Archive for the 'Business' Category

How any country can leap frog in technology

What if I told you we could time travel to 1989 — and be given a forecast of what a new implementation of the Hypertext technology (called the World Wide Web) could do. Would you jump at doing whatever you could to be on top of this trend? Smart phones (Apple’s came out 10 years ago), a technology like Hypertext, also made us rethink how we can use the Internet and recreated the world. Well, it’s 1989 and there is a technology that is poised to do this again.

I’m passionate about the future of health, and I can’t ignore what’s going on with cryptography, artificial intelligence, Internet of Things, and Virtual/augmented reality. But if I had to pick one thing right now, which is ripe for government leadership to leapfrog even silicon valley, it’s this: Focus on blockchain.

It’s a specific technology that’s matured unlike most of these other trends. Its got a hacker community innovating like how I can only imagine when the web started. Its got significant investor interest. It has consumer awareness. It has all the things ready for this to blow up.

This is how you do that:

  1. Make cryptocurrency the same status as any currency. For example, in the US  Bitcoin’s are considered a capital asset which makes it impractical to use unlike regular currency which is treated on the income account. We need to remove this impediment as it makes it not practical.
  2. Offer incentives to businesses working on blockchain. Create a tax free corridor: anyone that that operations in an area is exempt for any taxation. This isn’t to just get the world’s best employing people locally and building technology which will together create an economy of agglomeration, but it will have a flow on affect on other cryptographic matters, such as cyber security which has now become the scariest frontier of warfare right now. Silicon Valley prospered because of technologies building off technologies. 
  3. Force the adoption of cryptocurrency. Require banks to offer it as a service and make all EFT terminals compliant. The moment the economy offers blockchain integrated into the economy — first with currency — we will see an acceleration of blockchain’s potential on the things that are truly exciting (such as Smart Contracts and Distributed Autonomous Organisations)

Implement these three simple policy concepts and it will make that economy the ground zero for blockchain innovation.

As I have already alluded, I don’t think Bitcoin is long term the goal of doing this: it’s the infrastructure that Bitcoin provides that is the exciting thing (ie, the block chain technology which is one of the four technologies that make Bitcoin outside of peer-to-peer, PGP and proof-of-work). The use cases go far and wide: not just for currency, but for things we take for granted like how websites are resolved (like DNS), contracts likes wills, voting, and anything else involving trust (such as simple but critical title deeds).  Blockchain is basically a decentralised database which is in line with the original design goal of the Internet. Efforts like Ethereum are effectively building a computer on top of the Blockchain concept. It’s a whole new paradigm in computing that goes far beyond currency.

But leave that to the entrepreneurs, who are already working on that — I could write many more posts on those ideas alone. But with leadership, anyone one of the three suggestions I’ve made could be legislated into law this year and overnight make that territory a global leader. 

This is what any  country could do to create the world’s best environment to foster this disruptive technology, which I am convinced will create a transformation like what the web did less than 30 years ago. 


What Vivek Wadhwa taught us

Over the past few weeks, I’ve seen two people I know become involved in an intense situation. They are Mary Trigiani, a board director of one of my companies, StartupHouse, and Vivek Wadhwa, the writer and speaker who I met several years ago and for some time was on his private mailing list.

Separate to the above, as a guy who doesn’t like how someone, on the face of it, was promoting women and was trashed quite explicitly — I’ve been talking to Trigiani to reconcile my own thoughts on what is happening.

I had no desire to enter the public conversation because there are enough people jumping on that bandwagon. But after being referred to a Facebook thread of tech personalities discussing the issue, seeing how Francisco Dao misses the point, and reading “What kind of a message does this give to other men who want to champion women?” I feel it’s no longer a question.  We are missing some perspective here.

Been under a rock? There’s a lot of background to this, like the Newsweek article that kicked it off, Amelia Greenhall’s blog post, the podcast that was taken down, the replacement podcast and the Verge interview. But if you only have time for one, here is The New York Times about the whole episode.

Why Vivek Wadhwa Failed
What Wadhwa did in the wake of Amelia Greenhall’s blog post and NPR chat is a lesson for anyone, male or female, in how not to react to criticism.

The issue is grounded in the fact that Wadhwa decided himself to become the champion for women, using what he calls his research as a platform.  He wasn’t elected, but he has been deposed, I think, because of the lack of leadership — openness, understanding, listening, managing — he exhibited when criticised for his behavior (like for example, how he used his research to claim authority on behalf of women in areas the research didn’t cover).  He caused outrage because he silenced female critics and challengers (what fueled the fight), using bad Twitter and social media etiquette (where the discussions occurred), and what they believe was just his hogging of the limelight (the basis, for some, of their initial frustration).

To put a specific example of showing my point: Wadhwa called women “ token floozies” and Trigiani expressed concerns. Wadhwa then claimed it was due to his non-English speaking background and claimed she has personal issues. That’s not what a leader does.

Wadhwa damaged his own credibility by doing things like this.  As sorry as some of us may feel for seeing what some considered to be a good name trashed (including myself), he did this to himself — and it disappoints me he won’t take responsibility.  As a leader, you need to listen and adapt. You need to own your mistakes and move forward. You need to be aware what you say and do has an impact — but also realise that not responding is a statement in itself. Wadhwa, despite the impression of doing good in the big picture sense, has failed in the details as a champion and has actually done harm to the conversation he claims he was trying to lead by letting his ego get in the way.  As another case in point: after promising quite dramatically that he was exiting the conversation, he continues to return each time someone mentions his name in good favour on the topic.

Let’s stop denying the truth
It’s obvious to say, but I’m going to say it anyway: men and women really are different.  As in every endeavor when people of different cultures, wiring, and experience come together, there is scope for misunderstanding and potential conflict.  So for now, there is at best discovery and at worst tension between the sexes and we’re lying to ourselves if we don’t admit that.

Today’s leaders need to celebrate the differences and make it work for whatever endeavor is on the table.  I’m not using that as a line to make this post cliche-perfect but because I’ve actually seen it with my own eyes. I’ve worked on Sand Hill as a VC, in SoMa at a startup, travelled around the US, Europe and Australia to speak at events and mentor startups. But more relevantly, as a founder who runs two very different businesses (but have in common that they are community-centric businesses) — the global events-based “StartupBus” and the Silicon Valley real-estate based “StartupHouse” — I’ve always felt the need to understand these issues because it concerns my customers, employees and board of directors.

I have seen first-hand how a gender-balanced team leads to a stronger business both strategically and in operations. For example, we’ve attracted and retained a lot more customers because some women feel more comfortable when they see women in staff and management positions.  We’ve also become aware of issues that didn’t even cross the minds of the males on the team — including the board of directors that Trigiani sits on — that we’ve now acted on as a priority, making both male and female customers happier. Female employees bring a different perspective and have brought insights to me before anyone else in the team that affected team dynamics and even insights into approaching the market.  I could list many more but I cannot without giving specific examples that affect the business’s competitiveness.  The point is, it’s good business to have a gender-balanced team. The advocacy of stories like this is what Wadhwa should be remembered for his contributions, despite his failed leadership.

What we can do about it, together
To make the differences work in the female-male realm, both men and women in positions of leadership need to acknowledge the frustrations some women experience (such as unwanted advances and idea thievery). We need to stop denying these are ingrained habits, stop ignoring them, and stop them when we are in a position to do so.  Perhaps most important in this particular situation at this particular moment, all men — not just those in leadership positions — have to honour women’s outrage and support their expression of it.  We have to listen and suppress the “buts” as this anger is based on personal experience.  It is real and we have to welcome the expression of it.

As an executive and as a guy, I have made gigantic mistakes and wound up on the firing line.  What I’ve done differently from Wadhwa is that I took it.  Every shot with no reaction.  I asked what I did wrong and went to great effort to understand what I did to cause my offense.  My lesson from this is when you are criticised, you need to display humility. You need to stop feeding the anger by denying another person’s experience or criticising how they express it.  You need to issue one public statement saying you acknowledge what you did without pretending you didn’t say it or making excuses; simply acknowledge you now understand how you may have been wrong.  Do yourself the favour and make a genuine effort to understand it.

What I learned in this time of reflection is that men need to be conscious of how anything we say or do can be interpreted as patriarchal, intimidating, or sexual.  It may be we are none of those, but by ignoring our tone, we give people ammunition to further pull us down — but this is key, as language matters. Instead, give people what they want:  that we listened and heard them.

You may feel women should not share their personal experiences or express outrage regarding this particular situation with Wadhwa.  That may be debatable, but the presence of and need for women in the workplace are facts of life.  So whatever your position on how people express themselves, make sure you realise that women deserve to be heard.  By defending Wadhwa’s reaction to his challengers and criticising women (who he claimed to represent) for sharing their personal experiences with him and their subsequent outrage, you are denying those experiences and ignoring their voices.  That’s not helpful.

Dudes — let me just make my point super clear. When it comes to women’s issues in technology and society, before you open your mouth, let the women have the mic first. Get comfortable with amplifying their messages and supporting them — rather than putting the message out there yourself. We’ve had our shot at being the messengers, and from my vantage point, not only are women more qualified on the topic, but we’ve messed up enough that it’s time to stand back. There is enough debate between women themselves on how they approach this issue: our role is to listen and support the viewpoints that makes sense for men and women.

Which means the next time something like this happens (and you know it will), do us all a favor and be quiet.  Which is what Wadhwa should have done in the first place.

So to follow my own advice, here are the words of Jamie Roth, a woman on the StartupBus Global Council (what I’m developing to be the community elected aspect of the board of directors for StartupBus, my other company) which is this: “I’m glad you’re posting this — it’s important for men’s voices to be a part of the conversation. I don’t think the answer should be ‘keep quiet,’ though. It should be ‘don’t be a dick’.”

Many thanks to Jennifer Shaw, Jamie Roth, Falon Fatemi, Rose Jeantet and Mary Trigiani for their feedback on the draft of this post

Bitcoin: the world’s receipt

Bitcoin has conflicted me. I see brilliance and world-changing potential. But its pricing instability leads me to believe it will never stabilise until it has some sort of secondary value to prevent confidence crisis and create predictability on the value as a currency. But maybe that’s the wrong question to be pondering?

In January 2014 (when I actually wrote this post but didn’t publish it) I realised that two of the innovations created by BitCoin is the blockchain and the proof of work, are useful beyond currency. For the uninitiated, every single transaction that used BitCoin is documented in a public ledger that everyone in the world can see. The proof of chain is a process that motivates ‘miners’ to validate the transaction in the blockchain. Together, you have a decentralised trust system that no central entity every needs to mediate in.

But the realisation I had was that Bitcoin is not a currency: it’s an asset. And that asset, is that it is the world’s first global decentralised system that can validate transactions.

Now imagine I sent a bitcoin transaction between two accounts that I owned, say that were valued as 25, 122,013 satoshi’s (about 1/4 the value of a Bitcoin) — numbers that can also be interpreted as Christmas day 2013.

Now go back to my assertion: Bitcoin is the world’s first global decentralised system that can validate transactions. And how many transactions occur, including non-financial records of receipt such as dates or domain name looks ups which are actually IP addresses.

Bitcoin might not be the world currency because it’s protocol isn’t fast enough for real time money spending (it takes 10 minutes to validate a transaction) and its unstable as a store of value. But when you think about it a global receipt book, I hope you now get how this is game changing.

If the entire computing revolution is based on binary code — 1’s and 0’s — so long as something can be boiled down into a number and there is value in validating it, then Bitcoin will have place in the world.

The important business skill in life

I believe there is one true lesson that matters for anyone running a business in whatever space you find yourself in. A skill that if you learn the manage techniques in executing them, are transferrable to any business. Thee core concept is called “working capital”, and although they teach this as a basic accounting concept — the meaning of it is not something you can learn, but simply feel have to feel as a CEO founder.

Have you ever had to worry about not being able to pay payroll next month? Have you ever had to raise financing to *continue* (not start) the operations of your business? That’s what I call the working capital burn. And while the tech press is littered with “acquisitions”, the truth of the matter is that the majority of businesses that get acquired knew their future was limited and/or their working capital was running out. An acquisition is a failure in the ability (which may also mean fatigue, not just lack of skill) for an entrepreneur to expand their working capital.

Working capital is a deep concept that incorporates a lot of skills in order for it to successful function. It means fundraising and revenue; it means cost control and hiring. Working capital management is one of the three core functions any CEO — big or small business — that s/he needs to be responsible for outside of setting the strategy and building the team. But the truth is, it’s something everyone in the businesses needs to be responsible for — it’s just the CEO is the only person who has a true picture of the operations.

One of the sad things about the recent financial crisis that has had many economies go into deep recession, is that thousands of businesses went bankrupt despite existing for many decades in some cases. And the reason, was because the banks stopped lending when even $20k may have been enough to boost the working capital of an existing business to continue its operations. Because you see, working capital is not something you solve once you graduate from being a startup — it’s the thing you need to think about from the first day of starting the business and the last day of ending the business.

When I hear of a CEO who is hiring staff faster than the revenue growth of the business, I shake my head. When I hear of a person giving me advice on how to run my business about investing the businesses’s cash in a certain direction despite more short-term challenges being apparent — I dismiss them because they clearly have never had to *feel* the stress of the working capital burn. When I have people claim “profit” is bad even in non-profit organisations, I can only put my hands up in despair because they don’t understand that business has costs — many of them indirect — which you need to always be thinking about and building up the cash reserves on seemingly unrelated activities.

The working capital burn is a thing that all entrepreneurs that have experienced can relate to, and why they can connect despite decades between them in age and a world of difference in terms of what business they work on. And I have to admit, despite my six years of tertiary education and three years work experience to become a chartered accountant where working capital was just one of many accounting concepts I had to learn; it wasn’t until I started my own business that I *felt* the working capital burn and really understood it. Which is why before I can trust anyone in a position of authority for a business I run or a business I invest in, I look to see if they not only get working capital, but if they’ve felt the working capital burn before.

Why entrepreneurs need to say “fuck you”

One of the StartupBus teams this year was interviewed by Y-combinator. They were turned down. Why? According to the team, it was because they were not a billion dollar company. This is something I’ve warned StartupBus teams before when they pitch investors so it doesn’t surprise me. But there’s a lesson here that I hope all entrepreneurs understand.

Professional investors are in the game to make money. Their motivation is to generate a multiple on the fund they have raised.

Why is that a problem you may ask?

Well, who cares if a company makes a billion dollars? Apparently from sounding cool that you built something like that up, as a founder, you will be so diluted through multiple rounds of funding that you will probably have a 5- 30% equity stake in the business, depending on how capital intensive the business is and how many co-founders you have.

A VC however, not only makes money on a billion dollar exit, but they get to brag about it to limited partners and to attract new entrepreneurs, which helps them raise new funds and get new deals. The way it works in venture capital is that it is all about the brand and communicating your successes. Any investor that doesn’t admit to not knowing what they are doing are full of shit. Because billion dollar exits come in two forms: entrepreneurs who successfully played a game to  take advantage of the current market (ie, an acquisition today that had it not happened may not have become a sustainable business) or fundamentally disruptive businesses that no one saw coming. I can think of many examples of the above, but I’ll hold back as my knowledge of various companies are not mean to be public  — however, all that matters is the point that billion dollar exits are either due to a confluence of market factors or a fundamentally disruptive business model. You can’t predict for that. Which is why the safest strategy, as an investor, is to back a proven entrepreneur who knows how to make opportunities like that happen.

While investors look for the 15 deals that generates 96% of the returns in a year, let’s bring this back to the entrepreneur only making $300m. Put another way, a billion dollar business is more like a $300m business for you financially speaking (assuming you have 30% of the entity, a best case scenario). But if you are a $300m business pitching a VC, you probably won’t meet the investors cost of capital (ie, their fund is $300m+) and so therefore they don’t get the returns to justify their capital. Putting that into context, a billion dollar startup that a founder has a 30% equity stake in and a $333m startup that a founder has a 90% equity stake in — is, financially speaking, the same. And what I mean by that, is the people who will make that “billion” dollars (the founders) will need to work three times harder for the same return…meaning by raising financing, the market problem that needs to be serviced needs to be three timeS bigger so that people sitting in the backseat (the investors) make just as much money out of it.

Which means absolutely nothing about the problem you are solving in the world. The fact the entire silicon valley ecosystem is influenced by the investor industry, at a time when the costs of doing a startup have dropped dramatically — is a misalignment that will change one day.

If an investor says your business isn’t biggest enough, it means 20% of your hard work isn’t high enough to meet their capital hurdle of providing a certain return to their limited partners which will impact the investors future fundraising. And sadly, this fact is lost on a lot of entrepreneurs who feel they need a sense of validation despite having identified a real market problem. Which ironically, I think is what separates the true disruptive entrepreneurs from the rest. They are the ones that say “fuck you, I’m going to make this work”. And they end up disapproving the assumptions the investors falsely asserted when rejecting the teams’ vision because fundamentally disruptive businesses are never obvious from the outset.


I get a lot of  random email, and sometimes, it’s the stuff that makes me sit upright. Question things. But of the kind I’m talking about, usually I just smile. Here’s one from today.

I got back to Australia at the end of January. I was pleasantly surprised to find that the start-up community in Adelaide had a bunch of activity going on. One of my friends had heard about the silicon beach meetups in Sydney so got some sponsorship from Microsoft and started a regular meetup.

This lead to Adelaide having its first start-up weekend, which resulted in a burst of activity and resulted in Adelaide’s first tech co-working space being born. They got more interested than anticipated and quickly needed a bigger space, so the guys knocked on a ton of doors and moved into a huge rundown space in the middle of the city.

After talking to a few people who stayed at start-up house they are now looking at opening up a similar type of hacker accommodation in one of the empty floors above the co-working space.

Just thought you might like to know some of the ripple effects hitting the Adelaide eco-system from your awesome work in the valley. Looking forward to staying at the new start-up house when I move back mid year.

The fact so many people around the world have already copied or flagged that they are doing something similar as StartupBus and StartupHouse (not to mention Silicon Beach, though in the way it’s described above that was by design) is flattering. But that’s not the first reaction I had in each case until I realised a very important fact in life.

I’ve seen everything from outright copying of the brand and concept that’s gotten legal, to working intensely with the “copycats” and seeing first hand what they built — and even seeing friends try to replicate their own versions of the concept. Naturally, it can  be disappointing to see your work being copied without being able to expand on your own business where you benefit, or more to the frustration, the sense of losing control on value you created.  But that’s the nature of the market and competition, and actually, I’m more thrilled than disappointed because I’ve come to learn first hand with each of the above that there  really is secret sauce in your own work. You cannot copy the creativity that led to the original concepts themselves which become more valuable for their future evolution. When you copy an idea, you are simply redrawing a photograph of a moving crowd that has since moved on.

So when you can get over that point to realise it’s not a threat, you realise something cooler. You’re creating a ripple effect. But the thing about ripples is that they can be more than that: add some wind and it leads to a wave. That wave might capsize the boats or at the very least ruffle them — but let’s also remember, it’s that movement from a wave that leads to change in our society. And that, is way cooler than anything you will ever do in your life that’s being copied.

What the startup visa should really look like

US immigration is a subject that all foreign entrepreneurs in the United States have lost quite a bit of sleep over. Over the years, I’ve spent days researching, talking to lawyers, listening to stories of survival — and despite solving my own situation, it’s still to this day something that sits at the back of my mind as I’m constantly counseling entrepreneurs with their own situations. The reason this is so hard is because  the only way I could be an entrepreneur in the US (in the mould I wanted, which is a bootstrapping one), I needed to work for a US corporation and at night build my businesses: which is exactly what I did and how I did it (two years in the making). Its taken three years to get to a point where I can now focus on what inspired me to move to America: to build a big, global enterprise.

The entire startup visa movement frustrates me because it’s dependent on raising funding: I believe the best businesses bootstrap and raise funding when they actually need it. Hopefully this post can lead to a more productive dialogue in government policy, coming from someone that directly is impacted by all these discussions.

The options
The US visa system has a few categories that entrepreneur’s can “hack” to make them legal.

  • H1B: this is the standard work visa that foreigner’s go on, with several variants like the E3 visa (which Australian’s uniquely get). Of the H1B’s, about 65,000 new visa’s are issued every year and most of the people that have them work for big corporations. To satisfy the requirements of the visa, you need to file a petition which means three separate advertisements go out in newspapers allowing American citizen’s to apply for the job — only if no one applies and accepted that the petition satisfied.
  • O1: awarded to individuals with extraordinary ability.
  • L1: Individuals who are executives, managers or staff of a US affiliate (ie, a multinational).
  • E1 and E2: A treaty visa only available to a few countries (ie, the next in line  E3 mentioned above was due to the US-Australia free trade agreement), and which are the trader and investor visa respectively. With the E2, the rule of thumb is if you bring in about 100k of capital into the country…however, it’s more complicated than that. It’s the closest thing to a entrepreneur’s visa, but it has some difficult hurdles.
  • EB-5: This is a greencard (or permanent resident) which is probably the best type of visa for an entrepreneur as it gives them complete freedom. The catch? You need to bring $1 million into the country first.

Pretty much all the above employment-based visa’s (H1B, E3, L1) require three things. The first is that the foreigner needs to be paid above the prevailing wage for similar employees in that occupation and city. (The thinking here is that a foreigner needs to be paid more than local’s, so that firms are not motivated to hire cheap labour to the disadvantage of US citizens.)

The second is that the person satisfies educational and work experience. You need to have a US equivalent undergraduate degree or 12 years work experience (a year in college is calculcated as three’s in the workforce for every year of study) in the field you are working in. Actually, the L1 is exempt from this, which is why it’s the main alternative for people without degrees…though it comes with the challenge  of an existing business in your home country that’s been operating for over a year.

The third is that a US firm is “sponsoring” you. Basically, what this means is you have a job offer.

This all sounds reasonable. right? The US should get to cherry pick well educated foreigner’s working at companies that have a real need and which won’t disadvantage  US citizens. Yes, it should — but when you get into the details, this is when this system falls apart.

Problems with the visas
Did you know a fashion model can easily get a O1 if she has appeared in a few print magazines, but an entrepreneur has to basically have won a noble prize? I could write a book about the issues each of the above visa’s have, but I want to keep this post light as it’s a complicated subject.

The first big issue, is that the entire visa system biases established large corporations. To explain this point, I can share with you how hard it is to be a foreign startup employee by the simple requirement of being “sponsored”, which means you need to have a job waiting for you. If you’ve ever applied for a job, you’ll appreciate it’s not that easy…and if you live in another country, I can assure you, finding these jobs is even harder. Multi-nationals have professional departments where they can talk to overseas colleagues and get recommendations, but if you’re applying to work at a startup in the US you’re starting from scratch with the added communication barrier. You’ve basically got to come on “holiday” to the US and prove yourself in what is a cliquey community, so that a startup will hire you.

So why does it matter that the visa system biases the large corporation? Because startups breed startups themselves and are the best training ground for the next generation of entrepreneurs. Startups are not like normal businesses and founders are more selective about the people they hire, given how much risk there is. The extra effort of hiring someone from overseas (relocation costs, lawyer costs on visa’s, etc) only to find they are a dud, means it’s a bigger commitment to take on a foreigner. Again why is this relevant? Because making the visa process easier for startup employees, will indirectly lead to a lot more startups as foreigners tend to be a lot hungrier and research has shown a lot more entrepreneurial.

The second big issue is that you need to be paid a salary if you are to employ yourself in your business. Why is that a bad thing? Because it means I need to hire one less person. To work fulltime on my projects which have become two operationally independent businesses, I need to pay myself above the prevailing wage, which means I have to hire one less person that probably would free my time to grow the business.

The third issue is that it’s not practical. The E2 visa for example was designed for an industrial age, where you would take leases out on offices and invest money in capital expenditure on a store front. (In the information economy, the biggest expense are employees.) More problematic with the E2, is that you need to have an *already existing* business in the US, and of the $100,000 you need to invest in the economy (it’s more complicated than that, but it’s a good standard number), you need to have already *committed* to spending the cash. To rephrase this, you need to have already signed a lease to an office (which you can’t do without a credit history and operating history), spent a bunch of money, and THEN you will be eligible to get the visa. It’s a domino effect here, like the fact you can’t get  a social security number without a visa, which means you can’t open a bank account, which means you can’t get US customers to pay you. And what business man would sign a 12 months lease during their three month “holiday” to show a commitment of funds, when they don’t even have the assurance they can let back into the country?

The fourth issue is that it limits the types of people that are eligible. I used to have a portfolio company (a dozen employees, over a million dollars in capital raised) that couldn’t keep their 19 year co-founder in the country and who’s making headlines in Silicon Valley with his work, simply because he doesn’t have a degree (and so it invalidates that important test for an employment visa). This makes perfect sense for employees who are resources to grow something, but for entrepreneurs that start something? They are the rebels. The college drop out mythology of Silicon Valley where companies like Dell, Facebook, and other household names led to the creation of billion dollar businesses is incompatible with the fact foreign entrepreneurs need to have a degree.

A solution
The reason visa law is such a problematic area is because US citizen’s view foreigner’s as stealing jobs, who in turn vote out politicians who are seen as not creating jobs for them. It also creates a risk where a new liability gets brought into the country, as residents can claim their share of social security which is already bankrupt. I totally understand that.

However, this is where there is a fundamental misunderstanding about the threat of foreigner’s and what they need. Using me as proof, this year, I’ve had three American citizens on my payroll and I plan to increase that as my cashflow grows. When it comes to entrepreneurs, all we really want is the freedom to operate in the United States. I quite happily will pay taxes and not get any rights to pensions, so long as I have the freedom to live in the US and start my businesses. What entrepreneur’s need is a self-employment visa, where they don’t need anything but themselves and time to create the value they are motivated by.

It really is simple to solve this: give entrepreneurs freedom to travel in the United States, to get into agreements, and to interact with the US economy. Require them to check in every so often to prove they are not secretly working at Burger King and using that money to party in Vegas. Restrict any rights to benefits (like social security) and have them pay taxes.  And allow them to graduate into new visa’s (like a greencard) once certain milestones have been hit like revenue thresholds (tax paid) and employment (aggregate demand in the economy increases).

Immigration is so complicated that its taken me 1800 words to write this and I have only skirted the issues. But the solution is honestly simple: enable foreigner’s to generate wealth and jobs by removing the roadblocks. Give them freedom to operate, that’s it.

We no longer live in an isolated world and the freedom of the labor force to move around the world is one of the great benefits of globalisation. If the US can recognise that, it will remain the land of opportunity attracting the world’s best to continue America’s status in the world economy. But until then, I’m going to continue watching the sorry state of the US economy by politicians who are left with no option on how to get out of this mess and shutting the door on the very people who can help save America.

The long term emotional mind

Last night I was at a dinner on a long table of accomplished entrepreneurs and some investors, having an open discussion about entrepreneurship with the guest of honour Kevin Rose. Among many discussion points, the question was asked to the table: what traits do you look for in a founder?

Before we get to that, let’s start with what does it actually mean to be an entrepreneur? Well, quite simply someone who organises resources to create a product that customers pay for. A lot of people have enterprising personalities and so could fall under this definition, but a successful entrepreneur in my eyes is someone who is able to make an income from a product they created (whether from cash flow or from investment). How much income, well that’s a personal question but the point is you’re making money because of you.

But what is it, from a DNA point of view, that makes someone a successful entrepreneur? Someone who takes on “risk”? Someone who is a generalist in their skills? Good at delegation? Yes and no: these are descriptive traits that don’t define the entrepreneur. I think there are actually two things that makes someone a successful entrepreneur, and both these points I learned by one of the most successful entrepreneur’s I know, Steve Outrim.

The first is thinking long term. At a table with people like Gower Smith, Sam Morgan, and several other accomplished people I’ve come to respect — Outrim asked the question on what was the single most important trait in success and he identified the ability to think long term as the key to his success, which everyone nodded in agreement.

The second nugget of wisdom, was shared earlier this year by Outrim at a house warming party to a few of us and he was insistent that was understood him. He pointed to his head: it’s the ability to not let anything affect you mentally. It was a point that took me some reflection to truly appreciate the implications of what he meant.

Think about that. Even if you don’t have your own business, let me help you relate.

On thinking long term, what do you plan to do with your life? For some of us, that freaks us out and for others we have a meticulous plan on what. Entrepreneurs think about their company and 10 years from now. A long term vision, with assumptions that need to get validated, which translate into activities today to enable those assumptions.

The emotional mind, is a tougher one to explain but something all true entrepreneurs will relate to more. As a point of comparison, imagine you are in a relationship and you have your heart broken: most of us have experienced that at some stage in our life. It’s horrible and like a gas that infects your thoughts that you can’t control. Likewise, the feeling of being in love (if you’ve truly experienced it) can uplift you in ways that words cannot explain. Both those highs and lows reflect your emotional self, what all normal human beings experience. Let’s call them “intense” thoughts.

For the entreprener, that experience happens on a daily basis: you start the day with your heart broken and you end the day on a high. Imagine going through intense thoughts every day for years at a time? Can you imagine what impact that has on a person?

Bravery, commitment, and intelligence (specifically, the ability to learn quickly) are three other traits that I think define a sucessful entrepreneur. But its the ability to think long term and deal with the demons in your head that I think separates the boys from the men.

Indeed, I believe the role of a CEO is very similar: my experience is that the best CEO’s think strategically into the long term, but also, have a strong emotional control of their mind. But a CEO is also a job.

Think about it as an employee, where you worry about your bonus or getting promoted. That anxiety is what entrepreneurs face, but from the other perspective: making sure there is enough cash in the bank to pay their staff bonuses and have them rewarded so they can keep them on deck. As an employee, you can face resentment if your expectations are not met; as a CEO founder, you could face jail time if you don’t manage expectations.

I will leave you with this one thought, which is how do you develop these two essential traits which are more than just skills but a state of mind. As Confusion says:

By three methods we may learn wisdom: first, by reflection, which is noblest; second, by imitation, which is easiest; and third, by experience, which is the most bitter.

How to become a “full time” foreign entrepreneur in the US

Today I hit my third anniversary in the United States. I moved over here for a startup and learnt a valuable amount of things in my two years there (which was always intended as a job to bring me to America and give me a start); and this last year I’ve had the privilege to be mentored by one of the most successful venture capitalists in the world (George Zachary has invested $150m over 17 years and returned $1b, mostly recently Yammer selling to Microsoft and Millennial Media listing publicly) working for one of the oldest venture firms in America (CRV or Charles River Ventures).

This month however marks a new beginning: I’m now a full time entrepreneur in the US. And I take great pride in that, because I’ve spent many countless months — years even — trying to work out how to play by the immigration system to enable that.  I’ve worked with lawyers, Googled the hell out of the Internet, and collected dozens of anecdotes from other entrepreneurs who have all experienced the same misery that only another expat can appreciate.

Visa’s generally favour a limited supply of talent that tends to bias the multinational company. There is no such thing as an ‘entrepreneur visa’. Silicon Valley screams out about the need of a “startup visa“, which to be honest, I have serious reservations about as it limits the potential of an entrepreneur (ie, you are required to raise funding from a major investor like a VC firm — that’s like saying you are required to get a bank loan to be able to start your business).

But after spending years pulling out my hair out trying to work out how to get around the rules legally, I’ve developed the following solution with my intent in sharing it so as to prevent the wasted opportunity that entrepreneurs after me may experience. Even some small sentences in this post I’ve spent many hours trying to validate. I hope you waste that time on marketing for your product or enjoying life, as time wasted on visas for entrepreneurs is the least productive thing society has ever invented.

As a disclaimer, I am not a lawyer. I’ve just leveraged my background in the English language to understand the rules myself, which has successfully resulted in three separate visa’s for myself and 1.75 for employees of mine.

Step one: read Geoff’s post

My friend Geoff wrote in detail the process from his own experience. This is the best summary I’ve seen to date and highly recommend you read it. My advice below is a bit bigger picture (as opposed to procedural) and tackles some of the conceptual issues (and ones that I actually disagree with Geoff on).

Step two: Get to the US.

It’s simple, but the more time you spend in the US, the easier it becomes — even if it’s for three months at a time on a visa waiver as a “visitor”. For example, you build a network of people who can support and advise you; you can build up your credit history which takes on year minimum (tip: get a secured credit card); you can setup a bank account which is near impossible to do remotely. If you move over with a job, you get a social security number issued immediately (well, that’s a separate story — it takes over a month on arrival and your life is on hold until you get one), a huge benefit given how key it is to all things regarding your identity. Ultimately, you learn how things work.

Step three: Setup a company

The US operates in a very decentralised manner, as seen by how its company law operates. As a consequence you get a lot of  innovative forms of entities being invented by states like “B Corps” and “L3C’s”. Ignore them — most companies are either C-corps or LLC’s.

An LLC will do, as it’s the lightest-weight incorporation you can get, and in some cases, might be the only option. (Certain corporations like S-Corps require you to be a tax resident of the United States…something hard to do if you’re not present in the country for less than 183 days).  It doesn’t matter where you register it: “Deleware” simply markets the brand of their state, due to the legal system having experience and other factors. Truth be told, a company is a company. Have some fun and register your company in Nevada so you can do your annual shareholder meetings in Vegas — heck it’s not a crazy idea as Nevada not only has zero income tax (a thing levied by some states and the Federal government) but it also is one of the most difficult states in which to “pierce the corporate veil.”

Step four: elect a board

Don’t forget, that your E3 or H1B visa is an employee visa — so you need to make sure you an employee. Advice I heard from the top tier lawyers suggested you needed at least three board members (assuming you are one of them), so that you could be “over-ruled” and theoretically fired by a majority vote of the other board members. This was recently clarified by the US government:

USCIS indicates that while a corporation may be a separate legal entity from its stockholders or sole owner, it may be difficult for that corporation to establish the requisite employer-employee relationship for purposes of an H-1B petition. However, if the facts show that the petitioner has the right to control the beneficiary’s employment, then a valid employer-employee relationship may be established. For example, if the petitioner provides evidence that there is a separate Board of Directors which has the ability to hire, fire, pay, supervise or otherwise control the beneficiary’s employment, the petitioner may be able to establish an employer-employee relationship with the beneficiary.

Step five: In your job offer to yourself, pay yourself above the prevailing wage. For real.

US Immigration is partly designed so that American’s are protected from foreigners stealing their job. Hence the need to satisfy the ‘prevailing wage’ case which requires you be paid above average from what an American would be paid, as defined by official statistics done by occupation and region. You can use this online tool to determine which job you need to match yourself to:

You can be creative here, but don’t be too creative: hiring yourself as a “secretary” at $29k a year (2012-2013 period) when you are clearly the CEO is not something I’d risk. A General Manager though is much more like a founder CEO, which is $73k —  much better than the CEO pay rate of $212k.

But just because you get your visa application approved and a visa, doesn’t mean you can fake this rule. I know of an entrepreneur that “deferred” payment of his salary — which is completely legal but were he to apply for his next visa (or reenter to the US) and have no evidence of pay checks, there would be  complication. (Athough if it took you more than two years to raise funding — the length of the visa — maybe you have bigger problems.)

I’ve actually been asked at US borders to show proof that I have been paid a wage in past — as in, actual pay stubs or bank statements. Eventually, you are going to need to prove you were paid not just above the prevailing wage…but actually paid.

Other comments

  • You should appreciate how the visa system works: the visa itself is simply a travel document; whenever you re-enter the United States, you are reissued form I-94 which is the actual work permit. Technically, you could enter the US a month before your visa expires and the I-94 that you are issued allows you to legally work in the US for a full two years (only one nerdy customs official ever did this to me, most border officials don’t even realise this rule themselves). The only catch with this of course, is that it’s a one way ticket when leaving the US and you don’t have a valid visa for re-entry: out of practicality, labour movements at check points are how governments seem to be able to enforce their immigration policies.
  • Australian’s have a God-send in the form of the E3 visa which is plentiful in allocation, has less hoops to jump through, and even allows a spouse to get a visa as well. The default option for all other foreigns in the H1B which has its own complications. Other options include the B visa (business travel) but that’s a temporary solution — the O visa (for extraordinary achievers) is an option for people who have a public profile, but expect to spend a lot of time with the lawyers preparing this submission.
  • If you don’t have a degree, things are a lot harder for you. Your only option would be the O Visa (which means you need a lot of press) or the ability to prove you have ‘equivalency’ in work experience. One university year of study is equivalent to three years work experience ie, you need 12 years based on a four year standard US degree).
  • At least for the E3 visa, the first time you ever apply for it you need to do it from your home country. Subsequent visas you can do it in other jurisdictions.
  • ADDED April 11 2014: Something I forgot to mention here is the L1 visa which not only is a great visa but the best solution if you don’t have a degree and if you want ‘dual intent’ which means you want to eventually apply for a greencard. The only catch with the L1: you need to have been ’employed’ by the company for one year before initiating the ‘transfer’

All in all, all expats in the US have war stories to share about how they managed to secure their living in the country. The above solution, as simple as it sounds, is also not that simple as it requires real capital or revenues to be able to pay yourself — but with that said knowing three years later this is a legitimate solution is something I would have paid good money for. It’s still not easy, but then again maybe it shouldn’t: little did I appreciate, getting to this point has me now appreciate what a true entrepreneur is. Seeing this as an obstacle that can be overcome will be what Phil Libin, the CEO of Evernote, is looking to hear from real entrepreneurs.

Good luck. Now, you can focus on what really matters: finding your market.

How to fundraise in the next six months

Is funding for startups now starting to tamper out? The answer is yes but not really.

Long term trends in the industry have fueled the creation of a seed bubble that is now starting to face the consequences of the tranche of new investors that increased activity in the market. The macro economic environment will create issues that impact the players that have driven the seed bubble which will create a sense of crisis in the industry, compounded with a permanent trend where it is simply now more competitive to raise money as a startup.

Ultimately, what is happening is a readjustment in the industry, rather than a cash crunch and a bubble bursting — and that there will still be money for smart founders and their teams. This is so long as they understand that one of the most important lessons to raising money is on the vision of the founder CEO and not just the traction of the product or calibre of the team.

I’ll be unpacking these statements below.

What made things bubbly
In mid 2010, we saw a dramatic turnaround in Silicon Valley: the boom was back. As some educated commentators noticed, a bubble formed in the early stage of the market. Seed stage startups were now raising money at inflated values. Rather than blaming this on any individual player, the long-term trends in the industry created this transformation in the industry,which in short are the lower costs to build an Internet business.

Consequently, the three major investor groups (incubators, angels and venture funds) boosted this trend to become a new boom. So how did it become bubbly?


With the incubators driven by the seed accelerators, it led to a dramatic increase in the volume of startups. The same money, but spread across more startups meant an increase in volume. This in itself is not what helped cause the early stage bubble, in the same way that a forest is not responsible for a bush fire. However, a less obvious explanation on the impact of this is that investors were now being over-whelmed by deal flow, that they now couldn’t spend the adequate amount of due diligence time required to make an investment. Quicker decisions made to not miss out, lead to fatigue due to the volume and consequently poor judgement, which may lead investors making deals that potentially may not have done if things were at a slower pace. When people are making investment decisions not grounded in fundamental valuations, that’s when we have a bubble.

And the angel investors have been no angels themselves. More startups were now getting funded, more often — shifting the perception of (perceived power) between investors and entrepreneurs that anyone could raise money now. Their biggest crime is in funding seed companies with small ideas hoping for quick returns (like talent acquisitions) or for status to build their personal brands, contributing to the amount of companies that survive post incubation by which will never make it past the gates of a VC.

The impact of venture capital in seed has also fueled the boom but on the valuation side. For a VC, putting money into a startup at a seed stage means less to them than an angel (ie, they are not as price sensitive). Several VC’s don’t set the terms of the money they put in, leaving the entrepreneur to, who price their round as high as they can (if someone was to give you a blank check, would you put a lower or higher number?!). So while some people claim it’s the VC’s that fueled the bubble, it’s more correct to say VC’s facilitated entrepreneurs to over-price themselves for short-term benefit — but long term at a disadvantage as they now have a higher bar to meet in follow on funding.

How the economy will impact the tech fundraising environment
You have $10m sitting around — what are you going to do with that cash? Well, invest it of course. You can have it sit in a term deposit, and make less than 1% interest; or you could put it into a startup and make a 900% return: that’s the allure of angel investing in the early stage. But what if you don’t want to do either? What’s going to generate a return in this economy that’s not idle cash in the bank but also relatively safe at generating a good return? The stock market.

When the stock market crashes due to a confidence issue after news is announced about the economy, so does the wealth of these wealthy individuals. For this reason, the correlation between the economy and the appetite of angels to invest will directly be proportional; whereas it will have practically no impact on newly raised venture funds (typically a 10 year fund, will be actively invested for its first three years).

This is especially true of funds that have been performing in the market as they will be able to continue raising money from limited partners desperate to get returns on their capital. (That said, the amount of successful VC’s is a separate issue — I’ve been told only 30 out of 600 firms in the last decade have shown positive returns.)

recession buster

In other words, don’t let the economic news affect your thinking on fundraising unless you’re trying to raise from an angel: VC’s actually love it in a downturn as they can now regain their inboxes.

The impact of the seed boom and the road from here
It’s now been 18 months since the seed “bubble” really started. It’s also now when we are seeing the results of these investments.

Startups eventually are going to need to tap into larger investment dollars available only by VC’s as angels bow out of the larger rounds. The impact for the entrepreneur is that it’s now a more competitive landscape to raise funding: a VC who previously picked 2 companies out of 20 to do a series A round, now has 100 to choose from…but can still only pick 2.

Why does this matter? If less startups are being funded, it means they will fizzle out. Investors lose their money. And the truth sets in that angel investing is a risky game. This won’t lead to a significant decrease in angel investing, but it does mean a sobering reality for those investors who just lost some of their wealth.

For existing startups that have already raised a seed round (from angels or VC’s), we’re going to see the impact of the seed bubble in three ways:

(a) You need to sell more than a dream now. For startups trying to raise follow on funding, they now have more data points of their traction and so venture investors are more acute of their cost of capital needs being met.  Seed rounds are considered the new Series A, meaning the funding is significant enough that a startup can exist for 18 months — a lot can happen during that time period, so when they go to raise their Series A, the VC’s are no longer investing in an idea and team (a “dream”), but an idea, team, and quantified traction of how realistic the business will be (still a dream, but instead that dream is being explained the next day when people are awake…).

(b) You may be great but overpriced. For startups with existing high valuations from the seed round, we’re going to see higher priced Series A rounds. The consequence is that the smart money will simply step away from this. Others may participate. But what was previously thought a good thing — entrepreneurs being able to over-price their seed round just because they could — is now going to impact them as they now will be raising (or expected to) at a much higher valuation without the necessary traction to justify it.

(c) The bar is now higher. VC’s are being flooded with deal flow now, thanks to the broader trend of lower costs to start a company and looser capital at the early stage (and no, that’s not a good thing as it’s leading to burnout in VC’s trying to keep up which will lead to poorly-researched deals being done, making a real bubble). As a consequence and to the point I raised earlier, there is now just more competition for the same finite spots of investment opportunity by a venture fund. You may have a great product, a great team, and some great traction — but you’re now being compared to many more startups who also have great products, great teams, and great traction.

Never forget in fundraising the cost of capital investors need to meet
At the TechCrunch Disrupt conference in San Francisco last year, I noticed an interesting thing: what the angels and micro-VC’s were saying about what you need to raise capital, was very different from what the experienced VC’s were saying. The VC’s talked about vision, the angels talked about customers, revenues and traction.

If you’re fundraising, don’t underestimate vision and quantifying your market opportunity. Cost of capital is the reason.

golf lesson

In finance, the cost of capital is a term to describe a return needed on equity — think of it like the interest rate on debt. Venture funds who raised money from limited partners, have a cost of capital which is to be able to return the fund and then some. I feel like people see professional investors as rich guys that can give money simply if they like you — not quite. VC’s need to make money, and they are going to do that by investing in startups that they think have a chance of generating a return.

So how do that do that? Well, they look at the team and the product because after all that’s the execution part of the equation. But just as important and if not more important, is the market opportunity. If a VC has a $200m fund, that means they need to have a 20% stake in a billion dollar startup for them to return their fund. If they invest in anything that’s worth less than a billion dollars, then it’s not worth the investment. Of course, VC’s have differing strategies in their investment thesis and may invest in something for other reasons, but for the most part, the reason why VC’s are so interested in the vision is because the CEO founder is painting the picture of a best case scenario of what the opportunity is.

The fundraising equation a professional investor needs satisfied in their head could be explained as the market opportunity (potential valuation) multiplied by the probability of achieving that opportunity (the risk factors in execution reducing the probability) multiplied by the percentage stake in the business. If you’re a billion dollar idea which a good chance at success, why wouldn’t a VC want to invest in you? Founders overlook the importance of the vision because they ignore the fact VC’s are professional investors in the business of generating returns, and instead focus on the product, relationship, and confusing a good product from a product that has the potential to meet an investors cost of capital.

As an aside, this is also why long term we will be seeing more and more micr0-VC funds existing, funding smaller ideas. Why? Because if you think of the equation above, the return needed by Micro VC’s (with say a $50m fund) is much smaller now — an acquisition signed off by a Google/Microsoft/Yahoo VP for $50m rather than a billion dollar IPO is all they need.

The moral to this story?
The industry is in an adjustment phase but we’re not going to see the ugly side of the seed boom as the bubble will be absorbed and far away from the public markets.

the road gets better from here

You need traction to raise money as that proves your execution and reduces the risk for an investor, but traction without vision is just as bad as a vision without traction. In the next few months, people are going to start panicking, but don’t — the best entrepreneurs will still be able to raise money. You just need to be aware of the cost of capital for the investors you pitch.

Just remember to nail that vision bit.