Friday, October 10, 2014

Microsoft: Why "Just Ask" is still a B-


Microsoft: Why "Just Ask" is Still a B-

In a positive sign that more and more people in the community are paying attention. The volume of "women in tech" (or rather lack of women in tech) debate has been rising. Albeit promoted by some egregious examples of thoughtless and worse behavior that has come into the public domain. (And safe to say this is just the tip of the iceberg.)

But there is a long way to go. Satya Nadella's comments at the recent Grace Hopper Celebration of Women in Computing Conference were summarized in a <re/code> post by Kara Swisher


Much has already been written on this massive women in tech faux pas. Here are my three cents on the topic:

1. The obvious - it's patronizing to talk about karma
No need to go over Mr Nadella's response to a question about women who are uncomfortable asking for a raise. Women earning 78c to the male $ across the US. Multiple studies highlighting the pay gap as not being a function of merit. So asking those being compensated at a discount to trust the system was, to be polite, tactless. However it also displays a touching belief in the meritocracy of tech in particular which is hard to square with observable realities. For example in another context a recent Babson study noted that in a recent three year period just 3% of companies receiving Venture Capital funding had women CEOs. Meritocracy? Really?

2. The less obvious - you need to understand why women don't ask in the first place
In a quick response to the furore these comments created Mr Nardella issued a I am sure heartfelt succinct apology via an email to all staff (and hence the public). Good for him. But I call this a Level 1 response. The "if you think you deserve a raise just ask" message is not enough. Because a more sophisticated Level 2 response would require a recognition that women don't ask (or rather they do but at a rate dramatically less than their male colleagues) and often for good reason ... if they are not careful they fall into the "double bind" trap. One where unconscious bias plays a part. This is a complex issue and one of the many that my colleagues at the Center for Talent Innovation have devoted years of effort into researching. A call to the Center's founder Sylvia Ann Hewlett might be in order! "Just Ask" is just a B- in my book.

3. And an obvious trap (or not) - you now need to be the change (you say) you want to be in the world

In my view Mr Nadella has fallen into a trap he set for himself. Something that Nilofer Merchant points out in an excellent post for Time. In his apology message to staff (and the public) he said:

"I wholeheartedly support programs at Microsoft and in the industry that bring more women into technology and close the pay gap. I believe men and women should get equal pay for equal work."

Which is heartening to hear. But now the challenge to Microsoft is to, if I can mangle a line attributed to Ghandi: "Be the change it (says it) wants to be in the world". 


Nilofer makes this argument powerfully summarizing it as follows:

"Take action. Yourself. Bias is fixable. But (and this is a big but) only with conscious leadership."

Taking Nilofer's advice would move the Microsoft grade to an A.





Monday, September 29, 2014

Reverse Due Diligence - Founders on Investors


Reverse Due Diligence - Founders on Investors

Due diligence ... from the investors view point


This time last year I wrote three posts on due diligence - what early stage investors do when they are working out whether to put money into an early stage company. All good arguments have three points so there were three posts!
I feel more strongly than ever about the opinion I expressed in the "Philosophy" post. Namely that we need to recognize who is taking the real risk when, as early stage investors, we put our money behind an entrepreneur. And hence treat them with commensurate respect.

As a practical matter, RESPECT to me in this context means undertaking your investment due diligence with the following thoughts top of mind:

1. Being super sensitive to the entrepreneur's time and not sucking them into your own time wasting analysis paralysis. This might be an interesting intellectual exercise for YOU but might kill their ability to execute their business. Early stage entrepreneurs have no staff, no admins to hunt stuff down for them; they have incomplete data; heck they probably aren’t drawing a salary.

2. Getting to YES or NO as quickly as you can.

3. Communication directly and honestly why your answer is NO, if that is where you end up.

A key issue we all face as an early stage investors doing due diligence is the question of balance.  Asking questions that matter but not being that time sink. There is no right answer here, but in my view a little (no, in this case a large amount of) respect goes a long way.

What I didn't dive into at that point was the reverse - so the due diligence entrepreneurs can and should do on investors. That said I do often mention to entrepreneurs that they have as much right, and self interest, to do due diligence on us as we do on them. So I was delighted to see Bo Peabody from Greycroft flesh that out in a recent Techcrunch post.

Due diligence ... from the founders viewpoint


Bo provided a menu of 10 questions for founders to put to VCs, many of which can be tweaked and applied to the friendly angel who comes knocking. The questions are set out below and Bo's post has some commentary around each.

Is it legit to ask questions like this? I often get asked that question especially by first time entrepreneurs. As you go through the fund raising dance there is a natural sensitivity around the people with the money - that you want pretty badly. How far can you go to ask questions about them

Absolutely you can! Is my answer. This is YOUR company and YOUR future so of course it is legit. You need to make sure that you are doing the right thing for you and the business when enter into what will likely be a long term (maybe very long term) investor relationship. Also I am am pretty sure that investors think more highly of the entrepreneurs that ask these questions than those that do not. I certainly do. It is another window on entrepreneur's thoroughness and thoughtfulness as well as a manifestation of their desire to bring together an A team that will drive success. 

And investor insights can also allow you, the entrepreneur, to focus your appeal. Knowing more about an investor also allows an entrepreneur to go beyond just assessing if there will be a good "fit" They can increase the chances of making that fit happen. As the entrepreneur building your A team if you identify that you want a specific investor on board for specific reasons - things like their focus, their expertise, the way they operate - then pitch that to them. Call it flattery if you like, but you need to do what you need to do to build that A team! (Although, as one founder pointed out to me, bottom line you should "only take investors that you actually like and respect".)

Bo's Top Ten Questions 

For the record here is Bo's list:

1. How big is the particular fund that your startup will be part of and where is that fund in its lifecycle?

2. What is the investment strategy of the firm? What are the sizes of its investments and average ownership percentages? What is the firm’s reserves strategy?

3. What is the decision-making structure of the firm and where does your deal sponsor fit into that structure?

4. Who are the LP’s in the fund?

5. What is the compensation structure of the fund and how does your sponsor fit into that?

6. What is the firm’s policy and culture around corporate governance? Do they seek board seats or not? If so, what is their in-person attendance record at board meetings.

7. What is the firm’s own view of the returns likely to be generated from your deal? How does it all break out?

8. How have previous funds performed and how will that affect future fundraising?

9. How does the firm handle re-caps and private-to-private mergers?

10. How many repeat entrepreneurs does the firm have?

Tuesday, September 9, 2014

Blinkered and lacking ambition - Silicon Valley? Yes - when it comes to sexism in tech.

Blinkered and lacking ambition - Silicon Valley? Yes - when it comes to sexism in tech.


A recent techcrunch story on "how investors are trying to change the culture of Silicon Valley" brought this home to me. While no doubt well intentioned, the reported comments to my mind fall far short of what true meritocracy and disruption demand.

Indeed in its attitude to women and diversity more generally this is one area where the lesser land outside the Valley has something useful to say. Namely that even the well meaning folks inside the Valley bubble don't realize how, seen from the broader world outside the bubble, they are out of step with contemporary standards of behavior (heck even the law) and also missing an opportunity to embrace diversity and drive (and invest in) even more powerful innovation.

Disruption and the 10X change

Silicon Valley prides itself on its culture of meritocracy and vigorous embrace of disruption. This is a large part of what makes it  a huge source of dynamism for the US economy and an amazing talent magnet. We are fortunate it exists and long may it continue.

Things change and change fast in the Valley. Andy Grove's pursuit of 10X innovations seems positively pedestrian by modern Valley yardsticks now that the cloud and mobile power megaX disruption on a global scale. 

Yet in this one area the Valley culture seems steeped in the past and unwilling or unable to embrace the disruption it so prizes. Even a modest 1.1X disruption seems a tall order when dealing with sexism be explicit and unconscious, whether it be in the startup culture or on the funding side. Rather the narrative seems blinked and unambitious, indeed unValleylike! 

Before I go to the post here is a nice summary from a (New York based) founder:
"Some of the points being made are plain ridiculous and really they are just giving excuses. Most of the stuff is common knowledge that we are all taught at a very early age, if not from parents then from school."

And when it comes to fixes, there are plenty out there
But I like this one from a (New York based) VC whose response to the story was:
"It starts with the VCs ... we need to have zero tolerance in our own firms and in our portfolio companies."
Well said.

Here are some excerpts for the post ... with my counterpoints attached

1. ... many of these issues crop up because most early-stage startups don’t have a head of HR, and are sometimes being founded by people who haven’t worked in a professional situation before.

AQ: This is too easy a cop out in my view. Yes, there is a case for formal training and yes bigger "professional" firms do this. But do I really have to have a HR person and/or have worked in a "professional situation" so someone can tell me that overt sexist behavior is not appropriate in the 21st century? Especially since some of the people at fault here went to some of the preeminent educational institutions in an advanced country called the USA surely we should expect more of them? Specifically that they are accountable for their own behaviors both within the law and more general social norms.


2. ... in many cases, people don’t realize that things like harassment and the gender pay gap are illegal.

AQ: If this is accurate it is also pretty depressing. Who does not know that harassment is illegal? Who is unaware of equal pay legislation? Please tell what stone can I find these people under?

3. ... his firm does a regular audit of how many companies it has invested in that have women as leaders or founders. That number is currently about 15 percent, which might sound low, but is “surprisingly high for the peer group,”

AQ: Out performing a lousy benchmark is not really a cause for celebration but point taken. Still perhaps it's time there was a recognition that there is not a true meritocracy at work here and that numbers like these simply aren't good enough - for anybody and that wherever you are in the spectrum there is more to do. (Which, by the way, applies beyond gender demographics).


4. ... the portion of women who are founders and CEOs and the portion of women who are VCs are “inextricably linked.”

AQ: This is a pretty sad comment. Inextricably linked? Really? In defense of male VCs for a moment, this point is patronizing to them because it implies that male VCs reflexively invest in men and don't have the capacity to be objective and get past their own biases (albeit unconscious ones) and see opportunity where ever it resides. While there are a lot more female founders, the VC demographic isn't budging ... these sort of "pipeline" arguments really don't work in practice other than at a glacial pace.

5. ... it’s only a matter of time before one investment firm moves to dramatically change its own ratio. “The power move would be a high-profile VC firm announce not just one, but two female GPs”

AQ: While I under stand the sentiment and would applaud the outcome ... one female GP? Maybe even two? Surely we can be bolder, more disruptive than that? This is America! This is Silicon Valley! Time to recall Andy Grove ... and shoot for a 10X outcome.




Wednesday, August 13, 2014

Fund raising is hard for everyone, some more than others

Early Stage Fund Raising is Hard For Everyone, Some More Than Others

Three high level take aways: 

  • Hard: less than one in ten companies get angel funding.
  • Harder: less than one in 200 companies get VC funding.
  • Hardest: less than one in 600 female founded companies get VC funding


Note that in each case above (and below) for illustrative purposes the ratios compare a given subset of companies to the total number companies started in the US on average each year.


Working through the numbers:

It is easy (all too easy from the investor side of the table) to toss out the glib comment to an entrepreneur: "Well, fund raising is hard for everyone you know" when talking about the time and energy needed to secure early stage capital. And this can then be followed by cliches such as: "You need to kiss a lot of frogs when you fund raise" or "get used to a lot of people telling you your baby is ugly". (Both true but neither very inspiring!)

I thought I should check out the numbers so that, while being pretty prone to these cliches myself, I could at least have some stats on hand. So here goes. I include some additional gender stats to reinforce the point that, while it might indeed be hard for everyone, early stage fund raising is incrementally harder for women entrepreneurs: 

1. There are 800,000 "establishment births" each year in the US on average over the last 20 years or so per the Bureau of Labor Statistics. An excellent report by Kauffman and LegalZoom provides a full down load on the demographics of new business founders in 2013 - 35% being women. So women found about 280,000 new companies a year on average


2. In 2013 roughly 70,000 companies receive angel funding of $25bn from 300,000 active angels per the Center for Venture Research (CVR) at the University of New Hampshire. The CVR reports that, on average over time, only 15% of companies looking for angel funding receive it (implying that approx. 470,000 or so do actual try and get angel money). In terms of gender the CVR data shows that women constitute approx. 20% of active angels. On the entrepreneur side, of those seeking funding 23% are women … and of those receiving funding 20% are women. So of the 800,000 new companies in total less than one in 100 get angel funding.


3. US VCs invested in approx. 3,400 new cos in 2013 committing $30bn through 550 active firms according to the National Venture Capital Association. The NVCA reports that 13% of VC deals involve at least at least one female founder, up from 4% a decade ago. On the investor side only 11% of VC investment staff were reported to be women in the most recent NVCA Census survey. And the the Forbes Midas List consistently shows that 5% or less of top VC decision makers are women. (To be exact 4 of 100 in the most recent 2014 survey.) Another perspective: about 35 percent of U.S. businesses are founded by women but just 2 percent of the money invested by venture capital firms goes to women-owned firms, according to a survey by the National Foundation for Women Business Owners and Wells Fargo & Co. Looking at just the number of deals, the NVCA stats suggest about 450 funded companies each year have a female founder ... which is equates to less than one in 600 of the 280,000 companies started by women each year. (Again note that I am comparing these numbers, not suggesting that of 280,000 companies founded in any given year 600 go on to get funded by VCs in that same year!)






Friday, August 8, 2014

Should Seed Funding Decks Include a “Potential Exits” Slide?


Should Seed Funding Decks Include a “Potential Exits” Slide?


A recent Hunter Walk post on seed funding decks promoted me to respond. The post argued that exit slides in a seed funding deck are a bad idea for a number of reasons, four in fact. I took the view that, since it takes to views to make a market, I should offer some thoughts that challenge the post and indeed many of the observations by other commenters that followed. 

My start point - as an investor, not a philanthropist, I generally like to see my money come back. Hopefully with a big multiplier. I am also well aware that mega successful "unicorns" are rare and that most exits (so where I get my money back) are acquisitions in the sub $100mn range. So as an investor exits are a legitimate area of interest to me!

Bottom line I agreed with the observation from Mike Wallach who also commented on the post:
"Frankly, with a few exceptions, the pretense that there is really no interest in possible exits comes across as a bit disingenuous on both the part of the entrepreneur and investor". And let's be clear VCs have a clear and singular objective 0 much more so than angel investors in fact. Namely VCs have a fiduciary duty to maximize FINANCIAL returns to their LPs and a defined fund life in which to do that.
Here goes with my thoughts on the various objections to including an exit slide:
1. Narrows thinking? => shows strategic thinking
The exit map today is a point in time view. The exit map tomorrow, reflecting the evolution of the business, market place, competitors etc will be different. Only if you think today's exit map applies for all time will it narrow thinking. Rather it too will evolve over time with names adding and leaving, perhaps rapidly! A constantly evolving exit map (to be discussed/reviewed at every Board meeting say) shows strategic thinking not narrow thinking in my view. Also I would note here that having an exit slide does not mean (to me) the entrepreneur has "planned an exit" and hence is locked into a given trajectory. If they had a hard coded exit plan then even I would be alarmed - that is indeed narrow (and fantasy) thinking.
2. Speak of the devil and he will won't appear? => actually you need to proactively speak to the devil
In my view it is simply not the case that most companies are "bought not sold". That maybe well be true for a small minority of visible and successful big winner businesses, but not the majority. Yes we all want the big winner that has multiple suitors at the door. But they are few and far between. The way corporate M&A teams work in my experience is to monitor multiple targets overtly (ie have on going dialog with some) or covertly (you are on their watch list but don't know it.) The M&A folks will be part of ongoing buy vs build decisions with potential targets rising and falling in priority as the acquirer's own business and business needs evolve. In that context most small companies need to get on an acquirer's the radar and stay there - that means yes identifying possible purchasers, building relationships with them and hence a track record and trust that will make a potential buyer's purchase decision easier if and when they decide to pull the trigger. Of course that should not be the main focus of the entrepreneur ... but in partnership with the Board is something that needs to be thought through constantly even from an early stage.
3. Tell me how to create value, not just realize it? => yes but thinking realization is part of your competitor/partner landscape
Every high growth entrepreneur that receives money beyond F&F is in it, along with their investors, in it to build something big. And of course solving a real problem with a unique scalable solution is the route to achieving that big business. But let's not over do this. I know very very few founders who build to flip - so this point seems a straw man to me. The exit slide is one slide. It shows a part of the picture that matters to most investors. (ALL investors are in it for an exit at some point. If they aren't then, I am sorry, they aren't investors.) And, to the "strategic thinking" observation above, to me a thoughtful exit slide shows me that the entrepreneur has a deep understanding of where her/his business fits in a broader context and crucially which large players don't do what he/she does. As such this is as much competitor and partner analysis as it is exit analysis.
4. Suggests risk aversion? => maybe but there are other ways to find this out!
All of my own nine investees have an exit map and yet also all passionately want to build big businesses. Maybe an unrepresentative sample but it seems too big a leap to go from the inclusion of an exit slide to an assessment of risk aversion. After all as one the other respondents in the thread noted many entrepreneurs are advised to include this slide ... and for good pragmatic (with no exit there is no "investment" just a non refundable "gift") reasons. Also there are other bona fide (to me) reasons as I have mentioned - the content (if robust) shows broad strategic thinking, it can show insights in to the way the M&A process actually works, it shows an understanding of the competitor/partner environment. There are plenty of other ways to assess risk aversion than jumping to conclusions from a slide in a deck.