Tag Archive for 'startups'

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.

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?

Bubbles

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.

Everest syndrome is the biggest crime in our society

US President Barack Obama made an observation last April:

One of the things every time I come to Silicon Valley that I’m inspired by but I’m also frustrated by is how many smart people are here, but also frustrated that I always hear stories about how we can’t find enough engineers, we can’t find enough computer programmers.  You know what, that means our education system is not working the way it should, and that’s got to start early.

A country facing recession and high unemployment, and yet Silicon Valley is in a talent crunch where companies like Google and Facebook have resorted to constantly acquiring companies now just for the talent. How so?

My friend Mike Casey (more on him below) and I  have come to call this “Everest Syndrome”. It’s where our smartest men and women are wasting their potential in middle management of a large corporation. Where they climb the corporate peaks for the elusive goal of getting to the top, many killing themselves along the way and only to find out how lonely it is at the top.

I believe it is the biggest crime of our time, as these people should be at the forefront of our economy, driving its progress and ultimately increasing our standard of living.

The Everest view

Sketching the picture with some stats from Australia
I’m good friends with the guys that run Grad connection, the largest graduate recruitment website in Australia and the fifth biggest jobs portal in the country. I asked one of the founders Mike Casey to pull out some numbers to illustrate how graduates enter the workforce. Although their total database is much higher, we were able to get 17,887 students who specified a specific course they had studied — which represents about 12% of the 150,000 students that graduate each year.

While I’m sure we could get more scientific on this sampling approach as there’s a bias on their employers and hence graduates, it still paints a fairly representative picture on the broad base ‘commercial’ disciplines. Gradconnection has just five categories which account for 88% of the total sample population, which are as follows:

  • Commerce: 31%
  • Accounting: 20%
  • Banking: 18%
  • Information Technology: 11%
  • Law: 8%

Accounting and banking means 38% of graduates end up in financial services, and the lawyers grow that professional services group up 8% to 46%. (For context, services make 71% of the Australian economy — with the topic of this post referring to the now distinguishable quaternary sector emerging.) That’s not a good thing and here’s why.

Student eeePC user

A story by the storyteller
I went to a school that made me think doing a business degree was the right thing; and when at university, thought working at a big bank or professional services firm was the ultimate goal and what would make me successful in life. Those things in themselves are not a bad thing, but the attitudes they created were: at high school, I thought the people studying art were wasting time; and at university, I convinced a former school mate to make our newspaper venture a non-profit university society rather than an actual business that his father was willing to bank roll. The reason? I didn’t want to threaten my studies by a project, that would prevent me from “something important” like getting a job at a big firm.

That attitude I had — fostered by my environment — is pathetic. (Although ironically, this “non-profit” which challenged us to find a useful product/market fit exposed me to the Internet and led me to develop my first business idea of electronic newspapers…which fortunately never went passed the business plan.) Everyone can similarly liken it to how every good family has children that become lawyers or doctors, because that’s considered a good direction in life. My father — a lawyer of nearly 50 years now –often complains about the over-supply of lawyers in the industry: there just isn’t enough work to go around to sustain all these graduates.

 

We need graduates that originate value
I’m a chartered accountant and I’m proud to have survived the grueling process to become one. But like all professions, my training  has me biased towards being a service provider. Service providers add a lot of value and we need them, but the thing is that they are optimisers of value, not originators of value.

If you had a nasty court case to handle due to a marriage breakdown, business conflict or car accident — then my father is a God-send because he can help you solve those issues with his expertise. But what happens where you don’t have any marriage, business or car issues that require his help? Well, you’re happy and he has no work. Service providers are inherently dependent on the rest of society, which is why there can only be a fixed supply of them.

This is very different to what I regard the originators of value. The art students I shunned at high school, can now do something in technology that has them one of the most sought after talent: design interfaces. Apple, a company that has brought interface design into the core of the company’s approach to building technology, will probably become the most valuable company in the world ever to have existed.

Similarly, scientists and engineers: they are builders. They can build value, for any industry and a solution to any problem limited only by their creativity. We will never have an excess supply of computer science students, because if they can’t get employed they can simply leverage their skills to entrepreneurship and employ themselves!

Accounting is the language of the business world and it’s why I decided on that path; but I’ve now come to appreciate computer science as the language of the information society. Those who smartly go in that direction, will be the leaders of our future.

future retro

We need more people in startups. But startups are not for everyone
If our smart people need to get out of the big corporations as a postulate, where should they go? They should be working in startups. And instead of being service providers at big banks, they should be product builders at disruptive companies.

But not everyone. I’ve observed multiple times personalities that are more detail-orientated and prefer structure tend to get more easily frustrated in the organised chaos that is a startup. They focus on execution, whereas a startup is more experimental and adaptive — and so clash with people who are the latter. While differences in personalities is a given thing in any work environment, the issue with these clashes is that you need people who can hold their head and not blow up. Conflict is fine, as long as it’s managed — and I’ve found more structure-orientated people tend to freak out more and then affect the work of their colleagues (which is the real issue, not the fact they need a more structured work environment).

But with that, is the only disclaimer I’m willing to give to Everest Syndrome. If there was one thing I could change in the world, it would be that. Because ahead of poverty, hunger, and war — it is smart people working on challenging problems that can help change the world. The Internet’s development and people understanding computer science creates the opportunity for not just new startups, but every day innovations that can automate processes (like research), connect people (like disaster relief) and maximise the opportunity for economic and political freedom for humanity.

Not everyone has the intelligence, passion and will to be a science researcher uncovering new medicines, one of the nobler career choices in my eyes. However, computer science is fast becoming the new literacy in business. Put more simply, if you don’t know how to put a website up on your own, then stop feeling pity for the third word’s first order impoverishment and reflect on the rich world’s higher-order impoverishment reflected in your inability. A symptom of a bigger impoverishment of the mind, that is a disillusion of what truly is valuable to drive our society forward.

Skies 1

I’m a hustler baby

Out of StartupBus this year, I’ve seen some amazing hackers. It’s a culture I’ve tried to encourage since we first ran the event (and more on that below on what I mean by that). But what about the non-technical people, are they hackers? Yes, but no. I came to a new realisation this March that you need more than a hacker to be successful in a startup: you need someone who can hustle. And often that’s what the “business” person is in the founding team.

I’m not the first person to realise this and in fact, my friend Micah wrote an excellent post about this last July.

So what’s a hustler? And actually, what’s a hacker? Let’s start there first — Micah says the following:

A Hacker is more than a code monkey, who can quickly build software and find interesting ways to hack together code. Thats a developer. Thats someone who is definitely an important part of a startup, but not critical to its success. A Hacker is someone who looks the problem, and solves it in a unique and special way. A Hacker finds the process of problem solving exciting and interesting, and spends the majority of their time looking at the problem in multiple ways, finding many potential solutions.

Paul Graham wrote a great essay on it many years ago. I’m still trying to work out myself what a greater hacker is, but I would essentially define a hacker as someone who understands how to make the best decisions to prioritise their efforts on what has the biggest impact in the shortest amount of time. Meaning, a perfectionist will treat a challenge as a sum of equal parts, diligently working through all the work without regard of the higher purpose. A hacker, would think of the end goal and take shortcuts on the things that are not core to the long-term effect.

It would be like me saying I need something that looks like a clock, so that it fills a void in the background for a movie shoot I need to do. I tell you that you have 24 hours. There’s nothing you can buy, and it needs to be made by you from materials on a farm the shoot is occurring.
A perfectionist would get lost in the mechanics and the quest to build a functional clock, where the hands correspond to the actual time. A hacker would get a hamster spinning in a wheel, which triggers movement of the clock’s hands. Both work, it’s just the perfectionist will plan on work that will take a month building it, forgetting the fact he needs to do it in 24 hours or he fails; the hacker’s solution isn’t a long term solution, but that’s the point — it’s achieving the purpose for what is needed right now.

So what’s a hustler? I think it’s a different skill set. Micah defines it as follows:

A Hustler on the other other hand is a relationship builder. Someone who can build direct relationships with their customers. They arent really promoters, although they do a lot of promotion. They arent salespeople, although they do a lot of selling. They are passion people. They have the ability to articulate their passion clearly and in a way that gets other people equally passionate.

Unlike a hacker, the hustler isn’t required to prioritise their efforts. Instead, what they do is extract value from, say another person (like paying customers). It’s like saying a hacker is someone who smartly builds value of a product, while the hustler smartly builds value by selling the product. Hackers are good at products and process (the value creation), hustlers are good at selling and relationships (capturing the value generated).

These days in tech, they say a good designer is needed along with a good coder, but I think this is just talking about a specific skill set. Hackers might not know how to code or use photoshop: but they can get the job done. It’s a mentality. And likewise, a hustler can come in very different forms, depending on the industry and the team. But make no mistake, if you’re looking for a founding team, you need a least one hustler. Because without someone to hustle the customers, you have no real business in the long term.

The founder mythology’s impact on the talent crunch

In the last month since running StartupBus and reflecting on the boom in seed funding for startups and the talent crunch of engineers in the San Francisco Bay Area,  if it’s one thing I’m seeing a lot more of, it’s the fact that more ‘entrepreneurs’ exist. I’ve been asking myself then, what exactly is a founder?

So it’s good timing to see Chris Dixon to write about the very topic where he defines a true founder from the fake one. But for me, it isn’t so much about glorifying the ‘founder’ as some hero and everyone else ‘not good enough as me’ as Dixon alludes to. Rather, I’m curious: what is it that makes someone a good founder?

When I asked my friend Alisdair Faulkner a few weeks ago on this very topic, he said  that a founder is by the simple fact they are. Meaning, instead of talking — they actually are doing something, which goes to Dixon’s point. I’d argue that’s the fundamental trait of being an entrepreneur, which is the bias to action. But is being a do-er a good founder?

One prominent venture capitalist I spoke to recently remarked that a lot of the startups these days are smart engineers dropping out of Google, thinking they are founders and getting funded because they can. But the truth is, they aren’t good founders and it’s likely they will fail.  The danger of this point, is that we won’t know this, as the increasing trend for companies is to acquire startups for the talent (over the product or profits) which means these failures in capable founders are masked as successes and who in turn will influence the perception of success.

That’s a bad thing and let me explain why. To give you an example in a different context of why this matters, a basic competency for management is the ability to motivate your staff. If you can’t do that, you will create a significant cost to the businesses but which goes unnoticed and impacts the organisation — like a slow growing cancer due to reduced morale. Why is this a problem? Because an incompetent manager will get promoted through their career, continuing on their path of destruction. Problems they caused get masked as other issues, and so incompetency doesn’t get rained in on.

…so let’s step back here. Why does it matter? Because just like the mythology of the CEO, I think we need to clearly set the expectations in the industry that behind all the status, you should be true to yourself.

Let’s look at this from another angle. A good founder is usually a superstar…but  makes a terrible CEO as CEO’s need to be good at delegating rather than doing it all themselves. This weakness is hidden in small environments but becomes apparent when the business needs to scale.

Fred Wilson recounts a story of what a (good) CEO should do. He claims:

Sets the overall vision and strategy of the company and communicates it to all stakeholders. Recruits, hires, and retains the very best talent for the company. Makes sure there is always enough cash in the bank.

And that’s it. Notice no word is mentioned about being a good worker. Good CEO’s make terrible workers (in the sense of building the product, doing admin, etc), in the same way good founders make terrible CEO’s (as they want to work on the product and neglect the management side of being a CEO). And likewise, a terrible CEO is a founder who does what founders do which is experiment when instead they should be focussed on execution and not distracting the business. This is why a startup CEO is a very different animal from a growth-stage CEO — and once again, very different to a mature company CEO. Which is why I have a lot of respect for people who are founders and are willing to hand over the CEO role to another person, as they are making a mature decision that benefits the business, not their ego.

Anyone can be a founder, like how anyone can be a CEO — or an employee — but that doesn’t mean they are good ones. So if starting is what defines a founder, then anyone is a founder — but what makes a good founder is one who starts and is able to finish.  Think you’re a founder or a good CEO? Maybe you are, but the good ones don’t hide behind titles. Feel free to call yourself one, but at least be honest and recognise you can’t be good at everything.

And who knows, maybe this talent crunch might ease up  a bit when smart engineers realise they are…smart engineers and that’s it.

Scouting Angel List

I’ve become an Angel List scout.

What’s Angel List? It’s a service that my good friend Naval Ravikant launched in February 2010 with the Venture Hacks crew, which is dramatically improving the process that is the tech fundraising model. Need high quality investors for a startup? All you need to do now is pitch it via a form.

What’s an Angel List scout? Someone that the Angels on Angel List can trust, who will help filter and provide social proof on startups.

Why am I an Angel List scout? I get a lot of people wanting to meet with me to discuss their startup and help them get introductions to people I know. This is partly due to my profile in building the Australian tech community, my involvement in the DataPortability Project, and my most recent initiative the StartupBus which I launched in 2010 as an entrepreneur development program and with its success I now hope to turn into a qualified community of entrepreneurs (more on that another time).

By being made a scout, I’m now going to be able to direct people to Angel List and formally provide social proof to the investors who want to know more about the startups applying. I won’t be investing in the startups that apply, but I can provide recommendations to people who will.

I don’t get paid for this. Actually, I don’t get any benefit from doing it, other than the satisfaction of helping people like future entrepreneurs and my friends at Angel List. But hopefully, I can now make my interactions with people more valuable as I have a direct connection with what I believe could transform Silicon Valley and consequently the world one day.

So if you have a pitch, go ahead and fill out the form – add my name in the referred field and they will circle back with me for my opinion (currently free-form text, but it will soon be a drop down). Also, if you want to be visible to me when applying, you have to choose me from the “angel picker” when me apply. I’ll try my best to make coffee time for as many entrepreneurs as possible who stop by San Francisco, as I have been in the last year and a half since moving to America.

Update January 2 2011: I just got told that “as a scout, you can see, vote, and comment on startups that have chosen to be visible to you. So you do have some real powers in influencing the investors on the site and crowdvoting up the good startups”. So once again I can’t *do* anything that will get you funded, but I can help 🙂

How the super angels are saving Silicon Valley

Michael Arrington has written about the current bubble in Silicon Valley: the angel investor. He suggests a war is occurring with this new class of investor, and that entrepreneurs need to pick their faction. I don’t doubt the politics is real, and I’m sure it exists between the angels themselves – let’s hope they realise that united they stand, but divided they will all fall.

But I think this “conflict” is really about a change in times. Much like how the traditional gatekeepers of information – the newspaper industry – are battling the process-journalism innovators that we call ‘bloggers’. (Like, ahem, TechCrunch.) No one appointed the Venture Capital industry as the gatekeeper for technology innovation, which is similar to the arrogance of the newspapers that think they ‘own’ the news and deserve special protection because of it. Maybe these over-sized funds should take a lesson from the newspapers and realise the times have changed and their model needs to change as well.

But where I differ with Arrington’s perspective is his prognosis that this is bad for innovation. Conflating this with ‘bigger ideas not getting funded’ is wrong. The point is, is that more innovation can get funded, more veterans are being developed, and more value is being created in the long run. This should be analysed not by the growth of a single tree, but the overall development of the entire forest.

We need more seed-accelerators, more super-angels, and more incubators – because inevitably, it will lead to more startups. And whilst not all will hit a home run, the odds of ‘the next big idea’ happening will improve dramatically.

The Startup Bus

Well, I guess it’s happening now! TechCrunch just wrote about my latest crazy idea which is still only days old in my organisation. It’s a bus from San Francisco that travels to Austin with 12 strangers. The catch? Those 12 people need to conceive, build and launch three startups by the time they arrive, to a packed audience of real tech entrepreneurs.

The concept is to put a remarkable amount of constraints (moving bus, strangers, 48 hours, crappy connectivity, sleep deprivation) among a group of smart people (and the people so far asking to join, include people who have built million dollar businesses). In my experience with these things, real startups can emerge from these efforts (like OpenOnDemand.com/ or BinaryPlex.com, which is where the founders met), but the real motivation is to give a learning experience – and so I am structuring the program so that it maximises that as the experience. I guess you could say it’s like training, or as my friends Bart Jellema and Kim Chen coined for the Australian startup camps, “excercise for entrepreneurs”.

Leena Rao from TechCrunch makes an argument that these efforts can stir up emotions and controversy. But that’s exactly the point – in building a startup, you face obstacles. And if don’t deal with them – which include infighting, things breaking, and crazy pressure – then chances are, you’re not made for the startup world. Which is why these experiences are so valuable – you give people practice and exposure to these issues, and you end up developing better entrepreneurs.

As they say: good judgment comes from experience, but to get experience, you need to have made bad judgment. Here’s to developing entrepreneurs, so that they have better judgment with their real startups one day.

Huge opportunities for exposure for sponsors, which will fund this experience. Contact me for more.

Do entrepreneurs have an expiry date?

Startup’s that are built-to-flip (ie, sold early on) may be the best and dominant way to sustain innovation. How so? Because through observation of the brilliant people I’ve met in technology startup world, I’ve come to realise an important lesson: entrepreneur’s have an expiry date.

I just don’t care any more
I started writing this post sitting in my parents living room last week in Sydney, where I visited for the Christmas break to spend time with family. Chatting away with my parents, my father said something very startling but also very relevant. He was talking about his 73 years of life and the 47 years he’s had as a lawyer. Once a fiery dragon in the courts and of life, he’s now an aged playboy winding himself down. He said he’s thinking of giving it up and going into retirement, as he has been working these last few years purely for the passion. Why quit now, I asked: “I just don’t care anymore”.

I’ve got countless anecdotal examples (but none I can share specifically here, sorry). People I thought that were pushing to create global businesses, are now giving way to other priorities and looking to sell their very valuable company. People who have been involved with a startup for over four years, that’s only now exploding in growth, but feeling fatigued and ready to move on.

It’s not just entrepreneurs
A good friend of mine who has worked for five years at a big bank, is now looking for a change in employer. Several other friends, who have been in long-term romantic relationships for around 3-5 years, are now feeling the pressure of making a decision: get married or stop wasting her time. And sometimes it’s not them making the decision – but it’s what she’s probably thinking.

Passion, fire and ambition is needed to start something – whether it be a new job at a big brand company, a new company that disrupts the industry, or a partner that reinvigorates your life. But like life itself, there is a predictable pattern that follows. What gets born will also mature – and will die, one day. It’s just how life is; what goes up, will go down as well.

Build to flip: it’s a good thing
Bringing this back to the point of this post, I want to highlight that the obsession to build a sustainable business is actually not a normal thing. And I said obsession, because a few years ago I made a naive plea that that was the only way. Now that I’ve seen more, I’ve realised it’s a way but not the common way.

People that create businesses are creative. The same reason that makes them creative, is also the same reason that has them get bored when a process gets repeatable. The types of personality that start a company and battle during its pre-revenue days, are vastly different from the ones that help grow and manage a profitable business.

So the next time people criticise a company that doesn’t stay the course towards an IPO, and let’s itself get bought out – just remember, that sometimes, it’s because the people behind them just don’t care anymore. And that’s perfectly alright. Don’t fight it – it’s how it is.