What’s the best way to understand the difference between CFO and VP Finance?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
VP Finance vs CFO – AVC

A VP Finance is what you need when you want a leader who will keep the wheels on the bus, who will make sure there are financial controls in place, who will make sure the books, records, and reports are accurate and timely and well presented, and who will make sure you have the right amount of accountants and clerical staff on hand to manage the work of the finance organization. A VP Finance is largely about “what happened” and a little about “wh… (read more)

What’s the best way to understand investor behavior?

Paul Graham (Co-Founder & Partner at Y Combinator)
Default Alive or Default Dead?

Kill-or-cure strategies are optimal for VCs because they’re protected by the portfolio effect. VCs want to blow you up, in one sense of the phrase or the other. But as a founder your incentives are different. You want above all to survive.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Fund Level Vs Deal By Deal Carry – AVC

Deal by deal carry has not been common in the VC business. It is more common in private equity where the distribution of outcomes looks very differently. But with the rise of syndicates being raised on venture capital marketplaces, we are seeing an increasing number of angel and early stage investors who have deal by deal carry.
As I said, there are pros and cons to both compensation models. I don’t want to say that one is better than the other…. (read more)

David Jackson (Founder, Seeking Alpha)
Conflicts of interest between startups and VCs | A Founder’s Notebook

I’ve been lucky to have superb VCs invest in Seeking Alpha. One of the things that’s helped me to maximize my relationship with them is understanding when our interests diverge. Here are two examples: It’s in their interest to push their portfolio companies to swing for the fences, even if that means raising the risk of failure. VCs rightly care about their brand, which is strongly impacted by association with successful companies with “buzz”.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Difference Between Large Funds and Small Funds – AVC

I have always been a “small fund” oriented investor. Both models work if executed well, but they are different.
With small funds, you only need to find a few good ideas a year to get behind. That is true in hedge funds, private equity, venture capital, and probably many other asset classes.
With large funds, you need to get behind every good idea every year.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
VC Fund Economics – AVC

That is 2.5% in annual management fees and 20% of the profits after the investors get their capital back. That is the exact same set of economics the USV operates on. The goal of VC fund economics is to incent the partners to focus on carry and not on current cash compensation. That means that we are focused on generating large gains on our investments and that aligns us well with the entrepreneurs we back and the investors who provide us with c… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Loss Ratios In Early Stage VC – AVC

When I was early in my career, I casually mentioned to an older VC that I had yet to lose money on an investment. He replied “that’s not good, you aren’t taking enough risk.” I have gone on to lose a lot of money over the years. And made a fair bit too.
So one of the things I like to look at when I look at our funds and other VC funds that I am an investor in are loss ratios. You can calculate loss ratios by “names” meaning how many investments … (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Role Of Personal Chemistry In Investment Selection – AVC

Venture capital investing is not like angel investing or public stock investing. We don’t make a lot of small bets (angel investing) and we can’t easily get in and out of our positions (public market investing). We make big concentrated bets in a handful of carefully selected companies and hold these positions for between five and ten years on average. We sit on the boards of these companies and become business partners with the founders and mana… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Power Of Diversification – AVC

When you are an investor, there are days when some of your investments are doing great and some are doing badly. If you are broadly diversified, those days are easier to take. If you are all in on one investment, then those days are brutal. Entrepreneurs go all in and are rewarded accordingly when they hit it. Investors should not go all in. They should be diversified.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Grind – AVC

I started yesterday at 8am with a breakfast meeting. I ended around 8:15pm when I wrapped up a pitch meeting in my office. In between those two meetings I did ten other meetings for a total of twelve meetings in a bit more than twelve hours.
Of those twelve meetings, one was a three hour board meeting, one was a breakfast meeting with another venture investor, one was a lunch meeting to talk about CS Ed in NYC, four were pitch meetings, one was … (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Qualified Small Business Stock – AVC

For the past twenty years, the US federal tax code has included provisions that allow startup investors to get favorable tax treatment on the capital gains they earn on early stage investments. These provisions are in Sections 1202 and Sections 1045 of the tax code. Sec 1045 allows a “tax-free rollover” which means that you can avoid paying the capital gains tax if the gain is “rolled over” meaning invested back into another QSSB. Sec 1202 allow… (read more)

What’s the best way to understand how your VC thinks about your business?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Some Thoughts On Tweeting Vs Blogging – AVC

[when thinking about Twitter] I had been blogging for almost four years at that point and was completely sold on the huge benefits that come from publicly sharing your insights, opinions, and decisions. I would advocate blogging to everyone. And folks would try it. And that vast majority of them (way greater than 90%) would not be able to sustain it. So when tweeting showed up, I thought “well this has most of the benefits of blogging but is at l… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Perception Of Conflict Is Conflict – AVC

If you cannot get an entrepreneur to listen to you objectively and rationally, then you have lost your greatest hope of postively impacting that investment. And that is a tool that VCs should not throw away lightly. So the meta point I am making in this post is that it isn’t the facts that matter when discussing conflict. It is the perception that matters. If anyone in a relationship with you percieves that you are in a conflicted situation, you … (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Venture Capital Returns – AVC

Early stage investing is hard. You lose more than you win. And when you win, you need to win big. Later stage investing is a bit easier. You can pick winners in that business more easily. But so can everyone else. Each deal is an auction and the winner pays the highest price.
So the next time you are bidding one VC against another, maybe you can feel just a bit of empathy for us. We are in a tough business, trying to make a buck to live to fight… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
What Do You Look For? – AVC

The right people, with the right idea, packaged in the right product, in the right market, at the right time.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Where’s My Billion Dollar Check, I Wonder – AVC

Startups are hard. They require great sacrifice from everyone. They are stressful and fail more often than they succeed.
And when you’ve been toiling away month after month, year after year, with no pot of gold in sight, it can be hard to watch that billion dollar deal go down. It’s a punch to the gut. It hurts. I’d love to say to all of you who are feeling that pain that your time will come. But most likely it will not. That’s the way this game… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Can The Crowd Be More Patient? – AVC

Internet and mobile product development cycles are measured in months not years. And the capital required to get a product built and into the market is less than $1mm. And the returns, when things work out, can be enormous.
Contrast that with biotech. A new drug takes $100mm in capital investment to get to market. And that process can take a decade or more.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
From The Archives: The Poker Analogy – AVC

Early stage venture capital is a lot like poker. The first round is the ante. I think keeping the ante as low as possible is a good thing. I like to think of it as an opportunity to play in the next round and to see the cards. Clearly, we don’t ante up to just any deal, but it is very useful to think of the first round as the ante. For the first year or 18 months, however long the first round lasts, you get to “see your cards”. You learn a l… (read more)

What’s the best way to train your employees?

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Why Startups Should Train Their People – Ben’s Blog

Enforce functional training by withholding new employee requisitions. Enforce management training by teaching it yourself.

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Four reasons why you should train your team | A Founder’s Notebook

There are four reasons you should train your people: 1. Productivity. Andy Grove demonstrates that training is one of the highest leverage activities a manager can perform. Consider putting on four lectures for 10 people, which take a total of 12 hours work. Next year those 10 people will work a total of 20,000 hours. If your training results in a 1% improvement, you will gain the equivalent of 200 hours of work. 2. Performance management. If you… (read more)

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Does getting an MBA make someone a better entrepreneur? – Ben’s Blog

[An MBA] is in no way a substitute for real management experience and that’s where it can be harmful — when the holder of the MBA thinks they know how to manage, because they have an MBA.

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
How to implement a functional training program | A Founder’s Notebook

The training courses should be tailored to the specific job. If you attempt the more complex-style course, be sure to enlist the best experts on your team as well as the manager. As a happy side effect, this type of effort will do more to build a powerful, positive company culture than a hundred culture-building strategic off-site meetings. No startup has time to do optional things. Therefore, training must be mandatory.

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Why Startups Should Train Their People – Ben’s Blog

Training is, quite simply, one of the highest-leverage activities a manger can perform. If your training efforts result in a 1 percent improvement in you subordinates’ performance, you company will gain the equivalent of two hundred hours of work as the result of the expenditure of your twelve hours.

Mitchell Harper (Co-Founder & Board Member @ Bigcommerce)
28 things I’d do differently next time around — Medium

Make sure all senior leaders have their own executive coaches

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: Training and the infinite return on investment

Training pays.

Sometimes, it’s easy to underestimate just how much it pays.

Consider an employee who is going to work 2000 hours for you this year. It’s not unusual for an organization to spend only 10 or 20 hours training this person–which means about 1% of their annual workload.

How much training would it take for this person to be 10% better at her job? If you invest 100 hours (!) it’ll pay for itself in just six months. There aren’t many… (read more)

What’s the best way to think about VP of Engineering vs CTO?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Management Team – While Building Usage – AVC

And many technical co-founders and lead engineers aren’t the kind of people who enjoy managing. They would rather be building the product than building the team. You have a few options at this point. You can help your lead engineer become a good manager. I strongly suggest that because everyone can and should become better at managing people. Even if your lead engineer doesn’t become your VP Engineering in the long run, this will have been a good… (read more)

What’s the best way to think about profitability?

Slava Akhmechet (Founder at RethinkDB)
57 startup lessons

If you can’t get to ramen profitability with a team of 2 – 4 within six months to a year, something’s wrong. (You can choose not to be profitable, but it must be your choice, not something forced on you by the market).

Ben Horowitz (Co-Founder & Partner @ Andreessen Horowitz)
Cash Flow and Destiny – Ben’s Blog

I do not want to have to tell all of our employees that we will do what we think is right until investors tell us we have to do otherwise. I want to control my destiny.

David Jackson (Founder, Seeking Alpha)
Profitability = control of your own destiny | A Founder’s Notebook

Profitability = control of your own destiny

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitless Prosperity – AVC

Profits are critical to the health of a business, but that doesn’t mean a healthy business has to currently profitable. It needs to be able to be profitable if it wants to be and it needs to be profitable at some point in the future, at least hypothetically. So when you read that a company is losing money, don’t read that as a bad thing. It could be a very good thing. It all depends on why.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

Price > CAC + COGS
… That means the price you charge must be greater than the cost you must pay to acquire a customer plus the cost you must pay to make or deliver the service. If your product or service is sold on a subscription basis, then you must also know the amount and timing of churn to expect and the lifetime value of a customer (LTV). In a subscription offering, the above formula becomes
LTV > CAC + COGS

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

You must know the price elasticity of your product or service. You must know how much it costs to produce. You must know how much it costs to acquire a customer. And if your model is subscription, you must know your churn and lifetime value. From all of that comes the data and knowledge that allows you to optimize price, margins, and profitability. Which, after all, is the goal of a business, all the other bullshit you read on the internet notwit… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitable: To Be Or Not To Be? – AVC

This is tricky stuff. If you are going to take all of your potential profits and reinvest them in the businesss in search of higher growth and greater profits in the future, you had better be right about those investments. And it is often hard for investors to see how those investments are going to pay off, so at times you can be penalized for making those choices. Right now the public markets seem to be paying companies more for long term growth… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Profitable: To Be Or Not To Be? – AVC

Many high growth companies can be profitable. They have enough revenue to cover their essential costs and could easily decide to show a profitable income statement. But they don’t make that choice. Instead they invest heavily in the business with the expectations that those investments will produce more revenue (by hiring salespeople), or additional products (by hiring engineers and product managers), or additional geographies (by hiring an inter… (read more)

What’s the best way to talk about business risks?

Paul Graham (Co-Founder & Partner at Y Combinator)
How to Raise Money

Sometimes a competitor will deliberately threaten you with a lawsuit just as you start fundraising, because they know you’ll have to disclose the threat to potential investors and they hope this will make it harder for you to raise money. If this happens it will probably frighten you more than investors. Experienced investors know about this trick, and know the actual lawsuits rarely happen. So if you’re attacked in this way, be forthright with i… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
What Do I Wish Entrepreneurs Would Ask? – AVC

All businesses have challenges, weaknesses, risk factors. These don’t generally get in the way of us investing, as long as we and the entrepreneur(s) are aligned about them and the need to manage and mitigate these risk factors as quickly as possible. We are drawn to an investment by the upside potential of the business and we recognize that every investment we make has significant downside potential as well. Our hope is that the founders and man… (read more)

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Steer into your investors’ objections. There will be one to three issues that are potentially problematic for your financing — address them head on. You have the most attention from investors in the first couple slides. Most investors arrive with questions, and if you proactively show you understand their principal concerns, you earn their attention for the rest of your pitch.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Experienced investors know there are always risks. If they ask you about your risk factors and you can’t answer, you’ve lost all credibility because they assume you are either dishonest or dumb. Explicitly identify the risks that could thwart your success and how you will mitigate them. And instead of waiting until investors ask about your risks, share them proactively so you build trust.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Entrepreneurs often say they have no competition, assuming that’s an impressive claim. But if you claim that you don’t have competition, you either believe the market is completely inefficient or no one else thinks your space is valuable. Both are folly.

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

Show that you’re paying attention to the market. Instead of merely saying that we knew product-market fit is key, we wanted to show that we did the work. We used quotes to show that we were talking to credible individuals struggling to solve our problem who were giving us feedback on our products. There are other methods, of course, such as graphs and data

Reid Hoffman (Partner & Co-Founder at Greylock Partners)
LinkedIn’s Series B Pitch to Greylock: Pitch Advice for Entrepreneurs

One of the virtues that entrepreneurs get from talking to many investors during the financing process is a wisdom of crowds that helps you figure out what the real risks are.

What’s the best way to survive?

Paul Graham (Co-Founder & Partner at Y Combinator)
The Fatal Pinch

You either have to fire good people, get some or all of the employees to take less salary for a while, or increase revenues. Getting people to take less salary is a weak solution that will only work when the problem isn’t too bad. Which leaves two options, firing good people and making more money. While trying to balance them, keep in mind the eventual goal: to be a successful product company in the sense of having a single thing lots of people u… (read more)

Paul Graham (Co-Founder & Partner at Y Combinator)
The Fatal Pinch

It may seem facile to suggest a startup make more money, as if that could be done for the asking. Usually a startup is already trying as hard as it can to sell whatever it sells. What I’m suggesting here is not so much to try harder to make money but to try to make money in a different way. For example, if you have only one person selling while the rest are writing code, consider having everyone work on selling. What good will more code do you wh… (read more)

Paul Graham (Co-Founder & Partner at Y Combinator)
The Fatal Pinch

There may be nothing founders are so prone to delude themselves about as how interested investors will be in giving them additional funding. It’s hard to convince investors the first time too, but founders expect that. What bites them the second time is a confluence of three forces: The company is spending more now than it did the first time it raised money. Investors have much higher standards for companies that have already raised money. The co… (read more)

Paul Graham (Co-Founder & Partner at Y Combinator)
The Fatal Pinch

Founders overestimate their chances of raising more money, and so are slack about reaching profitability, which further decreases their chances of raising money.

Paul Graham (Co-Founder & Partner at Y Combinator)
The Fatal Pinch

Y Combinator tells founders who raise money to act as if it’s the last they’ll ever get. Because the self-reinforcing nature of this situation works the other way too: the less you need further investment, the easier it is to get.

What’s the best way to structure your board?

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Independent Directors – AVC

The biggest piece of advice I give to entrepreneurs on the topic of boards is to get some independent directors on their board. Ideally these would be peer CEOs who have a lot of experience building and managing companies.
Recruiting board members takes time. Most entrepreneurs prefer to recruit people who work for them and can impact the day to day effectiveness of their organizations. And so they prioritize that.

Ryan Howard (Founder @ Practice Fusion)
Transcript: Protecting yourself as the founder; Ryan Howard | VatorNews

Once a board member is on, it’s nearly impossible to get them off. It’s quite painful, it’s like going to Vegas, getting married without a pre-nup and never being able to get divorced.

Ryan Howard (Founder @ Practice Fusion)
Transcript: Protecting yourself as the founder; Ryan Howard | VatorNews

If someone’s’ that valuable to help you or wants to be in the board that bad, put an advisory board together. Give them the same equity, give them a great title, but why make them your boss? Totally unnecessary. I recommend don’t adding board members unless you absolutely have to. Again, the board’s role is hiring and firing you so why create additional overhead, and again, to maintain control of the board as long as you can as a founder.

Sam Altman (President at Y Combinator)
Board Members – Sam Altman

Personally, I think the ideal board structure for most early-stage companies is a 5-member board with 2 founders, 2 investors, and one outsider. I think a 4-member board with 2 founders, 1 investor and 1 outsider is also good (in practice, the even number is almost never a problem).

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
The Perfect Board – AVC

I’ve been serving on boards for 25 years. I’ve been in every conceivable configuration. To my mind, the perfect board is either five or seven and it looks like this: Founder CEO, Two Independents, Two Investors
. Founder CEO, Three Independents, Three Investors. If the Founder is no longer the CEO, then I like this configuration: CEO, Founder, Two Independents, Three Investors

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Who You Want On Your Board – AVC

One of the guys who taught me the venture capital business used to say “success is in inverse proportion to the number of VCs you have on your board.” He was right. For a few reasons. First of all, most VCs get on your board by virtue of financing rounds you do. If you do a lot of financing rounds, you will collect enough VCs on your board to field a basketball team. And that sucks. And it means you had to raise too much money too. All of which a… (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Who You Want On Your Board – AVC

If I could construct the perfect Board for the companies I am invested in, it would be the CEO, me, and three CEOs who have built and/or run one or more tech companies of scale. If you have a very experienced VC on your board, you really don’t need more of them. But you can never have enough peers on your board who have been where you are before. That is invaluable.

Ryan Howard (Founder @ Practice Fusion)
Transcript: Protecting yourself as the founder; Ryan Howard | VatorNews

When you actually incorporate a company, one thing you can do and that I highly recommend is putting together three to four common board seats upfront. This is critical, maintain control of your company as long as you can. At the board level is where it’s most critical. Many founders, including myself, actually lose control of their company after the Series A financing. When Practice Fusion closed its original Series A financing with Morgan Taylo… (read more)

What’s the best way to set pricing?

Bill Macaitis (CMO at Slack)
Five Words of Wisdom from SaaS Office Hours with Bill Macaitis

The price a software startup can charge is a function of the difference in net promoter score between that startup’s product and its competition’s. In other words, a startup product with a very high promoter score compared to the competition can charge a premium in the market and vice versa.

Jason Fried (Co-Founder & CEO at Basecamp)
How to price something

You are not allowed to ask people: “What would you pay for this?”, “Would you buy this for $20?”, “How much do you think this is worth?”, “What’s the most you’d pay?”.

Jason Fried (Co-Founder & CEO at Basecamp)
How to price something

Put a price on it and put it up for sale. If people buy that’s a yes. Change the price. If people buy, that’s a yes. If people stop buying, that’s a no.

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: Anchoring can sink you

Canny negotiators know that people respond to anchors. If you tell me that your baseball card is for sale for $18, I’m unlikely to offer you $3. Your offering price anchored the conversation.

Neil Patel (Co-founder at Crazy Egg)
5 Psychological Hacks That Will Make Your Pricing Page Irresistible

1. Place a third and mispriced option to nudge customers toward the preferred purchase. 2. Put your best option in the middle. 3. Show the value of pricing options, not just the price. 4. Point out which option is the most popular. 5. Make your prices relatively consistent with each other.

Seth Godin (Founder at Yoyodyne Entertainment)
Seth’s Blog: When to charge by the hour

Most professionals ought to charge by the project, because it’s a project the customer wants, not an hour.

Surgery, for example. I don’t want it to last a long time, I just want it to work. Same with a logo or website design.

Or house painting. The client is buying a painted house, not your time.

One exception: If the time is precisely what I’m buying, then charging by the time is the project. Freudian therapy, say, or a back massage.

Another… (read more)

David Jackson (Founder, Seeking Alpha)
Pricing your product? Don’t be afraid to ask for a *lot* of money | A Founder’s Notebook

Pricing your product? Don’t be afraid to ask for a *lot* of money

Judah Gabriel Himango (Founder & CEO at BitShuva)
My startup’s dead! 5 things I learned – Debugger.Break();

Money is just business. It’s not insulting to ask for a lot of money. Charge as much as you can.

Ruben Gamez (Founder of BidSketch)
What I Learned From Increasing My Prices | ExtendsLogic

Before thinking about price, I had to restructure my features / pricing plans. I created a list of the top features and ordered them by importance. Then, I removed core features or the ones that every segment would expect a product like mine to have.

Raj De Datta (CEO at BloomReach)
Principles

Let’s say you want to build a $100M recurring revenue SaaS business. There are really only two fundamental ways of doing it: 1. Tackle the enterprise: Sell 1000 companies @ least $100,000 per year deals with a market size of at least 5,000 companies. 2. Tackle the small & medium business: Sell 100,000 companies @ least $1,000 per year deals with a market size of at least 500,000 companies. The valley of death is often in the middle.

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Measuring Price Elasticity And More – AVC

The good news is that it has never been easier to determine the price elasticity curve of a product or service. Here is how you do it: 1. offer the product or service on the web and make the purchase as easy as possible (Stripe and/or Paypal). 2. establish the range of pricing you want to measure, start at a number higher than you can imagine anyone paying and end at a number that is equal to the cost to produce your product or service (the cost … (read more)

Fred Wilson (Co-Founder and Partner at Union Square Ventures)
Negative Gross Margins – AVC

The bottom line is the primary way this strategy [market entry pricing] works is if you obtain a monopoly position in your market and you are the only game in town for your customers and suppliers. But given the massive amount of startup capital that is out there and the endless number of entrepreneurs starting businesses similar to each other these days, I think it will be hard for most companies to achieve monopoly position