Robbie Allen's Blog v3

VC Signaling is an issue I’ve seen come up a lot over the last few months (mainly from Super Angel types). For those that are unaware, VC Signaling is where a big VC invests in a startup’s seed round and doesn’t re-up for the next round. That sends a bad “signal” to the rest of the market and makes it significantly harder to raise the next round.

Brad Feld just blogged about his discussions with a big VC and their strategy with seed investments. Several folks on Twitter piped in including Chris Dixon and Eric Paley of Founder Collective and Shafqat Islam of NewsCred (StatSheet is a customer)…

http://twitter.com/cdixon/status/23230042712

http://twitter.com/epaley/status/23234844157

http://twitter.com/cdixon/status/23231620110

http://twitter.com/shafqatislam/status/23231846756

http://twitter.com/shafqatislam/status/23232575526

http://twitter.com/shafqatislam/status/23232635562

http://twitter.com/cdixon/status/23232804794

StatSheet’s lead investor for our seed round was a big VC (Valhalla) so I’ve thought about this issue a lot and I completely agree with Shafqat…it is overblown.

Especially if your startup is not in Silicon Valley, NYC or Boston, your options for raising money are limited. If you can get a big VC excited in your deal and you think they will be supportive, would you rather tell them no and spend the next 12 months tin cupping it? The Super Angel phenomena is limited to a few cities in the US. If you don’t live in one of those cities, you are stuck with the Standard Angel community.  Yes, Super Angels invest outside of those cities, but it isn’t as common.

It took only 3 months for StatSheet to find our lead investor, but if I would have gone the Angel route it would have taken 4 or 5 times longer and significantly more trips to Starbucks. Just not worth it. And I found a VC that is super supportive of what we are doing. Sure there is the concern that Valhalla doesn’t invest in our A round, but we agreed on very achievable milestones over the next 12 months.

There are lots of things to worry about when it comes to running a startup, but taking money from a well connected, big VC that doesn’t require I move to Silicon Valley versus trying to find a dozen Angels one by one didn’t require much analysis.

Ultimately, I think VC Signaling is a great marketing tactic for Super Angels, but for many startups (ESPECIALLY IN THE SOUTHEAST) it just isn’t a concern at the top of the list.

I started StatSheet a month after my first (and only) child was born. It’s been interesting to see the similarities between the two processes over the last 3 years.

Lots of attention required early on

Raising a baby is a full-time job and starting a startup is a full-time job. Both need constant attention, especially early on, because they can’t operate on their own. With a baby you are spending all hours of the day and night care and feeding it.

With a startup, you have to get the infrastructure in place, the technology built, and the operational processes defined. Without all of that, you don’t have a startup. It took a good 6 months to even get to the point where StatSheet had something to show. I had many long nights and early mornings with a baby in one hand (asleep) and the laptop in the other.

Occasionally you wonder what the heck you were thinking

Everyone has a bad day, but when babies and startups have bad days they are really bad. I can remember the first July 4th after my daughter was born as being one of the most challenging days of my life. She was having a really bad time and I spent half the day driving around my neighborhood (car rides soothed her back then) to get her to stop crying. That night my wife had to drive me around the neighborhood to get me to stop crying

With StatSheet, there have been times when our servers have had a bad day or a script kiddie was trying to download our whole site or a particularly bad bug made its way into production. This has resulted in hundreds of emails being generated from my monitoring scripts, flames on messages boards and some sleepless nights. On more than one occasion I’ve wondered why I chose to inflict this kind of torture on myself.

Fortunately those moments are short-lived…

Small innovations can save time and your sanity

Ever heard of the Wiggles? My daughter loved them for her first two years. If I ever needed a break or needed to tend to my other baby (StatSheet), I could count on the Wiggles for some quick relief. She also loves to draw so I could stick some paper and crayons in front of her and I could get at least 30 minutes.

With StatSheet, I found out early on that since the company consisted of just one person (me), I had to automate everything or I couldn’t sustain it long term. Also, the StatSheet code base was growing so large that it was next to impossible for me to test every permutation of queries that a user could run on the site. Early on I’d get lots and lots of bug reports. It was embarassing. But then I figured out how to make the web server email me anytime a Server Error occurred on the site. Thanks to Google’s constant crawling of StatSheet.com, I’d get notified of 95% of the bugs before a user ever noticed.

Pace of change is dramatic

Baby’s grow and change at a very rapid rate. Every 3 months it’s like you have a new kid. Their personality, likes, and dislikes change about the time you get used to them.

StatSheet has been no different. People like to talk about “Internet time” and how it moves faster than typical cycles. Early stage startups change even faster than that. Every 3 months it was like I was dealing with a brand new company. New opportunities, business partnerships, and technology changes has required that I test different business models and products.

Nothing more satisfying than the pride of a parent

No matter how frustrating parenting can be, there is nothing more satisfying than hearing your baby say something surprising or when they do something you didn’t think they were capable of doing.

StatSheet gives me a similar (though not as emotionally significant) feeling. Accomplishing particularly challenging milestones, getting positive press coverage, and hearing great feedback from users and colleagues is not something that was ever replicated during my time at big companies.

A couple of weeks ago I organized a “Friends of StatSheet” open house where I invited 40+ people from RTP that I’ve met over the last 3 years since I started StatSheet. These people have been supportive of me in one way or another and I wanted to celebrate StatSheet’s official funding announcement with them. We had a ping pong tournament, pizza, and StatSheet T-shirts to giveaway. It was a great time.

Every startup should create a “Friends of” Club. The power of this concept crystalized for me back in 2005, before I started StatSheet, when I was invited to the 2nd-ever Friends of O’Reilly (FOO) Camp. FOO Camp is an exclusive event for interesting technologists, developers, entrepreneurs and authors that Tim O’Reilly invited to camp out at O’Reilly HQ in Sebastopol, CA. At the FOO Camp I attended, I had 1:1 chats with folks such as Larry Wall (my hero at the time) and Paul Graham (Founder of YCombinator). I stood next to Jeff Bezos in a tiny, overly crowded office room where someone was giving a talk. Jeff was stuck behind the door and every time someone came in the room the door would open on him–an odd thing to see happen to a billionaire. FOO Camp became a badge of honor that all the cool kids wanted to attend (and led to formation of the inclusive Bar Camp).

With StatSheet’s version of FOO, I invited over 40 venture capitalists, technologists, and entrepreneurs from RTP. I didn’t expect everyone to show up. It was the beginning of August so there was a high chance that lots of people would be on vacation or unavailable. But that’s besides the point. I sent a personal email to each person to invite them to the “Friends of StatSheet” event. Essentially I was signing them up as members of the StatSheet Club without saying as much. Even if they didn’t attend the event, they know I consider them part of an exclusive club of supporters. Hopefully they feel appreciated for their involvement with StatSheet.

Employees get compensated, investors and advisors get equity in the company, but other supporters of your company typically don’t get anything. Recognizing them in some way, even if small, can make them work harder for you down the road.

What’s more risky than being at a startup? Being in a job you don’t care about regardless of how “safe” it is.

Following up from my previous post about the notion of startups being hard, I’d like to address a similar issue around the idea of startups being “risky”.

There was a lot of semantical debate from my last post regarding what I meant by “hard” so I’ll start off by defining risky. In most cases, when people talk about the startup life being “risky” they are referring to job security. Because startups are so fragile and the margin for error much smaller than a business that has been around for a while with ongoing profits, job safety is always at risk.

My answer to that is: job safety is an illusion. The benefit you get by being at a startup with much less job security is significantly greater than the ongoing safety of a job you dislike. The reason? The professional decay you experience while being at a mediocre job that you don’t really like is, in the long run, much more detrimental to your long-term success.

When you are working at a job you love and are passonate about, you find yourself going above and beyond the call of duty without being asked. In fact, to you, you aren’t going above and beyond because there is no above and beyond. You enjoy it. You feel you are making a difference. You are interested in learning new things, interested in doing your best.

Another big issue with being in a job you don’t like is network decay. If you are interested in growing your career over time, becoming an entrepreneur, raising money from investors, or hiring great employees, you need a solid network. Job #1 for any burgeoning entrepreneur should be to pound the pavement at Starbucks and meet with as many people as possible. When you are at a mediocre job, you don’t care about networking. Why would you want to meet other people that are related to the mediocre job because they are probably mediocre too. If you love your job, you want to meet more people like you. You don’t always know it, but those connections will help you 1, 3, 5 years down the road in ways you never imagined.

The reason all of this is important is because job safety is a myth in today’s business world. I worked at one of the best and biggest high tech companies in the world in a job that any engineer would have loved to have had, but during 2008 there were grumblings that my department might be cut. Typically these kind of cuts are done with a clever not with a scalpel.  I like to think that if they had cut my department they would have spared me, but there are no guarentees. My manager didn’t seem to think he was all that safe. The worst part was my job (to me) was mediocre. My network had eroded over time (and mainly consisted of other disgruntled corporate types). My skills hadn’t eroded because I kept doing things outside work, but I can see how they would had I not had StatSheet.

To sum up, job safety is an illusion and you are just fooling yourself if you think you are better off working a medicore job long-term than exploring something you are passionate about (like a startup if that’s your thing). I’d rather work on something where I’m growing even if there is no promise for tomorrow than a crappy job that will one day pull the rug out from underneath my career.

As I mentioned in my last post, there is a prevailing negative sentiment around the difficulty of running a startup. If you are a single founder startup (SFS), the conventional wisdom says the cards are stacked so much against you to barely make it worth trying. I’d like to call BS again.

StatSheet is a SFS, but I didn’t suffer from most of the issues that people claim as being problematic for a SFS. First and foremost (and by definition), a SFS doesn’t have co-founders. There is just one person. That’s true, but given the strong group of advisors I’ve established over time, StatSheet has felt like it’s had 3 or 4 founders at any one time.

When I was out raising money, investors commented on how generous I was to my advisors in terms of granting stock options. What they didn’t understand is that I didn’t use advisors in the traditional “low impact”, once a month way many startups do. I leaned on my advisors constantly. One advisor provided connections with investors and entrepreneurs. One gave me a lot of guidance with sales. Another has been a constant source of guidance and mentorship not to mention providing input during business development, strategy and acquisition discussions. I met with some of them on a weekly basis and in some cases more than once a week.

If you have an interesting business, you should be able to find good advisors. In my experience (including for the companies I’ve advised), advisors are willing to spend considerably more time helping their startups than the startups ask of them. And they don’t need 50% or 33% ownership to do it!

When I started StatSheet I didn’t set out with a plan to find a bunch of great advisors and use them as “co-founders”, it just happened over time. That’s one reason why networking is such a critical activity in the early stage of a startup. Bringing on advisors is a very capital efficient way to get access to a wealth of industry experience and talent without having to pay for it! And often times, it is an easy sell to bring someone on as an advisor. Being an advisor to a company is a badge of honor for successful entrepreneurs and business executives.

Don’t be afraid to give your advisors real deliverables. But the catch is that you have to be proactive. I see the advisor/startup relationship as similar to the mentor/mentored relationship. It is up to the startup or person being mentored to be proactive with the relationship. In every case I can think of (which includes me mentoring ~10 people in my career and being an advisor to 7 companies), the person being mentored or the company I was advising wasn’t proactive enough. They didn’t ask enough of me. You have to stay on top of it. Ask for a weekly call or meeting. Get due dates from them for specific deliverables. Follow up.

I’m talking about this in the context of a Single Founder Startup, but of course it applies to startups with any number of founders. Bottom line: MAKE BETTER USE OF ADVISORS. And since “advisor” has a certain “low impact” conotation, maybe we need a term for a more involved advisor. If you bring them on in the beginning, you could refer to them as “Founder Advisor” or “Founding Advisor”.

The United States was built on the back of small business. Big companies only get big after they’ve been small. In fact, much of North America’s world dominance can be traced back to entrepreneurism and the innovation that sprouted from it. Why then, is there such a strong undercurrent of pessimism against small business and startups? Every day I read tweets or blog posts from a startup founder or CEO complaining about how “hard” it is to run a startup. The long hours, the late nights, the endless work. Two of the more notable personalities in the startup world (Paul Graham and Marc Andreessen) say it too. But why? You’ll also hear the common refrain of how difficult it is to be successful with a startup and how the failure rate is so high (which I debunked in v2 of this blog back in 2005).

Startups are hard in what sense? Sure, long days can contribute to fatigue and make things physically and emotionally harder. When I worked in a sock factory during high school, those were some long days. Hot too. Working with guys that went behind the building during lunch to pound a 40. They wanted to arm-wrestle me for money (while they were half drunk). Then there was the summer I installed insulation in new homes. You’re supposed to wear masks when handling that stuff, but the guys I worked with didn’t care about that. They breathed it in and had raspy coughs to go with it. It was as hot as an oven during summers wearing the masks and it wasn’t fun crawling around with snakes underneath homes. To me, that was “hard”.

But Robbie, when they say “hard”, they are talking about mentally hard, not physically hard. Ok, what I think of as mentally hard is waking up every day to a corporate job that makes me want to jump off a building because the policies and projects are so mundane and uninteresting that you spend half your time surfing the web just to stave off boredom. How about trying to get motivated to do a big presentation on a topic you don’t really care about to a group of people that don’t really care about it either only to find out at the end of it that your project is #11 on the list so in 5-6 years you may get some resources to work on it.

Sorry, but I don’t find the life of a startup “hard”. And if you think it is “hard”, maybe the startup life isn’t for you. If you find it hard, you’ll likely never make it anyway. I believe the #1 controllable success factor for smart people succeeding with a startup is just to stick with it. If you aren’t passionate about the thing you are working on, you likely won’t stay in the game long enough to be successful. When I read posts about startups being so hard, I think those people are close to the end of their rope just like I knew I was at the end of mine when I started complaining about how hard it was at a big company.

Coming in to an office every day that I picked out with a group of guys I hired on projects I designed feels like heaven to me. Yes, there are parts to running a company that aren’t fun and I don’t enjoy as much, but in the grand scheme that’s the cost of doing business and far from the days of arm-wrestling drunk guys for money.