A VC in Vacationland

Managing Start-Ups: Why I Don't Lose Faith in My Founders

What is the point of no return in a VC investment process (other than the startup vanishing)? This was my answer to a  Quora question I recently answered. Here's my thoughts.

When you lose faith in the founders. VC investing is based on a PPT deck and your faith that these founders can pull it off. You put money in, and encourage others to do the same. You work tirelessly with the founders to help them be successful. You celebrate their successes and commiserate with them when the inevitable failures occur. And you keep the faith in spite of what happens.

 

Why? because you are their biggest cheerleader and supporter that's why. 

 

And that's why I am not a hands-off VC, working with all my portfolio companies as much as they need me to make them successful.

 

Have I ever lost faith in a founder? No...it's the hardest job in the world and as long as they work to make it happen, I'll be there for them. 

 

Have I had failures? Sure. I've been through a miserable and expensive start up bankruptcy, had to shut down other startups, etc., but I still remain friends with my founders. That's the way VC life should be, at least in my world.

 

As my Chinese fortune cookie said the other day, "Your faith carries you through difficult times."

Supply Chain Innovators: FlipKart--Two Hour Home Delivery for Orders in India

Flipkart, a competitor to Amazon in India, is looking to offer customers delivery of an order within two to three hours, ramping up the game for satisfying the 'I want it NOW' generation. According to an article in the Times of India, Flipkart, via its logistics subsidiary, ekart, is evaluating which products and cities it can start with even as it considers pricing for the service, which could be rolled out in the coming six months. 

India's e-commerce space has grown rapidly in the last few years since Flipkart first started operations in 2007, when most deliveries took a few days. Now, the three top on-line retail firms — Amazon India, Flipkart and Snapdeal — offer same-day delivery in big cities for a fee. They deliver the next day for free in the big cities but deliveries can take longer outside these areas. 

Faster delivery could, therefore, prove to be a game-changer in the country's fiercely competitive e-commerce space, reckon experts, and shortening the shipping time to a few hours may draw more users. This could also persuade Amazon India to bring the service to the country. Its parent ships goods, including detergents and shampoos, to consumers in Manhattan in 60 minutes for a $7.99 fee. 

To be sure, there are more than a few wrinkles that need to be ironed out, said experts. 

"There are two important things retailers need to get right to make this work," said Karan Girotra, professor of sustainable development at Insead. "First, they need to select a small subset of their offerings which are available with these time frames. Second, meeting this delivery promise requires organisations to build very different logistics and operational systems than those necessary for traditional delivery route-based delivery systems For instance, retailers may need to have many more warehouses in central parts of the city to make these work." 

Flipkart, which already offers users across 10 cities same-day delivery, says it has a strong logistics and delivery team in place, with 13 warehouses and over 12,000 people helping with last-mile delivery.

The interesting aspect of this strategy is the rapidity with which great new ideas in supply chain can quickly travel across seas and be adopted in developing nations, skipping a lot of the complex manufacturer/distributor/retailer/customer supply chains that developed nations went through over the last century. Less infrastructure, better service, and happier customers is the result.

Managing Start-Ups: Broken Cap Tables

Fred Wilson posted this excellent advice about Henry Blodgett's company, eShares. It's something every founder should use to replace those excel spreadsheets...pretty please

A “cap table” is a schedule of all the shares outstanding for a specific company. Here’s an MBA Mondays post I wrote back in 2011 on the subject of cap tables. If you want to know how much of a company you own, a cap table is the best way to figure that out.

Cap tables are almost always prepared and kept in spreadsheets, usually excel, but also increasingly google sheets. And, it turns out, they are often wrong.

Henry Ward is the founder and CEO of a company that is aiming to fix that called eShares. Last month USV led a Series A round in eShares and my partner John Buttrick wrote a bit about that investment today on the USV blog.

The reason I tell you this is that yesterday Henry wrote a great post about broken cap tables that everyone in the start up world should read. Here are the four big takeaway’s from Henry’s post:

1. Most cap tables are wrong
2. Most investors don’t track their shares
3. Note holders are often forgotten

Employees suffer most...so look on this as a nice 2015 perk...

Managing Start-Ups: Great minds think alike...and fools seldom differ

I was reminded of this phrase recently when I listened to the founders at one of my portfolio companies 'violently agree' (somewhat an exaggeration) on subjects during a board meeting.

It turns out that they were basically correct, but the idea that some harmonious relationship needs to exist between founders is BS. Some of my most successful companies were grounded in constructive conflict among the founders, the Board and the employees. So much can go wrong in an early stage company that continuous agreements can run the company down the wrong path...quickly.

I'd rather see a good and fair fight about direction and strategy within a company as opposed to 'steady as she goes'. Even if all looks well, viewing other alternatives is critical, even in established companies.

In some of my past late-stage deals, senior executives were insulted that the Board questioned the long-term strategy. It was like calling a baby ugly. The only ugly thing was the ego of the executives who acted like the Board knew nothing and that their ideas were supreme.

So here's a few pointers to keep the paranoia high and agreements well founded:

1. Question ALL decisions--don't just let an erudite  presentation lull you into thinking it's the 'right answer'. Ask a lot of questions to see the depth of the analysis. Do'tn let others bully or stare you into silence.
2. Get all people involved--often, quiet or introverted people don't express opinions, even though they disagree. Make sure that you poll the room on important issues to get all ideas on the table.
3. Revisit key issues--Often, it's 'one and done' on many decisions, when they should be considered more often. In oe of my companies, we had to bring up a topic in three consecutive monthly meetings to get the founders and executives to pay attention.

Supply Chain Innovators: Shypd--revolutionary or ephemeral?

Shyp is the easiest way to ship your stuff. A driver comes to your house or business, picks up all items, then takes them away to be professionally packed and shipped to their destination. They will connect the package to USPS, FedEx, UPS, OnTrac or other regional carriers - automatically figuring out the best carrier to use for each individual delivery. They are currently doing business in San Francisco, New York and Miami, thanks to over $12 million in venture funding in 2014.

Intermediaries are always coming and going in the supply chain space. Remember WebVan, who eliminated going to the supermarket? A fantastic failure, but we now see a whole group of sons and daughters, like FreshDirect, which will likely succeed. 

Are companies like Shyp part of that same dis-intermediation trend? Or are they just ephemeral players while something bigger and better comes along. Here are a few thoughts on the subject:

1. Labor Force--all of these companies, such as Doordash, Cargofish, SpoonRocket, Washio, Ice Cream Life, Caviar, Grubhub, FoodPanda, Shutl, Zipments, Delivery.com, Instacart, Drizly, Postmates, Deliv, Uber, Daojia.com.cn, favor, parcel, Rosie, curbside, Door to Door Organics, Loup, to name but a few recent investments, require a mobile work force willing to work weird hours for low pay. We will certainly run out of unemployed English majors to fill these roles very soon. And what about the 250K shortage of over-the-road truck drivers, and other critical supply chain jobs no one wants? No delivery if no pickup...
2. Technology--successful supply chain companies are all about scale economies, route density and asset-light operations.What if UPS or USPS offers to do the same thing as Shypd--pick up a box, pack it and ship it? Might cost a bit more, but those guys have the tech and route density to kill such start ups. Believe me, they are looking closely at these companies to see if they gain traction and then pounce--either by acquisition or competitive offering.
3. What's next?--think one stop shopping when it comes to products flowing in and out of the home. You want reliable service, drivers who are not criminals, times matched to your needs and decent prices. Small companies simply cannot provide these services in a cost-effective manner. There will be some interesting consolidations in this industry in the next few years.