Partnering with “Friends” in Your Startup: Good or Bad Idea?

This is part of my Series on Entrepreneurial Culture.

Lots of people worry about partnering with friends when they launch a startup. This is mostly because there’s an old saw out there, deeply ingrained in our collective consciousness about how the best way to ruin a friendship is to get a friend involved with anything having to do with money, business and the like. I’ve heard this meme repeated ad nauseam throughout the years in the form of “advice”, mostly from non-entrepreneurs, parents, grandparents and others who have never actually been involved in business. I actually think this should take its place among the annals of the most commonly dispensed worst pieces of advice given to entrepreneurs. In my view it’s just a gross generalization based on some seriously flawed views about business and friendship alike. 

Obviously if you are thinking about partnering with anyone, let alone a friend, it should be because you believe that person will add a great deal to the business you intend to build. (See my post on this subject here). You should never partner with someone for the sole reason that you trust them and feel comfortable around them. Nevertheless, if you are considering partnering with someone who will bring enormous value to the new venture who also happens to be a great friend of yours, you are actually incredibly fortunate. Now you won’t have to spend any time worrying about your partner's character, capacities or loyalties and you both can focus 100% on building a thriving enterprise. To boot you'll have a trusted friend in the same foxhole as you embark on one of the most challenging aspects of human endeavor- a startup company.

There’s a slight catch, though. One thing you’ll absolutely have to do before making such a momentous partnering decision is to ask yourself whether this person is really a true friend of yours. As we all know, the word “friend” is a catch-all and can mean almost anything, as in "My good friend, the Congressman from the great State of ....". You get the picture I'm sure.

So let me replace the old saw above with a better one: “Know who your friends are”.  If it’s someone you’ve relied on for years through thick and thin, someone who’s loyal, unselfish, fair-minded and puts your interests right up there with his or her own- you are talking about a friend. If it’s someone you started following on twitter last month who tweets about the same cheeseburger you like at Shake Shack- it might be time to take stock of things.

Cultivating a University’s Entrepreneurial Ecosystem: A Master Class with Ed Roberts

This is part of my Series on University Entrepreneurship.

 Last week the National Council for Entrepreneurial Tech Transfer hosted a fantastic webinar in which MIT Professor Ed Roberts held forth and responded to questions with contagious enthusiasm for over ninety minutes addressing the origins and evolution of the formidable entrepreneurial ecosystem at MIT. He is certainly uniquely qualified to do so having been a student who earned four degrees from MIT including a PhD in Economics, a business school professor, a serial entrepreneur, angel investor, venture capitalist, CEO, Chair of the MIT Entrepreneurship Center and Chair for 30 years of the MIT Sloan’s Management of Technological Innovation and Entrepreneurship Group. He is also the co-founder of the MIT Management of Technology Program and is the author of eleven books and 170 articles on the subject of entrepreneurship and technology.

He has also recently conducted a landmark study entitled, "Entrepreneurial Impact: The Role of MIT" which demonstrates that “if the active companies founded by MIT graduates formed an independent nation, their revenues would make that nation at least the 17^th largest economy in the world.” From this study we learn that MIT alums have founded in excess of 25,000 active companies that have generated sales of $2 trillion worldwide and employed 3.3 million people. As I have stated in previous posts, American universities are an absolutely profound engine of transformative innovation for the US and world economies. Studies and statistics like those put forth by Dr. Roberts make an emphatic case for the immensely positive economic impact of university entrepreneurship.

In the webinar Professor Roberts shares his experience and insights into the importance of understanding a university’s underlying culture and the need for institutional leadership on the issue of advancing entrepreneurship. He shares his experiences with various types of alumni initiatives, with the establishment of a comprehensive entrepreneurship curriculum, his opinions on the proper approach of the university’s tech transfer office, and the role that student groups as well as university institutions play in the process. He also stresses that there is no single formula- one must always adapt to the particular environment and setting of one's own university.

As someone who operates the university venture lab at Columbia University it was terrific for me to compare notes and get a sense of the big picture from someone who has been engaged in cultivating university entrepreneurship for nearly a half century. As always I welcome your thoughts and comments.

 

For Part Eleven in this Series, click here

Raising Capital and Launching Startups in Uncertain Times

This is part of my Series on Venture Capital.

A few weeks ago I authored a post describing five common myths about raising capital. In this webinar organized by the National Council for Entrepreneurial Tech Transfer, I am joined by colleagues of mine from the venture, angel and legal community to specifically address the challenges of raising capital and launching new companies in a difficult economic environment. The webinar's agenda also includes the following specific sub-topics:

• How recent market developments are affecting tech transfer offices and startups.
• Emerging trends in the angel investment market.
• Emerging trends in the venture investment market.
• Changes in legal terms of startup transactions.
• Positioning startups for funding and operational success.

In my remarks I specifically address how the economic downturn has affected university start-ups/spin-offs and what steps university venture labs can take in light of such conditions.  I welcome your insights as always.

Jeff Bezos: Extraordinary Entrepreneur

This is part of my Series on Entrepreneurial Culture.

If you’d like to hear an amazing entrepreneur talk about what he’s learned about over the past fifteen years, definitely listen to Jeff Bezos in this video below.  You’ll also hear why he’s so excited about his recent acquisition of Zappos. For those who don’t have time to watch it in its entirety his major points were:

• Be relentlessly focused on your customers

• Be ready to invent on behalf of your customers

• Be ready to think long term and ignore the noise

• Zappos is a remarkable company and is obsessed with its customers

• Remember, it’s always Day One!!
   
  

It’s easy to look at the behemoth that Amazon has become today and forget that all of this started with a tiny team working out of Jeff’s house. He is a true visionary.

Raising Capital: How Would You Pitch Your Business to an Old Friend?

This is part of my Series' on Angel Investing and Venture Capital.

I came across this short post from London-based VC Nic Brisbourne yesterday and it immediately struck a chord with me.  Essentially he recommends that entrepreneurs pitching to investors should communicate as if they were pitching to their best friend. In my opinion this is a simple yet very effective prescription and encapsulates in one fell swoop all the right things one should do in a pitch.

Remember, investors are first and foremost looking to back great entrepreneurs who know how to communicate well with colleagues, employees and customers.  When you convey your ideas in a straightforward and unaffected manner, are responsive to feedback, and as Nic says, “do as much listening as talking”, you’re really putting your best foot forward.  

Would love to hear your thoughts on this.

For the next post in this Series, click here.

Notable Posts: "Read All About It"

 

London VC, "Does Operational Experience Help a VC?"

In VC deals, Price Doesn't Matter - But The "Promote" Does

WSJ on Andreesen

Don’t Raise Money: China StartupBlog

University Spinoffs: Bridging the Cultural Divide

This is part of my Series on University Entrepreneurship.

 A big factor in having success spinning-out university startups is the ability to bridge the cultural gap between academia and the investment community.  I think about this divide a great deal, both as a long-time investor in this space and perhaps even moreso now that I am the director of a prominent university venture lab which spins out 10-12 new companies a year.

I was therefore delighted to recently come across this short post written by Amit Monga, Professor of Finance at the University of Alberta. He shares some excellent insights into the practice of investing in university startups courtesy of his prior experience as a venture capitalist.  Dr. Monga’s central premise is that investors want to see much more than technology when they speak with a university tech transfer office.  They are, after all, in the business of launching new companies, which require quite a bit more to succeed than the initial invention or discovery.

What really caught my eye, however, is his very first point which addresses the cultural divide to which I refer above. He points out that whereas it’s very much the custom in academia to focus on a professor’s achievements in research, (including his or her credentials, awards, honors, the number of grad students in their lab, etc.), the reality is that investors first want to hear a value proposition articulated for a potential business. Monga asserts that investors must actually have the answer to this question within the first five minutes of a pitch.

Having politely sat through quite a number of such lengthy introductions that never quite arrive at describing the “pain in the market”, I must wholeheartedly agree with Dr. Monga. In fact, I would say that this value proposition should be expressed within the first two minutes of a pitch.  If the investor is interested, there will be plenty of time to learn more about the professor’s academic achievements. 

 

I’ll go a step further on the subject of the cultural divide and say that I’ve seen instances where an investor’s motives are viewed extremely dimly by the academic. This too can be a problem.  Again, in this instance, it’s incumbent on the tech transfer folks to invite only the most reputable people into the university and to help work through any ingrained biases that might exist on either side.  For an eventual start-up to be successful, both parties will have to get along extremely well and will come to rely on each other. Start-ups are the very opposite of “arms-length” transactions.

So whether you’re an angel investor, a VC, an entrepreneur, a grad student, a post-doc or a university professor, it’s always valuable to approach university spin-offs with a great deal of cultural sensitivity and understanding.  I assure you, this sort of awareness alone can make all the difference.

 

For Part Ten in this Series, click here

My Interview on Venture Hype

This is part of my Series on Angel Investing.

A few weeks ago I was interviewed by the great team at Venture Hype, a popular web-portal dealing with all aspects of angel investing. The interview was posted earlier today and can be found here. We begin by discussing my background and how I became immersed in the world of entrepreneurship and early-stage investing. We then go on to cover various aspects of academic entrepreneurship and university spin-offs, what works and what doesn't work, and what investing in this space is all about. Lastly, we touch on angel investing more generally. As always, I welcome your input and questions.

 For the next post in this Series, click here.

Launching Your Company: Send Lawyers, Guns and Money? Or Do It Yourself!

This is part of my Series on Entrepreneurial Culture.

The classic Warren Zevon refrain, “Send Lawyers, Guns and Money”,  could very well epitomize the attitude many first-time entrepreneurs take on when launching their companies.  In fact, I’m asked the question, “Which lawyer should I hire?” so often that I decided to share my quick thoughts on this matter.

In my opinion you actually do not need a lawyer. What you really need is a successful serial entrepreneur to be your mentor. She or he can help you not only with incorporation but with all the other issues you’ll be facing as you launch the new company.

In a nutshell- hold your fire and save your money.

Nowadays it’s a breeze to incorporate online and there are services such as Legal Zoom and others that remove any need whatsoever for engaging counsel.  Furthermore, standard Operating Agreements are widely available and figuring out whether to start an LLC, an S Corp or a C Corp or what state is best suited for your newco basically involves a two minute conversation with your mentor.  To pay a lawyer a handsome retainer and hourly fees to help you with any of these issues is a complete waste of money in my opinion.

If you don’t have an experienced mentor to help you and absolutely insist on hiring a lawyer, please remember that these services are a commodity. You should only work with reputable, respected lawyers that primarily work with start-up companies and who are well-regarded in your local entrepreneurial and investment community. If you go elsewhere you will most likely be shelling out thousands of dollars for the usual rigmarole.  Reputable counsel will help you set things up inexpensively and will be a resource that is available to you as you grow your company.  Their value will manifest itself once you actually have a revenue-generating business and are perhaps raising your first round of institutional funding. 

I of course welcome you to share your thoughts and experiences on this topic.

Google Translate is Awesome

I recently found out that some folks in Asia have been using Google Translate to read my blog in their language. What a remarkable tool this is. Seeing a screen shot like the one below which translates my blog post on the five myths of raising capital into what seems like Japanese is also quite humbling.

Old School Angel Investing: Joseph Conrad Revisited

 

“It is not the clear-sighted who rule the world. Great achievements are accomplished in a blessed, warm fog.” -Conrad

This is part of my Series on Angel Investing.

For many years I was a subscriber to Conradiana, a tri-annual journal of all things related to the life and works of the venerable Joseph Conrad. It’s a terrific scholarly publication and I’ve recently made a note to myself to sign-up so as to start receiving it again. During this time I sometimes toyed with the idea of buckling down and submitting an article with my supposedly original insights into the much analyzed short work, the Secret Sharer. Having no university affiliation or professorship to bolster my credentials, however, I would have had to submit as a so-called “independent scholar”- a bit of a stretch to say the least. Recently though, upon reading two separate Conrad biographies by John Stape and Jeffrey Meyers respectively, I realized that perhaps I could presume to submit a work to Conradiana after all, and one on a topic where few professors could boast of similar expertise. The submission I have in mind would bear this simple title: Joseph Conrad as Angel Investor and Entrepreneur.  As off-topic as this might come across, keep in mind that Conradiana editors have in the past published a title such as:  Colonial Encounters and Cultural Contests: Confrontation of Orientalist and Occidentalist Discourses in “Karain: A Memory”.  Or how about this beauty: The Power of Suggestion: Conrad, Professor Grasset, and French Medical Occultism.  In fact, maybe I’ll do myself one better and petition the Kauffman Foundation to provide me with a generous grant to do a field study on the subject for twelve months so as to extrapolate what modern investors can learn from Conrad’s track record of international investment in a pre-IPO world?  I’m sure they’ve funded worse boondoggles than this, no? (Well, maybe not).

Well, even if Conradiana and Kauffman should roundly reject my overtures, one thing is clear: Joseph Conrad was certainly a 19^th century version of the modern angel investor and sometime entrepreneur.  And true to his romantic nature, he was willing to get involved with the most daring ventures with his meager earnings- always with an eye for out-sized returns so as to liberate him from the indignities of life at sea and subsequently, those of having to eke out a living at his writing table.  

According to Myers, Conrad’s various ventures included, “…. a whaling venture, piloting in the Suez Canal, Australian pearl fisheries, the Japanese navy, Canadian railroads, business in Newfoundland….”

From Stapes I learned that he actually started quite early in life and was involved in some illicit gun-running operations during his time as a young seaman in Marseille. Later, between stints on the Loch Etive and the Palestine in 1881, he and a former Captain of his hatched some sort of business together. Upon moving to London he bought an equity stake in the German shipping agent firm, Barr, Moering, and did some work for them out of their London offices from time to time. Then there was the South African gold mine debacle in 1895, an investment which allegedly failed only due to a shipwreck off the coast of Brittany which took the life of the entrepreneur Conrad had backed.  Some six months before this and soon after the release of his first published work, Almayer’s Folly, another venture he funded failed, though exactly what type of investment it was remains a mystery, only obliquely referred to by him in a letter to Poradowska, a Polish cousin of his.

I believe that there is much in Conrad’s work and remarkable life story from which we entrepreneurs and investors can draw inspiration. He was from Poland and his original name was Jozef Teodor Konrad Korzeniowsky. He became perhaps the greatest artist ever to write a novel- and this in his third language. His writing too, was completely unique, positively foreign in its rhythms and structure. And this too struck me- that one of the greatest “English” writers did not start writing until he was approximately 40, heard English spoken for the first time on ships when he was 21 and spoke the language with a thick, sometimes indecipherable accent throughout his life. His is the story of determination if nothing else.

Who knows when I’ll get to writing this paper for Conradiana. And though Conrad’s investments and entrepreneurial exploits were rife with disappointment, it’s nevertheless been inspiring to catch a very real glimpse of his enterprising and romantic nature through the prism of his daring ventures and investments. Of course this essence is very palpable in his writing- but it’s there too in the story of his life - that same mind-set so many of us in the world of entrepreneurship, start-ups and angel investing share.  His was a world of swirling winds and wooden ships, of long works written by candlelight, of isolation, imagination- and the mystery and promise of distant lands. Ours is a world of cloud-computing and silicon, of instant messaging, of twitter and the hunt for elusive sources of efficient clean energy.  Great uncertainty and challenge characterize both worlds, as always. And though the surroundings may change, the striving and determination in us to innovate and overcome persists. 

As Conrad himself wrote,

“It is not the clear-sighted who rule the world. Great achievements are accomplished in a blessed, warm fog.”

“Facing it — always facing it — that's the way to get through.”

For the next post in this Series, click here.

Golfing-In-Exile 4: Staying Positive Around the Green

 

This is part of my Series on Golfing-in-Exile.

The drama on the fairway has subsided only to be followed by the gutteral mutterings of your playing partners as they flub multiple shots from green-side bunkers, patches of gorse, and sadly for one, a wet marshy area that sprays mud across his newly purchased and expensive outfit. He is further enraged now because his iPhone somehow got wet as well. Naturally, as you are all GIE's, no one thought to bring a towel- de rigeur for golfers who play regularly. Though it's a fact that cursing and invective is greatly muted on the green compared to let's say- the tee box, the heightened level of tension here can be devastating for many.

Here's where all your well laid plans for a successfully played hole can come to naught with the wrong mental approach. Be cool. Don't absorb all this negativity. Block out the many painful memories of flubbing these "easy" shots in similar situations. You’re actually just on the fringe and have a normal lie some 25 feet from the pin. Here’s what you need to do:

• Take out your PW and take a few practice chip-swings. You are going to let the club do the work and go through the ball, keeping your wrists firm and unbroken through follow-through and ahead of the ball. You are not going to try and guide this shot.

• Get the feel in your hands and a sense of the distance, etc., then address the ball. Make a crisp chip and whatever you do, do not de-celerate. Go through the ball. It will bounce a couple of times and roll gently somewhere near the pin.

• This guy explains it pretty well:  http://www.youtube.com/watch?v=lyzcyrBoab0

• Next, when it's your turn, take the putter straight back and straight through with the putter face following the ball to the hole.

• This is key: Pluck the ball out of the hole and keep moving. You’ve just tricked your body into thinking it can play golf so don’t pause to contemplate what just happened.

You made par. You’re becoming an accomplished GIE. You’re actually having fun for a change.

For Part 5 of this Series, click here.

Golfing-in-Exile 3: Keeping Your Cool on the Fairway

This is part of my Series on Golfing-in-Exile.

We'll pick up now from where we last let off. You will recall that in our previous installment you struck your tee shot amidst some seriously adverse circumstances and nevertheless managed to land it on the fairway. Of course you were using the vaunted GIE Rules for Hittting off the Tee. Sadly, the same cannot be said for your playing partners. So whereas you’ve kept your cool, the other guy in your golf cart has already started to come unwound. He’s still on the same phone call, starts to raise his voice a few decibels and you can tell it’s going to be a blow-out. A self-aware golfer-in-exile (GIE) like you expects all this however, and remains unruffled.

You walk up to your ball and you’ve got 150 to the pin. Ok, so in the old days when you were playing a lot you were a monster and would typically hit a pitching wedge here.  You begin to reach for said wedge but something stops you....

You suddenly remember that you are a GIE. You realize that you’re actually not 17 anymore, in fact you’re 40+. You also remember that you were using a crude, freak-show set of vintage irons back then, namely, First Flights: The Instrument. In those days a First Flight wedge weighed something like 10 pounds and could double as an 8 iron (or a tire iron for that matter).  Your hand moves slowly now towards the nice, modern 7 iron in your bag. You remove it as if in a trance, address the ball, cock the right knee, get some rhythm with a few waggles, and without any fanfare take it back nice and smooth and knock a weak fade just off the green onto the fringe. It wasn’t great, but you’re a chip and a putt away from par. Not bad, right?

Your playing partner has now become the Incredible Hulk and brutalizes his approach,  launching a low screamer over the green into no-man’s-land. He picks the phone back up off the fairway and continues to jaw with the CEO he is firing. You glance back and see the other two guys in your group riding all over the place like drunkards, still looking for their ball. Again, you’re a GIE now- so nothing fazes you.

See you shortly on the green....

For Part 4 of this Series, click here.

Golfing-in-Exile (2): Getting it off the Tee

This is part of my Series on Golfing-in-Exile.

We’ll get deeper into this in subsequent posts, but here are some initial tips for the GIE who plays twice a year and suddenly finds himself in some version of the following. (Tell me you haven’t been a part of this classic situation!):                       

So your friends show up to the course late, they’re still yapping on their iphones about liquidation preferences and getting rid of the CEO and of course, no one could hit balls before the round started.  You’re as tight as a board and haven’t stretched in 15 months. You’ve just seen the people at the clubhouse ring up your card for a $130 greens fee and you had to buy a pair of golf shoes with soft spikes on sale for $110 because the last time you played, hard spikes were still allowed and no one told you this had changed.  You bought a dozen Titleists (most of which you will lose during the coming round) for another $50 and before hitting a shot you’re out about $300.

You step up on the tee, address your ball and VC #1 is still in the cart getting angry at someone he’s talking to on the phone.  Your other hyperactive entrepreneur friend is moving all over the place and clearly visible in your peripheral vision. He almost hit you with one of his practice swings a few minutes ago. VC #2 is wolfing down a sandwich and potato chips not five feet away from you. Since you’re on the East Coast and it’s April, it’s still freezing and you have no “cold weather” gear because again- you hardly ever play golf.

Reality: if you don’t have my “Golfing-in-Exile Rules” memorized- you have a 1% chance of hitting the ball in the fairway.

Here’s what you need to do off the tee: (GIE RULES OFF THE TEE)

• Keep some movement in your body before you initiate the swing. Don’t just stand there like a statue and think you’ll suddenly uncork a 300 yard drive. Move a little, get some rhythm, swagger, etc. going- feel the legs and arms and waggle the club some. A golf swing is actually an athletic movement- so holding perfectly still at address will not help you accomplish this despite what you may think.

• Kick your right knee, (if you are a righty), slightly left toward the target at address, keeping it cocked throughout the swing. This will keep you centered and over the ball with a controlled swing.

• Take a smooth and deliberate backswing. Most disastrous shots (mine included) are born of the warp-speed at which people’s backswings travel, which consequently throws the whole body out of whack.

Ok- so you got it off the tee- it wasn’t great- but you’re out there and not speeding off in your cart cursing to yourself as you hurtle towards your horrific annual round.  VC friend #1 is having a fake heart-to-heart with a CEO he is “letting go” next to you. You can tell he really wants to assassinate the guy for costing him so much money. He sliced his ball into some thick bushes and obviously needs an aspirin.

 Now what? We’ll discuss in the next GIE post.

For Part 3 of this Series, click here.