Author: David Cummings

Earlier today I was at the Southeast Venture Conference in Atlanta. Reggie Aggarwal, the CEO and cofounder of Cvent (Notes from the S-1 IPO Filing) gave a great keynote on his lessons learned as an entrepreneur. One of the more interesting points in his talk was that many entrepreneurs don’t take into account the massive dilution that comes with multiple cofounders.

Assuming equal split among cofounders, here are equity percentages:

• 2 co-founders: 50% each
• 3 co-founders: 33% each
• 4 co-founders: 25% each
• 5 co-founders: 20% each

Reggie’s recommendation is to minimize the number of cofounders (e.g. two is optimal) and to save the equity that might be extended to additional cofounders and instead use it for future key hires. Once the business is running, many executive positions that might have been considered for cofounders can be filled with considerably less equity (e.g. 1%-2% of equity is common for VP-level positions once money has been raised).

What else? What are some other thoughts on minimizing the number of cofounders to save equity for key hires?

After announcing the purchase of the Atlanta Tech Village, I received an influx of requests to see the building and hear about the plans. Naturally, I wanted to get the greater Atlanta community involved, so I set out meeting with hundreds and hundreds of people. After having a large number of meetings, I realized that I needed to get more intentional with my schedule and consciously allocate my time to different endeavors.

After trial and error, I settled on a weekly rhythm:

• Meetings day on Monday (management meetings, product sprint reviews, quarterly check-ins, etc)
• Daily check-ins in the morning (Mon – Thurs)
• Meetings and tours in the afternoon (Mon – Thurs), powered by Calendly with specific day/time rules
• Daily catch up in the late afternoon for emailing and reviewing projects
• Freestyle Fridays where I limit scheduled events and look to attend Startup Chowdown whenever I’m in town

This weekly rhythm has allowed me to focus more and compartmentalize different tasks. I’m sure it’ll continue to evolve but it’s been working well for a couple months now.

What else? What are some other things you incorporate in your weekly rhythm?

Most startups don’t work out. Even with an experienced management team, funding, and a good market, the chance of building a large, enduring business is minimal. So, the saying “may the odds ever be in your favor”, especially rings true when it comes to new ventures. If the chances aren’t great, yet you have to keep grinding it out, how long should you keep going?

The answer: as long as you’re making meaningful progress in a great market, keep grinding it out.

Breakthroughs can happen at any time but silver bullets are unlikely. Grinding it out in a great market long enough results in a solid understanding of the opportunities and a clear direction. Remember, almost all successful startups pivot at least once (see Pivoting is More Common Than Expected). What typically happens with success stories is that the entrepreneur thinks there’s an opportunity in a market, jumps in, and finds another opportunity nearby that’s the real winner. Sometimes it takes years of grinding it out to find the best opportunity (see Plan for Three Years of Runway).

Keep grinding it out if real progress is being made and the market it solid.

What else? What are some other thoughts on figuring out how long to keep grinding it out?

Miles Grimshaw has a great post up with the original YouTube investment memo from Sequoia partner Roelof Botha to do a seed investment of $1 million on September 2nd, 2005. Google bought YouTube for $1.6 billion a year later.

Here are the sections from the investment memo:

• Introduction
• Deal
• Competition
• Hiring Plan
• Key Risks
• Recommendation
• Additional resources
  – Investment summary
  – Competitive analysis
  – Technology overview
  – Team bios
  – Company presentation
  – Company metrics

Overall, it’s a worthwhile read that’s concise while still covering a number of topics. It’s much like an expanded executive summary without all the detail found in a full business plan. Plus, it includes real operating metrics and data. Entrepreneurs would do well to read the original YouTube investment memo.

What else? What are some other thoughts on Sequoia’s investment memo on YouTube?

Entrepreneurs are a unique bunch. So much ambition, optimism, and blissful ignorance all wrapped in a desire to change the world. First-time entrepreneurs are especially exciting as they don’t know what they don’t know, making for even more limitless possibilities.

Here are 15 misconceptions for first-time entrepreneurs:

1. The destination is more fun than the journey
2. The initial product idea will be successful
3. All money is created equal
4. Things happen fast
5. Great products sell themselves
6. If you build it, they will come
7. Failure to raise money is due to a lack of investors that get it
8. Culture is one of many items that can be controlled
9. Timing a market is easy
10. It’s lonely at the top
11. Work/life blend isn’t possible
12. Scaling a business takes the same skills as starting one
13. No competition is a good thing
14. Business plans are required
15. The company with the most funding wins

Often, you have to experience something first-hand to truly believe it. With time and experience, many of these misconceptions will be dispelled by first-time entrepreneurs.

What else? What other misconceptions would you add to the list?

Over the years I’ve seen hundreds of investor slide decks from entrepreneurs. Some good, some bad, and some all of over the place. When pitching investors, it’s best to keep the visual slides simple (no more than 10 words per slide) and to provide a separate set of leave-behind slides that have more information. Investors want to engage and have a dialogue, so focus on the conversation and not just pitching.

Now, with an overview on the slides, the next topic is what to include for investors. Larry Cheng, a Managing Partner of Volition Capital, offers up The 10 Slide Company Pitch Deck:

1. The Problem Statement
2. How You Solve the Problem
3. The Customer
4. The Value to the Customer
5. Actual Use Cases
6. The Product
7. Competitive Position
8. Financial Overview
9. Other Key Metrics
10. Management Team

Ryan Spoon, a classmate of mine from Duke and now SVP of Digital Products at ESPN, recommends 10-15 slides in his post How to Create an Early Stage Pitch Deck:

• The Big Idea
• Why you?
• The current problem
• Your solution. Why now?
• Traction & validation
• What’s the future?
• The ask

Making investor slides should be fun and straightforward. Entrepreneurs love selling the vision and slides help establish the arc of the story.

What else? What are some other thoughts on entrepreneur slides for investors?

Over the course of the five-and-a-half years Pardot was in business as a standalone company, we received a half dozen overtures from potential acquirers with differing levels of seriousness. After a startup gains quality market traction, potential acquirers will start sniffing around. Now, most of the inquiries are just to gather information for a corp dev spreadsheet, but occasionally there’s more to it.

Here are a few thoughts on early talks with a potential acquirer:

• Remember that there’s little chance a deal will happen, so try and keep the expectations low (don’t start dreaming of a big pay day as it’s very distracting)
• Use the interaction with a potential acquirer as a learning experience
• Even if you don’t want to sell the business, it’s a useful exercise to learn what acquirers look for in a startup
• Continue to grow the business and don’t lose sight of building a great company
• Mutual NDAs are standard but sharing detailed information isn’t a requirement
• External validation from a potential acquirer helps boost the confidence of the entrepreneurs

The biggest takeaway is that each talk with a potential acquirer should be a learning experience with minimal expectations. Potential acquirers will come out of nowhere and disappear back where they came just as quickly.

What else? What are some other thoughts on early talks with a potential acquirer?

Recently I read Ben Horowitz’s book The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers. I enjoy entrepreneurial success story books that are full of anecdotes, and this one is good. Most of the book is CEO/founder advice with 80% of it being solid and 20% not so valuable.

Ben’s story of Loudcloud/Opsware is one of the more unusual ones I’ve ever encountered. After starting a cloud computing company in the dot come heyday and going public, he decided he didn’t want to be in the hosting business and pivoted. Pivoting is hard enough when it’s just a couple entrepreneurs and an idea — imagine having the pressures of Wall Street and still moving forward with getting rid of your main business and becoming a software company. The bold move paid off and a few years later they ended up selling the business for $1.6 billion to HP. Ben is the rare entrepreneur that took an idea from inception to unicorn exit.

Here are a few takeaways from the book:

• Gather input from all the stakeholders and them make the decision you think is best, even without consensus
• Prepare for psychological meltdowns as the CEO role can be terribly difficult
• Hire the best candidate for the job even if other team members object (I don’t agree with this)
• Not everyone will scale as the company scales, but it’s important to give them a shot
• When the entrepreneurs and executive team are tired, it’s often a good time to sell the business

The Hard Thing About Hard Things is an easy read that many entrepreneurs will enjoy. With the success of Ben’s venture firm Andreessen Horowitz, Ben has cemented himself as one of the leading business people of the 21st century.

What else? What are some other thoughts on Ben Horowitz’s book?