After struggling for months or years without any financing, most startup founders relish the opportunity to finally have the seed capital to accelerate the plan.

The first term sheet often feels like such a big accomplishment, not because the founder confuses the funding with success, but because the period before funding feels so excruciatingly slow. Hitting the gas is a dream come true.

Like sand in an hourglass, funding will relentlessly disappear, along with the opportunity it presents.
Unfortunately, the challenges of that opportunity are often unclear at that moment. Capital, no matter how much is raised, is finite. The day it hits your bank account the clock starts ticking and no one (including the founders) ever wants to work for free again.

Like sand in an hourglass, funding will relentlessly disappear, along with the opportunity it presents. At the moment of financing, this seems like a very high-class problem, until it isn’t, and it becomes a very real problem.

At first the team is small and the initial burn rate barely moves the dial on the capital raised. Then the founders start to determine market salaries for their talents. This is a dangerous moment. No one wants to feel underpaid, and how big a deal is an extra $10K a month to the company’s burn rate when one or two million dollars just hit the bank account. Beware this moment.

Every dollar the founders take out of the company sets the tone for the entire business going forward. Every dollar spent is a dollar of dilution, as it costs equity. Every unnecessary dollar spent on the founders sets the tone that cash should be more important than equity to everyone involved in the business.

Every dollar spent is a dollar of dilution.

Then the hiring begins. The money wasn’t raised to stay still, but to invest in accelerating the plan. Talented people who couldn’t join pre-funding are now interested and can be game changers for the business, but they can’t leave their jobs for less than market salaries. Equity tradeoffs? For sure they’ll trade minor dollars for major equity, but few will make equal tradeoffs of cash for equity.

To get those talented people, the founders believe they need a fun place to work and paying a little more than expected monthly for a nice office is money well spent on culture and team.

Those talented leaders join the company, but they too want resources to meet the ambitious plans. They start articulating key capabilities that are needed, and they put together job specifications of who to hire to solve those problems. Unfortunately, those people are hard to find, so after paying a handful of recruiter fees and ponying up much more in salary than was planned, you finally have an all-star team fully built out prior to raising Series A.

The problem now is that the original 15 months of capital you raised will be burned in less than 12 months. Worse yet, six of those months have already passed and the company is way behind plan because it didn’t have the people it needed to stay on course. The company will be out of cash in six months and needs to start thinking about raising money. The founders figure fundraising will take the typical three to four months – so in two months the fundraising process needs to begin for Series A and there is little to show from the seed financing besides a great office, and hopefully, a talented team.

So what’s a good founder to do? Not take any salary? Not hire any people? Never pay a recruiter fee? Have everyone work virtually? I wouldn’t recommend any of those options.

This tyranny of incrementalism often comes from founders confusing investment with progress.

I would recommend that the founders stay mindful of the tyranny of incrementalism— every small decision itself will feel rational, but in aggregate those decisions burn your scarce opportunity. Like a frog who would jump out of a pot of boiling water, but boils to death when the temperature is slowly raised to a boil, many founders find themselves in peril in the same incremental way. Looking back, they cannot believe how quickly they burned capital, but in the moment every decision seemed like the right one.

This tyranny of incrementalism often comes from founders confusing investment with progress. Remember, building evidence toward the company’s hypothesis is the purpose of the seed funding and there are many ways to do so. Often this can be accomplished with very little capital and yet founders frequently overly invest early. Be careful not to burn your own opportunity.

Taking the leap to being an entrepreneur is really scary. Every founder that I know points to role models that made that leap possible. Some of those role models are legends like Steve Jobs or Alfred Sloan. While legends inspire us at a high level, their path also seems unattainable to most of us. We read about them in biographies, but cannot relate to them as people. Another type of role model comes from those that we directly identify with as peers and inspire us to believe that we can also be as bold as they are in aspiring to achieve our dreams.

When I was working as a strategy consultant, and miserable in my very incremental daily routine, I dreamed of starting a company, but was unsure if I was being realistic. I was inspired by the legends, but following in the footsteps of Jobs felt inaccessible to me, like trying to follow in the footsteps of Michael Jordan or Tiger Woods. Just because I admired them, didn’t mean I had any chance of becoming them. Two role models stand out in my mind as people who I related to as peers and gave me the courage to believe in myself as a founder.

One of those people, I didn’t know personally at the time. Todd Krizelman was the founder of I first encountered Todd along with his co-founder on the cover of a major magazine in 1999, held up as a symbol of the new economy. He was approximately my age and we knew people in common. I remember staring at that magazine cover and thinking how awesome it was that someone my age, with a similar background, was betting on himself and succeeding. Fixated on that cover, I couldn’t help but question why I was sitting still and not even trying to achieve my aspirations.

The other role model that stands out in my mind was a friend, named Josh Schanker, who went to a neighboring high school. I met Josh through various high school activities and thought really highly of him. We stayed distantly in touch while at different colleges. When I heard that Josh became Editor-in-Chief of the Harvard Crimson, I wasn’t a bit surprised. I always viewed Josh as a talented and thoughtful leader. Like me, Josh also graduated and went to work for a consulting firm. He then paved the path that I was struggling to muster the courage to take and founded a company called BargainDog with a friend of his named David Beisel.

Not long after, I quit my uninspired job and founded a company myself, but I’m not sure I would have done so without Todd and Josh showing me that it was possible and giving me the courage to bet on myself.

Life has a funny way of coming full circle.

In 2007, I got the opportunity to invest in a company founded by Todd Krizelman called MediaRadar and have been a very happy investor ever since.

Today I’m proud to announce that I’m leading an investment in Josh’s company Bookbub.

The Games Startups Play

April 4, 2014

Every startup plays two complementary games–the air game and the ground game. The air game is always more romantic. It is the emotional narrative of how your startup revolutionizes a market. It’s the aspirational hope that the company could become one of the great ones. It’s the buzz in the market, the great PR machine, talented people fighting to get in, and investors who can’t get enough money into the company.


The ground game is much uglier. It is the day-to-day operations in which all the blemishes are visible. It is nearly impossible to live up to the expectations set by the air game and execute to your startup’s lofty aspirations. The ground game has metrics that you are embarrassed to share with anyone. It has nasty elements, such as falling short of milestones, founder conflicts, people getting fired, and missing quarterly numbers. Even solid performance with the ground game feels under-appreciated. Achieve 70 percent of your insanely ambitious goals and everyone is disappointed. The grind of the daily operations can be so exhausting that sometimes you lose sight of why you started the company in the first place.

In the startup world, early-stage companies are largely valued–at least for a while–on the air game, which tends to be way out ahead of the ground game. However, if your ground game lags for too long, the air game can get ugly as well. Talent starts to leave, and it’s hard to attract more. Investors become disenchanted, and finding new ones is nearly impossible. At some point as your company is growing, the ground game will become the focus, for better or worse.

Ask most founders about their toughest moments and you’ll almost always hear about the horror stories from the ground and the overwhelming obstacles they had to overcome to make the air game look so good from afar.

Though most companies are better at one game than the other, both are necessary for success. The air game gives the ground game cover. It allows time to fix the ugly details, thanks to enthusiastic capital and access to great talent. With a great narrative for your company, you’ll have more room to make mistakes. However, if the gap between the grand vision of the air game and gritty details of the ground game grows too large, don’t be surprised when your company starts to face cynicism.  

Companies that thrive on the ground game, but struggle to build buzz, face an equally uphill battle. As someone who executes really well, you probably feel slighted by the lack of enthusiasm for your company. The numbers should speak for themselves. Why doesn’t anyone (investors, talent, press) appreciate the facts? You scoff at overhyped companies and have little respect for peers who don’t put their heads down and operate. You are great at blocking and tackling but never seem to get the valuations of less-impressive competitors, which means you can’t get the cheap capital you need to expand and you lose out on the best people. Playing great on the ground without air cover feels like a Sisyphean feat. These companies rarely win. 

The challenge is to be great at the air game–by building huge enthusiasm for the long-term potential–but never oversell the near-term ground game. Inspire people with your company’s lofty long-term vision, but set near-term goals that are ambitious but achievable. Use the air game to energize your team, attract the right leaders, and raise inexpensive capital, but never forget that your success as a company will ultimately come down to how well you execute. It’s a difficult balance–underestimate either game and you’re likely to lose both.


A version of this post was originally published on

From Visionary To Leader

January 17, 2014

You’ve identified a great opportunity. Crafted a plan. Inspired talented people to join you and persuaded investors to put money into your fantasy. You are officially a visionary. Well done.


Now comes the hard part. Being a visionary is table stakes in building a great company. Vision is the license to play the startup game and the base ingredient for being a leader. The challenge that you face now isn’t easy–you have to lead. Leading is different. We’ve all met visionary thinkers who are terrible leaders. Just because you can paint an exciting picture of the future your company can create doesn’t mean that you’re able to lead the company to that vision.

So how does a founder make the transition from visionary to leader?

1. Build trust with talented people. Everyone says he or she wants to hire talented people, but founders are often intimidated by great talent. They want people who follow their vision, but true talent will challenge that vision. Perhaps you are concerned that people who have more experience and success may actually undermine your role as a leader.

The exact opposite is true. Fear of being undermined by talented people is the sure path to failure. It will either cause you to hire less-talented people or cause talented people to question your judgment. To transition from visionary to leader, you need to demonstrate your ability to attract experienced people who can bring key expertise to the company. If you can get them on board and excited by your leadership, you’re well on your way.

2. Determine what’s important. There are an infinite number of things to do at a startup. One of the hardest challenges is figuring out what’s most important and focusing your scarce resources on that topic. It can be a difficult struggle to transform your grand vision into steps that your team can act on. Nothing frustrates talented people more than working for a founder who fails to offer clear priorities and appears to shift the game plan haphazardly.

Becoming a leader means focusing your team on the key priorities. You need to build consensus on these priorities, set goals, evaluate performance against those goals, and change course when necessary. Great leaders build credibility with their team by making a plan, executing it effectively, and demonstrating that it was the right plan.

3. Be transparent (up to a point). Your team deserves the truth, and being transparent will build trust in you as a leader. Unfortunately, being a visionary means constantly being frustrated at the speed with which your vision becomes reality. This is part of the reason that being a founder is such an emotional roller coaster. Visionaries who show this frustration typically burn out their teams over time. While you are experiencing insane highs and lows, your team members cannot be whiplashed by that same level of volatility. They’re committed, but not nearly as committed as you, which is why they might run for the hills if you expose them to your every emotion.

Instead, dampen the volatility they are feeling while being honest and transparent. Not everyone needs to know every little detail of your recent rejection or of the company’s financial challenges. Don’t hide the truth, but don’t torture your team with details that are out of its control.

Vision is the reason your company was born, but leadership will be the reason it thrives. 

A version of this post was originally published on

Vaporizing VC Interest

November 12, 2013

Nearly every week, I receive an email from one of our portfolio founders that reads something like: “Hey, Eric, great news! We just got out of a meeting with Dave from AwesomeVC and he loves what we’re doing. I have a good feeling he’s going to lead our Series A round.”

Not long after, a few more superenthusiastic emails follow about the high probability that other VCs are also very interested and how the founder expects to wrap up the round quickly and painlessly.

Then the balloon deflates. One by one, the VCs pass on the round, and the founder has to break the news to the co-founders, employees, and existing investors. He’s completely dejected, his team is now concerned about running out of money, and his initial investors fear they may have funded a dud. How could he have been so wrong about the interest level of the VCs? They seemed genuinely excited; what went wrong?


The problem is that venture capitalists often give off signals that are inconsistent with the real probabilities of their actually making an investment. Venture capitalists are not just buyers of companies; they’re also sellers of capital–meaning that because the best deals are competitive, investors use enthusiasm to increase their chances of winning (should they ultimately decide to invest). That’s not to say their enthusiasm isn’t genuine; it just doesn’t necessarily reflect their likelihood of investing.

Every VC is different, but here’s a breakdown of a few steps in the investment process to illustrate how a founder’s expectation of closing a deal differs from that of a VC’s. This is far from a scientific analysis, just a general sense of the numbers from my experience.

The VC Invites You to Pitch
Likelihood You’ll Get Funded:
In your mind-10% In reality-<1%
Most VCs take a few hundred meetings a year and fund one to three investments a year. Founders typically get in the door with a strong personal introduction from a mutual contact, which can lead to the assumption of real interest from the VC. Don’t get excited about getting a meeting; VCs are paid to listen to you pitch.

The VC Invites You to a Second Meeting
Likelihood You’ll Get Funded:
In your mind-50% In reality-10%
Being invited back happens right away, and
it can make you feel that momentum is building. Unfortunately, I’d estimate that the
typical VC quickly invites back 20 to 40 companies a year after a great first meeting.

The VC Invites You to a Partner Meeting
Likelihood You’ll Get Funded:
In your mind-90% In reality-50%
After multiple meetings and due diligence, a VC will often invite you to pitch the partnership. Although some firms really do rubber stamp investments at partner meetings, I’d estimate that about half of these investment discussions vaporize at this point. Frequently, the partner leading the deal loses enthusiasm after facing the crucible of his colleagues.

The VC Offers You a Term Sheet
Likelihood You’ll Get Funded:
In your mind-100% In reality-90%
This is often the most painful disconnect between founders and investors. Most founders consider a term sheet to be a 100 percent guarantee of financing. Unfortunately, my experience is that 1 in 10 term sheets self-destructs. When the term sheet comes, you shouldn’t take closing for granted.

Why does any of this matter? Raising money is like any other sales process, only the
consequences of failure are usually much more significant. Qualify your prospects accurately, make contingency plans, and don’t appear naive by overestimating the odds of a close. Once the deal is done, then you can celebrate.

A version of this post was originally published on

It’s All So Obvious

November 5, 2013

Most of the business advice you’ll receive as a start-up CEO seems obvious. In fact, it’s rare that an investor or adviser makes a suggestion that you have never considered. More often than not, the suggestion is, in fact, probably already being implemented at some level.

Your company isn’t scaling as quickly as planned, and a board member says you need to boost sales. “No kidding? Thanks for letting us know,” you sarcastically think to yourself. Even the more concrete suggestions from experienced advisers or team members often seem either painfully obvious or just a regurgitation of things the company is already doing or has tried before. From your viewpoint, it can feel demeaning, because it suggests that your job is so easy that people think they can do it by giving generic advice while sitting in the cheap seats.

At times, real life can resemble that TV commercial in which a bunch of businessmen in suits sit around a conference room making insanely obvious statements and the tag line is something like, “If business were this easy, you wouldn’t need us.”

Duh (1)

No matter how obvious these suggestions may seem, take a minute to really consider the magnitude of your efforts. When it comes to operational issues, your start-up often succeeds or fails in accordance with the degree to which your company embraces these seemingly obvious ideas or suggestions. The advice may not seem earth shattering, but very often it is the successful companies that embrace that advice and put forward a serious effort in following it.

Take, for example, an exchange between you, the founder, and an investor. The investor is concerned about the quality of your customer development and advises you to get your hands dirty spending time with customers. That’s completely obvious to you, and you respond that you’ve done so and will continue to do so.

Box checked and issue resolved, right? Not at all.

Yes, technically you are talking to customers, but are you doing enough of it? Because you are already talking to customers, it’s very easy to shrug off the advice and move on. However, that advice typically reflects the investor’s concern about the scale of your efforts. In this instance, the investor is trying to tell you that whatever amount of customer development you’re doing, you need to do much more.

When I read Delivering Happiness, by Zappos CEO Tony Hsieh, I found the book both incredibly insightful and incredibly obvious. The book explains Zappos’s formula for success–putting the customer first and offering delightful customer service. Most of what Hsieh writes about probably seems familiar to any founder. What business doesn’t want to put the customer first and offer delightful service? The difference between Zappos and most other companies is one of magnitude. Zappos manages to do so at a completely different level than almost everyone else.

As a CEO, you should never blindly follow the advice of anyone–be it a team member, a board member, or an adviser. After all, whatever the outcome, it ultimately belongs to you. But you do need to seek out the best advice to figure out the right answer. Sometimes, the right answer comes from someone in a way that initially seems painfully obvious.

A version of this blog was originally published in the November issue of Inc. Magazine

I read a good number of blogs. I still like magazines. I love books, and I wish I could find time every day to read the newspaper from front to back. I also have great respect for academic writing.

Formal prose, however, has no place in a start-up. While I was working on Brontes Technologies during my second year in business school, our team entered both the Harvard and MIT business-plan competitions. Both contests required the submission of a written business plan. Our plan was 42 pages. It was obsolete before it was even completed.


The judges seemed to have skimmed it, as did our academic adviser, but I don’t think they really read it. Even if they didn’t read it closely, they read more of it than anyone else ever did. We shared it with some investors, but it was clear they never read it. We never referenced it again ourselves. We never gave it to new staff members to help them understand our business. We never edited it as our business changed. We never really used it in any way. It was little more than academic.

No matter how gifted a writer you are, slide presentations, or decks, are a better way to get your message across. Quick to read and easy to edit collaboratively, slide decks are a much more concise way to express an idea for discussion and decision making. Prose is great for one-way conversations, but it
falls short for any type of engagement in a group. Ultimately, prose is not agile enough for start-ups.

Start-ups need to move fast, organize their goals succinctly, and edit on the fly. I’ve never seen a start-up go back to rewrite the marketing section of its business plan after rethinking its marketing strategy. I have, however, seen many start-ups in the same situation rip up the marketing slides in their slide deck and insert the updated ones.

This concern doesn’t apply just to business plans, either. Prose should be used sparingly in all types of business communications–annual plans, formal specifications, etc. As an investor, I’ve noticed that I have a very strong bias against teams that send me executive summaries. I rarely read them when they are one page long, and, unfortunately, most are four pages. This is your opportunity to make your company’s narrative inspiring and compelling–don’t waste it by submitting the equivalent of War and Peace. When I get an executive summary, I immediately ask for a deck, which I find much more energizing (when well executed) and digestible.

I think the formal business plan is a relic of the start-up business-plan competitions that originated at academic institutions. If you apply the academic mindset to a start-up, then it probably does make sense to start with a written thesis on the opportunity. Unfortunately, it took me a full year to write my undergraduate thesis, and I don’t remember anyone ever reading it outside of the professors responsible for grading it. I would encourage academic institutions to replace the traditional business-plan competitions in favor of pitch-deck competitions.

As for entrepreneurs, my advice is to discourage your team from writing prose whenever possible. If you want to tell a story, tell it in a compelling and concise narrative slide deck. If you have an argument to make, do it live in a team meeting. If you want to codify what has been agreed to on any aspect of the business, build concise slides that are easily digested, shared, debated, and edited as a group. If you want to slow your business down, stifle real-time discussion, and prioritize the argument over the outcome, write prose.

A version of this blog was originally published in Inc. Magazine