Calling BS

Vanity Fair recently published a expose on Theranos.  It is worth reading.  Like a mini “page turner” novel.

It reminded me of one of my personal themes in investing:  “if you don’t understand the technology then don’t invest.”  The understanding can definitely be acquired.  In fact, I rarely understand the technology when we first meet with a company.  But over our months of due diligence the understanding grows.  And sometimes my partners’ understanding is a good proxy.  BTW, understanding does not mean being an expert.

So, how about these words that Vanity Fair wrote about Elizabeth Holmes, the CEO of Theranos:  “She took the money on the condition that she would not divulge to investors how her technology actually worked, and that she had final say and control over every aspect of her company.”   All I can say is OMG.   Are you kidding me?  Who would invest into a black hole and control freak?  Not sure what else to say.  Granted that this is all hearsay.  I have no proof that this is what actually happened.  All I will say is that if you get whiffs of this type of attitude you should run the other way.   And now that I think about it more, we actually did get caught in a similar situation once, but by no means as blatant.  It is not working out well!!

The Vanity Fair article also offered up an interesting synopsis of venture capital:

“It generally works like this: the venture capitalists (who are mostly white men) don’t really know what they’re doing with any certainty—it’s impossible, after all, to truly predict the next big thing—so they bet a little bit on every company that they can with the hope that one of them hits it big. The entrepreneurs (also mostly white men) often work on a lot of meaningless stuff, like using code to deliver frozen yogurt more expeditiously or apps that let you say “Yo!” (and only “Yo!”) to your friends. The entrepreneurs generally glorify their efforts by saying that their innovation could change the world, which tends to appease the venture capitalists, because they can also pretend they’re not there only to make money. And this also helps seduce the tech press (also largely comprised of white men), which is often ready to play a game of access in exchange for a few more page views of their story about the company that is trying to change the world by getting frozen yogurt to customers more expeditiously. The financial rewards speak for themselves. Silicon Valley, which is 50 square miles, has created more wealth than any place in human history. In the end, it isn’t in anyone’s interest to call bullshit.”

My reaction that synopsis, which definitely made me chuckle:

  1.  The white men comments are true.  Change is happening at a slow pace.
  2. Good VCs typically do know what they are doing, but some are so full of themselves that they come across as very pompous.  But most VCs I deal with are good people with lots of brain power.
  3. Most companies I see are not working on meaningless stuff.  But we focus on upstate NY!!
  4. There is nothing wrong with a “Change the World” CEO as long as they are realistic and focus on building a big company that will make money.
  5. VC is definitely about making money.
  6. It is in EVERYONE’S interest to call bullshit.  Please do just that all the time!

 

Immigration Issues

Guest post today from Steve Yale-Loehr, a leading immigration law expert who lives in Ithaca.  Steve teaches at Cornell Law School and is a partner at Miller Mayer, LLP (a law firm in Ithaca).   Steve sent me this email today, which I thought was perfect for a post.  Immigration hurdles are a serious issue for startups.  The proposed rules are a step in the right direction.  Here you go:

Zach: Today the U.S. Citizenship and Immigration Services (USCIS) issued a proposed rule to allow certain international entrepreneurs to be considered for parole (temporary permission to be in the United States) so they may start or scale their businesses in the United States.

The proposed rule would allow the USCIS to use its existing discretionary statutory parole authority for entrepreneurs of startup entities whose stay in the United States would provide a “significant public benefit through the substantial and demonstrated potential for rapid business growth and job creation.” Under the proposed rule, the USCIS may parole, on a case-by-case basis, eligible entrepreneurs of startup enterprises:

  • Who have a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operations;
  • Whose startup was formed in the United States within the past three years; and
  • Whose startup has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by:

–      Receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;

–      Receiving significant awards or grants (at least $100,000) from certain federal, state, or local government entities; or

–      Partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity’s substantial potential for rapid growth and job creation.

Under the proposed rule, entrepreneurs may be granted an initial stay of up to two years to oversee and grow their startup entities in the United States. A subsequent request for re-parole (for up to three additional years) would be considered if the entrepreneur and the startup entity continue to provide a significant public benefit as evidenced by substantial increases in capital investment, revenue, or job creation.

The U.S. Alliance for International Entrepreneurs (USAIE) has written the attached summary (usaie-comments-on-proposed-immigrant-entrepreneur-rule-1 ) and initial analysis of the proposed rule.  It is also on the USAIE website at http://usaie.org/uscis-proposes-international-entrepreneur-rule-usaie-summary/.

I am a founding member of USAIE, and helped draft the summary and analysis.  Please forward to interested international entrepreneurs.

USAIE will draft a model comment on the proposed rule.  Please let me know if you or anyone else at Cornell would like to receive that model comment to help you submit your own comments on the rule.

Thanks, Steve

Team, Team, Team

You all likely know that most VCs consider the management team to be the top measure of potential success of the venture.  This post is not about that point, at least not directly.

I want to instead focus on the importance of the entire team (not just management) and the importance of making sure that the team can play together.   I am going to use my past weekend’s soccer experience as an analogy.

I organized and played on an Over 40 soccer team this past weekend in a small tournament in Ithaca.   There was no Over 50 bracket or I would have played in that!   So, there were 4 total teams in the Over 40 bracket.  Two teams from Ithaca (one of which was mine) and then one team from Vermont and one from Binghamton.  You are going to have to trust me that no matter how in good shape you might be, playing 4 soccer games in one weekend when you are over 40 means that you can barely walk come Monday.  Advil turns into candy.

When organizing the team, I managed to get this one guy who is an exceptional player – better than anyone else on the team.   I will call him Jim for purposes of this post.  On Saturday, we tied both of our games (against Vermont and Binghamton).  The catch was that Jim could not play on Sunday.  I knew this going in.  And to make things even more interesting, Vermont outplayed us and we literally tied the score on a questionable call that resulted in us getting a penalty kick, which Jim converted.   Time ran out and we tied 2-2.  Vermont team was pissed, but that is soccer.   We knew that the top 2 teams in the group would play for the championship Sunday afternoon.

Well, you guessed it…..the top 2 teams were mine and Vermont.  Vermont wanted revenge, clearly.  We were without Jim.  I was a bit concerned.  But we ended up playing exceptionally well – better without Jim!  We won 2-0.  It was kind of unbelievable.

Relating back to startups – it is not good to rely on one person.  Not the CEO, not the head of engineering, not the head of sales.  You get the point.  Playing together as a team is the path to the best results.  CEOs who don’t realize this will often get fired or just fail.  I think one of the primary roles of the CEO is to make sure that the team dynamics are as good as possible and get the entire company pulling in the same direction.  This is not to say that there cannot be stars on the team, but it is WAY better if the stars end up rotating around.  The larger the group of people that feel like they contributed to a win, the better off the company will perform.  And the successes will keep coming.

My entire Over 40 soccer team all felt that they contributed – we only had one sub for our last game so that is an understatement.  Team play captured the championship.  Make it happen!

IMG_2617

If it smells bad, it probably is

We all live in a world of conflicts.  I am particularly sensitive about conflicts due to the roles I have at Cayuga Venture Fund and Cornell.  I think that everyone should conduct business in a way that will not provide fodder for an unsavory newspaper article.  All the recent press about Theranos is a great example of this.  Regardless of your views on situations like Theranos, it is likely that some of what you might read in the newspaper is true.

You might call me naive, but my approach to competing accounts of juicy situations is that there is probably some truth in both sides.  This applies to all sorts of situations, be it feuding companies or feuding people.

So, this morning my wife forwarded me an article on Hampton Creek, “Hampton Creek Ran Undercover Project to Buy Up Its Own Vegan Mayo”.  Now, my wife loves Hampton Creek Mayo, but even this one caught her attention enough to forward to me.  Furthermore, the company’s CEO is a Cornellian (yes, I knew him when he was a student).  The article claims that Hampton Creek had a systematic program of having its employees and contractors literally buy lots of product off store shelves thereby inflating velocities (i.e., how fast a store sells a given product typically measured in units/cases per week) and effectively overstating sales.  Hampton Creek has raised millions and millions of dollars from VCs and wealthy investors……and this is not the type of press that any investor wants to see.

Without saying much more, this type of practice would and should produce a media frenzy.  I am picturing myself in the management meeting when this idea first came up. “Hey, let’s buy up lots of product under the guise of quality control.”  Kind of ridiculous.  Ok, not “kind of”, just ridiculous.  Note:  for all I know, the company’s board of directors approved the plan.  I have no idea.

And I have no clue as to the merits of the press’s coverage or the company’s position.  I have only read one article on this.  The lesson though is simple:  if some plan or proposed action leaves a bad taste in your mouth then don’t do it.  Chances are it will back fire.  Said another way, if something smells like rotten mayo, then don’t eat it.

I believe that being transparent and dealing with people who are transparent is a proven road to overall success and achievement.  Sometimes I am overly direct and have been criticized for it.  Yet, trust is a fundamental pillar of relationships.  If you sense any pang of distrust in someone you are dealing with then trust your own instincts.

In the meantime, go buy some mayo!

Yes, I am still kicking!

Hey everyone, it seems like forever since I added a new blog post.  And this one is going to be brief to boot.  

Things have been incredibly hectic mostly in a good way.   At Cornell, at the beginning of June we opened our new eship space on campus called eHub.  And our eHub location in Collegetown is opening in about a month.  The construction has been time consuming and so has been working out the kinks of the facilities.  At Cayuga Venture Fund, we have been making a bunch of new investments, which is always time consuming.   Never a dull day.

Now I am going to be a little “Brad Feld-ish”, which means a bit overly personal.  Over the past months we renovated a lake house here in Ithaca and have been busy renting it.  And my dear dad passed away over Memorial Day weekend.  Lots on my mind.

In short, my brain has been full up.  But things are settling down so I hope to get back to regular postings very soon.  Thanks!