If you build it, they will come.
Capital Matters: Human, Social, Financial
Silicon Valley entrepreneurs are far more likely to adopt the notion of, “if you build it, they will come,” while Canadians tend to ask, “but who will fund it first?” Along with raising financial capital, entrepreneurs face countless challenges in their pursuits to build meaningful companies. Any opportunity to minimize these barriers should be recognized and pursued. The 48Hrs in the Valley program selects the most promising post-seed startups in Canada to assist in their pursuit. C100 gives these founders the advantage of learning from Silicon Valley-based investors, mentors, and Charter Members about the importance of three different forms of capital necessary as they scale: human, social and financial.
This year, C100 connected each of the 15 companies with an active mentor with experience in their space and facilitated 40 meetings with VCs. Firms included Andreessen Horowitz, Comcast Ventures, 500 Startups, Sierra Ventures, Venrock, Scale Venture Partners, TCV, August Capital and more. C100 attendees included: Tony Lacavera, CEO of Globalive Holdings, Shivon Zilis, VC at Bloomberg Beta, Scott Bonham, Founder of GGV Capital and Board of Directors at Magna and Scotiabank, Sukhinder Singh-Cassidy, CEO of Joyus.com, Brian Wong, CEO of Kiip, Angela Strange, Partners at Andreessen Horowitz.
A lot can happen in 48 hours. Britain’s pound can implode, affecting the world’s currency market overnight. Companies can trade at 90% over their IPO within minutes. Or, in an instant, an entrepreneur can discover a problem he or she feels born to solve.
But many things won’t happen overnight. Networking and growth are not binary. Your company isn’t unsuccessful one day and prosperous the next. Your network isn’t nonexistent one day and robust in the morning. Entrepreneurship isn’t a career, it’s a lifestyle, and often a lonely one. Startups succeed and fail due to dozens of internal and external factors, each of which are often individually unrelated and some that are out of the founder’s control. However, almost all startups fail because founders run out of one of two things: money or persistence. Therefore, outside of having an endless runway, one of the most valuable resources a startup founder can have is a supportive community of other entrepreneurs experiencing the same daily challenges as they attempt to grow. The most successful founders surround themselves with likeminded individuals who encourage, inspire and challenge them constantly. Through the 48Hrs program, C100 hopes to help founders in their early growth stages to form a community with one another while offering them access to some of the most successful entrepreneurs and executives in Silicon Valley.
48Hrs companies learn quickly that are world class entrepreneurs and then there are Silicon Valley entrepreneurs. There’s venture capital and then there’s Silicon Valley venture capital. Often, they also learn that not all businesses need to come here in order to raise funding. In fact, they realize that not all businesses are venture-fundable in the first place. Not all founders need the resources that the Valley provides in order to be successful, depending on the definition of success for their company. Along with a misunderstanding of the differences between a true startup and a small business, what many of the startups that reach out to C100 have in common is what I call a “niche market dilemma”. They begin by finding a problem that they feel they’re capable of effectively solving (usually technical aptitude) to later find that the problem simply isn’t big enough. In an effort to try something that hasn’t already been done, they may find themselves serving a market of 2 million middle-aged stay at home dads who need juicers that are also espresso machines, solar powered and sustainable. Or, they hope to scale a small coffee or restaurant business by receiving venture funding rather than walking into a bank in order to avoid debt responsibility. (The reason this worked so well for Philz Coffee is unclear, other than the fact that Snoop Dogg got behind the stuff — and that the mint mojito is arguably the best cup of coffee in the western world. Takeaway: get Snoop Dogg to endorse you.)
When first visiting the Bay Area, international entrepreneurs observe a steep learning curve with regard to the three aforementioned forms of capital necessary for growth. First, effectively accumulating and managing human capital, comprised of the talent and the amount of knowledge employees possess within a company and how it is transmitted into the business, is crucial at the point when a startup is ready to scale. Hiring practices should take into account the founder’s vision and the culture they wish to create while recognizing the types of skill sets required in the early stages of a company in contrast to the skills needed after each funding round and beyond. Early-stage startups need generalists with the ability to wear multiple hats while often acting as an entire department in one. Later, these roles will require more specialized individuals and many early employees will likely not be a fit without a concerted effort to ultimately train and develop them. Usually, it’s worth the effort and investment to do so. The founding team of a company is usually the most dedicated, hard working, passionate group of individuals within a successful startup. They’re worth their weight in gold.
International founders need to acknowledge that talent is far more difficult to retain and astronomically more expensive in a place like Silicon Valley compared to Toronto or Vancouver and now even New York or London. In addition, the exponentially higher rate of change here has an enormous impact on the hiring process. For example, if your company isn’t at the forefront of what is considered “hard tech”, it will be noticeably more difficult to hire an experienced Valley-based engineer to help build your product. “Social/local/mobile” just isn’t attracting investors anymore. Now, they want to see biotech, robotics, AI, augmented reality and deep learning technologies. The same goes for Valley developers. Further, if you’re not offering a minimum of US$200,000 in annual salary, a luxury gym membership, unlimited vacation, and an endless supply of snacks and micro brews, you won’t be competitive. If you are able to hire one of these unicorns, don’t expect them to stay longer than 1.5–2 years before jumping ship. Or worse, leaving to start something on their own then asking your employees to jump on theirs.
The least discussed form of capital required to build a successful global startup is social capital. Understanding how to accrue, maintain, leverage and spend social capital starts with having a clear illustration of what it is and how it is used. Many have heard the quote, “Your network is your net worth.” However, many young entrepreneurs go about building their network the wrong way. Countless emails have piled up in my inbox over the last year from founders asking for introductions to Silicon Valley investors and CEOs. While some are more comical than others, from Mark Zuckerburg to Marc Andreessen, almost all are unreasonable. To almost every request, I respond asking for three things: 1. “Who, specifically do you want to meet and why them?”, 2. “What is your ask? Who are you and what are you hoping to achieve?” 3. “What is your give? Why would this person be interested in meeting you?” Usually, the last question leaves no response. Very rarely do I see thoughtful replies. In fact, one of my favorites was a request for an introduction to C100’s Charter Member, Chamath Palihapitiya, who is a VC and an owner of the Golden State Warriors. The email replied to the three questions above, stating, “our app users LOVE Steph Curry”. No.
At 48Hrs, Julio Vasconcellos, EIR at Benchmark Capital, explained, “You should think about social capital as a piggy bank that you deposit points in and withdraw points from.” Every time you ask for or make an introduction, you’re either requesting or spending social capital. It’s extremely important to recognize that, like Bitcoin, this kind of capital is not unlimited. The moment you make a poor introduction to someone, you automatically lose credibility. Always ensure both parties are interested prior to making the introduction, and certainly make sure you know someone well before asking them to do so for you.
The last, most controversial and difficult to attain form of capital needed to survive is financial capital. According to Katherine Barr, C100 Board Member and founder of Wildcat Venture Partners, “less than 25% of companies make it through the Series A crunch”, meaning that after successfully closing their initial seed round of capital, usually around $.5M-$2M, companies are finding it extremely difficult to raise their next round. Although arguments on the implications of this topic have been going on for over 5 years now, it remains a very real thing. However, it’s more of a symptom of basic venture economics than a “bubble” or a problem. The majority of companies won’t successfully prove traction and market validation to their investors and survive the entirety of their runway in order to make it to the next phase. Post-seed means growth and most companies simply don’t grow. The good news, as Katherine mentioned, is that “the best, unique, most differentiated companies are always going to get money.” While proximity to funding is one of the most valuable resources associated with Silicon Valley, it’s not the only resource and it’s certainly not the most important. Money is only a commodity until you do something with it.