Sunday, October 26, 2014

Sucking up to someone versus engaging

Let’s face it, I’m a nobody in the technology sector, at least.
And as they say, “You’re nobody until you’re somebody”.
I’m making a point to engage with many people, both laterally and upwards.
By the former, I mean regular people who are at my level. We’re going to go up together.
By the latter I mean people who are in positions of power.
I had an interesting situation occur a little while back where I paid a compliment to Fred Wilson on his blog and he took it like I was sucking up to him.
In retrospect, I came across that way. But I was genuinely impressed about the kind of role models he and his wife are, as well as the fact that I agree with many of his values.
He evidently feels this way with other people as he recently wrote a blog post about that very issue.
So how does one engage upwards, meaning with people in positions of power?
Take interacting on a blog, for example. I think that type of relationship is both mutually self-serving and mutually benefiting.
On the self-serving side, the person in a position of power wants to help their deal flow, in the case of a VC. And the “upwardly-aspiring individual” wants to help their chances of getting a break somehow, perhaps at some opportune time in the future, by having pre-established a connection.
On the benefit side, the person in a position of power is happy to help others by sharing information and being transparent. And the upwardly-aspiring individual’s job, I believe, is to find their own voice, to be themselves and to engage and contribute to the conversation to the extent that they can. And when they can’t, it’s better to simply listen. And I’m of the view that it’s better to expect nothing to directly come back and to just adopt a mentality of giving before you get.
In my experience with practicing doing random acts of kindness for many years now, if you're willing/able to give, you'll at least generate Karma.

Furthermore, if you can find a meaningful way to help the person in a position of power (assuming they are an achiever and a busy person, which is the archetype I’m addressing here), while remaining genuine and authentic, I’d say you’re increasing the odds of generating favorable opportunities for yourself.
I’m personally focusing now on engaging laterally as much as I can as my primary mode of interaction, on a give-before-getting basis.

The reason is that it's analogous to getting married when you are both poor: when one of you gets wealthy, the other party never thinks it was because of the money -- that gets ruled out.

So if we meet each other and make a great connection before either one of us has "made it", then it will add an extra positive dimension to our relationship at that point.
And don't forget, there is a saying that goes, ‘Be nice to those you meet on the way up; they are the same ones you meet on the way down.”
I think being nice, period, is a good thing. That includes being kind, generous and helpful.
And I’m also committed in engaging upwards as well, but with no expectations of return at this point. I’m simply taking part in the conversation and willing to help, provide feedback, etc., when given the opportunity, provided I have the time.
I believe being willing to engage is healthy, even when nobody seems to care.
I do it for largely myself — for how it makes me feel — and not necessarily for others.

Saturday, October 25, 2014

Proficiency will likely become one's biggest asset in the future

 Some people have never liked school.
I’m going to guess they often are of the rebellious type.
It reminds me of the 1975 Pink Floyd song, Welcome to the Machine:
“You bought a guitar to punish your ma
And you didn’t like school and you know you’re nobody’s fool”
I am of that archetype.
Definitely I wasn't fond of school.
I’ve bought plenty of guitars — 23 to be exact. Some are long gone. I currently own 14.
I was definitely going “against the grain” in many ways.
But I was a fool, as I’ve ended up working just as hard being an autodidact as if I had gone through college — no shortcut whatsoever there.
I’ve been pondering for some time now as to where we’re heading as a society.
It’s all moving so fast now.
Not long ago it seemed, a school dropout like myself, if they were lucky enough or sufficiently resourceful, could inch themselves up from mid-middle class status to the upper-middle class (or even higher) by turning their trade into a business — that maneuver still required a learning curve, but not a college education. And if they are like me, it was an afterthought, and not part of a deliberate plan.
I’m not so sure that this type of carelessness will be such a viable option in the future.
There is a convergence of societal trends that seems to confirm this apprehension, if I’m interpreting them correctly.
Millenials have a very different value set. We’re moving away from greed to social good, from pollution to thinking green and other such differentiators.
In an interview earlier this year, Adam Nash, the CEO of Wealthfront was explaining that Millennials don’t want to focus on their money. They’re not looking to invest outside of their career so as to accumulate wealth. Their career is where their money will come from. They seek a balance where they get to work every day with the type of people that they like on issues and products that they are passionate about.
I’ve hired Millenials in my brickwork restoration business and I’ve observed firsthand that in general they’re not so eager, as I was, to put in the 60+ hours a week realistically needed to be self employed. Unless they want to become entrepreneurs, I suppose.
Of course, you can’t generalize like that about people, but there is definitely a trend there.
Furthermore, technology is currently in the process of disrupting every business and market with deflationary economics as a result.
What do I mean? Remember when Hotmail came out? They were giving away free email accounts. That was new. Pretty ubiquitous now.
And so it went.
Do you need to buy a Microsoft Office suite nowadays? No, Google Docs is free.
When you travel, do you need to stay in a hotel? No, you can get an Airbnb for much cheaper.
Look at how Amazon operates.
That’s what is meant by deflationary economics.
The internet and software technology are making sweeping changes across all industries and one of the outcomes is lower prices.
If you factor in the effects of globalization on the price of labor/services on top of that, the question is, where will this all lead to?
The middle class will likely feel the squeeze even more. Many of them have artificially propped their lifestyle through debt, as mass-media-created expectations keep pounding them with more product offerings they presumably can’t live without, even though they can’t factually afford them.
We may be headed for a big correction in the future, as many of us expect.
Great thinkers such Marc Andreessen and Elon Musk remind us to remain optimistic that technology will save us. 
The question remains, how shall we be able to adequately survive in the future?
One of the answers, I’m inferring, will be that it will depend on how competent — read “irreplaceable” — we make ourselves, so we can command the top price of the market, whatever that happens to be; all the while embracing the sharing (more accurately, the rental) economy and other forms of minimalism. 
The latter is already happening, look at Airbnb, Ubber, as the two most conspicuous examples.
As for the former, getting a college education (or what that will shape into after the inevitable disruption that will occur in that sector as well) might become more and more important in turning ourselves into linchpins. Not the whole answer, but definitely part of the mix. In other words, how can we create added value?
A societal shift at this level already seems noticeable.
I can’t believe how much homework kids — teenagers in particular — are doing these days — and willingly so…and in a way that I would never have personally done in my time. My nice, my nephew, the neighbor’s kid, my customer’s kids are all doing homework until 1:00 am…and going to school the next day. Two weeks ago, one of my customers was telling me that this was the case with her three daughters; and she didn’t know how they could handle it, as she could herself barely manage to stay up with them, which she makes a point of doing.
So kids are obviously taking this seriously — at least a good portion of them — unlike rebellious teenagers like myself who refused to plan for the future.
And so they should, it would seem, because if I got this right, competence will become the be all and end all for the middle class in the future for those within it who want to gravitate towards the higher end of it.

Tuesday, October 21, 2014

Naiveté is not a virtue, courage is

[Proceed with caution: I talk a little too much about myself in this post, and who wants to hear it, right? I've nearly deleted it because of that, but ended up leaving the post live as sharing this particular set of experiences still seems to be the best way to illustrate the point I was trying to make. I suggest you focus on the message, rather than how it's delivered; and feel free to skip!]

From time to time I hear or read that so and so had thankfully been naïve enough at the onset of their company, otherwise they would not have gotten into it in the first place.
Advice along those lines seems to be widely dispensed.
Take this article by an author called Nick Thacker, titled, “Why it’s OK to be naïve”; and I quote:
“If I had done my research first — uncovering what it would take to ‘break in’ to book publishing, I would have quit before I started. If you let the fear of the unknown (“could I make it in this world?”) stop you from even starting, you won’t start. Instead, choose to be naïve.”
I’m going to put forward that it is preferable to fully appreciate the risk one is in so as to prepare for it and hopefully mitigate it.
For example, as an outsider making a foray in the tech industry with no computer science experience, I constitute the quintessential embodiment of naivety; however, I’m making it a priority to gnaw away at my unsuspiciousness before I get in too deep.
I consider “understanding what I’m getting into” to be my best resource.

I went through much reading in order to overcome my initial learning curve.
I’ve had several web development projects commissioned so I’d go, in these “practice runs”, from getting spaghetti noodle code done for me, to being able to get agile/scrum implementations executed instead.
I’m currently diving deep in understanding the VC structure, the dynamics surrounding LPs, the life cycle of the fund, the minute variances of the term sheet, etc., so I can better appreciate the implications of asking for funding.
I’ve read Ben Horowitz’s book and I cried. That book stripped me naked and took my innocence away. It got to me deeply on an emotional level. And it made me less naïve.
I’m arriving at a point where I’m getting closer of coming face-to-face with grasping “the true-world reality” of creating a high-growth company, as opposed to be delusional about it.
I’ve already shedded a considerable amount of naivety. I now look at the idea of doing a startup with a dose of awe, fear, reverence and humility. I’m a far cry away from my initial naivety-laden “Oh yeah, let’s do a startup.”
In other words, I’m taking the time to find out what I’m getting into.
And there is the real danger of someone packing it up at this point, because “they've seen too much”.
But the true underlying causality here for the abandonment of the pursuit is courage — or rather, the absence of it, hence we are back to the Ben Horowitz philosophy (read the book if you don’t know what I’m referring to).
I’m going to guess here that if Ben Horowitz could go back 15+ years, and if he then had the option to fully know what he was going to be facing ahead of time so he could better prepare for it, he would choose that option over going into the situation naively. And he would not have backed down from having acquired the knowledge.
Again, I'm guessing.

Anyway, asserting a “need to be naive” does not take care of the real problem, in my opinion. And it fosters a lack of preparation which can prove detrimental.
There is another benefit of facing what’s coming to you head on with courage: it makes you feel alive!
From my own empirical knowledge, I can say this is true.
You could say I’m an old-school construction worker. By this I mean, when I started there wasn't as much emphasis on safety, perhaps. We now thankfully live in a different world. But I’m used to it personally, and I’m not afraid of a risky setup.
I make sure all proper safety measures are taken for my employees, let’s be clear on that, but I reserve the more dangerous setups, if there are any, for myself.
And these are usually the times when I happen to feel the most alive. There is nothing quite like it.
But if I were naïve about what it is I’m up against, I would undoubtedly fall off and get hurt, or die. The key is always to be aware of the actual danger, and be prepared. (It would factually be more correct to say, "over-prepared".)
And just like on TV, folks, don’t try this at home, but the point I’m contending here is that fully appreciating the situation one is in so she can prepare for it and mitigate the inevitable pitfalls — while it requires courage — very likely constitutes your best bet of success; and it does make you feel very alive, as a side effect.

Saturday, October 18, 2014

Software is eating the world and I'm going to play too ("I" stands for "the nontechnical")

I was listening to a TWIST episode today in which Chamath Palihapitiya was saying that the most important language to understand is computer language.
He was explaining that being a software engineer had transitioned from being nerdy and not so cool to being THE cool thing today, and that those who can speak the language can have the power to make the most impact.
I’m paraphrasing.
But it seems to me that’s the core message you’ll receive if you get into the head of the likes of Paul Graham, Ben Horowitz, Mark Zuckerberg, et al.
And I believe there’s a lot of truth in that and it behooves us as a society to ensure that computer science constitutes a fair share of the school curriculum.
I think we can agree on the fact that, in this day and age, learning software engineering is not a waste of time. 30 years ago, that wasn’t so evident, and many of us were clearly wrong for dismissing it as a nerd-only activity.
Marc Andreessen has famously coined the expression, “software is eating the world”, which is what’s factually happening right now — think Uber, Airbnb, etc.
But is the software revolution that is in the process of disrupting every industry really only the domain of the technocrat?
My personal contention is that is is not. I personally don’t have the desire to become a software engineer. I wanted to become a recording engineer and I did so on a self-taught basis. I pick my battles. But I still want to do a tech startup, and I’m working on one at my own pace without waiting for anyone’s permission.
I think there is room for anyone who wants to be a part of what’s happening in technology.
In another TWIST episode, Jason Calacanis interviews the founder of the PulsePoint phone app, a firefighter who wanted to build a life-saving service, which he proceeded to do despite being non-technical, by being creative and resourceful in seeking the required technical talent.
Jason summed it best in his intro for that episode:
“It turns out that sometimes normal people have a killer idea for an app and some of them are actually brave enough to actually build it.
And today on the program we are going to have a firefighter who had an incredible idea — an amazing idea — perhaps the best startup idea I’ve heard all year. And he built it.
True, true entrepreneurial story in my mind, because there are [a] thousand people an hour who say I have the greatest idea for an app … and they never do anything about it.”
These are words of encouragement for us, non-technical folks.
I urge you to watch the episode — all of them, but that one in particular.
We need all the inspiration we can get.

Sunday, October 12, 2014

What do VCs mean exactly when they say they recycle their fees?

A fellow student on the Venture Deals course asked me the following question a few hours ago.
“I saw you had posted about recycling the fees and while I have a general understanding, it feels a little hazy to me. Would you mind explaining your understanding to me? Sometimes it is helpful to hear it from another person and then it becomes more understandable! If you have time. Sincerely, Cynthia”
Below is my reply. I recognized that it would also make a likely useful blog post, and so here it is.
Let’s say a VC firm raises a fund for $100M.
They will get a fee for managing the fund of (usually) $15M over the entire life of the fund. (They will typically get $2M per year for the first 5 years and then it will taper off gradually after that.)
If the fund totally bombs and returns nothing (hard to imagine, but let’s just make this assumption) the VC firm does not have to return the fee. They will have been paid to accomplish nothing (and will need to find a new line of employment as they will not be able to raise another fund, that’s for sure.)
But they are expected to return the entire $100M before they are entitled to receive a commission (called carried interest or carry).
The carry is 20% of the returns above the $100M that was initially invested.
For example, if the fund returns $360M, it will go like this:
$360M is the total money returned to the fund at the end of its 10–12 year life
Minus the $15M management fee that was paid to the VCs by the investors in the fund.
Minus the $85M that was actually put to work ($100M less the management fee = $85M is what’s left to be invested in startups)
The total profit so far is $260M, of which the VC firm is entitled to 20%.
Therefore, the VC firm gets to keep $52M.
The investors in the fund (called limited partners or LPs) get to keep $308M, which consists of a profit of $208M plus their initial investment of $100M, which means that in practical terms, the VC firm does not keep the management fee since they have to return it along with the money that was actually put to use (investing in high growth companies —  in startups, in other words), before they can get their carry.
So, in actual fact, the VC firm really only needs the management fee if they fail at their job, which is hardly the idea; and that is why it makes sense for a VC firm to take the first $15M of returns in a fund and re-invest it in more companies instead of remitting it to the LP’s.
What this does, is it increases the amount that was actually put to work to 100%. Instead of having $85M eventually turn into $360M, now they have $100M that will turn into something hopefully even greater than $360M.
The financial implication of this is that they now have to return $115M to the LPs before they take a carry (the $100M plus the $15M management fee that they will have received over the life of the fund.)
This is called recycling the management fee.
What this actually means in plain English is that the VC firm is basically saying, screw this, we don’t need a management fee. We accept it as an advance payment, but we’ll give it back to the LPs at the end. A VC firm who recycles their fee is confident that they will succeed enough that the management fee is not a safety net that they need; and instead, they want to further increase their odds of getting a better return for themselves and their LPs by putting their fee to work by investing it in their portfolio companies, instead of keeping it for themselves.
Keep in mind that the above financial breakdown is oversimplified, as in real life, the VCs invest usually 1% of their own money into the fund and the LPs put in the remaining 99%, which changes the math accordingly.
I hope this helps. Stay in touch.

Edit: After publishing the post, I asked Marc Andreessen to check it out for accuracy:

Tuesday, October 7, 2014

Passion vs obsession

As part of the online Kauffman Fellows Academy class I’m currently taking, there was a Google Hangout with Brad Feld today.
I was thinking earlier in the morning about doing a post on the subject of passion; and so the Hangout was timely as Brad discussed the topic during the interview.
He said that, when thinking about doing an investment as a VC, he goes deep first on the technology, and secondly on the entrepreneur. Is he or she obsessed with the product?
He went on to say that passion is for the bedroom, meaning it is not an adequate term for assessing a founder’s qualifications.
The man's making a powerful point: that's an amazing differentiator  when you think about it. Many people use these words interchangeably; however, it makes complete sense that, as an entrepreneur, being obsessed over own's own product would indicate commitment and "fundability" -- as opposed to mere passion.
For me personally, though, passion is important too. Without passion for an idea / product/ business, how can I obsess over it?
Semantically speaking, I’d assert that “passion for a thing” is simply a different definition of that word than “passion in the bedroom”.
The same thing could be said about obsession. The definition of “obsess” in “Obsessing over how to make a business succeed”, does not imply a mental health issue; whereas “Obsessing over his married neighbour to the point of incessantly stalking her” does.
Definitions matter, just like commas:
“Let’s eat, Gramma” vs “Let’s eat Gramma”.

 Alright, enough of that :-)

Sunday, October 5, 2014

The Toronto Entrepreneurial Ecosystem

I feel the startup community in Toronto could be stronger and more cohesive.
And so I’ve created a Meetup group called “The Toronto Entrepreneurial Ecosystem”.
Is is based on the tenets taught in the book “Startup Communities”, by Brad Feld.
Why would I? I’m not particularly qualified to do it.
Well, the book answers it: “If not us, then who? If not now, then when?”
The book centers around what Brad calls The Boulder Thesis.
Here is another excerpt which summarizes what the Boulder tech community is like:
“The community is defined by a strong sense of collaboration and philosophy of giving before you get. If you contribute you are rewarded, often in unexpected ways. At the same time and since it is a small community, it is particularly intolerant of bad actors. If you aren’t sincere, constructive and collaborative, the community behaves accordingly.”
Boulder is located in Colorado, USA.
Brad moved there after selling his first company, and he was instrumental in building it into a vibrant startup ecosystem through an approach that, by now, can be replicated anywhere in the world, hence the name “The Boulder Thesis”.
No longer do you have to be in Silicon Valley or Boston to make it happen.
I’ve interviewed Brad about what it is like to live in Boulder. You can read that story if you’re interested.
We already have a startup community here in Toronto; but it could be amplified if we applied the Boulder Thesis to it in earnest.
That doesn’t mean it’ll happen, but I feel like getting the ball rolling anyway.
— The Entrepreneurials Backchannel —
Anyone, of course, can join the Meetup group. But I’m taking it a step further. I’m also creating an ‘inner circle” called, “The Entrepreneurials Backchannel”. (An “Entrepreneurial” is the name I’ve assigned to a member of the meetup.)
The Backchannel is an exclusive Google group. Access shall be granted only to those who have somehow gotten a copy of Brad’s book and made the effort of reading it (or listening to it in the case of an Audible purchase), thereby making clear their intent to foster a tight-knit and supportive startup community in Toronto based on the idea of “Giving before Getting”.
All one has to do to be accepted into the Backchannel is to submit proof (a picture or a screenshot from your phone) that you have a copy a Brad Feld book’s, “Startup Communities”, along with a short essay of what you got out of it which proves that you’ve studied it. Please send your submissions to [themariocantinproject at gmail dot com].
It may sound corny. Whatever… The fact is we must agree to the same ideology if we are to collaborate well, and so I believe it makes sense when considered from this angle.
— The core values —
I’m proposing that we incorporate the following objectives as part of our value system.
1) To help nurse ideas along
2) To open the door to everyone
3) To help bring startups into existence
4) To help startups execute well on their ideas
5) To stimulate an angel network into existence around the ecosystem
6) Providing an opportunity for VCs to find potential match for their investment funds
7) Creating an environment in which service providers benefit back from also giving before they get.
— Multiple levels of interaction —
Members of the community will be interacting in meetups, or by conducting conversations on the Backchannel. They can also come to this blog and comment here. We’ll eventually get to know one another and communicate by SMS and email.
In the future we may compete for talent, but I hope in good spirit, always, and with decency.
If a startup folds, we’ll need to help the folks involved get back on their feet until they go at it again.
And more, you get the idea.
Read the book.
Let’s all agree on the rules of the game.
Let’s do this.
Are you in?