A friend of mine is a partner at a large VC firm. He’s an awesome dude and today we got into a debate about this tweet:

.@fcollective is looking fwd to seeding great startups this summer while big VCs are on vacation spending their management fees less than a minute ago via Twitter for iPhonechris dixon
cdixon

I commented and then a few minutes later, my VC friend DM’d:

“You don’t think Chris is taking a vacation this year? He has more money than many VCs (including me!). I’m working all summer.“

An entire debate ensued between the two of us. Rather than give you the details, I thought I’d step back, abstract it at the high level, and then re-render our conversation as if it was a theoretical discussion between “Product Guy” and a “Marketing Guy,” re-told by the creators of South Park.

MG: Dude, you really need to change how you do shit. Your brand is getting destroyed out there by Other Guy.
PG: Are you fucking kidding me??? Our product has X, Y and Z features that Other Guy wouldn’t even know how to build if they popped out of his asshole and smacked him in the nuts. Our product is vastly superior.
MG: Interesting. So why don’t you say that on your interwebs blog site? I mean, you are an internet company, right?
PG: Dude, I’m so busy working on product, why the fuck would I waste my time on a silly little blog. I’ve got real shit to do!!!
MG: You know, Other Guy is killing you on his blog and raping you on the Twitters. Not that I believe it all, but I’m a total n00b when it comes to your product and despite all those warnings on the box, I actually do kinda believe everything I read on the interwebs. I mean, I’ve got no other good source of info. And Other Guy seems really smart and entertaining.
PG: Pttttfff!! You’re an idiot if you believe Other Guy. What a douche.
MG: Perhaps. But I’m not the only one. Most people don’t really understand your product anyhow, and you’re a dumbass if you actually think that people make decisions based on a rational comparisons of perfect information. The world doesn’t work like that, and if it did, well, I’d never get laid.
PG: I respect you less with every word you say.
MG: Hey dude, I’m just one man. Hate the game, not the player.

My message: If you’re a big VC and you’re tired of getting trashed by Chris Dixon, you should speak up and publicly make your case. If you don’t, you risk looking like you either don’t understand the internet or don’t care about it. Both are bad. So speak up. We’re listening. And we want to hear what you have to say. (Seriously, we’re n00bs and we get all our info from the internet. If you write, we’ll read.)

I ran across this "shutting down" letter from a YC startup called NewsLabs. Here's the crux:

As I'm sure you've noticed not much has been happening with the site recently. I'm very sorry to report that this is because NewsLabs is ending.

As you know, founder Paul Biggar was on his honeymoon for most of May [company launched in April] so I was taking charge of direction. During this time I spoke to many of you on the phone and emailed the group to let you know that we were going through a difficult post-launch period where we were struggling to reach an audience for your work. It seemed like we had the right parts (your writing and our technology) but maybe we needed to be more directed (by getting the editors involved) to move out of the hole we were in.

via www.poynter.org

This is from their TechCrunch write up in April, when they operated as NewsTilt. 

The site is currently accepting applications from journalists who want to start a news site on NewsTilt, and is being extremely selective with which journalists are accepted NewsTilt has assembled a seasoned editorial team in place to oversee the operation, headed by Jon Margolis, former chief National Political Correspondent for the Chicago Tribune. 

So far, the startup has only selected 30 professional journalists out of 150 who’ve applied, and each applicant goes through a rigorous screening to ensure that any content they create is both well-written and has editorial quality. The accepted journalists will write from all over the world, including the U.S., China, and Turkey, and will be reporting on a number of niche topics including technology, news in Iran, business travel and more.

To recap: In December 2009, NewsLabs is accepted into Y-Combinator. In April 2010, NewsLabs launches to the public. In May 2010, the Founder of NewsLabs goes on honeymoon for a month. In mid-June 2010, the Founder of NewsLabs quits. In late-June 2010, NewsLabs goes out of business.  

Hmm.

I guess my first question is this: How the hell did no one forsee this problem??? Honeymoons require planning, especially the month-long variety. And who the hell plans a honeymoon right after they launch a startup? How did anyone think this is OK? It just seems completely irresponsible and a betrayal of his co-founder(s), employees and investors.

Now, I understand that people start companies all the time that aren't that serious about their missions, but these guys came out of YC. He took a slot that could have gone to an actual team of real founders who actually give a shit. To just throw an opportunity like that away out of pure laziness just makes me sick. 

And not only that, they signed other people up to work for them! WTF?? I pray they didn't get investors. 

It's one thing to try and fail. I'm cool with that. But to have others counting on you and not even try, well, that's just shameful. And it makes the rest of us––we who are working 16 hour days/7 days a week living in a co-founder's dining room, scraping to turn a vision into a reality––look bad too. It's like when startups scam their customers and employees; it's a PR blemish for the whole category. 

Sometimes when you make promises, you have a duty––not to keep them, but to try. 

This is from Quora. My answer is below…
When is machine learning better than crowdsourcing?

While it depends on the complexity of the task and the desired quality of the results, if you need to guarantee high quality results, it is best to augment ML with crowdsourcing. 

In fact, over the next few years, I think you can expect to see an increasingly symbiotic relationship between crowdsourcing and machine learning. 

• Crowdsourcing is an infant industry, the inner dynamics of which are poorly understood and for which there is only the scantest academic research. The innovation that's happening at companies like Crowdflower (disclaimer: the CEO is an advisor to my company) and SpeakerText (disclaimer: this is my company) is just barely scratching the surface of what can be done by applying ML and advanced statistics to crowdsourcing processes. Expect this space to heat up in a massive way over the next five years. 
• Crowdsourcing is the most cost efficient way to get labeled training data, and for certain kinds of ML problems––most notably speech-to-text––the size, quality and relevance of your training data set matters more than the algorithm itself. Historically, speech companies budgeted millions of dollars just to acquire a sufficient set of training data. Now, because of the internet and things like Mechanical Turk, you can easily tap into cheap, on demand labor and even turn what was once considered "work" into a game played by people across the globe.
• ML + Crowdsourcing = Supervised Learning. Quite simply, if you first attempt to solve a problem with an ML algorithm––like say speech-to-text––and then assign a human to correct any errors, you can––if you do it right––not only reap huge short term efficiency gains (vs pure human effort), but also improve machine accuracy over the long term by adding more and more labeled training data into the system. The result: constantly increasing labor efficiency, lower costs, and smarter machines––coupled with extremely high quality results.

These ideas are fundamental to the technology that we've built behind SpeakerText. If we're wrong, then the company is fucked. If we're right, well, I'll let you figure it out…and we'll see what happens.

After seeing the constant pants-jizzing on Twitter by Keith Rabois about Quora, I finally signed up and started using the service. Today I got this question…

Matt Mireles, As a CEO, do you find that your mohawk has a positive, negative or no impact on how you are received by peers and members of the funding community (VCs, Angels, Bankers)?
The reason I ask is because I am in a VP position now and am looking to found a company and although I don't have a mohawk, I do have a very large imperial mustache, and I'm wondering what to expect.

My response…

It depends on who you are as a person, what kind of public persona you want to cultivate, and what kind of market you're pursuing. 

Generally speaking, having an unorthodox/flamboyant persona is a strategic asset if you're selling to consumers. Remember, when you're a startup, any press is good press. And umm, yeah, you've got nothing, ergo you've got nothing to lose!

That said, if you're selling to businesses, the flamboyant persona tends to be more of a liability––or at least it takes a lot more finesse and work to neutralize the liability aspects and magnify the asset value. 

For me, the mohawk is and was a conscious choice and part of a broader branding strategy for both myself and SpeakerText. In my view, the "CEO with a mohawk" is just part of a larger decision to be known as a slightly crazy, shit talking, scrappy mofo of an entrepreneur with working class roots––despite an Ivy League pedigree. Similarly, I want SpeakerText to be known as a scrappy company filled with serious hackers who care about satisfying customers and achieving world domination WAY more than pleasing investors or adhering to uptight social norms.    

Simply, I decided that I was going to be a high-profile person and create a high-profile company with a very strong and meaningful brand.The mohawk, the blog, the plentiful f-bombs, etc. are all just a part of who I am as a person, but I also choose to accentuate that part of my personality for strategic reasons. 

The beauty of this approach, if you ask me, is that it creates a very useful selection effect with regards to potential employees and, to a lesser extent, investors. When you have a strong brand that's genuine and that you're proud of, especially one that seems "risky," it signals that you the founder are a person of principal, that you stand for something beyond making a quick buck, that you're passionate and you care. Some of the best people spend their whole lives searching for meaning, searching for a community of people with real values. And by being unafraid, by signaling that you in fact are willing to risk a suboptimal short term outcome by cutting a contrarian view, you become able (quite ironically) to attract some of the best people to join your crazy company at a discount, sometimes at a steep discount, versus the market rate, which is the key to long term success. 

In case you missed it, Saturday was fight night in NYC: VC-on-VC, Dixon vs. Robinson. Robinson as in Jim Robinson IV, managing partner at RRE Ventures. Dixon as in Chris Dixon, founder of Hunch and partner at Founder Collective. The sparks were flying…

Chris Dixon: "A guy born a millionaire who never earned a thing in his life should be really careful throwing around 'populist blather.' Fuck you."

Ouch! Chin check…

Chris Dixon: "@jdrive: Heh, yeah, i bet you had a lot of long, profound thoughts about "populist blather" growing up as the son of AMEX's CEO."

Jim Robinson IV, as it turns out, is the son of Jim Robinson III, former CEO of American Express. 

"Jdrive" retorted: "@cdixon BTW my inheritance in life to date? $35k. Nothing more. Wish I got money Just got the name. U don't know me; u just think u do."

In a way, I feel bad for Jdrive. What if his pa' didn't give him shit? And yet we give him shit as though he did. Maybe our assumptions are wrong (although I'm sure he got plenty of non-cash and non-monetary support along the way, especially access––the Robinson name itself is surely worth a lot in terms of doors opened and such). 

But if I'm gonna be intellectually honest here, I gotta admit that hearing Chris Dixon shame the man for being a silver spoon triggered a dopamine squirt in my brain. Class warfare, it turns out, is fun. And just about every entrepreneur on Twitter who saw the exchange thought the same thing: "Yeah, fuck that guy!" 

The next day, I got a series of DMs from a friend of his who spoke in his defense: "He actually is quiet. not trying to be a rock star blogging VC…so usually doesn't blog."

Another: "anyways, assumption is there b/c of who his dad is. but it's actually a much diff story."

To be clear, this post isn't about Jim Robinson IV per se––no, it's a post about personal branding. Jdrive is just a convenient (and tragically entertaining) example of what can happen when you neglect your personal brand. 

To be clear, Jdrive is right: We (including me) don't know the man. 

Everyone who actually knows the younger Robinson says great things about him. And RRE is consistently ranked in the top 5 VCs on The Funded by entrepreneurs. My only interaction with Jdrive was at an RRE sponsored happy hour in NYC. He mostly stood in the corner talking with other VCs. He didn't interact with us entrepreneurs much. At the time, I thought it was kind of stupid to throw an event for entrepreneurs and then spend the entire evening talking with your VC friends. Actually, I left the event thinking the guy was sort of a dick. Not for a particularly good reason, mind you, but it just seemed like he didn't care about or want to meet entrepreneurs. 

But as suggested by his defenders, there's another entirely rational explanation: Perhaps he's just not an super outgoing guy. Maybe he is, as his friend suggested, actually kind of quiet. Not everyone loves to blog and meet strangers 24/7, after all. In fact, for most people, the whole constant pitching process can be quite tiring. And maybe he's just a normal dude who doesn't fixate on putting himself out there for the whole world to see…

Define Your Brand, Lest Others Do It For You

Ok, so let's see here, what happens when you Google "james robinson IV" ? First hit: a Wikipedia entry for James Robinson III, Jdrive's gazillionaire dad. Hmm. Not really the message I'd want to send if I was marketing myself to broke ass entrepreneurs piling up credit card debt and living on Ramen. Perhaps a little SEO is in order.

Ok, so let's see the guy's profile on RRE.com…

"Jim Robinson is a Co-Founder & Managing Partner of RRE Ventures. He has been active within the technology community for over twenty-five years as a venture capitalist, entrepreneur and banker."

Hmm. Banker. Again, probably not a fact I'd want to highlight. Not really seeing the scrappiness here. 

I can't ding the guy for dishonesty. But he's practically teeing himself up for Chris Dixon's charge of rich boy debutante-ism. 

And then there was a blog post that made the rounds a while back: Everyone Deserves a Trophy? 

"Sometime after my generation, everybody became a winner just for trying.  Everybody got an ice cream.  Everybody who participated got a trophy.  It wasn’t about winning or losing but about trying hard.

"It sometimes feels like this attitude has crept into the psyche of some entrepreneurs.  I respect nothing more than someone who quits a safe job and takes a huge risk to start something new.  I did and I know how scary it can be.  But startups are a brutal business, where few make money and many lose."

Now, I can't help but see some irony here: VC chastises entrepreneurs for demanding undue rewards; turns around and demands special lower tax rate for himself & fellow VCs. My gut reaction: Startups are a brutal business, bro. Few make money and many lose. Sorry man. Tough it out. And pay your fucking taxes, rich boy. 
 

To be clear, there's nothing directly incompatible between opposing the new carried interest tax and this "startups are a brutal business" bit, but it does kind sound like the man is asking for a trophy. Just a little.
  

Again, to be totally clear, I don't know Jdrive the actual human being beyond the most cursory meeting and what I've seen on the internet. In fact, I'm not really talking about Jdrive the man himself so much as I am his public image. 
 

Ok, so I've busted the guy's balls enough–here's another possible (and more charitable) take on the man…
 

Jdrive is the son of a very rich man who sought not to spoil his heir apparent and as a result, gave the young Jdrive jack shit as a child, forcing him to earn his position in life. And young Jdrive grew up to be a self-made man, at least as self-made as the namesake of an AMEX CEO could be. Jdrive lived in the shadow of his father, surrounded by wealth but never having it given to him. Unlike his ever-outgoing dad (I have no idea if this is actually true), he was quiet and reserved, not one to call much attention to himself. And yet he was smart and worked hard, insistent on adhering to the meritocracy that was forced upon him. He didn't pay much attention to his internet personality until one day…
 

Again, this is all pure speculation loosely based on what others have told me. However, if his defenders are right, the truth seems closer to this latter description.
 

So what's the point? 
 

The point is that if you don't create a strong personal brand for yourself on the web, others will define it for you. And the outsider definition will not be charitable, especially if you are in a position of power. 

Honestly, I think Chris Dixon went overboard last night in telling Jdrive to fuck off (my guess: he was drunk). It was a dick move. But he's Chris fuckin Dixon, the entrepreneur's VC, the man who fights for the little guy, the man whose tweets and blog posts we've been reading for months now. We know him. We have a relationship with him. He is our friend. We cut him slack. 
 

And so we are unfair to Jim Robinson IV, a man we don't know. We think we know him––we think he's a spoiled rich boy––but we don't, and he may not be. And whose fault is that? His––and his alone, for he has not told his own story, but let others tell it for him.

If the tables turn and you get a moment in the sun, what story will the world tell about you? And whose fault will that be?

To be 100% clear, I don't pretend to know the real Jdrive one way or the other. From all reports, he is an awesome dude, which makes this weekend's kerfluffle all the more noteworthy. My critique is narrowly focused on how he's marketed himself to the entrepreneurial community and managed (or failed to manage) his personal brand. I hold no personal grudge or ill will against the man. But seriously, Chris Dixon told him to fuck off this weekend. How the hell that happened is worthy of analysis all by itself. Hence my focus on him and not some other random person.

Today was an exciting day on Twitter. Huge debate/fight regarding the proposed "Carried Interest" tax treatment for private equity and venture capital fund managers. I mostly sat on the sidelines and retweeted the excitement (Chris Dixon told Jim Robinson IV of RRE to fuck off!). And in the middle of all this, my man Eric Wiesen, a newly appointed General Partner at RRE sent me this email…

From: Eric Wiesen
Subject:     Here's the problem
Date: June 5, 2010 9:58:21 PM ED
To:     Matt Mireles  
 
It's a problem because this tax will come in taxing carried interest, a sort of quasi-principal investing structure that GPs and LPs came up with decades ago to create the 80/20 split on the fund's upside that everyone agreed to. Post this change, LPs will be taxed at 15% which GPs are taxed at 35 or 40 or 45% (or wherever the marginal income tax rate winds up). And that will be true for current funds. But those who think this is a steady state are probably naive. Some future funds will be set up in a way that will pass some, possibly much of this tax increase onto LPs. And that lowers returns. Lower returns yield lower allocations to the asset class.
 
The alternative is actually more likely, in my view. GPs will simply come up with a different way to structure funds to simply avoid "carried interest" altogether. That's a structure that, as I said above, was merely convenient given the economics everyone wanted. Now it will be a shitty structure because despite risky, highly-uncertain returns that come many years after the original investment, GPs will be taxed as if it were "revenue". Most likely, everyone will simply get together and come up with another way to structure funds that avoids carried interest altogether. One way would be to simply say that GPs contribute "intangible assets" the way startup founders do as consideration for their founder shares. And for these intangible assets GPs will get a straight up 20% equity stake in the fund. And that will be fine for everyone (except Uncle Sam). But it's actually not as good for LPs because it's a lot harder to claw back a straight up equity ownership by GPs than it is for carried interest. 

Eric Wiesen :: General Partner, RRE Ventures

Eric is a man I know and respect. The added emphasis is mine, but the email is reprinted here with his permission. 

Now I'm not a money manager and I don't claim to be an expert on the inner workings of venture capital, but this whole argument strikes me as wrong headed…

Essentially, what the proposed law will do is recognize that money management is actually just a form of labor like any other, and tax the fees that money managers earn just like normal income as opposed to giving their management and "carry" fees capital gains treatment. Chris Dixon called this fair. VCs, acting according to their own self-interests, revolted. 

Now, back to Eric's argument: 

Future funds will be set up in a way that will pass some, possibly much of this tax increase onto LPs. And that lowers returns. Lower returns yield lower allocations to the asset class. 

Sure, SOME future funds will be setup in a way that screw LPs, but who the hell is gonna want to invest in those funds? Changing the standard fund structure across the venture capital industry will require the formation of a VC cartel. And that ain't gonna happen. Huge collective action problem. 

The reality is that VCs compete for LP money. And LPs are profit maximizers. I refuse to believe that they'll just passively accept shittier returns. I also refuse to believe that newer, younger VCs won't step up and say "Hey, I'll gladly take these management fees regardless of whether they're taxed as ordinary income or not. It's still good money!!"

More realistically, any fund manager who tries to game the system in a way that screws LPs to avoid this tax treatment better either have the last name Khosla or have very rich and very stupid friends. 

Honestly, I don't see this law affecting LPs one iota, nor do I see it diverting money from venture capital as a class. The only people I see this affecting are the VCs themselves. And really, they should pay their taxes just like everyone else. They ain't special. 

Here's an example of SpeakerText in action. The that's great thing about it. Look at what we're doing…

I sat down with Brightcove CEO Jeremy Allaire at the World Economic Forum in Davos, Switzerland last week to talk about his business.

Brightcove isn’t the sexiest startup out there. They’re a video platform – giving websites the tools they need to host and stream video, for a fee ranging from $100/month to “six figures per year” for the largest customers. For the most part users never see the Brightcove brand. And Allaire is just fine with that. He just wants happy customers.

ARRINGTON: What do they get for the $99?

ALLAIRE: They get basically the full tool set that, you know, maybe three years ago, people would have spent $30,000 on, so it’s – we’re really trying to, you know, in some ways, commoditize the market. 

The company launched in 2005, has raised just over $90 million in venture capital, and is approaching profitability, he says. Allaire says he wants to build a public company, and is happy being based in Boston.

Brightcove competes with newer upstarts like Ooyala, although Allaire says Brightcove remains the strongest company in its space. Another competitor, Maven Networks, was acquired by Yahoo in 2008 for around $160 million. The product was unceremoniously shut down by Yahoo a year later. Allaire says they picked up most of Maven’s customers.

You can see the full interview above. And don’t miss the outtake at the end of the video where Allaire gives some free tech support to a customer. Time Inc. reporter Barbara Kiviat was having some issues uploading a video.

ghoi

I've been thinking a lot lately about how we improve some of the structural issues with NYC as an entrepreneurial center/startup hub. It got me thinking of the debate around Nature vs Nurture regarding entrepreneurship. Here's some thoughts…

Some people are born entrepreneurs. They don't like rules. They don't like constraints. And they are able to combine that disdain for the status quo with a productive creativity. But it's not a binary either/or kind of thing. It's a trait that a lot of people have on some level, and the strength of its expression exists on a spectrum. I'll call this the Entrepreneurial trait "E"

Being an entrepreneur is not the same as starting a company. Business entrepreneurs are only one kind of entrepreneur, and sometimes starting a business (under certain conditions) doesn't require you to be very entrepreneurial. The more the environment discourages starting companies, the more entrepreneurial you have to be to start a company. Conversely, the more the environment encourages starting companies, the less entrepreneurial you have to be to start a company. I'll call this the Business Propensity co-efficient "b"

Propensity to Start a Company = E*b

My Dad's Story
My father has entrepreneur DNA in spades. And if not inborn, then the mould was caste at an early age. He was born in a one-room adobe house in the New Mexico desert in 1929. His father had died a few months before, and his mother, age 19, a kind and caring woman, possessed a high school diploma and not much else. From day one, as is custom in latin households for the eldest male, he assumed the mantle of "man of the house." 

When he was 6, my father was displaced as man of the house by a coal miner named Cunningham, who married my grandma. Cunningham would get drunk and beat her. In the winter of 1935, my father, my grandma and his newborn sister Dorothy escaped. My pa' was once again man of the house. 

When he was 12, he started working in a logging camp. When he was 14, despite being an awkward, skinny twerp, he started laying railroad tracks. The railroad foreman laughed at him when he showed up, told him he wouldn't last a day. His hands bled. He lasted.   

When he was 16, he announced to my grandma that he was moving to Los Angeles, that their little town in the desert was too small for him, that he needed to escape "the chains" that had been placed on his brain, that he had ambition that could not be met in Tularosa, New Mexico. And so they packed up and left. Their new home: a federal housing project in East LA. 

One thing you gotta understand about my dad (I'll get back to how this fits into the big picture in a sec) is that back in the day, he was angry. He was fatherless and brown and poor in a world where all the rich people were white––and something inside of him was deeply pissed off. This anger drove him, it compelled him to break the chains, to overcome the pain, to bleed, to do whatever the fuck it took to get what he wanted. 

This was a time when you could still call someone a "dirty Mexican" in polite company––back before the days of affirmative action and "diversity initiatives." What he got, he got because he was an entrepreneur. There were no businessmen in my family. My great grandpa had been a cowboy, literally. My grandma was a waitress. A few years after he passed the 20 year mark and––much to his surprise––was still alive, he decided to go to college. First East LA Community College. Then UCLA. Then UCLA grad school. And ultimately, a PhD and a professorship, which he used to start one of the first Chicano Studies departments in the country at East LA College and launch a bunch of other innovative initiatives. To finance this all, he used the GI Bill and worked as a construction worker, laying pipe in the streets. 

I tell this story of my father again because I think it's instructive. He clearly had the entrepreneurial DNA that Mark Suster described: Tenacity, Street Smarts, Ability to Pivot, Resiliency, Inspiration, Perspiration, Willingness to Accept Risk, Attention to Detail, Competitiveness, Decisiveness and Integrity. And yet he never started a company. 

Me thinks: Starting a company involves more than having entrepreneurial DNA. Education and culture have a HUGE role in the process. 

Social Networks & Education
Our educational system does not teach people how to start businesses or even the bare basics of how a business works. If you're starting out like my father did, the process of how you figure out the basics of business is opaque and horribly confusing, especially in a pre-Google world. 

The internet is leveling the playing field to some extent, especially in the startup world with the proliferation of high quality blogs that quite literally teach you the ropes (think Mark Suster, Brad Feld, Chris Dixon, Fred Wilson's MBA Mondays, Venture Hacks, etc). But the discovery problem hasn't been entirely solved yet. And nothing beats having a mentor or network of mentors who can answer questions and offer guidance, both intellectual (hello Quora!) and emotional. 

A lot of it is simply having role models––as Jordan Cooper put it recently in a comment: 

You need founders who look and smell like college students to come in and say, "look, I am not smarter than you. I was not better prepared than you. If I can do this…and…I AM DOING THIS…than you probably can too…

I don't think that student's are missing the "value prop" of starting a company, I think they just perceive themselves as somehow unprepared or unequal to the Mark Zuckerberg's of the world. in NY, students need to see hipsters in jeans and t-shirts building companies they know and respect, and then they need to calibrate themselves intellectually with those hipsters and realize there is not a whole lot of difference between the two groups.

Networks matter because the more people you see who look and think just like you starting companies, the less opaque and daunting the process becomes. Social networks serve as a source of informal education. (Social networks as in literally the people you know, not Facebook the platform.) And for folks who don't know a lot of founders, formal entrepreneurial business education can create real value and change people's lives. 

This was definitely true for me: I didn't know shit about business until I went to Stanford for a summer and attended a mini-MBA type training program they offer at the Business School. Not only did it teach me basic business principals, but also it helped me build a network. There I met Joe Kennedy, the CEO of Pandora. He has been helping me out and advising me ever since. 

Social Class & Economic Risk
I was drinking beer last night with some Columbia students. One of them was from Miles City, Montana. His mother worked as a waitress at diner, his father a manager at an auto-parts store. He had joined the Marines when he was 18, served two tours in Iraq as a Combat Engineer, and two weeks after being discharged, started Columbia. He had just finished his freshman year.

"What do you want to do when you're done?" I asked. 

"I dunno, maybe work for the CIA or something," he said. "Maybe law school. I dunno."

"Ever thought of starting a company?" I inquired.

He shook his head: "No."

When you come from the lower middle class and below, your idea of what constitutes attainable social status and overall life possibilities is very different than what your average Choate grad sees in his/her future. No one they knew growing up was a corporate exec. None of their friends' dads were entrepreneurs of the Silicon Valley (or often even the non-drug dealing) variety. Because there's such an information deficeit around entrepreneurship, lower middle class strivers don't even see it as an option, and instead they gravitate toward the known, well-established means of upward mobility: Grad school! Big, brand name companies! Not little fucking startups involving shit pay and a life of teetering on the economic precipice. 

Furthermore, people who come from poor or less-than-wealthy families tend to have a lot of student debt. It raises their minimum livable monthly income, and that makes doing a startup much, much harder. Plus, these peeps tend not to have the mom & dad cushion to fall back on––and more likely, they're sending cash home to their families. So not only do they perceive it, but they actually are subject to greater economic risk. 

No discussion of creating an entrepreneurial culture is complete without taking this socio-economic reality into account––which is doubly important given that so many entrepreneurs and investors know so little of it. 

Our current system is really good at getting––to paraphase John Doerr––white, upper middle class geeks to start companies. But that is an inefficient use of our societal talent and aggregate entrepreneurial DNA. Does anyone really think there's something inherent in the white, upper middle class geek population that makes them pre-disposed to starting companies? Or is it that they have the right combo of social networks, education, economic situation and informal education to take the leap? 

Venture Capital returns are down. We need a fatter pipe. We need more entrepreneurs starting companies. And it's not a matter of "making entrepreneurs" out of scratch. Rather, we need to actualize the latent entrepreneurial DNA and talent that exists in our society but goes unrealized because that silly Business Propensity co-efficient. 

There are thousands upon thousands of people out there like my father: Entrepreneurs at heart, but uneducated in and disconnected from the fabric and inner workings of capitalism. Because we don't know who they are, we need to provide business training "nurture" in a more formal, evenly distributed and systematized way to all of society. It's the only way that we'll get more of this latent entrepreneurial DNA to actually go out and start companies.

In the matrix, the green represents good alignment, the yellow represents ok but keep watch, and the red represents where I see some of the larger disagreements. The matrix explains the basic situation for all 4 combinations so I’ll just focus on the yellow and red areas as the green areas are fairly self-explanatory and straightforward.

Yellow – Smaller VC fund, Smaller exit need, Entrepreneur looking for large personal win $25-50M. While there is some misalignment here, this is actually a less common situation and often doesn’t become an issue in practice. The reasons are that many entrepreneurs looking for big exits often have already had one hit and have plenty of personal funds. They often use their own money to self-fund the business initially and often don’t need a small amount of outside money but go straight for a much larger Series A from a larger VC. In addition, even for smaller funds who do invest early with these entrepreneurs, if the company is doing very well, those investors are happy to bring in larger VC syndicate partners who have deeper pockets and can fund to a much larger exit. The smaller VC will get a good bump in valuation and is happy to leverage their investment to go for the big exit that the entrepreneur and new VC seek.

Red – Larger VC fund, Larger exit need, Entrepreneur looking for moderate personal win $5-10M. This is where I see the most misalignment, conflicts between VC and entrepreneur, and the primary focus of this post. The conflict occurs in many different situations – whether a company is doing well or not. When companies are doing well, they often have opportunities to exit earlier from incoming acquisition offers. For an entrepreneur who has an opportunity to exit a company at $50M and thereby allowing the entrepreneur to personally make more than $5-10M, this often isn’t big enough to interest the VC who can block the exit and push the company to go for higher exit size (but often a much higher risk to the company). Other areas that this occurs is when determining whether to grow/expand quickly vs getting to profitability. For an entrepreneur to reach his objective, slower growth but getting to profitabilty faster can be the best option, but for the VC, growth over profitability is often the objective thereby require more spend and often leading to more financing rounds diluting the entrepreneur….and these disagreements occur when the company is doing well so generally everyone is happier and want to work together. The misalignment get much more contentious when the company is not doing as well.

Given the varied perspectives of different VCs and entrepreneurs, founders should make sure they understand this dynamic (as the VC will definitely be experienced and understand this well).

via www.socaltech.com