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The Founder Quotient: How To Measure Founder Strength | TechCrunch

I thought I had posted this article to my blog but did not.  Here is some of the text:

At Charles River Ventures, we seek to support founders who can build foundational companies in their respective industries and, in so doing, have a huge impact on the world. Over the last 40 years, 15 funds, 70 IPOs, and 100+ M&A events, we have been fortunate to get to know thousands of talented entrepreneurs. We know that high-impact companies are able to constantly face adversity and navigate changes in markets, technology and competition over extended periods of time (years – not months!). The key to this capability is outstanding founders. That is what drives our business.

It is also one of the greatest mistakes that venture capitalists make. A false read on a founder, or a founding team, has cost us more in missed opportunities than almost any other decision in our business. And when we find amazing founders we support them through thick and thin. Just this summer, David Sacks sold Yammer to Microsoft for $1.2 billion in cash (CRV was the largest investor). The story that is less often told is that my partner George Zachary had also invested $10 million+ in David’s prior company, Geni, that did not work out as planned. However, despite this first outcome, George still had a ton of conviction to invest in David again before Yammer ever got any meaningful traction.

My point is that our history has shown us that investing in early product/market fit can create a false positive about a company which can be a big mistake. Similarly, so can reading too much into the lack of early product/market fit. Great companies have to continually adapt and be willing to take risks. And while we work our asses off to help, ultimately we rely on our founders to make the right calls in navigating their respective markets.

As such, we spend a tremendous amount of time at CRV getting to know founders and evaluating founding teams. We have to do this, because a majority of our investments are in founders raising venture capital for the first time. They are not known entities. Internally, we call our founder analysis FQ or the Founder Quotient. The Founder Quotient is an assessment of founder strength and founder/company fit. Similar to an EQ or IQ test, but for founder strength (hence FQ).

The way we measure FQ has been refined over the years. I could write a book about each of these factors. For now, I will share a high-level list of attributes we look for and weigh, in different ways, in our FQ:

  1. Original product thought. Most founders copy. We look for the 1 percent of founders who have their own original strong views on how to build a great product (e.g. it took a Steve Jobs to set the touchscreen standard for smartphones).
  2. Psychological factors. What drives this person? Are they driven to face the adversity and uncertainty of startups? Do they have a chip on their shoulder and/or something to prove? Do they have a strong desire to win? Are they willing to make the sacrifices required to succeed? This is often influenced by their childhood.
  3. Authenticity. Does this company align with the founder’s beliefs and values? Do the founders care deeply about the problem they are working on? How passionate are they?
  4. Unique market insight. Do they have a unique insight into what the problem is, market timing, how the future may play out?
  5. Intelligence. IQ, EQ, self-awareness, ability to hold convictions loosely, etc. Startups are like chess. The founder needs to be able to think several moves ahead as it relates to product decisions, business decisions, and people decisions.
  6. Values. Are they honest? If they are in a people-intensive business, do they genuinely like and value people or are they too focused on themselves?
  7. Judgment. Product judgment, people and hiring judgment, etc. Do they exercise good decision-making skills no matter how small or large the decision?
  8. Experience. Are they uniquely capable of executing? Do they have a relevant 10,000 hours?
  9. Ability to recruit. Includes selling a vision, being respected, build a cross-functional team, having a network, etc.

What other factors do you think we should look for in determining FQ?

Jan 2

Why Most Startups Fail at Customer Acquisition (and how you can succeed)

Spending the day working on my slides for my upcoming Stanford lecture on customer acquisition and sales.   Sharing a draft in case any of you have comments/suggestions:

The story of Zendesk (and CRV)

rafaelcorrales:

By early 2009, a few million dollars from CRV was in the three-year-old SaaS company. With this new cash, Svane started to hire additional developers.

To be closer to Yellurkar, the trio started talking about possibly moving the company to the U.S. For Svane, he had always wanted to live in the U.S. at some point. Plus, they would be closer to investors, and their customers, which at the time, were mostly based in California. But the challenge of moving families away from home was daunting.

As Zendesk was contemplating the move, a bunch of VCs started calling. Many, including, Yelp, Twitter and OpenTable-investor Benchmark Capital, caught wind of Zendesk through portfolio companies using the customer service software. In a period of 10 days, three different Sand Hill road VCs flew in.

For Svane, Yellurkar had always felt like a member of the team since he joined, so the barrier to accepting another VC was high. It’s not that he didn’t trust institutional investors, but after being burned, he was wary of VCs who didn’t want to get their hands dirty. He knew Zendesk still had a long road ahead and he wanted a partner, not just an investor.

We really don’t talk about ourselves at CRV - we prefer for our work to continue speaking for itself. And more importantly, we prefer to always give credit to our founders - they are the real geniuses, no matter what. In the case of Zendesk, they are particularly brilliant!

But when articles like this come out crediting CRV as the very first VC and more importantly as a true partner to founders, it warms my heart. In this specific case, I love the public credit to my partner Devdutt Yellurkar for his work, support, and partnership with a great company like Zendesk.

“You cannot stay on the summit forever;you have to come down again. So why bother in the first place? Just this:   What is above knows what is below, but what is below does not know what is above. One climbs, one sees. One descends, one sees no longer, but one has seen. There is an art of conducting oneself in the lower regions by the memory of what one saw higher up. When one can no longer see, one can at least still know.” 
— René Daumal

“You cannot stay on the summit forever;
you have to come down again.
So why bother in the first place?
Just this:   What is above knows what is below, but what is below does not know what is above.
One climbs, one sees.
One descends, one sees no longer, but one has seen.
There is an art of conducting oneself in the lower regions by the memory of what one saw higher up.
When one can no longer see, one can at least still know.” 

— René Daumal

Jun 6

Why SUP got Huge! And 3 Lessons entrepreneurs can learn from SUP’s Success

As my friends know…I am an avid kiteboarder. My industry friends have shared that in the past few years, SUP has come out of nowhere and become bigger than windsurfing, kiteboarding, and a number of other water sports combined. Some folks think SUP may even become bigger than surfing. The folks that I talked to see three key reasons for this growth that can be a great reminder for entrepreneurs trying to build mass market product successes:

  1. Easy to learn, Hard to Master - Most people look at a SUP and think they can stand on the board and hold a paddle…no problem. There is no major instruction or training required to get on a board and to try the sport. And there are no major safety issues that you can get wrong and hurt yourself. Nolan Bushnell (founder of Atari) claimed this theorem in video game design: “All the best games are easy to learn and difficult to master. They should reward the first quarter and the hundredth.” From a commercial perspective this is important because resorts can buy a SUP and expect people to try the product and have fun immediately. In contrast, if they buy windsurfing gear…most people will shy away from trying it as there is too much for a newbie to learn upfront about the gear, and how to use the gear, before the user gets any payback.
  2. Large Addressable Market - Wind sports require wind. Surf sports require waves. You can SUP in the ocean, lakes, ponds and rivers. If you actually run the math…my guess is that the geographical addressable market becomes 1000x greater on a global basis for SUP than a wind or ocean sport. Or as my friend described in one word on SUP’s success: “Walmart.” What he meant is that SUP can be sold in any Walmart in the country, and they are.
  3. The Magic of New Product Categories - If the product is different enough…it will attract users and magic. New categories are like the wild west. There is an attraction and magic associated with them. Products need to have non-linear improvements to define or redefine a category and create magic. (a) New categories create new celebrities/pros who are able to uniquely take advantage of that new product or platform. With any new sport or platform, there is room for new pros, experts, celebrities to be born. Youtube celebrities are different than Twitter celebrities, who are different than Pinterest celebrities. And it feels awesome to be an expert is something.(b) Humans want to create. There is an attraction to the unknown and being the first to figure out the new tricks and directions you can take something. In the SUP example, many of the tricks and applications of SUP have yet to be explored or defined. River rapid paddling seems to be one of those unexpected areas that people are most recently exploring with SUP:http://www.youtube.com/watch?v=VSaOnQCOiNk

Curious what you think. Hit me up with any reactions or thoughts at @saarsaar. And happy paddling… :-)

Jan 3

On raising kids: “The days are long but the years are short.”

- My buddy Brooks Preston.  #goodperspective

Picking Paths

"Look at every path closely and deliberately.  Try it as many times as you think necessary.  Then ask yourself, and yourself alone, one question…Does this path have a good heart?  If it does, the path is good.  If it doesn’t it is of no use." - Carlos Casteneda

Remember the dinosaurs - it can take awhile for incumbents to die

Evidence suggests that dinosaurs did not go instinct immediately but lived another 300,000+ yrs after the asteroid hit earth.  Good to remember as we analyze the impact of new disruptive technologies on traditional media companies, venture capital, employment, etc…  

Sometimes it takes awhile for traditional businesses undergoing massive change to die (not always).  

Example:  The 2011 estimated revenues for the YellowPages business was $23.4 bn with 71% of this as traditional print revenues (non-digital).   

(Thanks Salil Mehta for the analogy/discussion today)

The snowball that will disrupt education…High School norms.

Paul Freedman (Altius) told me a fascinating story today of how USC changed from a no-name Los Angeles commuter school to a top education brand:

1. They first built a program that would attract the top students around the United States: Film (leveraging their location close to Hollywood).   

2. The thing that they didn’t quite expect:  Once the top kids from a high school went to USC… the next year when the new seniors were applying to schools and had seen prior top students go to USC, they applied and decided to go as well.  But the kicker:  They did not go to the Film school, they just enrolled in the general program.     

3. Over time, as more and more top kids went to USC, the school was tranformed to a top brand.

I realize I am simplifying the story…but the insight from my fun conversation with Paul today: 

As more and more top high school students stop going to College as the logical next step after high school….the snowball starts to grow in size and scale….more and more students will start blazing the path of not going to traditional colleges after high school.   And before you know it, a very large % of talented students will pick an alternative post-high school path for their education….

Education is clearly getting disrupted…but once the norm changes amongst high school students that top students have viable other alternatives…the dam is going to break…

And plenty of new startups in education (including CRV’s Udacity) get to suck up the demand from the students blazing this new path…

p.s. - This is close to home…I grew up in Pittsburgh, PA and went to University of Wisconsin-Madison.  Looking back, I had never even heard of UW until a friend of mine, a year ahead of me went there…And once I visited her, I could visualize the path…

:-)

May 8

Lloyd-like optimism

From Dumb and Dumber:

Lloyd: What do you think the chances are of a guy like you and a girl like me… ending up together? 
Mary: Well, Lloyd, that’s difficult to say. I mean, we don’t really… 
Lloyd: Hit me with it! Just give it to me straight! I came a long way just to see you, Mary. The least you can do is level with me. What are my chances? 
Mary: Not good. 
Lloyd: You mean, not good like one out of a hundred? 
Mary: I’d say more like one out of a million. 
[pause
Lloyd: So you’re telling me there’s a chance… *YEAH!* 
- Lloyd and Mary from Dumb and Dumber