Some Kickstart Learnings so Far

These days I am spending a lot of time trying to make sure that I understand what we have done right/ wrong at Kickstart in order to ensure that we are learning and improving as we move forward and try and scale up our efforts. I had a few LPs also ask me if I could share lessons learned — hopefully these are helpful to entrepreneurs and investors alike. Here is an early draft of some of these lessons learned — I would love to hear your thoughts and feedback as well. Should be a number of follow-on posts about the topic as well.

Our involvement actually seems to matter. 3–5 years from now when most of the results for Kickstart I are obvious we are going to do a bit of regression analysis to really understand what factors made a difference or didn’t in the outcome of various companies. One variable that clearly seems to stand out already is: deals that we have a significant investment in and are active with seem to be vastly out-performing those that we have a small, passive investment in. This is consistent with Kauffman studies on the subject as well — showing that active involvement has a statistically significant impact on returns. As basic as this sounds, I think this is an important insight for us. I have always felt like investing at the seed-stage in UT is fundamentally different than the Bay Area etc… One of the key differences (illustrated by the above) is that you can’t just take for granted that a company will have active, value-add board members. In a way, I think a passive strategy can work well in more “dense” markets because you are essentially able to “free-ride” on the mentoring that other people will give your companies. In UT and surrounding states we need to own that responsibility and give our companies they help that they need. One of the reasons that we all enjoy this type of investing so much is that our input really makes a difference at the seed stage. Send me an email if you would like to be involved with mentoring startups.

Latest thinking on management assessment. Most experts will tell you this is the hardest/ most important part of being an investor because it involves all the business disciplines + psychology and more than just a little bit of luck. From the beginning, the strategy for Kickstart was to have an entrepreneur-friendly approach to the companies that we invested for a lot of good business reasons. Overall, this has served us well. This is my first stab at what are the most important aspects of the CEO or key executive in the company:

First question — Is there an entrepreneur on board? Although this sounds obvious, our model relies on bringing in leaders that have the creativity, charisma and passion of the entrepreneur. This is the number one thing that we ask ourselves when evaluating the team is — do we have at least one entrepreneur on board. One of the surest tests for this is — what momentum is the company generating? What entrepreneurs do extraordinarily well is that they use the resources at their disposal to create momentum — fundamentally I define momentum as generating progress that makes me as an investor start to worry about missing a really interesting opportunity when I see it. (I know it when I see it because I want to be part of it.)

Can you work with the entrepreneur and the team? (and will other people want to)

• Willingness to lead(confidence — sense of responsibility)
• Problem-Solver. Problems and challenges are inevitable in a startup and a steady hand is critical, particularly when dealing with tricky people issues. The ability to both diagnose problems and then be willing to solve them even if this means having difficult conversations with friends/ co-founders etc…
• Self-Awareness. Enough to be optimistic-enough to be an entrepreneur but really recognize problems for what they are and not be a perpetual state of denial. This is also speaks to understanding one’s own limitations.
• Scrappiness. Willingness to do the crappy stuff that an entrepreneur must do — keep expenses low, do lots of different things, have difficult conversations, be embarrassed, look dumb occasionally, wear lots of hats, travel cheap etc… (notice “crappi” is part of “scrappiness”)
• Impeccable integrity — multiple interests must be managed, too many ambiguous decisions etc… for individuals who are not willing to look out for all parties
• Vision — strategic vision for the company that is directly tied to a strong sense of the customer experience. The ability and charisma to persuade customers, employees, investors to believe.

Follow-on required. All seed companies will require more money whether they exceed expectations; fail or things go as planned. In two of the three situations, we are looking for ways to get more money in the company, and in the third there is a tough decision to make. One of the things that I thought we really did right in the first fund is how we managed reserves. We set aside reserves for each company that were fairly small, then we designated a fairly sizable pool as the “pile-on fund” with the express purpose of aggressively putting more money into companies that are performing well. Our monthly dashboard analysis suggested which companies we were actively trying to get more cash into. My advice to Angel investors is to actually plan their investments assuming their will be follow-on need/ opportunities in order optimize their position.