I love teaching (Although I hate grading, but that’s why I invested in Gradescope. More on that some other time). Every time I interact with students, I find myself repeating the same contrarian advice to them over and over again. So I figured I should write up a quick post so that I can point students to it and also have it hopefully reach more students than I get to interact with one on one.

(For context, I am talking mostly to Computer Science and Engineering grads from the top schools who are looking at opportunities at tech companies. This post may not apply to students graduating from other disciplines or schools as directly, i.e. YMMV.)

#3: Your resume does not need to be just 1 page! 

Yes, you read it correctly. I don’t know why this myth of a one page resume refuses to die and keeps perpetuating itself. Yes, your resume should be at least one page — if you haven’t done enough to fill up a page, then you probably need to consider expanding on what you have done, or in some cases you may simply need to do more stuff and build up more experience.

But in most cases, I constantly find people who are “choosing” what to put on their resume and what to leave out. My advice to them is don’t choose. Present yourself in the best light possible, with as much detail as you would like to provide, without subjecting yourselves to “page constraints.”

We live in a digital age. Your resume is not ending up in a paper file any more. It is almost always going to be sent, received, and reviewed electronically. In most cases the resume will end up in a resume bank, which will also be searched electronically. So if you really want to optimize your chances for showing up in search results and also being reviewed more favorably, then provide more detail than less. You should be thinking about keywords and SEO for your resume as that is how people search and filter.

This doesn’t mean that you start writing essays in your resume. It should still be punchy and to the point. Preferably bullet-points and not prose. I also advise not use adjectives in your resume to self promote and instead let your training, education, work, experience, and interests speak for themselves. Include references in your resume. Also make sure that your LinkedIn profile is up to date and is consistent with the information on your resume and your CV.

#2: You will learn more at a small company than at a big company

A lot of students think that because they don’t have a lot of experience they should go and work at a big company first so that they can learn from other more experienced people on the job. That may be true in very unique situations where apprenticeship models work, for example if you’re going to be a doctor, a surgeon, an architect, an electrician, or a carpenter. Then apprenticeship is a brilliant way of learning the stuff that you don’t learn in school.

Here’s the thing that most students don’t realize about big tech companies — they very often *don’t* have their processes and structures in place. You spend most of your time navigating bureaucracy rather than learning how to do real work. Or put differently, you may spend a lot of your time learning things that don’t have a direct impact on the work you have to do or want to do.

As a company gets bigger roles get more specialized. At a large company you may get to work on a tiny little feature of one little corner of the overall product. If you really want to have an impact and don’t want to be pigeon-holed, then you have to make the effort to find a smaller company that will give you the opportunity to take on more responsibility that you originally joined them for.

In most startups, there simply aren’t enough people to do all the work that needs to be done and so if you show an active interest and even a modicum of ability to do something, there is a good chance that you will get the opportunity to try. In fact if you look at the paths that some of the most senior people in your favorite tech companies took to get there, that was it — they happened to join the company when it was really small and then they grew into the role that they are in today.

So my advice (and of course I am biased in saying so, but I will say it any way) is to say, Go small. Finding a small company is much harder than finding a large company as they don’t typically have the resources (time, money, and people) to participate in campus recruiting. So it’s really up to you to take the initiative to research and reach out to people who can connect you to these companies.

I’ll go as far as offering that if you’re in the top decile of your class in Computer Science, Electrical Engineering, Computer Engineering at Stanford, Berkeley, MIT, Carnegie Mellon, University of Michigan, Cornell, Princeton, Waterloo, University of Washington or other school that has a top rated Computer Science/EE/CE program you’re welcome to email me directly.

#1: Never sign an offer in the Fall! Wait till *late* Spring.

This is probably the single biggest dirty little secret of college recruiting. At some point companies figured out that there is intense competition for the top candidates if you try to get to them in the Spring, right before they graduate. So some of these companies decided that they would start their recruiting process in the Fall. Yes, in the Fall — before you graduate from school, as you enter your Senior year, instead of focusing on the 1/4 of the time that you have left in school you now have to think about resumes, job fairs and interviews. And colleges and universities actively permit and promote companies coming to recruit students in the Fall. What a complete boondoggle in my opinion.

Notice that the companies that are typically recruiting in the Fall semester/quarter all tend to be large established companies. These companies know that they will need to hire people at a steady clip and so they’re willing to come in and make attractive offers in the Fall semester and wait for 6-9 months before you actually get to start your job. What they’ve effectively doing is taking you off the market and limiting your options.

Some students think that they will just get their job search behind them and then not have to worry about it. But what happens if you accept an offer in the Fall and then come January, February or March, you find something you really, *really* like more? There’s the moral imperative that you’ve already committed and don’t want to renege on your commitment. So most students either shut themselves off from other options or just suck it up and go to the job they agreed to take already. In my opinion, there is almost little to no benefit for a student to accept a job offer in the Fall. I constantly counsel students against doing this.

Consider the inverse of this situation. What happens if the economy tanks and the company decides that it cannot hire as many people? Will they still have that job position waiting for you come July? Sorry, but you’re out of luck there. This has already happened anytime there is a downturn (especially in 2000 and then again in 2009). Students who had signed job offers end up being told that they don’t have a position any more.

Students often counter with “But <large company> says my offer is only valid for 1 week” or “They told me I have to decide by tomorrow.” Well, here’s the dirty little secret of college recruiting — it’s the same as the dirty little secret of venture capital. The same way that there is no such thing as an “exploding termsheet” in venture capital, similarly, there is no such thing as an exploding job offer from a big company doing campus recruiting in the Fall. If they think you’re good enough to hire in the Fall, there’s a damn good chance that they will think you’re good enough to hire in the Spring! Heck, you’re probably a tad smarter and more experienced in the Spring than you were in the Fall!

So my advice to students is to call their bluff. Simply tell the college recruiter who is pestering you to sign that offer letter that you’ve decided to wait till the Spring before signing. You still like their company and would love to work there, but would like to request that they keep the offer open till the Spring. Some will say okay, some may play hardball and tell you that that’s not possible. If they do the latter, then you have to decide whether you have the guts to call their bluff.

I would tell them that, “If you’re ready to have me now for a position that you expect to have open 9 months from now, then surely you will have similar positions in the future too?”; “What guarantee can they provide that this position will still be there in 9 months?” and, “If you think I’m qualified enough to hire now, then wouldn’t I be just as qualified or more in the future?”

When you’re a student about to graduate, finding your first real job is stressful. And so it’s tough for students to play hardball with recruiters who are professionals and play this game every day. The balance of power is not in your favor. But I’ve seen this game play out in the startup space. The balance of power used to be with the investors; but with the increase of freely available information about startups and fundraising, the balance of power is now with founders — where it should be. The same information revolution needs to happen with college recruiting. Students need to be aware that big companies coming to recruit them in the fall are taking advantage of the students’ fear of ending up without a job when you graduate. And so they try to lock you up and get you off the market as quickly as they can.

Students need to understand that if they are coming from a top Computer Science and Engineering program — they will have options. But they need to do a little leg work to uncover them and find the best match for themselves. Don’t take the first offer presented to you and become a cog in some giant corporate machinery.

I thought I only had three things to say but here are 2 small bonus items:

Bonus #1: For heaven’s sake don’t waste your time on Wall Street, Consulting, or Investment Banking. This is my own personal bias, but I have said it many times that “Anytime I hear a top CS student tell me that they’re going to work at a big investment bank or consulting company, all I can think of is what a waste of a good brain.” 

Bonus #2: If you’re ever considering doing a startup, the best time for you to do a startup is right after school (provided you have an idea that you’re passionate about), when you haven’t amped up your personal burn rate and lifestyle. And in case your startup idea doesn’t work out, then you can always go back to looking for a job then. You won’t be any less qualified, and if anything most tech companies will value your attempt to do something on your own as you would have learned valuable lessons from that experience.

To all the students out there doing this for the first time… wish you all the best and although it’s easier to follow the process and the timeline set out for you, I encourage you to be bold and create your own path.

You may also follow me on @Twitter at @ManuKumar, and for all things @K9Ventures K9 Ventures is also on Facebook and Google+.

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Today K9 Ventures’ portfolio company Everlaw announced that it has raised $8.1M in a Series A round led by Andreessen Horowitz, with participation from K9 Ventures. I couldn’t be more excited about Everlaw’s Series A round as it reflects a recognition of the amazing work that the company, co-founded by CEO AJ Shankar and Jeff Friedman, has done over the past few years.

I first got to know AJ in 2008 while he was still a PhD Candidate in Computer Science at UC Berkeley and had co-founded a company named Modista. In 2009 I agreed to lead the seed round financing for Modista, but that investment didn’t happen (long story). But through the process, I got to work closely with AJ and got to know him well. As the saying goes: “Adversity does not build character, it reveals it.”

(Image from: http://www.successwallpapers.com/)

And it revealed that AJ was a brilliant and standup guy who I could trust implicitly. It was then that I told AJ, that he’d caught the entrepreneurial bug and I knew that at some point in the future he would be back at it again, and when that time came I will be ready to invest in him, no matter what he does.

Fast forward to 2010, AJ and Jeff decided to co-found a company to help lawyers to tackle the problem of an increasing amount of data in their field. In all honesty I tried hard to convince AJ not to go into this space! It wasn’t for a single reason, but a combination of things. For starters I didn’t know the space well and spending a bunch of time helping lawyers fight litigation (especially after the Modista experience) didn’t sound like fun. But, AJ persevered. He saw something that I didn’t and his passion for it was strong enough to carry me along. K9 invested in the initial financing round (today I would call this a Pre-Seed round) for EasyESI, as the company was then called. And yes, I told AJ I hated that name all along and so I was so pleased to make the switch to Everlaw later!

Over the next couple of years, AJ continued to grow and build the company into a real business. As I have often said about working with AJ, he’s the type of founder that doesn’t require a lot of guidance and course correction. He’s usually already arrived at the right solution by himself and so most of the time my guidance to him has been to continue doing what he’s doing, while at the same time helping to lay out some markers to aim for in the future.

AJ’s co-founder Jeff Friedman is a practicing attorney and partner at a leading plaintiffs’ firm a href=”https://www.hbsslaw.com/”>Hagens Berman Sobol Shapiro. The firm has experience litigating the Big Tobacco litigation and has also led huge, document intensive cases again Enron, Exxon, Intel, Visa, MasterCard. Needless to say Jeff brings an immense amount of experience and domain expertise when it comes to large, data intensive, complex corporate litigations.

In working closely with AJ and Jeff, I learned that lawyers have a problem. The problem is that as the amount of data that is captured electronically — our electronic footprint — increases, the amount of data that lawyers needs to sift through to find the proverbial smoking gun in these cases also increases. The increase in the amount of data is so large that is is almost humanly impossible, or at least economically impossible, to have humans sift through all of this data. In order words, lawyers have a problem that they cannot solve.

The latter has been one of my key investment theses: finding domains that cannot solve their own problems and require computer scientists to solve them. That is when the light bulb went off for me to realize that AJ was the Computer Scientist who was solving the problem that entire legal industry was experiencing. By this point I was drinking the kool-aid and decided to follow-on and lead the Seed round for Everlaw in late 2012.

The scale of the technology that Everlaw needs to build to provide the functionality it does is mind-boggling. As AJ point out in his blog post, they need to deal with search, data visualization, human-computer interaction, distributed systems, databases, storage, artificial intelligence and machine learning, and more. The team has built an astounding amount of technology over the years and some of the things that are “features” for Everlaw are often entire companies to themselves.

Today, Everlaw is already storing dozens of terabytes of data and is used by 8 out of the top 10 class-action litigation law firms and by 33 out of the 50 States Attorney Generals. It has already hosted major class-action litigation cases, which while I’m not at liberty to disclose, would be ones that have been in the news often. So kudos to AJ and Jeff and the whole Everlaw team on their progress to date and congratulations to them on bringing on a16z as a partner for the journey ahead.

I am also excited to welcome aboard Steven Sinofsky from Andreessen Horowitz on the board at Everlaw. As Steven noted in his blog post several of the partners at a16z have experienced major litigation cases in their past and therefore they felt an instant affinity for the problems that AJ and Everlaw are solving.

It’s been exciting to be part of AJ and Everlaw’s journey from the beginning, but we’re still just getting started. As Steven points out, this is truly a case of software eating litigation.

Onwards.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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_{“US Navy Sea Shadow stealth craft” by US Navy employee – http://www.chinfo.navy.mil/navpalib/factfile/ships/ship-sea.html. Licensed under Public Domain via Commons.}

I’ve tweeted this before…

I’ve said it before and I’ll say it again: Stealth is overrated. Startups should use every opportunity to get their name out.

— Manu Kumar (@ManuKumar) May 29, 2010

…and I’ve said it to founders on more occasions than I can count: For startups stealth is overrated.

When I was saying it in 2010, it was still a theory or a gut feel. Today, I have seen it enough times from companies in my portfolio and others that are not in my portfolio that have utilized the “We’re in stealth mode” line. In almost all cases, any company that tried to be “stealthy” ended up missing the mark on their first product. Yes, they built something. Yes, what they built was cool. But, they almost always missed something important, which ultimately let to the failure of the product, or worse yet, to the demise of the company.

And I see it happening again, and again, and again. Founders who tend to err on the side of secrecy or caution tend to have a major blindspot about their product and market because they haven’t gotten enough feedback on what they’re doing. They also don’t do a great job at pitching their idea when it comes time to actually pitch because they simply haven’t practiced pitching it enough. By talking about your idea in social and casual conversations, you hear almost all the simple and logical objections that a person can have about your product.

Sometimes it’s often a simple remark that is passed in jest. But like comedians like to say, it’s only funny because it’s true. The same thing applies to product. If someone tried to say something funny, yet negative, about your product/concept, it is probably because it is true. And having to defend your idea or your product in these casual conversations is when you have the opportunity to try different pitches and see what works best.

To be clear, I’m not proposing that a company should be setting up a web page and showing products that don’t exist, or doing press announcements with vaporware (I have strong views on crowdfunding and pre-orders, but those I will cover in a different post in the future). That would be completely ridiculous. You shouldn’t be in “broadcast-mode” where you’re blasting things out to press, and the audience at large.

However, I am proposing talking to people about what you are doing in a one on one setting. If you meet someone at an event or a party, tell them what you’re doing. You never know if they know something you don’t or if they can offer up a connection that ends up being hugely valuable. This is especially true of talking to potential customers, employees, and investors. If you don’t tell people what you’re doing, they can’t help you.

That last part is one of the key reasons why Silicon Valley is what it is. The network is amazingly fluid, and if people know what you are doing, they will almost immediately start offering up helpful ideas or connections.

Founders tend to be most worried about competition and press. On the competition side they don’t want the competition to know what they are working on. To me that is a sign that you don’t have enough confidence in your idea or in your ability to execute. Otherwise you wouldn’t care about the competition, you’d be out there working your ass off to build what you want to build as fast as possible.

For press, remember that people of the press are human too. And most of them (there may be a few exceptions) are not out there to screw over some fledgling startup for a story. If you’re actually talking to someone face to face, you can look them in the eye and determine whether you trust the person or not. If you don’t trust someone, you don’t need to share with them. But you can’t not trust everyone!

Too many founders feel that their idea is way too special. Unlike most people in the valley, I don’t believe that ideas are worth nothing and execution is everything. But even when ideas do matter, you still have to tell people about the idea in order to be able to find co-founders, employees, investors and more.

Build a better mousetrap, and the world will beat a path to your door
…but only if you tell them about it!

So founders, do yourself a favor and get off your high horse, and start talking to people. And more importantly, start listening to what they say when you do.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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“I love grading” — I doubt those words have ever been uttered in earnest! The only times I’ve ever heard them or even used them is with a healthy dose of sarcasm. Lot’s of people (me included) will say “I love teaching,” but that love for grading just doesn’t come naturally. Grading gets tedious quickly due to its repetitive nature. Engineers in general hate doing things that are repetitive. If it has to be repeated then let’s build a machine to do it more efficiently!

Well, that’s exactly what the founders of Gradescope thought. Arjun Singh and Sergey Karayev were both PhD students in CS at UC Berkeley. They co-founded Gradescope with Pieter Abbeel, a Stanford PhD and an Associate Professor of Robotics and Machine Learning at UC Berkeley, and Ibrahim Awwal. Berkeley has fairly large class sizes and as TAs Arjun and Sergey had a heavy load of grading to do. To make their work easier they started building some tools to help them spend less time grading. Fast forward and today they have over 100,000 students that have been graded on Gradescope, with over 8M questions graded to date. They’re being used by all the top schools in CS/STEM including Berkeley, Stanford, Harvard, MIT, Carnegie Mellon, Michigan, UW and over 100 more.

The mission of Gradescope is nothing short of revolutionizing the education system by eventually eliminating letter grades and replacing them with concept-based assessment. My theory on letter grades is that they originated as the simplest way for a instructor to bucket a student’s progress, with one letter, one byte of information being transferred over. However, in this day and age, it makes no sense to say someone got a A or B, instead we should know what concepts they understand and what concepts they need to work on more. My best illustration of this came from a comedian who said, “My friend just passed his pilot’s exam. He said he scored an 89. How do I know the 11 points he missed weren’t about landing!?”

Gradescope has already built the tools that help instructors and TAs to spend about half the time doing grading compared to without using their tools. They use computer vision to segment students answers. Graders can be co-located or remote (something that was hard to do before!) and each graders can be assigned questions, so that they can quickly and efficiently run through the questions while being in a state of flow. At the same time Gradescope allows them to maintain a rubric for assigning grades. Let’s say after grading 20+ students exams, I decide that taking of 2 points for an error is too much and taking of 1 point would be better. Previously, graders would never even consider that since it would mean they have to manually go through and adjust all the 20 exams they’ve already graded. With Gradescope, it’s automatic and takes no time at all!

Students receive feedback directly on Gradescope, so they don’t only get to see what they scored, but also get to see why and in the process actually learn what they missed on the test/assignment.

But that’s not all. The Gradescope team are PhDs in AI and machine learning. They’re already applying their expertise towards making the problem of grading even simpler yet. By automatically clustering all the similar answers in a test, a grader now needs to grade far fewer responses than they would have to before. Imagine all the correct responses being automatically scored based on learning the actions performed by the grader. Likewise, all the incorrect answers can be grouped into common errors and be graded in chunks.

I don’t want to steal all their thunder in this post, so you’ll just have to wait for some of the other cool stuff that the Gradescope team is already working on. It suffices to say that they’re the first and the only team I’ve encountered who is applying Computer Vision, AI and Machine Learning to the problem of grading and by doing that they’re building the platform where current and future students will get highly personalized feedback on their learning and performance. Gradescope is bringing big data to education.
K9 led the Pre-Seed round for Gradescope in October 2014, and I’ve enjoyed working with Arjun and Sergey to take Gradescope to the next level. Today the company announced that it had raised $2.6M in a Seed round led by Freestyle Capital, with K9, Bloomberg Beta, and Reach Capital participating in the round. I’m pleased to welcome Dave Samuel from Freestyle Capital as a fellow board member and looking forward to the future for Gradescope. Congrats Arjun, Sergey, Pieter, Ibrahim and the extended Gradescope Team!

If you’re a professor or a TA, you should absolutely check out Gradescope and see if they can help save you time, effort, and aggravation for grading your homework assignments and tests.

If you’re a techie looking to join a startup, Gradescope is hiring.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

The post Gradescope: AI for Grading and Assessment appeared first on K9 Ventures.

Last week I had the pleasure of chatting with Harry Stebbings from The Twenty Minute VC.

Harry has done a phenomenal job of getting some of the top people in venture capital on his show and had high-quality, high-bandwidth, and chock full of good information conversations with them in a medium that is highly conducive to listening in those few spare minutes of time when your eyes may be busy, but your ears are still available.

Harry and I had a fun conversation and despite my fear of live video or live audio, I think he did an amazing job of keeping the conversation flowing and hitting on a lot of topics that I have strong opinions on.

You can find the episode on The Twenty Minute VC website, or download it on iTunes, find it on ProductHunt, or a related article on TechCrunch.

Or you can play it by just clicking this link.

Feedback is always welcome.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

The post Manu Kumar on The Twenty Minute VC appeared first on K9 Ventures.

Every few weeks one of the founders of K9 Ventures’ portfolio companies forward over an email they’ve received from a “Partner” at a VC firm. And every time I go through the same ritual, explaining to the founder when to respond, when not to respond, and how to respond to such emails. So I figured I would just explain myself in this blog post and then that way, I’ll save myself time by just sending them a link to this post. Plus, it may be helpful to founders elsewhere, which is always a big plus.

Before you go any further, go read this post: Partner, Partner, Partner. The tl;dr version of that post is: Don’t be fooled by the titles VC firms give to the people they employ. Several big firms have adopted the (IMHO ridiculous) practice of calling everyone a Partner, making it more confusing for founders to know who they are talking to. This is done intentionally, as otherwise the junior people in the firm have a tough time getting adequate attention from some founders.

Now, what do you do when you get an email from a VC firm, that says something like:

Dear <Founder’s Name>,

We recently came across your company in {TechCrunch | Term Sheet | StrictlyVC}. Saw that you’ve raised a seed round and are building a AI platform for chatbots.

We at <firm name> are strong believers in AI and also think that chatbots are going to be HUGE. We’ve already invested in several companies that use AI for everything from dating, to e-commerce, to customizing your favorite taco.

We know you just raised a round already, but we’d love to get to know you better and introduce our firm. 

Can we schedule an introductory call this week?

Partner

<Firm Name>

In some cases they will use the title of Partner, in other cases, there will be no title. No matter how flattering the email, just remember that in 99 out of 100 such emails are a complete and utter waste of your time. And you will likely only receive 20 at most, so loosely statistically speaking, you shouldn’t waste your time on any of these!

Why does this happen? 

This happens because several VC firms believe that they need “market intelligence” on sectors. So they hire a bunch of recent college grads, stick them in a room, and tell them to collect information on early stage companies in different sectors, and populate their databases with this information.

I’m guessing these people are judged on how many companies they can reach out to and collect information from. But, that’s all they’re doing: they’re collecting information. The chance that it will go anywhere is so remote, that it’s almost guaranteed to be a waste of your time.

As a founder your time and what you choose to spend it on is one of the most important assets your company has. You’re better off spending those 30 minutes on building your product, trying to get a new customer, recruiting the next key employee, figuring out your pricing/business model, and a host of other things. Serving as a free consultant for some junior associate at a VC firm that has a brand name attached to it does nothing for you — other than perhaps stroke your ego that you brand-name firm was interested in your fledgling startup.

The most egregious example of this kind of behavior that I have seen come from firms who use this process for doing competitive diligence — i.e. when a partner in their firm is talking to a company in a space, and then asks one of their associates to dig up information on other companies in that space. The associate then starts calling upon all the other companies in the space to try and talk to their founders and CEOs about the space. There’s no better way for them to collect this “market intelligence,” but in my view it is also unethical. But it happens. And I’ve seen it happen to companies in the K9 ventures portfolio.

How should you respond? 

First, look at who the email is coming from and dig up their LinkedIn profile. Check what the person’s background is. How long have they been at the firm they’re emailing you from? Does their background look credible enough to really be a decision making partner at the firm? Do *not* pay any attention to the title they use in the email, or the title that appears on the firms website. Those can both be misleading and as puffed up as a Frigatebird.

In most cases that simple check should be enough to determine what you need to do. But if you have any doubt, then email some of your existing investors and advisors to find out if any of them have more information about the firm or the person. It is highly likely that they know some of the top partners at the firm and could either introduce you directly at the right time (when you’re ready), or they know whether or not this firm/person is a good match for your company. I tell all K9 founders to feel free to forward such emails to me and I can give them a quick sanity check on it.

If the person reaching out is a genuine decision-making partner, who has active interest in your space, then respond right away, take the call or set up the meeting. But, if the person is not a decision-making partner you are better of not responding. Yup, you read that right, your best option in this situation is to not respond.

If you respond and say yes to the call or the meeting, you will be wasting your time, giving up intelligence and information about your space (sometimes you may think that this is general knowledge and everyone knows this already, but you’ll be surprised that what you think is common sense only came to you after you’ve been immersed in your space for years!)

If you respond and say, “Sorry, but we’re too busy to chat right now,” or, “We don’t want to engage with anyone who is not a partner,” then you’ll only succeed in pissing off someone at the firm. It’s a no win situation. And worse yet, even the most innocuous response you send will then get logged in their database — creating an indelible record of your action. So if you ever engage with the firm in the future, it will come up in the conversation. Or worse yet, in some cases firms will say that yeah, we looked at that company and passed. (Really!)

I know it feels rude to not respond, but the only winning move is not to play (that’s an awesome reference from one of my favorite movies: WarGames). That way you maintain plausible deniability about having ever engaged with the firm, you don’t waste your time, and don’t get blackballed.

So the next time you you receive an email from a VC firm that you’re not expecting, remember that most such emails are fishing expeditions, and your best course of action is to take no action. Move on and keep building your company.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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I started my tinkering with hardware first. As a kid I used to trek down to the “electronics bazaar” in New Delhi, known as Lajpat Rai Market, and go store to store to try and find the components I needed for whatever I was building. It was both fun and frustrating at the same time. It was fun as it was a scavenger hunt to find parts, but it was also frustrating as most of the vendors would look at me (not even a teenager yet) and not take me seriously. Computing and software came a few years later for me as access to computers wasn’t as easy or affordable.

But as one of the side benefits of having grown up being comfortable with 555 chips, PNP and NPN transistors, diodes, rectifiers, resistors, capacitors, plastic housings, wire cutters, and most of all soldering, I’m pretty damn comfortable being around hardware. In fact, the smell of melting solder and flux, still smells heavenly to me. (Yes, I’ve since learned that it’s probably toxic and not something I should be taking whiffs off!)

Software is awesome as it gives you instant gratification. You make a change, compile, and voila you can see the effect of what you did. Hardware is different. It requires a higher level of discipline than software does. In fact, in college I used to joke that Electrical and Computer Engineers could write better code that Computer Scientists (not something I would argue about as voraciously now).

But building physical product provides a different level of satisfaction. There’s something cool about holding a physical product in your hand and knowing that you had a part in creating it. I think it’s with that in mind that I’ve been pretty open to investing in hardware companies as well as software companies.

To date K9 Ventures has invested in the following hardware companies:

• Lytro (f/k/a Refocus Imaging) — light field imaging camera
• Occipital — makers of the Structure Sensor for 3-D data acquisition
• Nimble VR — a 3-D sensor for tracking hand gestures in VR (acquired by Facebook/Oculus)
• Coin — a programmable payment device in a credit card form factor
• Osmo — a Computer Vision based platform for the iPad at the intersection of Education, Learning, and Entertainment
• And 2 seed stage companies that haven’t launched yet

That’s 7 out of about 29 investments that K9 has made to date and so that’s almost 1/4 of the K9 portfolio. In addition, I’ve looked at several other hardware companies that K9 didn’t end up investing in for one reason or another. Over the course of working with all of these companies, and having looked at several more, one thing is abundantly clear:

“You can’t spell Hardware without H-A-R-D”

This is not something new and unexpected. I knew this going into it. But having worked with multiple hardware companies gives you a better appreciation for just the breadth of issues that can rise in getting getting a hardware product to market. In fact, I would state that building a hardware company is at least 3x harder than building a software company.

Last year we hosted a K9 Founders’ Hardware Geekout at the The Kennel and talked through a bunch of the issues that arise in hardware companies. Here is the preliminary list from our whiteboard and I’ll provide some color on each below:

Less Room for Error: In a software company, if you screw something up, it’s generally an easy fix — you can push an update, and within a short time of finding the problem, identifying the fix, you can push an update to fix the problem. With hardware you have less room for error. A mistake along the way can turn out to be incredibly costly and time consuming if it means having to spin a new board, source a new component, or maybe even redo the tooling for the manufacturing. All this implies that you have less room for errors and an abundance of caution and planning is often better than a lot of trial and error.

Expensive iterations: Depending on the product doing a new rev of the hardware may cost thousands of dollars or more and could also take weeks if not at least several days. This is especially true if you’re trying to do something that has never been done and therefore doesn’t rely on off-the-shelf parts. Custom parts can also sometimes lead you down a rabbit-hole of building your own equipment to build those custom parts (and yes, I’ve had multiple companies that have had to do this!). It’s one thing for a company at the scale of Apple to be developing custom machinery for their processes, it’s a whole other ball-game for a tiny startup to take on something like this (I strongly recommend against it unless there is no other viable option for it).

Prototyping: Prototyping has come a long way and is way easier than where it used to be. But it’s still time consuming, and expensive. 3-D printing has revolutionized the ability to do quick revs, but to date I’ve never had a company that’s been able to 3-D print their parts on a commodity 3-D printer. They almost always have to go to Shapeways or some other source to have the 3-D parts printed, which is still a couple of days turnaround time. Sometimes building the prototypes also requires expensive test equipment which cannot be found at your neighborhood TechShop.

Industrial Design: Design matters. Especially if you’re building a consumer hardware product; as consumer expectations have been shaped by companies like Apple and that’s the level of design and attention to detail consumers have come to expect. If you’re building an industrial device, you might be able to get away with a box of sheet-metal, but even that is becoming more and more unlikely.

Design is a key component of the product and could well become the reason why people buy your product over a competitor’s product. As Don Norman outlines in his book Emotional Design — humans are emotional beings and the emotions that the design of the product creates can play an important part in how a user perceives the quality and the functionality of the product.

Rarely does a startup produce an awe inspiring product design by doing the design in-house. Almost all the iconic startup hardware products that you see on the market are designed by professional industrial designers. These design houses do a phenomenal job, but it is up to the founders to choose the right firm for their product, and then manage the cost and timeline for the design process. Some of the firms that are well known for their work in the space include: Bould Design, New Deal Design, fuseproject, Moto, and Ammunition.

Sourcing: Ah, sourcing. Step 1 of sourcing is finding the parts you need to begin with. You would think this is easy in the days of the Internet, but you’ll be surprised that just typing a query into Google doesn’t always yield the results you’re looking for. Step 2 of sourcing is finding the parts you need at the right mix of price, quality, and, reliability of the vendor. In at least one case, one of my portfolio companies wasn’t able to source the parts they would have really wanted because Apple had locked up the entire supply chain for that part!

Sourcing may also involve several trips to China, India, Thailand, or other countries and cities that you may not otherwise consider traveling to for vacation. Sourcing also means that you typically need to find someone who can speak the local language, help you get around, order the right food to eat, stay in a less sketchy neighborhood, and most of all, help to translate and negotiate with the vendors you’re considering.

Sourcing also means doing double duty as you almost always want to eventually end up with dual-sourcing — ie. having multiple vendors for the components you need. That’s the only way to ensure that you don’t have a single point of failure in your supply chain and also can provide the necessary leverage to drive down your BoM cost. In at least one case one of my portfolio companies was delayed an additional 4-6 weeks due to a typhoon that resulted in heavy flooding in Thailand, which impacted the factory that made a component of a component! When working with hardware you develop a new appreciation for the Butterfly Effect.

Supply Chain: When building a hardware product you’re at the mercy of so many schedules that you cannot control. You may have everything ready to go, but for some reason the manufacturer of the chip you need may have sold out and now has a 6-8 week lead time on new deliveries! Forecasting production quantities, planning for how many parts you will need and when, accounting for the lead times on those parts is all a complicated endeavour. It’s no wonder that finding a hardware company that managed to deliver on schedule is a rare occurrence.

Manufacturing: Finding the right manufacturer for your product is a process in itself and often requires getting connections to the right people if you want to be able to work with a larger manufacturer. Once you’ve chosen a manufacturer, getting the line up and running with them is another process. And even when you have the line up and running, there can be bizarre problems that pop up. I’ll give three examples (all of which have happened with my portfolio companies):

• In one case, all the units coming off the manufacturing line were not passing their tests. After much hustling and eventually having someone travel to China to figure out what’s going on, they traced the problem down to a faulty network cable in the manufacturing facility. Yup, a $0.50 RJ-45 cable.
• In another case, a worker on the line pulled the wrong roll of resistors from the parts room and so 4,000 units got assembled with the wrong part and were consequently defective and required manual work to refurbish them.
• And in yet another case, the lithium batteries were being stored in a location which was exposed to moisture (You can search Youtube for what happens when lithium comes in contact with water!)
• As a bonus example, in one case the manufacturer decided to substitute an “equivalent” part without telling the company that they were making this change. Try tracking that failure mode down!

Inventory: When you build physical things, you need to hold them and store them, before you can sell them. This introduces new risks in terms of forecasting, financing, and logistics. How many units should you build? How do you pay for those units? Where should those units be stored so they can be shipped expediently and cost effectively? Although there are many cases of companies ending up with excess inventory, that they then need to liquidate at or below cost in order to recoup the cash that’s tied up in it or due to inevitable obsolescence.

Among the fun inventory stories, twice one of my portfolio companies has ended up forecasting less than what they could have sold. It sucks when it happens as you miss the window for servicing the demand that exists, but it’s a much better problem to have than to end up with a lot of excess inventory which doesn’t move.

There’s another fun story that I can’t get into details about, but it required the founders to make a bold and gutsy move to ensure that they could get enough of of the raw materials for their product for the foreseeable future.

Logistics: Most companies will outsource their logistics to a logistics provider. It’s not worth trying to do this in house. A plug here for Amazon — they’ve taken the logistics to a whole new level and might be one of the best avenues for getting started. But even then making sure that your provider is shipping things out on time, processing returns the right way, etc. is all stuff that could eventually require additional attention.

One of the best logistics stories I was told was where the company opted to use ocean shipping in order to save on the cost of air freight. They packaged their palettes into containers and weeks later when the containers arrived State-side, they found that moisture from the ocean voyage had soiled the exterior of the packaging!

It’s little things like that that require an attention to detail and even then, it’s almost impossible to account for all the things that can go wrong. Sometimes containers just fall off and end up at the bottom of the ocean or get damaged in transit.

Certification: Hardware devices may require different levels of certification. If you use WiFi or Bluetooth, you may need FCC certification. For Europe you need CE certification. Safety certifications like UL certification in the US or CSA certification for Canada. All of this adds cost and time and most of all unpredictability to the schedules for shipping a hardware product.

Software: Oh, and don’t forget that even once you build the hardware device, it’s mostly useless without the accompanying software. As Brad Feld eloquently puts it, most hardware these days is simply software wrapped in plastic. This means that in addition to shipping the hardware product the company also needs to do a kick-ass job at building out its software and services platform. The software becomes just one leg of the stool for hardware, whereas in a software company it is the core product.

Accounting: Having raw material, inventory, credit lines, consignment orders, returns, labor costs, shipping costs, all adds more complexity to even the accounting process. In most of my hardware companies we’ve had to hire a CFO who has experience with a hardware business way earlier than we would normally consider hiring a CFO at a software company.

Packaging: The unboxing experience for your product matters. This goes back to the point that the consumer expectations are set high for design. The same applies for packaging as well. The packaging must not only be attractive, practical, sustainable, and put your product front and center. If you plan to launch through retail channels, then different retailers may have their own packaging requirements to meet their specific store needs. Sometimes even what colors you are allowed on the outside of the box can be dictated by the retailers!

Support: If your product requires installation of setup, then it will most likely require support as well. No matter how much you try to simplify the process, people *will* find a way to trip themselves up and contact you with a myriad of questions. If you don’t provide the support, you will have exceptionally high return rates. So you have to plan on having great user experience, but still provide for support. That support cost needs to be built-in to the cost of the product you’re providing. In my opinion outsourcing support is a terrible idea for a young company.

Launch/Pre-order/Crowdfunding: Do you do a Kickstarter campaign for crowdfunding? Should you do a Self-starter campaign for pre-orders? Should you simply take reservations in order to test demand and prove product-market fit? I’m purposely posing questions here as the answers may wary depending on the company, the product, the market, the funding environment, and more.

If you do a launch of any kind, you will most definitely need a video. The production quality of videos has also gone up to keep pace with user expectations and that also means that the cost of producing such videos has also risen accordingly. (Although I must admit that I’ve become somewhat tired of the formulaic videos that you see on Kickstarter).

The video quality matters a lot. You have to convincingly tell a story within a minute and half. My magic number for the length of a video is 1 minute and 42 seconds. I’m pulling that out of my ass, but so far it’s served well But the same video needs to be cut and recut to create a 30 second version that is catchy within the first 2-3 seconds so that it can attract someone’s attention in the social media feed (Hat tip to David Marcus for alerting me to this).

If you do a launch it’s rare for the launch to take of organically, it must also be accompanied by a level of paid distribution (i.e. advertising) on Facebook, Twitter, Google, and be preceded by a press and PR campaign to try and get coverage in the relevant press outlets and blogs.

Marketing: Assuming you make it through the initial launch marketing described above, once your product is shipping, you will then need to figure out growth marketing. What channels work best for you product? Do you continue to rely on online marketing or do you also need to look at broadcast/television advertising (whole other ball of wax!), content marketing, partner marketing,

At a very simple level, how does the copy, the graphics and the color of your packaging impact the sell through in retail stores?

Distribution: Most startups tend to launch on either Kickstarter or on their own site. But very soon they need to expand to figure out other distribution channels. For a physical product, you cannot under-estimate the power of instant gratification, or “Free two day shipping,” or “Ships with Amazon Prime.” If you have hit product-market fit, then you need to reduce the friction for people to be able to buy your product by doing distribution deals. Getting into retail stores like BestBuy, Target, Walmart, Costco, Brookstone, Apple all have their own unique quirks. Some will place an order and buy the product from you outright and then liquidate it on their own if it doesn’t sell. Others will return any unsold product to you.Some will only work through intermediaries/distributors. Some will pay you every week, every month, and others won’t pay you for months.

Returns/Repairs: Stuff breaks. Sometimes due to manufacturing defects, sometimes due to mishandling in shipping, sometimes due to user error,, and sometimes it’s just Murphy’s Law. You have to be prepared to process returns and also maintain inventory on hand to service those returns with replacements or refunds. Nothing is more expensive than the ill-will of your customers and I’m pleased to see how many startups have taken this to heart and done a phenomenal job of their customer service and returns.

Financing/Forecasting: Financing a hardware company has it’s own challenges. Few investors will look at hardware companies for venture financing. Of those, even fewer will take on technology risk and market risk. Most of them tend to look for products that are already launched and are demonstrating some level of product-market fit.

At the same time given all the complexities outlined above, hardware companies require more capital than a software company might require at a similar stage. They also need the capital in a timely manner, as it’s much harder to bootstrap a hardware company when you have to pay for equipment, parts, tooling, manufacturing, certification and more.

There are additional source of capital like venture debt and receivable lines, which lend themselves better to hardware companies, but they all require companies to already be shipping product and be able to reasonably accurately predict what their cashflows are going to be like.

So with all that, I think it’s pretty darn clear that hardware should really be spelled HARDware.

That said, I still love HARDware. There is something about building a physical product that gets me excited more than an app or a website (though there are some apps and websites that I get pretty darn excited about too!).

Having funded 7 hardware companies, one does start to see a lot of the pitfalls that the companies could face and the learnings from one company’s experience can help another company to avoid the same pitfalls. That was the entire point of the K9 Founders’ Hardware Geekout — to bring together the founders of hardware companies so they can learn from each other and thereby reduce the chances of making the same mistakes, and increase their chances of being aware of the possible landmines along their path.

K9’s Thesis on Hardware

K9’s thesis on hardware is to focus on hardware that enables software. Selling yet another commoditized widget is uninteresting to me, but opening up a whole new platform and ecosystem by creating the hardware that enables it, is super interesting.

In addition to enabling additional software, sometimes hardware can also enable new revenue models. This is particularly true in cases where the software ecosystem is commoditized/free (think mobile apps), and by introducing a hardware component you can change the customer’s perception of value (Osmo does this very effectively), or in other cases building a recurring/subscription revenue model with a very high attach rate with every hardware device sold (Dropcam did this very effectively and Ring is following suit).

In closing I’ll remind everyone that yes, while hardware is HARD, the world’s most valuable technology company, Apple (Nasdaq:AAPL), is a company that makes most of its revenue from the hardware they sell.

It’s not all gloom and doom if you want to do a hardware company, but you must remember that sometimes the greatest opportunities require taking the path less traveled and sometimes even creating your own path (ala Tesla).

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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A couple of years ago I was talking with a company that wanted to build robots. Their proposed price point for the robots was about $20K per unit. It would be a brand new product, that people had never really seen or experienced before, and it would replace some amount of human labor.

After thinking about this some, I was extremely puzzled. Putting myself in the shoes of the customer, here’s how I would think: “So, you want me to pay you $20K cash up front, for a product that has never been tested before. If it breaks down, I can’t go to anyone but back to you to have it serviced. And meanwhile, I’m stuck as if I’ve replaced the human labor with robotic labor, and the robot breaks, then I have to scramble to find a stop-gap solution, while the robot is repaired or serviced, which could take at least a few days, if not weeks. Nope, I’m not buying it.”

There had to be a better solution. And the better solution is to really think of delivering Hardware-as-a-Service (HaaS). In the example above, instead of charging $20K up front to sell a robot, the company could instead propose a very low threshold for the customer to buy by saying: “We’ll deliver you the robotic labor as a service. You’re probably paying $3,000 per month for the human labor at this point. We’ll provide you the robots-as-a-service for $1,500/month. We own the robots, so you’re still expensing the cost of the service. If a robot breaks down, we will replace it with a new unit within n hours (could have a backup unit on-site, or deliver a new unit within 24 hrs). There is no risk for you to try it. You could start with 1 unit, phase it in, and then expand by adding additional robots over time.”

If the company adopted this model, not only would they have more revenue ($24K/year vs. $20K one-time) from the sale of the robot, but they would end up with a recurring revenue model, which would make for a much better business model for the company rather than selling complex widgets. This model does introduce a cashflow problem where the cost for producing the initial units has to be borne by the company and probably won’t be recovered for at least 6 months into the contract. However, it reduces the commitment required by the customer to buy (potentially shortening the sales cycle), results in more revenue for the company, and in general leads to a better alignment of incentives on both sides to ensure that the project succeeds. The customer can also be certain that now they won’t be left hanging with some complicated machine that no one else in the world knows how to service, maintain, repair, and most importantly upgrade.

More and more as I’ve met with and invested in different hardware companies, I keep coming back to this Hardware-as-a-Service model. I think HaaS can be an elegant approach for companies producing complex hardware products, or hardware products which require complex software backends/services to deliver real value to the customer.

The best of both worlds is when the customer is willing to pay the upfront cost of the hardware, and is willing to pay for a subscription service on top of it. Some of the companies that have done a phenomenal job on this are Meraki, Dropcam and Ring. Kudos to Sanjit Biswas (Meraki), Gregg Duffy and Aamir Virani (Dropcam), and Jamie Siminoff (Ring) for figuring this out and getting it right.

The hardware-as-a-service model is what I loved about Better Place. The company didn’t succeed in implementing its vision (for reasons that I have absolutely no insight into), but it did paint a picture of the future that I think is inevitable. Tesla is well positioned for moving into such a model (Transportation-as-a-Service) in the future and Uber would possibly be well positioned for it too.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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So much of what we do in the tech industry is about innovation, disruption, and changing the status quo. But, when it comes to how we go about doing that some of the smaller details tend to get re-used based on previous norms and templates without being revisited or questioned.

One of these norms is how founder vesting and employee vesting works. I won’t get into employee vesting today as that has much more to consider than I have time to cover in this short post today.

Here is a good summary post from Cooley GO on Founder Vesting.

There are two main reasons for founder vesting:

• To ensure founders stick around and build the company
• To protect the founders (and investors) when a member of the founding team separates from the company prematurely.

The first is fairly obvious. Without founder vesting, if an investor were to invest in a company, a founder could pretty much walk away the very next day with all of their equity intact thereby decimating the company and its prospects.

The second happens more frequently than you would imagine. Founding teams can fall apart for many reasons. This can include founders who end up with personal conflicts, or when one founder isn’t carrying their weight/delivering on what they need to do, or a change in the personal situation of a founder. Sometimes it can be as crazy as a founder having a medical issue for themselves or their family, which makes it impossible for them to continue working on the startup. It can even be as extreme as a founder dying — a medical issue, getting hit by a bus, a car accident, or falling off a cliff.

These are not situations that founders like to think about when they are embarking on their dream to build the next big company, but they are real and the reality is that shit happens. And when shit happens, you want to make sure that your company is structurally setup to be able to recover from the situation you are presented with.

The commonly accepted wisdom on founder vesting is to either have a standard 1 year cliff, and then monthly vesting over a total period of 4 years or to have just straight monthly vesting over 4 years. (IMHO the former — having a cliff, is better for founders than the latter — not having a cliff).

How did we end up on this 4 year number? I really don’t know — if anyone does, I’d love to find the source for it. My best guess is that it became the “norm” in legal templates for term sheets and founders documents and has just been continuing as is without being questioned for decades.

But, we all know that it takes time to build a successful company. More often than not it takes 5-10 years to build a company. If that’s the case, then why isn’t founder vesting spread out over a much longer period of time?

I’m going to leave that as a question and invite comments and discussion in the comments below. Let’s revisit the “norms” on founder vesting and figure out what makes sense for today.

Hat tip to Howard Hartenbaum at August Capital, as the inspiration for this post came from a conversation over breakfast with Howard.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

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In high school, one of the teachers who I respected a lot (she was also feared by a lot of my peers for being a strict disciplinarian) pulled me aside one day and suggested that I should really consider studying Biology and consider medicine as a future. Although my thinking back then as a 15 year old was not as developed, my heart was set on studying Computer Science and building things.

In hindsight, I’m glad I made the decision to stick to computing rather than medicine. I like things that have a clear explanation and are deterministic in nature. And computing is probably the subject that came closest to it at the time. That’s changing now as we introduce more and more heuristics and non-determinism into computing in the form of AI and ML.

In contrast, even today, I’m constantly frustrated by the field of medicine. The thing that bugs me the most about it is the lack of clear information and progress by trial and error. Yes, we’ve made massive advances in medicine, but the experience of a doctor visit today is still similar to playing the game of Twenty Questions, with the big difference being that no one really knows what the correct answer is. You make an educated guess, and hope that you’re right. If you’re wrong, you take another guess and try again.

However, I believe that Computing and Biology are on a collision course and very soon the two will begin to blend even more. Computing will become more obscure and non-deterministic (without being able to clearly identify what were *all* the parameters that led to a particular decision), and Biology. Medicine will become less so, mostly as a result of the introduction of massive amounts of technology to help collect data, analyze it, and process it.

You can easily imagine continuous monitoring of vitals (almost there with the Apple Watch and Fitbit). You can imagine cheap ingestible sensors which take measurements and perform tests inside our bodies, relay information wirelessly, and then are excreted out of the body. In the future your pill won’t just be chemicals, they will be electronics.

We live in interesting times. The possibilities of human-augmentation are real and fascinating. It’s a time that now makes me regret that I didn’t choose to study both computing and biology. The most interesting breakthroughs in the next two decades could well stem from the people who have a depth of knowledge in both disciplines.

Follow me on Twitter at @Manu Kumar.

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We’ve all heard over and over again that “Startups are hard,” but it’s a hollow statement that just bounces off until you really experience it yourself. You have to feel it viscerally in order for it to really sink in. That very experience however, makes startup success that much more gratifying. The story of Bugsee is a very unique one in my experience as an investor and one that I figured needs to be highlighted and shared.

You see, Bugsee wasn’t born as what it is today. Bugsee started its life in a very different form. Back then, it was called Dishero. Dishero was going to try and take on something that probably hadn’t changed in centuries. It was going to change the paper menu in the restaurant. The question they asked was: “When all of us today walk into a restaurant with a high resolution device, why is it that we still pick what we want to eat based on a paper menu? What if, the menu could be personalized to your own dietary restrictions/preferences and be made smarter?”

I’m not going to dive into whether that was a good idea or not. Alex Fishman, the co-founder and CEO of Dishero, has an amazing series of blog posts on how that story played out, which I’ll incorporate by reference for anyone who’s interested in the details:

My Cofounder Said: “I love what we’re doing” And We Shut Down Our Startup
A Post About Post-Post-Mortem
Part 3: The Deciding Deep Dive

Long story short, the co-founders of Dishero concluded that no matter what knobs they turned, their business simply wasn’t going to scale enough to become an interesting business — not for the founders, and not for the investors. So they pro-actively shut down the company and did so in as graceful a manner as possible (Alex Fishman has another great blog post on this process at How to Shut Down a Startup in 36 Hours).

After shuttering Dishero, Alex Fishman and Dmitry (Dima) Fink had to figure out what they’re going to do next. They had conducted themselves in an impeccable manner in both arriving at the decision to shut down the company and in going through that process. Therefore, when they came to me to ask what they should do with the remaining capital, I told them that I had invested in the company because of them, and they should take some time to figure out what they would want to do next. Once they figure that out, it’s highly likely that I would want to continue to be an investor in their next adventure.

Alex and Dima found themselves in the not so common situation of where they have a founding team, investors, cash in the bank, but they have to hunt for an idea on what to work on next. Finding the next idea for a qualified team of founders, who know they want to work together, have investors who are ready, willing, and able to back them is a lot harder than you may think. I’ve been through this process with at least 3 teams to date, and finding an idea that an amazing founding team can be passionate about is a non-trivial challenge.

To their credit Alex and Dima went through the process methodically, diligently and with a high degree of introspection (the latter is perhaps the hardest). After spending about 6 months in a cocoon-like state they arrived in what was the idea behind Bugsee.

By this point everyone in the tech industry has heard and believes Marc Andreessen’s quip that “Software Is Eating The World.” Alex and Dima reasoned that if software is eating the world, then building software needs to become better. What’s the worst part about building software? Finding, reproducing, and resolving bugs. They had experienced this pain first hand when building Dishero’s app and platform, and felt that they could do a much much better job than anything else out there. And they did.
Bugsee is already recognized by Crashprobe as the best crash reporting service for iOS by far, beating out crash reporting by Apple, New Relic, Crittercism, Crashlytics (was part of Twitter, but was recently sold to Google), and HockeyApp (now part of Microsoft). In fact, I was a little surprised when I learned that Crashprobe is run by HockeyApp.

_{(Screenshot from http://www.crashprobe.com/ios/ taken on Tuesday, January 24th, 2017 at 9:39:51 PT)}

I’ve long believed that for a startup they should first do just one thing, and do it well. Kudos to team Bugsee for being the best crash reporting service for iOS. And this is before all the additional features that Bugsee has added including full code and network stack traces, and video recordings of the events leading up to the crash/bug.

After launching quietly, constantly improving their product offering, Bugsee has added over 1,000 customers (counting teams, not individual developers) who are actively using their product. Here’s a quick overview of what Bugsee can do:

Today Bugsee is officially launching on both iOS and Android, with their mission to make finding and fixing software bugs easy and efficient for mobile app developers. Also check them out on ProductHunt.

Back to the story — I believe that this completes the Startup Metamorphosis from Dishero to Bugsee. Finding the right problem to solve, and solving it well are are integral part of the startup story and I’m pleased to see Alex Fishman and Dmitry Fink navigate this journey successfully. Congrats Alex and Dima!

You can follow me on Twitter at @ManuKumar, and for all things K9 related at @K9Ventures. K9 Ventures is also on Facebook.

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Dear Founders,

I know you are all super busy. So I put the key message I want you to get out of this post right in the title of the post. But I really do want you to read on and try to understand and internalize what I’m trying to say here, as it’s not obvious, and especially not obvious when you’re in that phase of your startup.

Startups are hard. We all know that. You of all people know it better because you’re living it. Over the course of having played a founding role in 6 companies (including K9) and having invested in over 30 companies (through K9) I’ve noticed one other thing that happens in startups that doesn’t get talked about. And that is that some founders get cocky. It’s not unexpected and it’s not unreasonable after the hard knocks we founders take in the early days. But success in a startup can almost make you believe that you’re invincible. That is an incredibly dangerous thing and can not only destroy your own reputation and credibility, but can also cause real damage to the company you’ve worked so hard to build.

In the early days, everyone thinks you’re crazy and no one believe in your vision of the future. But you keep trying. You convince the first co-founder to join. You convince the first investor (hopefully K9!) to invest. You convince your first employee to leave their high-paying job and take a chance on you. And most importantly you eventually convince someone to become your first customer. And then you get your next customer. And the next. And all of a sudden you realize that you’ve achieved the hallowed “Product-Market Fit.” People want what you’ve built and they’re willing to pay you real money for it. VCs are chasing you down to try and invest in your company. The press finally want to write about you now. Recruiting becomes easier. You’re actually bringing in real $$s into the company. Wow, things are looking up.

That is the point when founders start to develop a false confidence. A belief that they’ve figured things out. That they made all the right choices, and that they now know what to do. This is an incredibly dangerous place to be. It is even more dangerous when your company hasn’t scaled the executive team. This is when the company culture starts to get messed up, because the founder and the company has lost it’s humility. This is when the company starts to stop listening to customers. This is when the MBA-like tactics of maximizing growth and maximizing revenue come in. As the $$s flow in the company begins to lose fiscal discipline, and starts spending more than it should in the name of growth. Most VCs love that stuff because they want to see that hockey-stick growth (For the record, I do not. I want to see steady, healthy growth over time) and so they’re ready to let the company spend like crazy.

The ability to think out of the box, be creative, to not take no for an answer, to bend the rules — all of that is necessary in the early stages of the company. Without it you wouldn’t get this far. But at some point, you have to realize that you can’t continue to act this way as the company scales. Scaling a company takes time. And there are some things that cannot be sped up. Company culture cannot be sped up. Company values cannot be sped up. Company ethics cannot be sped up. When you hire people, they need to have time to acclimatize, to get to know their peers, to understand what is expected of them — professionally and in interpersonal interactions.

This is where I want to almost scream at the founders (because otherwise they will not hear it as there is too much noise around their heads) to slow down. Relish in the fact that they’ve built something amazing and valuable. And most  of all they’ve built a team that is passionate about what they’re working on and who they’re working with. In that moment, stop, slow down, and think about how lucky you are. Yes, how lucky you are. Not how good you are. Not how awesome you are. But how lucky you are, that this little tiny idea that you started with is now finally working. And now remind yourself not to mess this up. And what will mess this up is if you let the success get to your head.

If you start drinking your own kool-aid, that you can do nothing wrong, then you will fail. In the words of Andy Grove — “Only the Paranoid Survive.” STAY PARANOID. STAY VULNERABLE. STAY HUNGRY. STAY HUMBLE. Don’t get cocky. Don’t get arrogant.

As a founder, if you succeed in building a highly successful company, you have figured out one path to success. But that path to success is *not* always the same. Nor does the same advice/formula apply to other companies. Just because a particular strategy worked for you, it doesn’t mean that the same strategy will work for everyone. Success is a funny thing. There are lots of different paths to it and following the same path will almost never lead you to the same outcome! The path to success changes with every journey, every attempt. Just because your internal GPS got you there the first time does not mean it will get you there the next time.

Lot’s of investors believe in investing in “repeat founders.” People who have already succeeded once. I believe that if you’ve succeeded once, you’ve learned a lot of good lessons that may help you along the way. So yes, it might increase the odds of you being able to deal with a situation you’ve seen before, but it does not imply certain success. In fact, if anything, you’re coming with baggage of how things worked the first time that may prevent you from thinking outside the box this time — something you were able to do in your first startup. It is incredibly difficult for someone who has been incredibly successful on their first run, to repeat that success a second or third time. I’m sure there are some examples of people who have done this, but I would argue that those that do succeed consecutively, have learned to stay humble.

One of the guiding values I set for myself when starting K9 was Humility. And in my first deck for K9 and on the About page for the firm, I put down: Humility: because arrogance kills. I firmly believe this. Arrogance kills.

If you’ve built a real business, celebrate it, relish it, but please don’t let it get to your head.

With love, respect, admiration, and humility,
-Manu

The post Don’t let success get to your head appeared first on K9 Ventures.

Of all the advice I have given founders over the years, one of the most important ones is to make sure they do reference checks on their prospective investors. When founders do their homework on investors, they make informed choices about who they will be working with for many many years to come. As the saying goes, you’re literally getting married to your investors. Well, here’s the rub, some marriages can be dissolved more easily than getting rid of an investor you may not like or have soured upon over time.

I’ve seen and heard of enough cases of when founders didn’t do their homework and ended up committing themselves to an investor relationship that was in some cases either a drag on the company or the board dynamics, or best case a net neutral. The real value of having a positive investor/board relationship is very hard to quantify. In fact, a lot of first-time founders don’t really recognize if they have good investors or not as they don’t really have enough data points over the life of the company to compare working with different types of investors.

If you’re looking at raising a round of financing, you have a choice. You could either go with the highest offer on valuation that gives you the lowest dilution, or you can choose the partner who you’re going to be working with. I always recommend to my portfolio companies that they should be focusing on the latter, as getting the right partner and firm behind the company can make a massive difference in how much time the founders spend on managing their board or on everyone working together and focusing on optimizing for the success of the company.

Here are some tips for founders when making this tough choice:

• Check references on your prospective investors. This is an obvious thing to do, but you would be surprised by how often founders are swayed by the perceived brand over the substance. VCs know that brand matters when it comes to winning deals and so they make a concerted effort to manage that brand. But the true measure of an investor is not what their perceived brand image is, but what their founders say about them. The best time to do investor references is when the investor has made an offer and before you make your decision on whom you’re going to work with.
• Ask investors if it is okay for you to check references on them. Asking the question itself is somewhat telling. Some investors may be offended by this and that in itself is a red flag for you. That just means their ego is too big. Others will welcome you checking up on references and see it as a positive indicator as it also reflects how you will behave when you’re hiring key people or setting up key partnerships.
• Be sure to do some off-list references. Every partner/firm will have at least a few good references they can offer up. A good tell here is if they give you a curated list or ask you to choose who you would like to speak to. But you should be able to work your network to reach out to founders of companies that may not be on the reference list to see what those founders have to say about the investors as well.
• Know how to ask the right questions. If you’re taking with a founder who has the investor on their board right now, then their first priority is to protect and preserve their own relationship with their investor/board member. So they’re going to be cautious in how they address any questions. But there are ways to get the information you need without putting the founder in an awkward position. I’ll address this further below.
• Use your best judgment. It is unlikely that any investor would have 100% positive glowing references. In fact if you haven’t encountered some negative feedback then you probably didn’t dig hard enough. A large number of venture investments do not pan out. Companies end up going through rough patches and several end up in the dead pool. Whent hat happens, emotions run high and the experience can leave people holding grudges. It’s your job as a reference checked to be able to separate the wheat from the chaff here and be able to almost forensically piece together what may have happened. When you do get negative feedback on an investor, one of the best options (provided you can do so without compromising the source) is to actually ask them about it and discuss it. Hear both sides of the story before reaching your own conclusion.

But how do you conduct a investor reference call? What questions should you ask? Here are some of my favorites. Your mileage may vary.

• How long have you worked with this investor?
• Are they on your board? How often are your board meetings?
• Do they come prepared for board meetings?
• Are the comments and discussion in those meetings productive/constructive?
• Do you engage with this investor in between board meetings? How? Why? (What you’re trying to get here is whether the investor asks for the engagement or whether the founder reaches out to the investor because the founder wants to.)
• What is this person’s style? (This is an open ended question, so you may get different answer. The things I look for are are they trying to hold you accountable to a plan, or are they trying to help come up with the plan? Are they proactive, or reactive?
• What is the most helpful or value-adding thing this investor has done for you or your company?
• Have you ever had a disagreement with your investor? How did he/she manage themselves in during that disagreement? How did you resolve the disagreement?
• Compared to other investors in your company, how would you rank this person in terms of their helpfulness and attitude?
• Once your company is massively successful and you’re independently wealthy, would you want this person as an investor in your next company?
• How does this person interact with other board members and/or with members of your executive team?
• When something bad happens or when you have a burning question who do you call?
• Does the investor respect your time and qualify any introductions before making them? How useful have these introductions been?
• If you had to give this investor feedback on how they could improve, what would you say to them?
• What tips do you have for me for working with this person and building a strong relationship/partnership?

These are just some of the questions I can think of, but I’m sure there are many more. If you have any good ones that you really like to use, please add them in the comments below.

The post How to reference check your prospective investor appeared first on K9 Ventures.

42: The Answer to the ultimate fund size?

Those of you who have read or watched the Hitchhiker’s Guide to the Galaxy are aware of the pop culture meme around the number 42. Yes, 42: The answer to life, the Universe, and everything. For anyone who hasn’t seen the movie, here’s a clip courtesy of YouTube for the reference. Enjoy watching…

It took the supercomputer Deep Thought (the name seems oddly fitting with the current buzz around Deep Learning!) 7 ½ million years to calculate The Answer. It’s taken me and K9 a mere 5 years since Fund II to get to The Answer. So with that…

I’m pleased to announce the formation and closing of K9 Ventures III, L.P., a $42M technology-focused Pre-Seed fund.

The new fund, which closed on August 8th, 2017, will continue to execute on the same strategy as our prior fund: be highly selective and concentrated in the investments we make (3-4 investments per year); be the first institutional money (frighteningly early) into the company, mostly leading investments at Pre-Seed; invest in companies that are creating new technology platforms or new markets; and focus on companies that are geographically located in the San Francisco Bay Area.

K9’s last fund, K9 Ventures II, L.P., was a $40M fund. It was a conscious decision to maintain the fund size at the same level, despite both market pressure (larger rounds at earlier stages) and demand pressure (lots of LP money entering the stage) to raise a larger fund. I believe that fund size is a slippery slope, in which the pressure of having to invest more capital forces venture firms to make investments in increasingly later-stage companies with larger check sizes. The slight change in fund size for K9 was driven by my desire to increase my own participation in the fund while accommodating LP interest, and also because I’d joked that I’m going to index K9’s fund sizes to my age. And yes, I’m presently 42.

The investing strategy for K9 stands in stark contrast to most “early-stage” (incubators, accelerators, pre-seed and seed stage) investing. At K9 we do the opposite of the volume game. We don’t invest in a lot of companies and hope that one or two of them will be big hits. Instead, we want every company we invest in to be successful. While that may not be an achievable goal, that is our North Star. The small and concentrated portfolio means that K9’s interests are always well aligned with the interests of founders who choose to work with us.

I’m grateful to have had the opportunity to work with some absolutely amazing founders in the K9 portfolio and look forward to the many more amazing founders that K9 will get to partner with. Founders have a vision of what the world will be like in the future. It is humbling for me to be able to play a tiny part in building the future they envision and bring to life. So I would like to thank all the K9 Founders for the magic that they do, and for allowing me and K9 to be along for the ride.

The new $42M fund is backed by several high quality institutional partners, including university endowments, fund of funds, family offices, and key individuals. I would like to thank all the limited partners who entrust me and K9 to invest their capital. They put an enormous amount of trust and faith in me, especially as a solo-GP fund, and the responsibility of that trust is something I wake up with every morning. My goal for K9 is not only to provide stellar returns, but to back companies that make a mark and have a positive impact on the world while doing so. That’s a mission I could not embark upon without partners who share and believe in K9’s approach to company building. I especially want to acknowledge the returning LPs from Fund I and Fund II — your continuing support for me and K9 is much appreciated.

I first thought about starting K9 in 2008. Fund I, which I often refer to as a demonstration fund, started in 2009 with $6.25M under management. We invested in 19 companies through that fund. Only 2 companies out of 19 were shut down. 6 had successful M&A exits, with returns ranging from 3x – 15x. Also included in the Fund I portfolio are several companies that have already been hugely successful (Twilio, Lyft) and others that are well on their way to becoming the category leading companies in their space (LucidChart, eShares, Everlaw, Crowdflower).

K9 Ventures II began investing in 2012 and was designed to have an investment period of 5 years. We’ve invested in about 14 companies through Fund II over a period of 5 years. (Some of these companies haven’t launched yet and so we don’t list them on our site and have redacted them from the image below). Fund II is still early in its lifecycle, but it’s already been impressive to see the amazing progress of Osmo and Auth0, and I’m excited about the upcoming launches of some of the younger companies in the portfolio.

Our space, The Kennel, has been home to many of the K9 portfolio companies. A lot of people assume that The Kennel is an incubator — it is not. The Kennel is more like a shared workspace with an incredibly high bar for who gets to work out of the space. The space is free and invite-only. K9 portfolio companies are all automatically invited to work from The Kennel, if they choose to (not mandatory). The space is also often used by some of the more mature K9 portfolio companies to host offsites for their teams, and for founder events.

We’re actively and selectively investing in new companies that meet our stringent criteria. Every company we invest in has to have some unique twist that makes it interesting. If you believe you have that twist, or know a team that does, we welcome well-qualified referrals.

And remember, “It’s a tough galaxy. If you want to survive, you’ve gotta know … where your towel is.”

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

The post Announcing K9 Ventures III, L.P. – A $42M technology-focused Pre-Seed fund appeared first on K9 Ventures.

One of the people I respect the most in the VC/PE media ecosystem is Dan Primack. I’ve been an avid reader of Dan’s Term Sheet while he was at Fortune, and now Pro Rata at Axios. His writings and knowledge of the inner workings of the VC/PE ecosystem is impressive, and I have learned a lot from reading his columns over the years.

Earlier this week, Dan said something in passing which took me by surprise: “In a related note, I wasn’t really aware that pre-seed was a thing.” Reading this made me literally jump out of my chair. You see, Dan knows more about venture than most people; and if Dan isn’t aware that “pre-seed is a thing,” then I haven’t done a good enough job of explaining to the world what I and K9 do! Luckily, Kia Kokalitcheva followed up with a post titled “The rise of “pre-seed” venture capital,” that made me feel just a tad better, but that uneasy feeling still didn’t leave me.

So, I took it upon myself as a challenge to put together the definitive “Pre-Seed FAQ.” I’ll start with all the questions I can think of, from many different perspectives: founders, LPs, the press, and even other VCs. This post is intended to be a dynamic document, and I will attempt to update it from time to time with new questions that may arise or as financing trends evolve.

So, I’d like to thank Dan for shocking me into action. And I sincerely hope that this post does a good job of addressing what Pre-Seed really is.

Q: Define Pre-Seed? Or What is Pre-Seed?
Pre-Seed is the first institutional capital invested in a company. It is what Seed used to be from 2009-2013, until the Seed rounds got fat and bloated and the bar for raising a Seed round became a lot higher.

Q: What amount of financing is considered Pre-Seed?
Typically, Pre-Seed rounds are less than $1M in aggregate capital raised. Between $500K – $750K is probably the sweet-spot for a Pre-Seed round.

Q: Is Pre-Seed a Thing?
A: Yes, Pre-Seed is a thing. It’s a legitimate stage of financing in the venture eco-system as of this writing (October 2017). In practice, Pre-Seed has essentially replaced what used to be accomplished in the Seed round of funding. Today, a Seed round really accomplishes what the Series A stage used to accomplish, and today’s Series A really accomplishes what the previous… Well, you get the idea.

Q: What is the history of Pre-Seed? Where did the term Pre-Seed come from?
The first time I used the words “pre-seed” (yes, the initial use was in all lower-case, but then became upper-case over time) was on June 27, 2013, at the K9 Ventures LP Meeting. Here are the two relevant slides from that meeting. They talk about how deal sizes and stages were changing even back then. Seed rounds were getting bigger. Series A had become the 4th round of funding. This created a vacuum at the earliest stages of funding. Eventually, that vacuum was filled with capital gained even earlier than the Seed round — i.e., “pre-seed.”

On April 10, 2014, I published a blog post, titled The New Venture Landscape, which explained why and how the venture ecosystem was shifting. In that post I explained that:

Seed is not the first round of financing any more. In fact after noticing this trend last year, I have transitioned to calling most of my initial investments “pre-seed” rounds, where the company raises close to $500K, before raising a full seed round. The Seed round is larger — closer to and sometimes upwards of $2M. The Series A is now the fourth round of funding for a company — the first is usually friends and family, or an incubator (~$50K), then pre-seed (~$500K), then seed (~$2M), then Series A (~$6M-$15M).

As far as I can tell, that is the first public use of “pre-seed” as a stage of financing.

A follow-up post, titled The Seeds Have Changed: An Epilogue, on June 5, 2015, explained this further:

Pre-Seed is the New Seed
If the Micro-VCs are looking for Series A-like metrics, what does a company do when it’s just getting started? If it doesn’t have the product fully baked yet? Or if the traction is not yet interesting enough to attract a full Seed round? Well, enter the Pre-Seed round, where the startup raises closer to $500K.

When I first started using the term ‘pre-seed’ in 2013, it was almost as a joke since I wanted to make a point that K9 was investing super early. At the time of writing the New Venture Landscape, I started to capitalize “Pre-Seed”. Over the course of the two years since, it’s been interesting to note how “Pre-Seed” has entered the vocabulary in venture. There are a now a handful of funds, K9 included, that are Pre-Seed funds in name and practice.

This has been pretty much what K9 has been doing since 2013. In fact, when I announced K9 Ventures III in August 2017, the term Pre-Seed was part of the headline for that announcement: Announcing K9 Ventures III, L.P. – A $42M technology-focused Pre-Seed fund.

Q: What characteristics does a company need to have to qualify for Pre-Seed funding?
That’s the beautiful part. A Seed round today — like the Series A round of yesteryear — requires some kind of traction or product. In contrast, you *don’t* need much to qualify as a Pre-Seed stage company. Pre-Seed investors should *not* be looking for any kind of traction. They shouldn’t even be looking for a fully built product. A prototype or a well fleshed out deck should be sufficient for a company to qualify for Pre-Seed funding.

Q: How do companies use Pre-Seed funding?
Pre-Seed financing is typically used to accomplish two things: build a team, and build an initial product and prototype.

When I first began in this industry, people would claim that it’s cheap to start a software company. Those times are long gone. It is no longer cheap to start a software company. Yes, the infrastructure is cheap (to start), but the human costs have gone up dramatically. Unless every aspect of product development is covered by founders who are only receiving equity, there are other parts of building a product that will require hiring highly qualified people. And people are expensive (especially in the Bay Area), so some Pre-Seed financing goes towards recruiting the right minimal set of people who can help to build the product.

In order for a company to attract a full Seed round ($2M – $3M), that company needs to show an almost completed product, an advanced prototype, or some kind of traction/demand metrics. Pre-seed dollars are used to create that prototype and get enough feedback on it to justify Seed investment.

As explained in The New Venture Landscape post:

Pre-Seed is the new Seed. (~$500K used for building team and initial product/prototype)
Seed is the new Series A. (~$2M used get for building product, establishing product-market fit and early revenue)
Series A is the new Series B. (~6M-$15M used to scale customer acquisition and revenue)
Series B is the new Series C.
Series C/D is the new Mezzanine

Q: Why haven’t I heard of Pre-Seed rounds before?
Most companies that raise Pre-Seed rounds do not announce these rounds. And the amounts involved are generally small enough that they don’t attract the attention of the press any way. These companies are also so early in their life-cycle that they’re not really ready to talk about what they’re working on publicly until they have something to show.

When the companies raise a Seed round where it’s now $2M+ being raised, at that stage they are closer to being ready to talk about what they’re working on — mostly because they want to attract new talent to the company. Because of this the first mention of a company in the press/media is usually concurrent with their Seed round financing announcement.

This has the effect that founders who are reading TechCrunch see headlines of the form “Company X raises $2M in their Seed round?” Add that to the conventional wisdom that the “seed” round was supposed to be the first round of funding for a company and founders start to think that that is the normal amount of capital for them to raise for an initial financing round.

It’s only when they go out to raise and find that they’re not ready to raise a Seed round, do then they learn about Pre-Seed round being an option.

Q: Is Pre-Seed subject to adverse selection? Do companies only raise a Pre-Seed when they can’t raise a Seed?

Yes and no. There are lots of companies that try to raise a $2M – $3M Seed round as their first round of financing. Some of those companies are actually successful in raising such a large initial round of financing — either because the team has a prior track record or spectacular (academic or work) pedigree. The extraordinary amount of capital flooding in at the Seed stage, often from non-traditional capital sources, foreign capital, or new funds also sometimes makes it possible for companies to raise a larger round without demonstrating the progress that seasoned investors would look for a Seed stage company today.

Of course if a company is unable to raise a $2M – $3M Seed round, a fall back plan could then be to raise a smaller sub-$1M round to get started from Pre-Seed investors. This is what creates the perception of adverse selection — that a company that couldn’t raise $2M – $3M is now raising less than $1M to get started. However, this perception is often not accurate.

The funny thing with capital is that in order for it to be effective, it needs to come in the right amount and at the right time. The company needs enough money to make progress, but if it has too much capital available it will actually end up wasting the time and capital because of the lack of focus and urgency in solving the most critical problems facing the company.

Therefore, I actually argue that companies that are successful in raising more capital, are often likely to flounder more than companies that raise the amount of capital appropriate for their stage. I’ve talked about this before in The Curse of Over Capitalization. That post was written with later stage companies in mind, but I’m now starting to see the same issues crop up in companies at earlier stages as well.

The amount of capital (and therefore the resulting valuation) also sets the stage for the next round of financing for a company. If you raise <$1M, then raising $2M – $3M in the next round feels okay. But if you start with a $3M raise, your next raise really needs to be a $5M – $6M raise. That’s squarely in Series A territory and you now need to have Series A metrics for that. So raising a larger round can almost make it harder for a company to get to that next stage of financing and puts it in a danger zone of being considered “too early” — which becomes a common reason for Series A investors to pass on a company.

In sports, you always want to play and compete at the stage that is right for you. Likewise in startups, companies need to work with the capital that is appropriate for their stage. If you try to punch beyond your weight class, your chances of getting knocked out are a lot higher.

Q: Does a Pre-Seed require founders to give up more equity in the company?
This is another common question, especially from founders who are worried about how they now have one more round of dilution to take before they get to their Series A. But when you think about it logically, if Pre-Seed is the new Seed, Seed is the new A and Series A is the new Series B, essentially all the rounds of financing have shifted. So the amount of dilution a company will take on still remains the same over the life of the company.

There is an interesting corollary here that the “life of a company” as a private company is much longer. It used to be that a company could go public when it hit $20M in revenue. Today that doesn’t happen any more and I’ve rarely seen a company that files for going public that doesn’t have over $100M in revenue. This means that companies are staying private longer and they’re raising more rounds of capital as a private company to finance their growth. So it’s normal for a company to have to raise Pre-Seed, Seed, Series A, Series B, Series C, Series D (and more) before it’s potentially ready for an IPO, but that bar for the IPO is much higher than what it used to be and the valuation of the company in private markets is considerably higher than what it used to be.

Q: How are most Pre-Seed deals structured? Notes? Equity?
Most professional/seasoned investors don’t like convertible instruments of any form. I’ve written about this on the K9 Ventures blog. Mark Suster has written about this. And David Hornik has written about this. I think Mark and David have done an even better job of addressing this in their posts than I ever could.

That said, you will find Pre-Seed deals in both flavors — Notes and Equity.

Q: What does Seed financing get used for?
Seed financing is used to finish building the product, testing for and establishing product-market fit, and developing early revenue traction. All three of those are prerequisites for a Series A.

Q: Is Pre-Seed investing more risky than Seed stage investing?
By definition, yes. The bar for the Seed round has moved up and that bar is essentially de-risking a Seed stage investment. A Pre-Seed company certainly hasn’t met the same bar. It may be a bare-bones team, with a product that is under development, with hopes of hitting product-market fit, but lacking and data points to prove that it can get there.

Investing at the Pre-Seed stage is not for the faint of heart. It requires believing in the team, believing in their vision for the future, and some amount of hope that everything will line up just the way you want it to in order for the company to be successful.

Investors in their quest to seek better (less risky, more certain) investments, invariably end up moving up The Venture Spiral — i.e. investing at later stages. Therefore I would argue that even some of the Pre-Seed investors that exist today, will end up moving up to later stages as their fund sizes grow.

Q: Is Pre-Seed only a Bay Area phenomenon?
Candidly, I’m not qualified to answer his question as I live and work inside the Bay Area bubble. So I can only talk about what I see happening here. The Seed round may still well be the first round of financing in other geographies, but in the Bay Area, it’s definitely not so.

I’d love for investors and founders from other geographies comment below to help determine if Pre-Seed is only a Bay Area phenomena, or if it’s started to show up in order eco-systems as well.

Q: Does a Pre-Seed company need traction?
No. Anyone asking a Pre-Seed company for traction or asking them about unit economics doesn’t really understand the stage at which they’re investing and they probably should be investing at a later stage.

Q: What are some Pre-Seed funds operating today?
K9 Ventures is of course a Pre-Seed fund — that’s the reason for me to be standing on the Pre-Seed soap box. In addition to K9, the following venture funds are all investing at the Pre-Seed stage:

• PivotNorth Capital
• Engineering Capital
• Precursor Ventures
• Notation Capital
• XFactor Ventures
• Afore Capital

If you have additional questions regarding Pre-Seed, please feel free to post in the comments below and I’ll monitor and update this post as needed.

You can follow me on Twitter at @ManuKumar or @K9Ventures for just the K9 Ventures related tweets. K9 Ventures is also on Facebook and Google+.

The post The Pre-Seed FAQ appeared first on K9 Ventures.

I’ve written about how Ideas Matter before. I’ve also written about Finding a Problem Worth Solving. And I’ve also written about my Contrarian Advice for Graduating Students.

What follows is a set of slides from a talk I gave sometime last year (February 24rd, 2017) in Chuck Eeesly‘s E145: Technology Entrepreneurship class at Stanford. This talk takes the key concepts from these three blog posts referenced above and stitches them together in bite-sized chunks that can be conveyed easily.

Sharing the slides here in the hope that these slides are helpful to others out there.

Feedback is always welcome. You can find me on Twitter @ManuKumar.

The post Ideas Matter aka The Execution Myth appeared first on K9 Ventures.

Recently I attended a lunch where we were all asked to present something provocative/mind-blowing. I thought about that for a while and realized that I want my provocative thought to not be something that is a pie in the sky idea but instead something that is based on a series of logical conclusions. Well, here is a series of logical progressions that lead me to believe that in the near future, we will see the emergence of a new class of company.

Today we have only two types of companies. Private companies, which have a closed shareholder base, and typically no active market for the stock, or, public companies, where they have a open shareholder base and an active market for the stock of the company. Of course public markets come with a fair amount of regulation as well. One of the advantages of being a private company is not being required to comply with a large number of rules and regulations that apply to public companies.

But, things are changing. Some of these changes have already happened, and others are well under way.

1) Value creation has shifted to private companies: When Microsoft, Apple, or Amazon, went public, these companies were valued in the hundreds of millions of dollars. These companies continued to grow as public companies and added hundreds of billions of dollars of value in public markets. This meant that anyone who was smart / lucky enough to buy stock in these companies when they went public and hold that stock, participated in the value created by these companies and benefitted from it.

However, if you look at Facebook, Twitter, Snapchat or other companies that went public in recent years, these were already multi-billion dollar companies at the time of going public. A very large portion of the value creation in these companies happened while they were still privately held companies. This means that a smaller group of typically accredited investors could partake in the value creation of these companies during their years as a privately held company.

This slide borrowed from Mark Suster’s blog post on The Changing Structure of the VC Industry illustrates the same point nicely:

2) New money is entering private markets: Earlier companies like Fidelity, T. Rowe Price, etc. would wait till a companies IPO and buy stock in the IPO. Today all of these companies have realized that they cannot wait to buy the stock of these companies in public markets as they want to partake in the value creation that happens in private markets. It follows then that a lot of the capital that was previously only available to public companies has shifted to invest in these companies while they are still private. Or in other words, there is more capital entering private markets that there was ever before.

3) Companies will stay private longer: If companies do not need to access the public markets in order to access capital and are able to secure billions of dollars of capital in private markets, then they have a lowered sense of urgency to go public. Why deal with all the hassles of public markets when there is sufficient capital accessible as a private company that doesn’t have to take on a much higher regulatory burden?

4) A need for liquidity: Companies end up staying private longer. The average time to IPO is increasing and has now crossed 8–9 years and is approaching 10 years. However, companies are still issuing options with 4 year vesting cycles. Founders, employees, and early investors have lives to lead (getting married, buying houses, having kids) and funds to return (most venture funds have a 10+2 year cycle and need to provide liquidity for their LPs at the end of the life of the fund). This then means that if companies are going to stay private for a really long time (8–10 years) then there has to be a relief valve for the liquidity needs of the early shareholders. The logical conclusion is that this has and will continue to lead to more secondary transactions in private markets.

5) A need for transparency: Most secondary transactions that are occurring are happening with very little information being made available to buyers and a lack of market efficiency for sellers. This is where I start to speculate a bit, that if we continue to see an increase in secondary transactions, then there will also be an increased need for transparency by these companies.

6) SEC oversight and regulation: The distinction between public companies and private companies has been very binary so far. I postulate that in the near future, we will see the emergence of a new class of company — one that is a privately held company, with a high valuation/market capitalization, and an active/regular secondary market for its stock.

Such a company would probably be asked to comply with a new/different set of rules and regulations than what exist today. The binary distinction of a private vs. public company is not going to be sufficient to capture the need for transparency and the fact that such a company will have an active/regular secondary market (albeit not publicly traded) will/should invite additional scrutiny and regulation.

This transitional class of company (a privately-traded company) can be viewed as a semi-private or semi-public company. If such a class of company dos exist in the future, it could further elongate the amount of time before companies enter the public phase of their existence.

TL;DR (yes, I know it’s supposed to be at the beginning, but I really did want you to read the thinking behind it first): In the near future, we will see three types of companies: a privately-held company, a privately-traded company (which have high valuations and an active secondary market), and a public companies.

The post The Logical Evolution of Private Markets: A new class of company. appeared first on K9 Ventures.

I’m excited to announce K9 Ventures’ recent investment in Workona. K9 led the initial financing for Workona in December 2017. What is Workona? Well, this video does a great job of explaining that… so I’ll let the video do the talking…

Quinn Morgan and Alma Madsen, the co-founders of Workona are alumni from another K9 Ventures’ portfolio company, Lucid Software (the company behind Lucidchart). Alma was the first employee  at Lucid and I was already impressed by the quality of product he could build by having seen what Lucid built with a very small team in the early days. Together, Quinn and Alma launched and ran Lucid’s second product, Lucidpress. One of the amazing things about some of the best startups (I definitely include Lucid in that category) is that they then become the source of other companies in the future.

When I was first introduced to Quinn and Alma, I was incredibly skeptical of the idea, but within the first 30-45 minutes, Quinn had me convinced that they had discovered a massive problem. A problem that is staring us in the face every single day, but we haven’t noticed it yet. Mostly because we’ve never stopped to  think about whether there might be a better way.

That problem is simple and it is pervasive. And if you’re reading this on your desktop computer, then it’s probably staring you in the face right now! The problem is that the modern web browser was designed for exactly that — browsing. But today, every single person who is “working” on a computer is probably doing so in a browser. Just think about that for a second… you are “working in a browser.”

Rewind 20-30 years or so, and both Microsoft and Apple were spending a lot of time optimizing the “desktop.” There was design and engineering that went towards thinking about how to save context, restore context, switch context, and more. You could minimize windows to hide them away, organize the windows on your desktop. We have files, and folders, and search. But as we transitioned away from the desktop to just doing everything in a browser, all the effort that went into engineering that desktop OS was left behind.

Today in browsers we have Tabs. Yes, we live in Tabs. We work in Tabs. And we love our Tabs. But really, is this the best Google, Firefox, Microsoft, and Apple have for us? What happened to all the effort that used to go into making the user productive at work?

That’s where Workona comes in. Workona has recognized that we spend the majority  of our working hours in a browser. And for most of us, we do that while being buried in a sea of Tabs. Google Chrome has done a great job of making sure that it autosaves and restores tabs when the browser is closed/re-opened or recovers from a crash; but just having tabs and windows is not enough.

Workona introduces the concept of Workspaces, which they describe as smart browser windows. Workona’s workspaces make it possible to logically group together all the tabs related to one project and then be able to close and restore all of them in one click. And you can also share the workspace so that you can collaborate with people.

Workona is just getting started, with more good stuff to come in the future, but already their product has made my ability to manage and keep track of my work so much better. If you’re the type of person who appreciates order and cleanliness, you are going to love Workona. If you’re the type of person who is super messy, well, then you need Workona. So don’t take my word for it, try it yourself at https://workona.com

The post Browsers were meant for browsing, but with Workona they’re now designed for working appeared first on K9 Ventures.

I last ordered business cards in 2009. I think I ordered a thousand of them. And I haven’t run out of them yet — because most times when I need them, I don’t have them on me. They’re either at the office, or in my car, or in my backpack; but never with me where/when I need them.

Handing someone a piece of paper in 2018 to exchange contact information just seems archaic and mind-numbingly dumb to me. We communicate electronically. Contact information also needs to be in electronic form. And it’s a shame that this problem hasn’t been solved better.

The humble (and sometimes not so humble) paper business card has been in existence since the 15th century. Hundreds of years later, we walk around with supercomputers in our pockets, we talk to cylinders in our living rooms that answer questions for us, and we’re close to having cars that can drive us from place to place. Why is it that, in 2018, the most common way for exchanging contacts is still giving each other a piece of a dead tree?

This question is not a new one for me. It has bothered me for decades. I remember being so excited by contact beaming on the Palm V back in the day! I co-founded CardMunch in 2009 to solve one side of this problem — taking the sea of business cards on the side of my desk and accurately and reliably converting them into digital contacts. CardMunch was acquired by LinkedIn in 2011; within months of launching its product. LinkedIn, however, failed to recognize the potential for what this could do for them, and in a typical big company fashion proceeded to ruin and eventually kill the product. Yes, I’m still peeved.

Another problem with business cards is that sometimes people have to carry multiple of them. And no, I don’t mean carrying 10 of the same card, but carrying 10 of two different cards. Some of us have multiple roles and wear multiple hats. I have a role at K9 Ventures, but I also am a co-founder of HiHello, and I am also a kid-parent, and I am also a dog-parent. The information you choose to share with someone is often dependent on the context in which you are meeting that person.

Business cards can often expose too much information in these situations. For me, if I meet someone at a networking event, I’m probably okay giving out my work email and twitter, but not inclined to give my phone number. If I meet someone at the dog park, I’m probably giving them my phone number and a non-work email. With a paper business card there is no easy way for me to curate what information I want to share with different people.

But, to this day, the paper business card has persisted and survived. I’m inclined to declare that business cards are the cockroaches of information exchange — relics of ancient history and a nuisance in the modern age. I don’t like cockroaches. And, I really want the experience of exchanging contact information to be far more seamless than trading phones and manually typing in our number or email address.

This is why I’m excited to announce that I’ve co-founded a new company, HiHello, to solve this problem. The HiHello app is available today on both iOS and Android. You can scan the code below or click on the button to try the app today!

Here is what the HiHello app will enable you to do:

• Multiple cards for different contexts
  You can create multiple cards with different information on them, suitable for sharing in the different contexts in which you meet people.
• Secure sharing via scannable codes
  You can share your card using a secure code. On iOS (v11 or higher) the recipient doesn’t need anything more than just their native iOS camera app. On Android the recipient will need a QR code scanner, which is part of the Google Assistant and Google Lens (native camera please Google! Hint hint!)
• Share securely via email or phone
  You can share your card using a email, or text message, without exposing the email or phone number tied to your phone.
• Quick access to your cards
  We’ve made it really easy to access the right card quickly. Our iOS and Android widgets will let you pick which card you want to share right from the lock screen on your phone.
• Easy editing and updating
  And with HiHello your cards will never get out of date or end up with scratched out phone numbers, because you can always go in and edit your information as needed.

With HiHello you’ll never be without your business cards any more as they’re right there with you on your phone. You share in a digital format so that your contact information doesn’t end up in the form of litter on the sidewalk as often happens with business cards.

The app is so simple that you don’t need to even watch a video, so we didn’t make one (yet!). Really, just go ahead and download the app, and try it for yourself. In our testing, we were able to invite a new user to download, onboard, and share their contact information all while getting burritos in the line at Chipotle!

I’m excited to be working with a great team for HiHello, starting with Hari Ravi (@HiHariRavi) as my co-founder. Hari is a alumnus from CalTech and Columbia and has previously worked at a startup that was using computer vision and machine learning to help read mammograms. Hari and I were introduced via Serge Belongie at Cornell Tech in NY. Thank you Serge!

Also on our team is Leith Abdulla (@eleith) as our CTO. Leith and I overlapped at Stanford for a few years and I’ve always wanted to work with him since. So I’m delighted to finally have the opportunity to do so. Leith was formerly the Director of Engineering at Coursera where he helped to scale their team from 4 to 100.

Nelson To (@yesnto) joins us as our head of Android. Nelson and I have also known each other for a while as I’ve tried to recruit him into other K9 portfolio companies from time to time. Nelson was the Head of Android at Juxta Labs, and prior to that at Sidecar.

Karin Vaughan is the designer for HiHello. Karin hails from the HCI program at the University of Washington.

Donsuk Lee interned with us for the summer. Don did his undergrad at Caltech and completed his Masters at Stanford, where he worked with Dr. Fei Fei Li and Dr. Michael Bernstein. He will soon be joining the PhD program in Computer Science at the University of Southern California.

We’re a small team, but we have big ambitions. We believe that who you know, is often more important than what you know. But in a world where who you know is so important there is a lack of good tools to help us manage and optimize our professional relationships. We’re just getting started with HiHello and firmly believe in incremental improvement and iteration. Our current app is just the first milestone on a long roadmap towards this goal.

We encourage you to download and try our app that is available in the app stores today. We welcome your feedback, both positive and negative, and hope you’ll stay tuned for what we are building.

On behalf of the entire HiHello team.

Manu Kumar
Co-founder
HiHello, Inc.
https://hihello.me

Press Kit, Blog

The post Hi. Hello. And Bye Bye Business Cards! appeared first on K9 Ventures.

Yesterday, K9 Ventures portfolio company, Forethought AI, was declared the winner of the TechCrunch Disrupt San Francisco 2018 Startup Battlefield competition.

SAN FRANCISCO, CA – SEPTEMBER 07: (L-R) TechCrunch Editor in Chief Matthew Panzarino, Jordan Crook, winner of Battlefield, ‘Forethought,’ and TechCrunch team onstage during Day 3 of TechCrunch Disrupt SF 2018 at Moscone Center on September 7, 2018 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch), used under CC BY 2.0

You can watch the video of them presenting to the panel of judges featuring Cyan Banister from Founders Fund, Roelof Botha from Sequoia Capital, Jeff Clavier from Uncork Capital, Aileen Lee from Cowboy Ventures, and Matthew Panzarino from TechCrunch here: video (sorry, couldn’t find a way to embed the video).

I was SO pleased to see the Forethought team win. Not only because IMHO they so deserve it, but for one other reason that nobody talked about, or potentially even knew about at the conference. The entire founding team at Forethought is made up of immigrants.

Immigrant Founders

Deon Nicholas, a co-founder of Forethought, grew up in some of the toughest neighborhoods of Toronto, Canada. And as he writes in his blog post On the nature of talent, it was his passion for computer science and problem solving that gave him access to opportunity and brought him to Silicon Valley. Deon attended the University of Waterloo, where he did a Bachelors in Mathematics (with Distinction), Honors Computer Science and Combinatorics/Optimization — how’s that for a mouthful? (Some of the smartest computer scientists I’ve met have been from UWaterloo and I consider it to be one of the top schools for Computer Science right up there with Stanford, Carnegie Mellon, MIT and UC Berkeley.) Deon was a competitive programmer and two time finalist for the ACM International Collegiate Programming Competition. He interned at Facebook, Palantir, Dropbox, and then worked at Pure Storage. He is a husband, a father, and an entrepreneur.

Sami Ghoche, a co-founder of Forethought, is originally from Lebanon. He came to the United States to attend Harvard University, where he studied Computer Science scoring a mere 3.99/4.00 GPA. He then did a Masters in Computer Science at Harvard as well and this time he didn’t miss a beat with a perfect 4.00/4.00. And wait, he actually did both his undergrad and masters concurrently and graduated with both at the same time in 4 years! And his thesis was on a new algorithm for clustering of text documents that is being used at Forethought now. Sami interned at and worked at LinkedIn before joining Forethought. He knows more about the guts of models, training, and the guts of AI, NLP, and Machine Learning than most of the people I know (and I think I am lucky to know a lot of smart people!). Sami is an engineer’s engineer.

Colm Doyle, a co-founder and the Chief Commercial Officer at Forethought, is originally from Ireland. He attended Trinity College in Dublin, and the Dublin Institute of Technology. Colm is a veteran in the Enterprise Search space, having worked at Autonomy (Autonomy was acquired by HP in a multi-billion dollar deal) and Blinkx. Colm understands both the business and the technology behind enterprise search and he understands enterprise sales. And he does all of this with hints of his delightfully charming Irish ways. Colm is a foodie and a restaurateur, and he brings doughnuts to The Kennel! (even though I’ve tried to convince him not to!)

This is a team of immigrant founders. A Canadian (eh!), a Lebanese, and an Irishman walk into a bar… sorry, I digress. But yes, a Canadian, a Lebanese, and an Irishman are the co-founders of Forethought AI, the winner of TechCrunch’s Disrupt 2018 Startup Battlefield. What was that about immigrants getting the job done?

In our current political climate that demonizes most immigration, and has actually been taking steps to make even skilled immigration harder (I also see this through the lens of other K9 portfolio companies with immigrant founders) Forethought is just one reminder that skilled immigrants come to the United States to build lives, careers, and companies. Companies that create more jobs and more opportunity right here. I’ll end my political tirade here.

Enterprise Search

As Deon points out in the opening of their pitch at TechCrunch Disrupt, today, we can access an enormous amount of information at our fingertips just by doing one Google Search. But the same is not true inside organizations. Enterprise search has become an almost forgotten space. There are very few companies innovating in this area leaving almost a vacuum.

For a long time people thought that Google was going to dominate all of search. After all they had the technology and the resources to do just that. Google tried. But even the mighty Google has struggled with enterprise search. They have sunset their Google Search Appliance.

Building enterprise search is not just about search. It is about workflows. That is one of the most brilliant insights that the Forethought team has uncovered. In an enterprise use case it isn’t sufficient to just be able to find the right information; it is important to find the right information, at the right time, for the right person, in the right form. That in my opinion is the key to getting enterprise search done right.

The Forethought team gets this. This is why we didn’t just start by building a generic search product to replace the Google Search Appliance. Instead it’s about embedding the search ability into business workflows. As Deon said to me, his goal is “To make everyone a genius at their job.” And you do that by augmenting human abilities, with the right information, at the right time, and in the right form.

Forethought has started with customer support as their first foray for this. They can demonstrably make customer support agents more efficient at their jobs almost overnight. The choice for customers is clear. They can either increase their customer support staff by 20-30%, which would probably take time to do, and cost a lot of money, or for 1/10th of the cost, they could increase the productivity of their existing support staff by 20-30% (and in some cases as high as 1.5x!). If you’re running a support team using either Zendesk, Salesforce, or Front, you should be talking to Forethought.

Behind the Scenes

I’d like to thank Sumeet Gajri, for introducing me to Deon. Sumeet gets the credit for recognizing Deon’s brilliance and connecting us when it was still incredibly early, or as some have described as — when the concrete was still wet.

When Deon and I first met, the ideas and the thinking behind enterprise search above, which feel so clear in hindsight were still fuzzy. Deon always knew he wanted to “make everyone a genius,” but we had to still figure out and add the “at their job” to that statement to focus and define the mission of the company.

Forethought was the first investment for K9 Ventures III, K9’s new fund that was announced in 2017. The company has come a long way in a short time, not only having figured out what to build, having built some of the best technology in the world for it, and having brought on an impressive list of customers as well.

I’m incredibly excited about what the future holds for Forethought, and I’m honored to work with this team. Onwards!

The post What you didn’t know about TechCrunch Disrupt Winner Forethought AI appeared first on K9 Ventures.