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We need to stop complaining about having to say no

This post was inspired by a question on Quora.

When I was an entrepreneur everyone always said no to me. Potential investors, potential customers, potential partners, potential employees… Running a startup was just one long stream of no, no, no and further no. A brief, occasional yes would make you jump for joy. At least until a couple more ‘no’s put you back in your place.

Given that experience, I really don’t understand people in venture who complain about having to say no. It is a great privilege to be the person who is able to say no. I realise that, of course, you feel bad for the entrepreneur, but try being the person to whom the no is said… it sucks way more!

But having said that, saying no isn’t a walk in the park, so it might help to do what I do and channel those negative feelings into something positive for the entrepreneur:

  • Do it quickly: Although I didn’t enjoy the nos of building a company, entrepreneurs always have so many questions ‘out for answer’. At any one point, startup founders are checking for an email, or waiting on a phone-call that might deliver an illusive yes. Even if an entrepreneur receives a no, being able to strike another unanswered question off the list offers a huge amount of clarity. As a VC, be honest with yourself. Are you ever going to be able to say yes to these guys?  If not, say no fast.
  • Be transparent: If a decision needs to take longer due to the complexity of the decision-making process, be honest and explain it all to the entrepreneur. You will get the occasional person who will try to ‘close’ you through the stages, but you can ignore that. For everyone else (the majority), this level of transparency will help them value how far down the pipe you are and, therefore, how close you are to a yes. This is super-valuable for founders. It helps them juggle all of their unanswered questions, and enables them to prioritise.
  • Explain why: I’m staggered by the VCs who write two sentence ‘pass emails’. This is fine if you’re delivering a ‘no’ to someone who has inappropriately cold-emailed you, and they clearly don’t fit your thesis or stage or focus or whatever. But let’s say you’re saying no to an entrepreneur who’s pitched you in person. An entrepreneur who has gone through the hell of building a product, starting a company, getting a meeting with you, flying at the back of the plane, staying at a crummy hotel, and waiting outside for an hour in the rain to be on time for the meeting. Then, they had to compress years of blood, sweat and tears into a 60 minute meeting with you. You know what you should do? Write them a proper rejection. Explain what you liked, what you didn’t like, what you think they could work on and, if you can, be helpful by making introductions to others who may be able to help.

“I hate having to say no.”  Come on! Despite it being hard to always find the time to do so, I’m trying hard to do all of the above every time. I hope you do too.

Why Equal Partnership VCs are better for Entrepreneurs

An entrepreneur I met earlier this week asked lots of insightful questions about how we work as a team at Balderton.

I think he was driven partly by personal curiosity, but also by (smartly) trying to figure out how to derive the most value from any potential relationship with us or another investor.

What I realised when I walked away was that most of my answers boiled down, fundamentally, to the fact that Balderton is run as an equal partnership. My conversation with this entrepreneur got me thinking on just how much I like this fact.

What is an Equal Partnership in VC?
An equal partnership in VC is exactly what it sounds like. All of the partners (in our case there are five of us) equally own the firm, and therefore have the same say in any decision and enjoy (or not enjoy depending on performance!) the same economics regardless of the company invested in, regardless of which of us found or lead the deal, and who sits on the board etc.

Apart from with first-time firms, which sometimes start equal and then change over time, Equal Partnerships are relatively rare in VC. The most famous case probably being Benchmark Capital in the Bay Area. Benchmark, by any measure, is one of the greatest venture capital firms of the last twenty years and Balderton started as a sister firm of Benchmark, so it isn’t surprising that we were originally set up as an equal partnership. The structure has endured now for around 15 years, surviving multiple generations of partners, and the eventual split from Benchmark itself.

But, I hear you ask, why should an entrepreneur care about whether their investor runs an equal partnership?

1) Better Diligence: While we all see lots of companies on our own, once we start to take a potential investment seriously we work like a pack. The dynamic of an equal partnership ensures that there’s no ego around who did the deal or who will ‘own’ it.

Example: Recently my partner Tim found a fascinating company in the Know Your Customer (KYC) space. His background in banking means he has a better grasp on the commercial value attached to this problem, and how to position and sell it, so he met with them first. It soon became obvious, however, that the company’s approach depended on unique technology based on probabilistic analysis — an area that I know well from my background as an engineer — and so he looped me in. Together we came to a better answer than we would’ve done on our own.

Maybe you think it would be better to hoodwink a less knowledgeable VC into a deal, but I would disagree: if you set up a fundamental misunderstanding at an early stage, it will only grow. You want your investors to have done the best possible diligence and believe in the company as strongly as you do.

2) No Funding Politics: Let’s say there is a hypothetical fund that runs as an unequal partnership, and they have just recruited two, new ‘junior’ partners. Due to the nature of the fund, both are effectively competing to get a bigger slice of the pie and due to unequal partnership dynamics, they get more carry (=money!) if their deal does well. Let’s say your company gets invested in by one of these guys. Unfortunately, things go wrong and you need emergency funding. To be clear, every partner in the firm loses out if the company goes under, but note that the junior partner who did not lead the deal a) loses less than the rival who did do the deal and, b) may help stymie their rival’s progress as doing so perhaps improves their own (relative) position.

Ah, politics. With an equal partnership you know what you’re getting. Everyone is the same. Everyone voted for the deal or agreed to do it. If one investor ever blocks something that may have helped another, it’s because they genuinely think it’s a bad idea and, as painful as that might be at the time, it’s probably the right thing to happen.

3) Better Support: Start-ups take time. The average successful company is often in the portfolio of an early stage VC for around eight years. In that time, you will confront different kinds of problems. If all the partners in your VC are equally incentivized, you can call on different people at different times to get the help or attention you think you need.

Trying to scale enterprise sales and build the right incentive plan? Talk to my partner Bernard, who did this at Business Objects from 0 to a $6.8BN exit to SAP. Trying to understand what to focus on first when building an ecommerce fulfilment process and facility? Talk to my partner Mark, who was on the Board when Yoox did it. And The Hut. And at Medicanimal. And at Worldstores. And at Lyst. And more. Thinking of taking your company public? Talk to… You get the idea. A start-up needs a team and an equal partnership delivers not just one partner, but a team of partners.

There are some potential downsides to Equal Partnerships (perhaps a topic for another day) but they are mainly associated with the firm itself, and how it has to manage itself and its processes. From an entrepreneur’s perspective, I’m yet to find a reason to fault it.

The Technology of Motivation

We aren’t really in the education business; we’re in the motivation business

– Evgeny S, CEO and Founder of Makers Academy (an education start-up)

Motivation is hard.  Despite having a rational grip on the importance of pacing myself, every end of year at school and university was a mad dash of cramming for me.  Similarly, despite knowing (and being told) that I was heading for an early grave with a bad diet and lack of exercise when I was a startup CEO, I found every trick I could to avoid morning runs, gyms and salads.

Interestingly conversations I’ve had in the last few weeks have started to convince me that two of the key technology waves of the last few years – mobile and cloud – can play a big role in solving the problem of motivation.

Motivation isn’t an obvious feature focus for technology.  It’s a very human thing – intimate and social.  Peer pressure plays a big role (people don’t miss team sports because of the social negativity of letting the side down), as does relationship intimacy (a friend, overweight his whole life, changed diet overnight when he realized his five year old was convinced he’d die young).  So can tech do intimacy and peer pressure?

Intimacy via Mobile

Today, the way technology does intimacy best is, of course, through your phone.  Phones are insanely intimate devices. You sleep with them, you have them in your pocket at all times, you whip them out when on the loo, they are your best friend when you’re bored waiting for a bus, etc, etc.  When we recently met Pablo and the rest of the 8fit team – an app that helps you get fit by changing both your diet and exercise regime – a lot of the focus was on all the amazing content they’ve created, the nature of their exercise regime, the science behind their approach to weight loss and other more complex topics.  When I used the app, however, the thing that struck me the most was the motivation.

Put simply, 8Fit embarrassed me into action.  I’d tell it that I was thinking of working out on Tuesday morning and, on Tuesday morning, as I actually sat down to an indulgent breakfast, my phone’d vibrate and I’d get a “You should be exercising now” notification.  If the app was forcing me, it’d be obnoxious, but it wasn’t – I’d explicitly told it to tell me this.  It even gave me the opportunity to change the schedule, reduce my commitment, etc – all that control meant I ran out of excuses very quickly.  After a while I gave in and started to exercise when it told me to exercise.  Predictably, I’d feel good after working out and so, in time, I learned to look forward to the app’s nudges.

Social Contracting and Peer Pressure via the Cloud

Less obviously, I think the immersive connectivity of the cloud can also provide social and peer pressure.

Last week I was catching up with Evgeny Shadchnev, a co-founder of Makers Academy.  Makers has been teaching people how to code for two and a half years now and has successfully graduated over 300 people, with only 9% who want a job in software development still looking.  Makers has historically run as a physical ‘school’ with a batch of students at a time coming to a classroom and going through an intense period of working together on projects that leads to them learning to code.  Evgeny is proud of what his team have done, but worries about the sheer number of programmers the world will need in the next few decades and how scalable a physical school can ever be.  As a result, Makers recently completed their first fully virtual, cloud-delivered program.  8 students, all in remote locations with tutors based at Makers’ HQ in London.

Going into the test, a key observation byt the Makers’ team was that the information one needs to learn to code is all already available online. Yet, left to their own devices, at home, with no real imperative most students fail to focus with the necessary intensity to really learn the subject matter.  The team believed the social setting of their program (vs just the content itself) was the real key to their success. Using a variety of cloud-based tools, they set about creating a classroom atmosphere (Cloud Makers students log in using Google Hangouts at 9am every day and stay connected till the evening and use Slack to maintain constant inter-team communication).  Through these and other measures, the Maker’s team captured that mix of social inclusion and the peer pressure that drives motivation.

The experiment appears to have been a success.  Results are near identical to a regular class – similar graduation and satisfaction rates and, although early, Evgeny believes the employment outcome of the group will also be similar.  While discussing the success he neatly summarized their key learning for me: “we aren’t really in the education business; we’re in the motivation business.”