Reid Hoffman and Carl Icahn Are Both Right

Reid is right that commerce and payments are a powerful combination, not disparate platforms, but Icahn is right that eBay is covering up PayPal's value.

How to Handle VC Rejection

"I see an opportunity here, but it wouldn't be an opportunity if everybody saw it."

Brand Is the Key to Scaling

The startup world loves to talk about the ability of a company to "scale." "Scale" doesn't have a precise definition, but it roughly means growing the business really big, with increasing, non-linear returns on headcount and equity capital. There are many levers for scaling - product, marketing, customer service, partnerships, etc - but they all boil down to one thing, regardless of product or industry: brand.

14 Ways VC Fundraising Is Like Dating

A lot of first-time entrepreneurs scrutinize the web-o-sphere and the blogs of folks wiser than I like Fred Wilson and Mark Suster for advice on how to come up with the perfect pitch to VCs, but they miss the most basic truth: VCs are people too, and people are all about relationships. So, in honor of February 14, Valentine's Day, I've put together a list of 14 ways VC fundraising is like that oldest of human relationships: dating (or love, if you want to get all historical on me):*

1. You start with coffee.
2. There are lots of "dates."
3. If you're not interested you try to let the other side down gently - "I don't want to lead you on."
4. The side that starts off aloof can be the side that ends up falling in love - and the one that gets its heart broken.
5. Begging the other side to give things another chance rarely works.
6. You can't reason your way into a relationship (aka He's Just Not That Into You)
7. There may be numbers involved but ultimately it's based on a feeling.
8. Timing is everything - "This just isn't the right time for me to get into a relationship."
9. "You remind me of an ex" (another company/investor that left a bad taste).
10. It's not about one side choosing the other but about both sides finding the right match.
11. You hope it's about more than the money.
12. The holy grail is a true partnership.
13. When the relationship is ready to be consummated there is paperwork to sign.
14. Moving too fast often produces bad results.

Happy Valentine's Day!

* Please have a sense of humor when reading these. They were written to play off of well-known stereotypes about dating rather than any opinion of how dating should be.

What Makes A Startup Successful? 14 of the most interesting trends identified by the Startup Genome Report

Every once in a while an article comes along that is just so awesome you want to quote it in its entirety.  I haven't read through the methodology so take all these findings with a grain of salt.  The most interesting finding for me was that "balanced" teams (one technical founder and one business founder) significantly out-perform business-heavy and technical heavy teams.  To often I think technical founders question the value of a business co-founder, to their detriment.  Build it and they will come only works in the movies and exceptional cases.

The below is quoted directly from the TechCrunch article "What Makes A Startup Successful? Blackbox Report Aims To Map The Startup Genome"  the Startup Genome blog (it looks like TechCrunch ripped this off as their own):

• Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
• Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
• Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
• Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)
• Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
• Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.
• Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
• Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
• Most successful founders are driven by impact rather than experience or money.
• Founders overestimate the value of IP before product market fit by 255%.
• Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
• Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
• Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.
• B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.

The full report is available here.

What Michael Porter Has to Say About the VC Model

I'm not aware of Michael Porter having actually ever written anything about the criteria for a successful VC investment, but as I was reading the part of Competitive Advantage of Nations where Porter recaps his theory of how firms create competitive advantage in the general sense, I was struck by how applicable his words were to many issues in the VC and startup ecosystems:

• On what innovation actually is: "Firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. ... [Innovation] often involves ideas that are not "new" but have never been vigorously pursued. ... Innovations shift competitive advantage when rivals either fail to perceive the new ways of competing or are unwilling or unable to respond. ... Many innovations do not involve complicated technology [but rather have been overlooked or ignored by larger firms because of their own internal barriers to using them]."
• On why startups and VC-backed companies are able to beat large, established, and deep-pocketed incumbents in competitive industries: "It is hard for firms steeped in an old technological paradigm to perceive the significance of a new one.  It is often even harder for them to respond to it.
  
  ...
  
  To sustain its position, a firm may have to destroy old advantages to create new, higher-order ones. ... The apparent paradox involved in nullifying old advantages often deters firms from upgrading. ... Supplanting or superseding old advantages to create new ones is not considered until the old advantages are long gone. ... The behavior required to sustain advantage, then, is in many respects an unnatural act for established firms."
  
• On sources of innovation: "Sometimes [innovation] results from sheer investment in market research or R&D.  It is striking, though, how often innovators are those firms that are simply looking in the right place, unencumbered by or unconcerned with conventional wisdom. ... Often, innovators are 'outsiders,' in some way, to the existing industry." 
  
• On the commitment need to successfully commercialize innovation: "With few exceptions, innovation is the result of unusual effort. ... The strategy is the personal crusade of an individual or group."
• On the role of the local environment (e.g. Silicon Valley, Israel) in creating startups: "The national environment plays an important role in ... [supporting] the emergence of 'outsiders' from within the nation"
• On what it takes to sustain competitive advantage beyond an initial innovation: "The sustainability of competitive advantage depends on three conditions.  The first is the particular source of the advantage [based in cost, which Porter considers unsustainable, or higher-order, more sustainable sources such as product differentiation, brand reputation, and customer relationships]. ... The second ... is the number of distinct sources of advantages a firm possesses. ... The third ... is constant improvement and upgrading. ... Sustaining advantage requires change."
  

We've Already Created an Israeli Nokia

A couple of years ago Daniel Cohen at Gemini wrote a great piece in VentureBeat called "The quest to create an Israeli Nokia" in which he argued that the black-eye to Israel's high tech scene was that "there are no examples of great Israeli break out companies – no Israeli equivalent of Google, Microsoft or Nokia."  He went on to give a very insightful commentary into the reasons behind this, all of which are based on what I would call "micro" factors - impatience of investors, impatience of entrepreneurs, a think-small mentality, and lack of $1bn experience - which could be overcome by the right people.


In doing some research for a piece that I am planning on writing about what I believe are the structural reasons that Israel has not created a Nokia or a Microsoft, I discovered something very interesting: we have already created a Nokia.  Teva Pharceuticals, despite having sales of around 20% of Nokia, actually has a slightly higher  market cap as of the time of this writing.  Nokia has a slightly higher EV, but even being close is an accomplishment.


Sure, you could say that Teva is not high-tech in the sense of IT, but life sciences/biotech is a pretty big VC sector, and pretty high-tech in its own way.  You could also say that Teva is "Old" (as Danny puts it in his piece), tracing its history all the way back to 1901, but let's not forget that Nokia was founded in 1865!


I am still planning on writing my post about the structural challenges to Israeli entrepreneurs, but first I've got to brush up on my Michael Porter ...