AllyWatch Interview about VC

I had the opportunity to speak at length with Bart Clareman about early-stage venture, New York tech, and my favorite books:

AllyWatch, Inside The Mind Of A NYC VC: Tim Devane

The Investment Memo

VC evaluation of seed-stage startups can seem arbitrary or imitative at times. Internally, the scarcity of tangible business metrics – product usage or revenue multiples for example – can make an investment decision feel daunting. Presented with various unknowns from any one pitch, VCs often lack an existing information infrastructure to examine in forming an opinion. So, the decision-making process at seed then seems neurotic – a tug-of-war without the rope to champion convictions while pressure testing business mechanics.

Due diligence as a process deserves its own version of a book like Venture Deals and there are a bunch of great blog posts available today. From going with your gut to diligence-ing an idea to death, many tactics with varying degrees of literal rigor exist to bring an investor to a yes or a no. Last week, Rob wrote what we talk about when we talk about companies and as pseudo follow-up, I wanted to break down what comes after those talks and a decision to invest from NextView – our investment memo. To me, the investment memo is essential, a time-stamped artifact that summarizes all of the contributing factors that gave us the conviction to invest. Neither exhaustive financial analysis nor page-turning novel, our memos are no more than two pages, broken into these sections:

Overview: The overview is at most three sentences that explain the company’s concept clearly and concisely.

Market & Background: Depending on how young the company is, this section often has the most work behind it as we will do existing market analysis and map the company against projected product-market-fit via publicly available data and proprietary info from past and present portfolio companies.   

Founding Team: We include three bullet points on each founder’s background as well as any early team members crucial to the then current version of the company.

Business Model & Strategy: Here we outline the approach a company is taking to address a problem and/or break into a market as well as what the current or future revenue and growth drivers are or may be. Any seed stage company’s strategy is a constant work-in-progress. Founders’ employ intuition and rapid reaction to their market(s) to pivot and evolve their model. In this section of the memo, the challenge is in not layering our own opinions into a summary what the actual model is and where the founders want to take it.

Competition: This section is a summary of the existing competitive landscape for the company. We draw largely from publicly available information and in-network, in-portfolio diligence calls here.

Financial Metrics & Financing: This is the most variably-sized section of the memo. Of course, there is always info to add about the current financing that we are leading or participating in. However, given that NextView investments range from incubated ideas that are pre-launch/pre-product/pre-seed to companies that are raising seed rounds having already progressed beyond product-market fit, financial metrics can be detailed or non-existent.

Due Diligence Summary: This is a set of bullet points summarizing everyone’s work in diligence. The process is a highly collaborative one within our team. So these bullets are usually a combination of in-network, in-portfolio calls, individual research, product testing, customer-user interviews, and founder reference calls.

Deal Positives: We include no more than four bullets that highlight the most exciting, high potential aspects of the company.

Deal Concerns: We include no more than four bullets that provide an honest assessment of the downside, highest-risk aspects of the company.

Exit Scenarios:  We present our internal set of projected outcomes for the company – based on a blend of existing and previous comps and our own analysis of probability percentages.

Glimmer of Greatness: Drafting off of the NextView Ethos Point Golazo, the final section of our investment memo is a summary of the beautiful, earth-shattering vision for the company and what it becomes in the most profound future outcome.

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All firms treat investment write-ups differently. At NextView, the memos are an internal discipline that we keep within the team. Union Square Ventures treats their blog posts announcing new investments as the de facto investment memo that’s there for anyone to see. Some firms write lengthy memos, some don’t write them at all.

What I appreciate about the NextView investment memo is the time-stamp of what went into a decision to invest. Most seed stage startups fail, meaning most seed stage investment decisions won’t result in the Glimmer Of Greatness. That reality combined with the lack of existing data around which to anchor an investment decision mean that the investment memo is the only hard evidence of why we did something. The first thing I did when I joined NextView was read all of the investment memos for the existing portfolio (encouraged by Dave). Every month, I block time to go back and do this reading again. It is invaluable in gaining a comprehensive understanding of our evolving investment strategy. Outside of engaging with entrepreneurs, there is nothing more additive in building pattern recognition ability than in reviewing investment memos against the reality of what’s happening or happened with a given company.

Should we completely revamp our investment strategy when we were wrong in a memo? No. A panicked reaction to failure, given its frequency, would induce a heart attack. But we can learn from the memos. Endeavoring to examine what we thought at a given time before an investment had an outcome and without the emotional and psychological influence of subsequent perception, is how we improve as VCs.

The Great Voice Consolidation

Speech is our fastest natural means of communicating. Until we’re all chipped and can talk in wordless brainwaves like Professor X, voice is the human ceiling for external command and expression. With a new market emerging around advances in neural network recognition of vocal inputs, efficiency may well be the core advantage that drives user adoption and so overall maturation of the voice sector.

Its hard to imagine that the voice ecosystem will look anything like the mobile-app layer, or for that matter the early world of early e-commerce marketplaces. Voice as an interface and an experience makes invisible design a reality. There’s still a long way to go to saturate – and potentially replace – software design on the client side. However, all the early Skills (I hate this term FWIW) for the various voice-powered hardware-platforms are 100% invisible once enabled. There’s nothing to look at, click, drag, swipe, post, comment on, delete, log into, or choose to download.

You might think yeah obviously, there’s no screen but shifting away from a base interaction layer that’s visual means the characteristics and design of voice infrastructure will not mirror or even grow out of what’s existed before. There might not be an ‘app store for voice’ for example. Voice-powered products and services will exist and succeed or fail via as yet unknown but fundamentally different looking distribution and discovery mechanisms.

Without visual cues, users will rely on words that they already know today to get what they want from Voice. I think of two general buckets of known ‘wake-up words’ that will drive a voice user’s product and services bias:

Established Internet Brands Today: Sort of like the Sticky Note, we recall certain brands as representative of an entire sector of product or service: Uber and Seamless have held this metonymy distinction. Because voice activation may require users to know both what they want and who provides it, today’s leading brands in any given vertical will have a huge advantage. For better or worse, they are already in our heads as the accompanying solution to what we want, so we’re much more likely to use their names to direct the voice interface.

Real World Category Definitions: An even simpler mental process for new voice users will be calling out the general category of product or service: play music, order lunch, Read news, Schedule doctor’s appointment. Like the Alexa platform today, users may be able to set certain preferences via an or website. But many users may be satisfied if the original request is fulfilled, without caring which internet product or service carried it out. Take streaming media for example, if I say Play Isaiah Rashad or Stream Boogie Nights I really don’t care what service either comes from as long as it does. Even with very specific asks, the value of platform differentiation beyond library volume starts to erode with voice. This reveals another strategic value the move by many media streaming companies to secure exclusive rights to content or create their own.

These two categories of voice-user activation further underscore the future power of dominant voice platforms to develop into independent operating systems. These can then prioritize their own products and services (Amazon already does) or drive the evolution of competitive search monetization and SEO rankings for voice. There are many more open questions to consider about Voice design, user interaction, and market dynamics like: what does a Voice wave without any visuals mean for branding and advertising, which today is driven by measuring clicks, eyeballs, and logo placements? What seems clear is that voice-powered interfaces have the potential to consolidate our product and service selections in the name of efficiency. If wide-open user choice that incites intense competition to acquire those users is a core dynamic of dominant tech ecosystems up to this point, Voice may break from that model.

What competition and choice end up meaning on a voice dominant internet, of course, remains to be seen…

The Blockchain: Ending Data Hacks

Remember when we were scared to buy things online? It wasn’t all that long ago when we swiped plastic cards in person for everything we bought, Black Friday meant toe-to-toe battles with every other holiday shopper in the mall, and the thought of entering your personal financial info into a website to buy something terrified many shoppers.

As a nosy prepubescent, I eavesdropped on these ‘adult’ conversations about internet purchasing on our landline between my parents and relatives or family friends as I eagerly awaited my turn to warp our home phone into a glorious portal transporting me to the land of America Online and A.I.M. Those conversations generally centered on doubt and fear as to whether it was safe and/or reliable to buy stuff over the web. It wasn’t just my parents. In 2002, online commerce accounted for just 1.6% of total retail sales in the U.S. Fourteen years later, consumers in the U.S. spent more than $258 billion online and 80% of the U.S. population has E-bought at least once.

Times have changed to be sure. Although it may now turn out that the safety and security concerns many Web 1.0 consumers felt weren’t as readily dismissed as most AIM screennames from that time (i.e. cybernero or dimtim123). Those internet commerce websites, not to mention social media platforms, online banking accounts, and any other digital destination where we’ve left our identities, personal information and financial access, aren’t foolproof vaults for storing our sensitive data. Whether outspoken or tacit, all parties have acknowledged foreign hacking during the 2016 presidential election. That breach alone demonstrates the premium efficacy of targeted hacking at the high stakes geo-political level. Yet, since 2007 hacks and leaks have exposed, compromised or stolen hundreds of billions of online accounts that belong to regular people, Yahoo, Dropbox, Adobe, Chase, LinkedIn, Ebay, Slack are all listed here.

The point is not to cast endless blame on the companies breached. The proliferation of sensitive data stored online combined with the ever-increasing number of individuals online have produced sprawling, vulnerable databases that we expect to perform in exact accordance with the Terms of Service box we check before confirming a payment or signing into an account. Code is permeable and we’ve dumped entirely too much of our sensitive data on the web for those platforms and institutions to keep safe and sound from bad actors.

I’ve drawn out the preamble here to highlight a circuitous path of online progress. In doubling back to some of the earliest fears of the World Wide Web and demonstrating that some of them were and still are valid, we’ve arrived at a jump off point for a new technological revolution. When we started buying things online and storing our information and identities online, we believed that the merchants and firms who had kept such data safe in the physical world could do so in the digital world just as well. As packages arrived on time and payments went to the right places, we may have begun to believe that a password-protected or 3rd party encrypted online checking account was as safe as a bank vault. But it isn’t. Maybe there isn’t a single entity anywhere that should be expected to perpetually protect the endless mass of sensitive data we produce in leaving our identities all over the place online.

To me, this problem presents an amazing opportunity for widespread adoption of blockchain technology as a solution for all involved individuals and firms. If an explanation or refresher is needed on what that technology is read The Blockchain Application Stack by Joel Monegro or Don Tapscott’s Blockchain Revolution.

In the context of this post on user-level data security, here’s the bitcoin blockchain solution in Before and After diagrams below:

In the second diagram, the bitcoin blockchain infrastructure eliminates the need for any single entity to keep and store your sensitive data (including you). Any business or platform that integrate open-source blockchain APIs for any account verification, access or transaction will provide an innovative level of data security as diagrammed.

Reimagining an exchange fundamental to the known internet is necessary if not inevitable. To date, this exchange has been between internet users and internet businesses, with users providing their data – usage, personal, financial, demographic – in return for information and services. In many cases, users have gladly surrendered personal data for answers, for efficiencies, for stuff, and for access. This accepted internet-user model allowed several companies to achieve profound levels of product efficacy and total enterprise value due to an ever-expanding stockpile of user data they’ve kept and built around. Google, Amazon, Facebook, Uber and Netflix are a few examples. To redirect the current flow of online user data means redefining what is considered valuable on the internet for every entity from the tech titans just referenced to newly founded startups. Network effects and data moats, two tenants underlying some of the most significant web products and overall internet activity to date, are in many ways undone when the blockchain empowers users to keep and control their data.

If that change sounds daunting, that’s because it will be. But add up all the zeros in that awesome data breach visualization from the site Information Is Beautiful and you see how vulnerable we are right now. Which brings me back to the original Web 1.0 concerns about commerce and identity online:

Will it work? Yes indeed.

Can my credit card number get stolen? Most definitely.

Am I being tracked? 100%.

Do they see my profile activity and password? Oh yes.

Is it safe? Well, we thought so…

If the blockchain is a technology that can actually fix these problems, why don’t we all start using it? Of course, many millions of users don’t mind the traditional internet-user model and see so much value and ease of use on the web today that they consider it a fair trade. There are likely many more millions of users who would shift to a blockchain model and yet relinquish their encrypted keys to a blockchain entity to manage and secure. The core process of transaction verification via the bitcoin blockchain needs to continue to progress to a faster and cheaper end product. And internet-wide adoption and integration will require both continued education across the board and tremendous buy-in from today’s large internet companies.

The question with the blockchain has usually been: where’s the tipping point? In theory, its democratic and universally honest; in explanation, its extremely complex technology to understand; in execution, it requires a massive swing up the adoption curve to meaningfully deliver. If I could plot this timeline exactly, I already would have. But if the infrastructure of today’s internet is increasingly at odds with users’ rabid, data-heavy activity and the high-margin business models making internet companies rich, then more and more data breaches could eventually topple the whole system. So, here’s one vote for the blockchain coming to save the day.

Gotham Alpha Podcast Series

A collection of the Gotham Alpha podcast series episodes, exploring the dynamics of NYTech: 

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The 24-Hour Test

As a seed stage investor, I believe I benefit from channeling enthusiasm and excitement. While it’s our responsibility to be thorough and diligent in evaluating entrepreneurs and their ideas, it betrays our job to be too much the cynic or non-believer from the start. Every single company and team we meet can be picked apart in a variety of ways that ultimately would result in passing on the investment. There are always a million reasons why something won’t work and many more than that at seed stage or even earlier.

When my emotional response to a first meeting is excitement, I consider that an important indication of where I’ve ranked a startup concept. I’d argue the genesis of the excitement is born of the right side of my brain and at the very least hasn’t had a negative reaction from the left side. I will usually fixate in the immediate aftermath of the meeting, the idea-pitch-potential sitting prominently at forefront of my mind. The conflict, I’ve found, is in navigating how closely to check or how adamantly to follow that enthusiasm as time passes from that first meeting.

If the literal minutes after are ebullient and positive, what happens with a more gradual passing of hours, days, and inevitable distractions? Did I wake up the next morning with this company as a first thought, the way it was for 90 minutes after the previous day’s meeting? Was I in a rush to tell my mom or a friend or rattle off a opus of a text message to Rob, Dave, Lee, or Jay about such a profound idea? Or has some of the veneer worn off and my enthusiasm abated? Have I lost the spark as a week has progressed and other things have crowded into my brain?

More general measuring stick then precise equation, my home-brewed emotional-reflection filter is one of many indications and data points that impact how we think about things. It may seem too simple, but the 24-hour excitement test has been a telling and intuitive resource for me. Thoughtfully unpacking that emotional response via relevant analysis is the second step in a two-step process that helps determine if we move into formal, deeper diligence with a company - inevitably our largest workload along the timeline of a decision to invest. 

A NYTech Guide

New York City is a dream but can also be a navigational nightmare, equal parts crammed circus and rat race mixed at warp speed. This holds for the city’s tech sector. NYC Tech is bursting at the seams with nightly networking events at floors and floors of co-working spaces. We do not suffer a lack of tech activities. At the same time, the perception of our ecosystem as an insider’s game can often be self-fulfilling and self-perpetuating – creating a walled garden that can’t be breached. People can MeetUp themselves to exhaustion without feeling they’ve made dent.

In order to provide more transparent access and information, today we’re excited to launch the Hitchhiker’s Guide to New York City Tech. The Guide is a living resource intended to equip anyone interested in the New York City startup ecosystem with an information arsenal to help plot his or her own journey.

By no means did we create the NY Guide due to a void in available NYC startup information. There are fantastic sources that have been serving the community for a long time. We’ve tried to list as many of them as we are aware of in our guide. No two people are better at curating the best NY events than Gary and Charlie. Digital.NYC has a deep database of local startups. The New York Tech Alliance is the largest and most significant organization that our ecosystem has ever had. Just to name a few.

In creating our NYTech Hitchhiker’s Guide, we wanted to do our part in a continued effort to make the New York ecosystem transparent and accessible – to newcomers and transplants as much as to local tech OGs. And we need your help. Each of the sections in our guide (Arrive – Learn – Meet – Explore – Work – Raise) has links for open submissions from the community. It would be wonderful to have your additions if you have any to contribute. We know we’ve only just scratched the surface.

Machines Learning In The Wild

Following up on my post about the Bot Craze in machine learning and AI, I wanted to call out a few less obvious areas where increased activity in developing relevant machine learning can have a profound impact:

The Inbox

Google will surely continue to make strides here. We’ve surrounded so much of our information, personal and professional, to Gmail that improving sorting, logging, prioritization and archiving seems inevitable. Given that our inboxes are historical data treasure-troves, there is opportunity for startups to address this complex classification challenge right now.

Genetics & Predictive Diagnosis

While endlessly complex, many of the known cause and effect relationships between symptoms and illness/disease are ideal scenarios for machine learning. With large, existing data sample sets, predicting things like future medical issues or hospital re-admittance is possible. There’s further potential for a more sophisticated neural network where anomaly detection expands our understanding of root causes of disease and illness. There are numerous companies working on this problem, both large and small.

Legal Research

With a growing percentage of historical legal records available online and a trend in courts putting all of their trial information online, ML could save the army of associates that firms employ time and reduce opaque billable hours to clients by pinpointing relevant precedents for any case.

Credit Scores & Alternative Lending

Considering anomaly detection in a different light, a complex neural net should be capable of a more sophisticated and accurate profile of a loan applicant. This deeper and smarter analysis could be a profound lifeline for individuals without credit history or who have had any negative financial issues that in today often disqualify them outright.

Everyday Nutrition

A challenge to machine intelligence for human nutrition is input tracking. We have to be honest and diligent about recording what we consume. However, with a more efficient input, machine-powered nutritional recommendation based on our health, present and future, our dietary restrictions and any fitness or wellness goals could be a transparent knowledge base that we don’t have when deciding what to order at lunch or cook at home.

For many of these examples, machines would clearly be more powerful and efficient than the human brain once they’ve feasted upon the relevant data required. Access to these data stockpiles is not a given. For many sectors, words like scattered, offline and/or highly regulated describe the inhibitors to data access that is pre-requisite for machine learning. This is part of the reason why data network effects have become a hot topic. This status quo also encouraged entrepreneurs to build products with immediate, obvious value for end-users or customers that immediately access and compile data on the heels of delivering upfront value (Ex: 23&Me).

Another challenge to the examples above is the clarity and consistency of data organization. Messy, unpredictable data can be a nightmare to index and process. Depending on the volume of data and types if input sources, entire interstitial systems need to be placed in front of any new product attempting analysis. Even when captured, raw data is tough to translate into uniform sets.

There are a number of companies — startups and corporations — working on bringing machine learning to the sectors outlined above. My intent in describing the specific, potential value in these areas is to express that conversational bots aren’t the sum total of A.I. More likely, they are a major step in increasing mainstream awareness of and comfort with intelligent machines. While for now less marketable than bots, the above ML applications can bring an accuracy and efficiency to industries that is far beyond the capability of the human mind.

Bots In The Wild

Besides Pokémon reclaiming its place in the zeitgeist, bots are the buzzing tech trend of 2016 so far. The big five — Google, Apple, Facebook, Amazon, and Microsoft — have all unveiled or featured bots in their annual product conferences. Consumer startup decks have hurriedly affixed bots to their pitches, for better or for worse. The New Yorker covered conversational bots in June. The New Yorker! Bot has quickly become as common as the word app has been in startup chatter about what people are building: its a bot for ‘X’ (in this case X usually stands for a mundane, predictable task currently carried out by humans). On one hand, bots are a tech craze like many before them. As our attention spans wane and the realization sets in that bots might not change the entire world tomorrow, the hype will begin to die down. The technology powering conversational bots — which are the type of bots driving this particular moment in craze — is still in its infancy and prone to bugs, errors and usability limitations. These errors are akin to why we press zero on our phones through every automated customer service selection tree ever until we reach a person. The bot doesn’t understand the problem, doesn’t have a trained solution, or it can’t hear/read what I’ve said. An even more fatal scenario emerges when consumers go into recorded voice or bot interactions assuming inability and opt for the human without engaging the computer at all. (This is the status quo for recorded voice customer service).

So why the Bot surge? Why would major tech companies and startups decide to release these products now?

A simple answer is that a competitive market forced many companies, large and startup, to announce a bot product — whether or not its available right now — in order to keep up with their peers. Similarly, one bot-focused headline may have rushed other bot announcements or launches, ahead of a previously planned timeline. In this scenario, the buzzwords and echo chamber aren’t far off where suddenly bot is synonymous with success and everyone is building one. However, I think there may have been something strategic in the rapid roll-out of conversational bot technology that is more or less unproven in its marketed product deliverables. Bot technology may become more sophisticated and advanced due directly to its initial launch craze, that traditionally in tech only serves to artificially juice early sign-ups.

The conversational, consumer bots that have sparked this craze are early drafts of machine learning let loose in the wild. In order to deliver the efficiency that the products promise, these ML bots have to be trained largely via supervised learning: feeding tons of specific data relevant to each bot’s function into a set of decision-making conduits over and over. In theory, the machine learns the patterns that determine which input data component elicits which decisions or responses and thus can begin to function with live interactions. One of the core reasons for continuous, relevant data intake is to capture and understand outliers in the set. In experiencing to the often unpredictable syntax, edge-cases, and nuances of any particular data, the bot is equipped to handle as many unique, real-world scenarios as possible once live.

Many impossibly vast and complicated data sets exist today like the index of The World Wide Web or a human genome sequence. Human language and colloquial conversation, especially via text, may be one of the most bizarre, unpredictable, and voluminous data sets in the world. Consider: the number of ways we say hello; the endless words or abbreviations that stand for yes; how emotion (ex: irritation) and expression (ex: irony) can completely change the intended meaning of a phrase (ex: sarcasm) without any grammatical change from the literal meaning; how syntax, spelling errors, and one’s location can impact our conversations. Then consider how much we say. It’s daunting and, as long as we keep talking, impossible to master. The startups and big tech companies that very publicly announced and/or released their early beta bots into live human conversation may have been angling for a jumpstart on this training. The bot craze inevitably has and will continue to draw people into human-bot conversations. Those interactions are the relevant data sets for getting a machine to understand the semantics of human communication just like it does a line of code. Some people may be irritated with the inbox presence of bot assistants Amy or Andrew from x.ai, but you better believe that team has gathered just about every possible way that we express our need to reschedule a meeting over email.

The first wave of bots may well fail to deliver on the promise alluded to at F8 or Google IO. Though if any of these early product releases were strategic in nature, several tech companies may have taken a audacious swing to advance their technology. Early PR and consumer blowback on half-baked products may have been expected and endured in order to compile the conversation data necessary for bots to function consistently at all.

Code Climate, Timber, and NYCode

This coming September, NextView will be hosting NYCode, a half-day conference to recognize and explore the tremendous engineering community in New York City. Below is a brief post to explain why we are doing this. If you’d just like to sign up for early RSVP, click here to do so: NYCode RSVP.

In his recent post about the NYC tech ecosystem, Matt Turck highlighted two developments useful in considering New York’s ability to foster and maintain a local developer community. First, he noted that the talent base here is maturing. For engineering specifically, developers are beginning to leave the New York outposts of tech titans like Google and Facebook to join NY startups or start one here themselves. Second, Matt emphasized ‘Deep Tech’ as an emerging sector in New York. Where once MongoDB stood alone, a cohort of deep tech startups now exists, including growth stage companies like DataDog and Digital Ocean and younger startups like Clarifai and Geometric Intelligence.

To the above evidence of literal tech in New York, I would add the diverse set of schools and courses that now cater to engineering. From Cornell Tech and Flatiron School to the engineering programs at Rutgers and the HackNY Fellows from NYU & Columbia, New York is teeming with avenues to pursue a technical education.These programs and institutions graduate waves of newly minted engineers into the local ecosystems every twelve months, if not every six.

At NextView, we have been bullish on the NYC engineering community for a few years. In the spring of 2014, Dave met Bryan Helmkamp who had founded Code Climate as an automated, static code review product for Ruby. They had a series of conversations about the greater opportunity to build a truly open and extensible platform for a broad set of static analysis, engaging the engineering community to build modules for their language of choice. By that June, NextView was leading the Code Climate seed round. This past winter, I met Zach Sherman and Ben Johnson, two engineers who were leaving SeatGeek to start Timber, a developer tools company focused on user logs. Over a few weeks, we discussed what the two founders saw as an immediate need for a lightweight, real-time logging interface built for application engineers. In February, NextView led a pre-seed investment in Timber, alongside our friends at Notation, Ludlow and Wonder Capital.

What many Deep Tech startups require in a founding location is consistent engineering activity — Meetups to demo their products, other engineering groups or startups to be beta testers, and larger engineering orgs to poach talent from. In short, they need local density. Matt concludes that New York engineering density is finally becoming inevitable and we second that statement wholeheartedly, it is apparent and proving itself to be self-sustaining as the current cycle matures.

As proud advocates of this density development, we want to recognize it. So, NextView is inviting the New York engineering community to NYCode, a half day mini-conference with a couple of panels and fireside chats featuring some of the founders, data scientists, engineers, and investors who are making Deep Tech a reality here. To firmly dispel the rumor that quality, surplus engineering only exists on the west coast, join us for NYCode an afternoon of discussions featuring Eliot Horowitz, Alexis Le-Quoc, Allan Beaufor, Albert Wenger, Bryan Helmkamp, Murat Bicer and more.

Augmented Reality Network Effects?

My friend Jason’s enthusiasm gets me no matter what he’s describing and last night it got me hooked on Pokemon Go. Three quick observations from a relatively late adopter (a crazy statement in and of itself).

Viral Growth — Offline Network Effects:

Rising to 25 million daily active users in its first three weeks in the U.S., the game is the most successful mobile product launch ever. Pure organic viral growth has Pokemon Go breaking app store and OS usage records at the same time. Most remarkable is that the current version of Pokemon Go does not have inherent network effects. That is contrarian compared to the industry-leading consumer products, including games. Snapchat, WhatsApp, Instagram, Draw Something, Farmville, and Words With Friends all benefited from network effects, where new users drove retention. Facebook’s rise is the textbook definition of the same effect. We are in an era where meteoric consumer product growth has often relied on users finding their real-life social networks in-app to drive repeat engagement. Empirically speaking, you play Pokemon Go without any user-to-user interaction. You play the game to find more Pokemon and advance your experience levels; both processes that are born out of and achieved through a virtual world in which you exist largely alone.

Of course, Nintendo can deploy gaming and social features that could achieve a traditional network effect very quickly. It's not hard to imagine what these are. The lures that users can leave to attract Pokemon are an early indication. In-game tips, trading, commerce, battles, and communication — all hallmarks of successful MORPGs — can build network effect moats when given to such a large early user base. I’d like to posit though that there is something else at play with Pokemon Go today that goes beyond buzz. The network effect has already emerged, but it has been achieved offline. Users are communicating, tips are given to one another, real life friends and couples are engaging the game together, commerce is already in place. Its just all happening in the real world. Listen to the conversations you overhear about Pokemon Go, they aren’t all just about the hype. Users are helping each other, recommending what to do, comparing their collections and their avatar designs. Jason literally walked around with me after dinner last night and we played together while he gave me tips. He’s the first person I messaged this morning when I caught a wild Tauros on the train. A product of our first augmented reality network, the social in the Pokemon Go network effect is experienced on the real world side. And its honestly more powerful then if tips and conversation were in-app from the start.

Device Takeover — Single Use:

The Pokemon user interface dominates your device. Certain push notifications can interrupt, but it is by and large a dedicated experience. You have to keep it open in order to keep playing and, even from a pocket, it will run and buzz if there’s something to do nearby. We are clearly demonstrating a desire for this type of UX/UI. Content consumption on Snapchat underscores the same trend. Products that fill up the screen, are easily engaged, and consistently satisfying are winning our attention. We want immersive experiences and may readily sacrifice choice — which app to open, where to read the news — for them.

Nintendo should buy Foursquare:

Just saying…

Authentic Foundation

Last week, I wrote a post referencing Invited Guest, one of the six points that make up our ethos at NextView. Today, I’m calling on another of our ethos points, an adjective that can consistently describe the founders we work with: Authentic. If you’ve had the chance to explore the NextView website recently, you may have found the homepage Easter egg that reveals each ethos point. Authentic is the first one you’ll see:

It may not be surprising then that many of the most successful companies in the NextView portfolio to date were born out of authentic founder experiences.

In the past few months, we’ve invested in three New York-based companies; each hatched by founders whose backgrounds and visions for what they’re building epitomize authenticity. As examples of the types of founding teams that we love to work with and in order to announce some of NextView’s newest investments, I’m thrilled to now shine some light on the founders and founding stories of Dia & Co., Roam, and Timber.

Nadia Boujarwah and Lydia Gilbert met at business school and by the time they graduated were off and running with a startup idea: building a new brand for plus-sized woman’s fashion. And thus Dia & Co. came into being.

The company was not simply the result of a shrewd examination of market opportunities or a spreadsheet-powered analysis of sizing trends in the U.S. Dia exists because their customers have been ignored by the fashion industry. Nadia and Lydia saw a woman forced into the backrooms of brick-and-mortar stores to find her size or resorting to online orders without consideration to her unique fit. They saw a woman with nowhere to shop and no brand she trusted. Nadia and Lydia have since dedicated their waking hours to making life better for this woman.

The Dia mission is to encourage self-confidence and personal agency through ensuring their customers have styles they love in cuts that fit. The whole company values the needs, nuances, delights, and trust of their customer above all else. From profound sizing data that’s collected down to every article of clothing picked and packed for home try-on, Dia is literally built in service to the plus-size woman. Need some proof? Watch this video from Mic.com and then search YouTube for “Dia+Unboxing”. A community is emerging that’s finally getting what it’s deserved. Nadia and Lydia have brought staunch and sincere authenticity to the notion of customer-first. This isn’t a played-out marketing message on a splash page, but the entire reason that their company exists.

Bruno Haid believes that our accepted definition of “the home” is outmoded and restrictive. The 30-year mortgage may not be for everyone and is in fact not viable for many people, yet we’re indoctrinated with the notion that the home we eventually buy as we get older will be both our static, long-term residence and most valuable asset we’ll ever possess. Bruno started Roam as a new living option: a tech-enabled network of communal residences across the globe within which subscribers can move as they so desire.

Who signs up for this? Digital nomads? The freelance workforce? Remote employees? Empty-nesters? Divorced adults? Students taking a gap year? Professors on sabbatical? Regardless of the subscriber demographics, Roam is being built as a conduit for a massive behavioral change. Bruno is the kinetic energy that flows through the conduit, hell-bent on affecting a watershed moment for how we may live. A true nomad, Bruno champions flexible living in practice and conversation; he has opened and resided in communal properties throughout his life. If Roam is a company that exists to offer an alternative to the static homestead, Bruno embodies the early-mover edge to establish this alternative today.   

When founders solve a problem they’ve experienced themselves, they often employ a novel approach that’s so straightforward or simple as to appear an insufficient strategy to outsiders. There is, however, clear authenticity in building a company that you know solves your problem and potentially solves the same problem for many others. For Zach Sherman and Ben Johnson, engineering at SeatGeek meant swimming in a coded sea of user logs all the time. As a major ticketing platform, SeatGeek manages millions of logs every day, and anytime something goes wrong in the code or someone doesn’t get their tickets, those logs have to be called up and poured over.

As a result, Zach and Ben both became intimate with the treasure trove of unique information locked behind the static lists of logged events that were thrown out every seven days or so. For the Timber co-founders, the user log, despite being a huge hassle to access when needed, felt like the lifeblood of the entire company. These logs were the key to everything that was happening on the platform at any given time. It didn’t take long for the duo to unify this notion about user logs into a company focused on unlocking the power of the log.

Timber gives application engineers a lightweight interface for real-time search, filtering, and analysis of clickable, semantic user logs. Born from a painfully sincere toil in accessing logs when there was a problem, Zach and Ben have crafted an original product of which they may well be their own most active beta testers.

—

Starting a company for the sake of starting a company is a doomed endeavor. ‘New founder’ is one of the most challenging job titles anyone can take on. authentic, sincere passion for what you’re building – whether born out of a problem you’ve faced, a wider vision for something you’ve experienced, or a need you’ve felt that’s never been answered – can carry a concept through to becoming a company. Launching a startup from origins of authenticity is a more likely road to entrepreneurial success and a characteristic we seek out in the founders we meet with at NextView. 

Passing: A Great Responsibility In VC

Saying no to someone isn’t comfortable or easy because it’s never what a person waiting for an answer about anything hopes to hear. In our industry, venture investors are responsible for passing on an investment in nine out of 10 companies they meet. Theoretically, passing is what we should be doing most often, second only to meeting new companies.

At NextView, one of our ethos points is Invited Guest. We believe we are guests at the tables of the entrepreneurs we work with, in attendance only because we’ve been lucky enough to be asked. From the first time we meet or speak to founders through our entire relationship with a company, they’ve invited us to be there – especially when such a gracious and fortunate invitation needs to be declined.

We endeavor to be efficient, transparent and helpful in our role as investors during evaluation and diligence of a new company. The phrase I’ve learned from my colleague Lee is: it’s a few days to a no and a few weeks to a yes. When it comes time to pass, we intend to do so with a clear explanation as to why we are. The amount of feedback is generally proportional to the time spent with the founders and how much we’ve been able to learn. One phone call with a founder may mean a shorter pass email; several group meetings and other diligence requests to founders will bring more detail on why we’re passing.

We are, of course, human. While we intend no error in our process as described, we miss or drop things at times as anyone does. This is not a prescription for perfection – to write a thoughtful pass message takes time that isn’t always there. But human error aside, we go into every startup meeting with the intention of conducting ourselves as those founders’ invited guests.

The reason we take passing seriously is because we know something that entrepreneurs know all too well: fundraising sucks.

As a process at the seed stage, it’s fundamentally insane. In meeting multiple times with an entrepreneur, asking them to provide references and jump through various other diligence hoops, we take them away from building the very thing that they are asking us to invest in. Their time is better spent doing that herculean task of building their business then having a sixth partner meeting with a fund that isn’t going to invest. Eliminating the distraction of a drawn-out fundraise is the least we can do.

Personally, I keep the following three facts in mind during any pitch process – a mini reflection on why being an invited guest is humbling:  

What you do is harder than what we do.

What you do is more important than what we do.

Your time is more valuable than ours.

When investors don’t pass appropriately, we are willfully negligent. Unfortunately, there’s less accountability here because our performance is not measured by how effectively we say, “no”. Avoiding these conversations because they might be awkward does a disservice to founders who are already attempting the near impossible by starting a company. If we don’t invest 10 times as often as we do, then we should be passing early and often. It’s the right thing to do and, as a service provider in the startup ecosystem, it’s our job. 

My VC Product Stack

I’ve been spending some time over the past few weeks thinking about time management and the tools I use to facilitate the best use of my time, keep me organized and not let anything slip through the cracks as an investor. 

I’ve mapped out my product stack according to how regularly I use a given product and/or have set time to check/review/reorganize/clear-out the content a particular product holds for me. In reflecting on my stack, I realize that many of the tools of my trade are just containers of information. The essential value then is in getting information out of my head before its forgotten as well as presenting it back to me (and others depending on the product) in a much clearer format in order to process it or collaborate with it. 

A few other thoughts from reflecting on this map: 

Trello has long been a go-to source for company tracking for me as a vc. It is lightweight, has a fantastic mobile experience and each card works well as a unit of summary for a specific startup. The columns are perfect for the stages of meeting, diligence and review. What is lost with Trello as far as a VC-CRM is data - there’s no tagging, filtering, or analysis, even when manually exporting to excel. There may not be a ton of insight from a seed stage venture ‘CRM’ but I would be very interested in what other tools people have used especially those that offer any degree of analysis.

Since the first time I downloaded the desktop version, I’ve never moved off of Tweetdeck as my primary Twitter organization and consumption tool. I wish Twitter would pay more attention to it as far as bugs and simpler UI/UX. It is clunky as hell to get  your initial columns of follower lists set up correctly and, even if that improved, its still only for a power-user. But its amazing once you put the time in and relatively straightforward to shuffle and update. 

If anyone has calendar recommendations as we watch Sunrise ride off into the sunset as a Microsoft product, I would love to know them. The same goes for mobile email client. I’ve begun testing Outlook on my phone for the first time ever as a mobile calendar and email solution and its better then I expected, but I don’t really want to use it as my permanent solution.

The State of NYC Seed

Since joining NextView, we’ve talked often and excitedly about the New York startup ecosystem. With many seed investments locally already, everyone on the team has had a window into how entrepreneurship in the city has evolved over this current cycle.

In the eight years since the housing crisis, NYC tech has been active, to say the least. The community has given birth to tremendous successes and lots of failures, participants have come and gone, round sizes have grown, hot sectors have cooled, reignited, and cooled again, and founders have come from every conceivable background to build here and seek talent, customers, and funding from an increasingly diverse field of investors. Not unlike Gotham itself, the tech ecosystem bobs and weaves to a nebulous beat.

As a further mimic of its host city, New York tech stands tall and stubborn, with a never-say-die presence through flush times and lean. But our conversations at NextView have always ended in excited chatter about the New York opportunity. And it was these conversations that I believe led to the team’s decision to add their own stubborn presence to stand up for seed-stage startups in NYC … me.

Here’s a long story short: We believe firmly that entrepreneurship and startups in New York are alive and well, and we’re here to support them as local seed investors. With conviction in this city, its entrepreneurs, and their ideas — and given that I’m carrying the NextView banner in New York City full-time — I thought I would put some of my analysis and opinion about the state of NYC seed out there to our world. Thanks for taking a look.

The State of NYC Seed:

The State of NYC Seed - NextView from NextView Ventures

- recommend viewing in fullscreen mode -

Will Anyone Care About This?

For creators, I imagine this question must weigh heavy in the moments before their creation passes from intimate and private to public and exposed. There aren’t guidelines along a blank canvas. When a new track, a first novel, a debut film, or a online marketplace are about to be set loose to the world, the only believers are those that made it. 

This is a uniquely insane state that’s not found in many other professions or pursuits. For the majority of the working world, confidence and validation that one is doing something that’s right, meaningful, and productive comes as much, and often times more, from within the workplace as from public reaction. Necks are stuck out for work completed, but not in as drastic or individual a manner as with the artist-creator. 

For the author or painter, there could be some solace in knowing that another canvas awaits to be the filled-in, a new physical outlet for what their minds’ manifest. The sheer lunacy of bringing a creation into the world may fade once its done. Marked on the impact of a completed work, they can begin another. For the entrepreneur, it seems a different lens is applied to answer the title question. A startup founder’s creation will be measured by the impact - utility and/or enjoyment - it delivers over a long period of time. 

Maybe there’s a level of creative mind that doesn’t worry about how their works are received; who are confident in their creations no matter what. But for the founders who launch something into the world with anyone caringmeaning a product or service that’s consistently profound over months and years, the implied commitment in those moments before launch is immense. It may just take insane moments, total devotion and contrarian or eccentric or impossibly creative minds to afford something profound and, hopefully, the answer: YES. 

Startup Employees, Before You Buy Your Options...

A few weeks ago, I wrote a post about a startup’s responsibility to explain equity to new employees. I wanted to go a little bit deeper on equity exercising and tax implications when leaving a startup. 

If you’re leaving a startup after one year or more you likely have some percent of vested equity options available to purchase; the ownership you’ve earned in your time working there. When you were first hired and granted equity options, you probably got a nondescript envelope that looks like this: 

Inside are the Notice of Stock Option Grant and a copy of the most recent Stock Option Plan that’s been approved by the board. There are two types of options offered to new employees, Incentive Stock Options (ISO) and Non-qualified Stock Options (NSO) here are simple definitions and tax implications for each, your envelope should tell you which type you have. 

Incentive Stock Options: Often presented as ‘tax free on exercise’, ISOs are preferable to NSOs but not tax free. While you don’t have to pay an income tax when you purchase these shares, you do have to represent the difference between the strike price of the share at purchase (what you’re paying per share based on the share price when the options were granted to you) and the fair market value (FMV) of the share at purchase (what price the share is valued at today) as a ‘tax preference’ when filing Alternative Minimum Tax documents. The AMT is usually a 28% tax on the difference between the price you paid and the value of those shares today. Better then income tax, but still a large bill.

Example: Purchasing 25,000 ISOs with a $1 per share strike price when they were granted to you that have increased in valued to $10 dollars per share over the three years you’ve worked there would result in a $63,000 tax in addition to the $25,000 you paid to buy them in the first place. 

Non-qualified Stock Options: NSOs are taxed with ordinary income tax rates when you decide to exercise them. So the delta from your strike price when options were granted and the current fair market value of the options is taxed roughly 33% when you file in April. 

Example: Purchasing 25,000 NSOs with a $1 per share strike price and a present value of $10 dollars per share would result in a $74,250 tax in addition to the $25,000 you paid to buy them in the first place.

So, you’ll be out almost $100,000 within a year of leaving just to get and hold the ‘upside’ that you were supposedly a part of building. In theory, a long-term benefit comes after exercise tax when the company becomes liquid and massively more valuable and you sell your shares for a fortune, it is taxed as long-term capital gains, about 15%. 

To Companies:  There’s an immediate issue here that starts with new employee contracts. When you sign your options grant on your first day, you’re agreeing to decide whether or not you’re going to purchase your vested options when you leave within 90 days of your last day. This locks employees into a rushed decision. Those 90 days are rarely aligned with the company’s own growth and are not enough for an employee to assess if their ownership will pay off or not. In many cases, individuals can’t purchase even if they intend to. At a reduced startup salary and in consideration for living and familial expenses, many employees haven’t earned enough money from the company in order to buy their shares of the company. All employers know this very clearly, they can see your earnings and know what general costs of living are.

There’s a simple solution: throw out the 90 day standard and adopt a 5-7 year exercise window. Pinterest is leading the way today in adjusting for the sake of employees and everyone should follow suit. In seven years, most company outcomes will be much more clear and employees can make an informed decision about buying their options. They will also have had time to create a plan to be able to buy them without emptying their savings accounts. Employee options considered over the lifespan of a company as people come and go are never a large cap table burden. There’s no downside for the company or investors to extending the exercise window. Be good people! 

To Employees: Ask for an extended options exercise window when you’re negotiating an offer with a new startup. Its not one of the major levers of immediate compensation but can save you so much when you’re at the other end of your time with a company. Its much harder to ask for an extension when you’re leaving then to have it locked in before you start. 

And then, a word of warning on purchasing options at all. When you do it, you will pay a tax in the year that you exercise and it will be on the company’s paper valuation. Fair market value for private companies is basically made up and is likely to be more inflated then not. Just like any investment, you’re making a bet when you exercise. The advantage you have as a legacy employee is that you know what’s actually happening at the company. So break it down. Do you think the company will IPO? Will it have a huge acquisition? Is it all smoke and mirrors? Are they hemorrhaging talent or revenue or users? Is the leadership superlative or kind of meh? These answers can help you think of a rough percentage likelihood of you making bank on your options versus paying a huge tax on a paper valuation even if the company’s already gone under (yes you’d have to pay it regardless). 

I hope this helps bring some clarity to the equity purchase decision. Its a big one for most people and should be considered thoughtfully. Thank you to Lee, Rob, Sam, and John for their thoughts and feedback on this post. 

Labor Day Resolutions

 For whatever reason, the Summer-Fall changeover feels more like a New Year then New Years this year. Maybe that’s just aging or the nature of my current work. But in lieu of January 1st, I decided on Monday to spend a little time reflecting and write up a few Labor Day resolutions. Just a few things to work on or focus on in hopes that they’ll help me grow and be better heading into the colder months. 

1). Eye Contact - I’ve never been good at eye contact, which I was told seven years ago would keep me from having a successful career. When thinking out loud or vocalizing a new opinion, I find I look anywhere other than the people with whom I’m talking. Maybe its straight awkwardness or its that I lose my train of thought when concentrating on addressing someone directly. Anyways, I’m going to fix this one. I’ve become so accustomed to it that I don’t think about it anymore but it must at times be strange for those on the receiving end. If interacting face to face is in part about discovering true connection, eye contact is one of the few physiological mechanisms at your disposal. Shouldn’t waste it. 

2). On Time - At NextView and with most VCs, 80% of the gig revolves around meeting entrepreneurs. All the time. My bias is to meet in either a neutral setting or, if there is one, that person’s office. I believe it creates a more natural setting to hear a pitch and discuss an idea without putting an entrepreneur into an environment where they either clam up or go into hyper sales mode. (I used to do this for hiring as well). The logistics of this endeavor aren’t ideal and at time I’ve found myself arriving late to a meeting. Its a cliché that VCs are always late but the last thing I want to do is disrespect someone else’s time or reinforce a negative stereotype. While delays in New York transit are inevitable sometimes, I won’t be late on my internal account anymore. 

3). Present in the Present - There seems to me to be unimaginable peace of mind in being able to focus on the immediate here and now without a constant glance over your shoulder or around the next bend into your past or future. I haven’t figured out how to do this yet. Perpetual To Do lists, insecurity about the future, analysis paralysis, thinking about thinking about things, and specters of past misfortune or fumble draw my attention often from any one task, thought or simple moment at hand. I can’t really control outcomes or fix past issues with anything other than the thoughts, relationships, and actions of my present. And its time better spent in a fulfilling present than a present spent stressing about times ahead or behind. 

4). More New, Less Zone Out - Whenever I actually do it, I really love exploring something unknown to me: a new app, a new artist, a new alleyway, a different way home, a different way to take a note, a new author. Its really a requirement for my job. Though often I find myself, in evening hours or quiet moments, slipping into zone out periods where I’m going through the paces of commute or social media black holes without purpose or actual enjoyment. Sometimes distraction and passive consumption are great but not beyond a momentary break. No more of that going forward, I’d like to always be stepping forward into something new. 

City Made

New York City is a tremendous place to be an entrepreneur.  For a pursuit that largely revolves around silent time spent at a computer by one person then, slowly at first, a few more people, a bit more talking, and on and on until, failure, acquisition or IPO, it may seem inconsequential to consider where it all goes down. There are, of course, many necessary considerations, emotions and excursions beyond a laptop and wifi along the path of starting up and so the place does matter.  In the waning days of summer, when we are all either sweating it out or out of it all together until Labor Day, it seems appropriate to reflect on a city that deserves your every consideration to occupy ________ (City) _________(State) on your startup’s mailing address.

“New York, it was an adult portion. It was an adult dose. So it took a couple of trips to get into it. You just go in the first time and you get your ass kicked and you take off. As soon as it heals up, you come back and you try it again. Eventually, you fall right in love with it.”

— Levon Helm

The grit, the grim, and the struggle are all very real. The city is a cold smack in the face when you hop off the Bolt Bus for the first time into a churning sea of people at the 34th Street subway stop who couldn’t care less about you or when your apartment building door clangs shut behind you in the morning and you’re three steps from lanes, lights, horns, and cars that may or may not slow up if you step into the street. The City does not coddle, cuddle, or spoon, with the unsettling exception of morning commutes on the L train. You have to start your day running or get out of the way of thousands of others who will go right over you. As a founder on day one, you are at zero. Your company is an idea that exists in your head and nowhere else unless you’re willing to do anything possible to make it pervade a consciousness beyond your own. My colleague Rob recently wrote about sprinting at the brick wall at a strong pace and at times necessary strategy for a startup at founding or seed stage. What better place to realize the fragility of your state and the need to sprint forward then the city where you have no other option?

Stark reality pervades the streets, avenues, and alleyways here. Entrepreneurship is an endeavor that often requires a suspension of reality to clear mind-space for contrarian ideas, possibilities on the edge of their time, and creation of something that has not yet been. More on NYC’s role in that effort shortly. However, situational reality pairs well with the expected result of a directed vision. Titans of industries, whose buildings dominate the city skyline and whose omnipresence has helped make New York an enduring power, cement the city in reality. Finance ( Exchanges, Services, Banks, Accounting), Media (Publishing, Broadcasting, Digital, Gaming), Fashion & Retail, Advertising, Insurance, Global Governance, Law, Real Estate, Professional Sports, and Telecom all have industry-leading firms headquartered in NYC. At some point in your company’s life, you’ll likely encounter at least one of the above – you’ll be pitching them, competing with them, or being acquired by them. As you travel along that path, these big companies can be your harshest and most valuable critics. They can provide insight into the problems to be solved in their worlds, echo the merit of your concept to a current market, and give product feedback as what you’re building evolves. Should you listen to every word? No, often established industries reject a startup concept exactly when it is most valuable. However, the ability to stroll down the street to Corporate America is unquestionably valuable as a real-world testing ground for Product-Market Fit and answer to the question does or will someone want this thing? Coincidentally, these incumbents will also become your flagship customers and very likely provide a stellar pool of local talent as you begin to staff up.

“I believe in New Yorkers. Whether they’ve ever questioned the dream in which they live, I wouldn’t know, because I won’t ever dare ask that question.”

— Dylan Thomas

Often overlooked in the effort to stay heads down and fully immersed in your company’s existence is the value of a break. Not the vacation kind, although those are important too, but the kind where you direct your mind elsewhere, spend time outside of entrepreneurship, and think and talk and be social about other things. New York is a city that invites escape from whatever it is you do. Statistically the most professionally diverse city in the United States, NYC is home to innumerable people and places that don’t know what an API is, aren’t hosting MeetUps, and will ensure you never feel like you’re in a startup snow globe or coffee shop pitching clusterfcuk. Its good and healthy to have non-tech outlets in your life and in New York City, walk around the block or turn around in your barstool and startup life can disappear for as long as you need.

Perhaps because New York’s startup world is relatively young, condensed and the city itself is breakneck backdrop for a founder, the camaraderie, honesty, and welcome attitudes that the majority of participants display is profound.  Just as there’s an all for one and one for all attitude within a founding team, so New York Tech rallies and supports the entrepreneurs that have created it. Most everyone will find time for coffee with most anyone else, no agenda required. Walk into any startup space – incubator, MeetUp, venture office, company office, co-working space, lab, or school – and you’re more likely to be offered coffee, a desk and a wifi password then shown the door. As an industry, New York Startup may someday live long enough and endure enough scars to reach a point of cynicism with new people with new ideas, most of which won’t work. For the now though, you’ll be met with enthusiasm and encouragement from an incredible group of people who want you to win.

“I still believed in possibilities then, still had the sense, so peculiar to New York, that something extraordinary would happen any minute, any day, any month.”

— Joan Didion

Such universal desire for collective success from all corners of the New York startup community is an outstanding asset for any entrepreneur just starting out. We dream of a future where crazy ideas make life better, solve problems, and then do it all over again. We see potential and unearth possibilities in every train delay, cup of coffee, art gallery, every neighborhood, every borough, every delivery menu, and every frustrating experience at Duane Reade. The chaotic, hardscrabble, overstuffed, raging, romping, intoxicating, alluring, terrifying melting pot that is New York City inspires. There’s a history of creative disruption here that casts a brilliant shadow down Broadway and the Bowery and over more then three centuries. In a place this competitive, innovation is the necessary tool for progress. Those committed to it recognize and root for it - the shear, indelible thrust to make something out of nothing our way - its one part entrepreneurial and one part native New York. If that’s what you see in the mirror, your fellow dreamers are here, in the streets and coffee shops and bars and studios, hard at work on what’s next to come and eager to meet you. 

Explain Equity

When someone goes to work for a larger corporation or public company, the compensation package generally includes an annual salary, a performance bonus or commission plan, 401k, and health insurance. When someone goes to work for an early startup, the compensation package general includes an annual salary, health insurance, and, instead of fixed-cost performance upside, a percentage of unvested options to purchase equity in the company. Of late, I’ve encountered numerous potential startup candidates and newly hired employees who have no idea what their equity means. I’ve noticed this for years – and experienced it myself – but I’m disturbed at the frequency now and so am compelled to write about it.

It falls on the hiring company to thoroughly explain equity options to their new employees. The concept is a nuanced one that, unless they’ve spent a career in startup or studied econ, new hires won’t have a basis of relevant knowledge from which to draw. Often avoided because they take time and could make an offer package seem less attractive, these discussions aught to be mandated so employees aren’t joining a company with a blanket pulled over their faces.

For startup employees who’ve not encountered equity before, there are resources online that will take you through the specific terms and changes in equity value over the lifetime of an early stage company. Check out Fred’s Skillshare class on Employee Equity and Brad’s post on Equity Compensation Terms. What’s frustrating to me is that the true value of equity seems to often be skipped over when a company is presenting a comp package. The common statement I’ve heard from candidates is they told me I’m getting ‘X’ thousands or tens of thousands of options. Full Stop. To the uninformed, 25,000 shares or 150,000 shares or even 5,000 shares can seem like a lot when your only reference is the stock market. And so, questions that should not need to be asked:

1). What’s the total number of issued stock and stock options to date?

2). What’s the strike price ($ value per) of the options I’m being granted?

3). What’s the company valued at today and what’s the total invested capital to date?

With this information an employee or potential employee can understand how much their “X” thousands of shares are actually worth in ownership and, at least on paper, in dollars against the total valuation. When joining a startup, the common refrain from everyone on the team is we’re in this together to create something new, amazing and big. The reasons behind this sentiment are many. A literal one is that everyone sacrifices the security of more money for the opportunity to build a profound idea from scratch and, maybe, share in a potentially tremendous financial outcome. It is either a shady sales tactic or unintended blunder for startups not to explain exactly where each new employee stands in that potential share. This is not an argument for circulating the entire cap table or compensation calendar. Everyone deserves his or her privacy. But in an industry in which early employees (1-20, 20-100) can make a massive difference in a company’s success or failure, startups owe it to those individuals to be sincere, transparent and thorough in discussing equity. Don’t go suckering someone into thinking they’ve already made it on the day they sign their offer letter.