don’t delay a deal by trying to create an auction!

And my favorite quote of the day.  Asked how long an entrepreneur should expect funding to take, from “first date to wedding”.  Jason’s answer?  “It depends how hot you are”.  Quick on his feet, very quick.

The Founder Conference

I attended The Founder Conference this week in Mountain View, CA.  I don’t really attend many conferences, but every once in a while I’ll go to an event if there are a few speakers I’d like to see.  This one had two and it was a decent event, with about 500 entrepreneurs in attendance to hear some startup luminaries like Guy Kawasaki and Naval Ravikant speak about startup funding and delighting your initial customers.  Additionally, Phil Libin, CEO of Evernote, gave a killer talk about the success and growth of his company and how he did it.

I intended on summarizing some of the key points, but there’s someone else who did a stellar job, even shooting video of the event.  See Dan Odio’s Founder Conference Blog Page for a re-cap and great video.

For the highlights, I suggest the following:

  • If you are interested in raising money for your startup or understanding what is happening in the VC/Angel marketplace right now, definitely watch Guy & Naval’s talks.  Guy Kawasaki is a serial entrepreneur, former Chief Evangelist for Apple and author of Enchantment.  And he’s a great, engaging speaker.  Naval Ravikant is also a serial entrepreneur and recent founder of AngelList that brings together founders with Angel investors – about 1900 of them!  He knows a thing or two about what’s happening in the marketplace for startup funding.
  • If you want to hear a great startup success story and be awed by how to really track performance and understand your customer’s needs and behavior, then watch Phil’s talk on Evernote.

These 3 presentations I thought were the best, most useful of the day.  Enjoy!

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