Good day

The other day was a rough day.

One of our companies failed to find a buyer and let all their employees go.

Over dinner my dear friend Joey Hundert provided support and counsel while reminding me that as entrepreneurs our lives are full of peaks and dips.

He assured me it’s okay to be genuine in the emotions we feel when companies fail. And I was sad and disappointed.

Then yesterday I was reminded of the emotions when companies succeed.

And that is being proud of our entrepreneurs

  • Ryan Feit of SeedInvest (where I sit on the Board) and Jan Goetluck of Virtuix (where we are also investors) were on Jim Cramer Mad Money.   They were promoting both equity crowdfunding and the disruptive VR technology as they partner to raise one of the first Title IV of the Jobs Act deals from both accredited and non-accredited investors.

And just like that four of our entrepreneurs remind me of why I love what I do.

Yesterday was a great day.

Good day

The Dreaded Call

Last night I called one of my favorite entrepreneurs.

And about ten seconds into the call, I could hear him crying.

At that point, I knew the Company we had invested in, that had pivoted with hopes of rising like a phoenix from the ashes, was actually much more likely to crash and burn.

Although we had spent the last six months trying to recapitalize and refocus the business after losing the co-founder, it became clear it wasn’t going to work.   It was now time to switch from being an investor to being his friend.

Money comes and goes, but the relationships with my entrepreneurs should last a lifetime.

So I immediately realized what he really needed was support, not beratement. He already felt horrible for failing and losing people’s money.

And I am a VC. We expect to lose money trying to innovate and build great companies.

Thus, we shifted our conversation to focus on what he needed to accomplish:

  1. Complete an acqui-hire so his team and product had a home and a chance to deliver on their vision
  2. Agree to take a job working at the new company, leading his team and providing him a salary and stability after a tumultuous period in his life
  3. Focus on getting mentally and physically healthy via a short vacation that includes silent meditation, self reflection and yoga
  4. Develop a 3-5 year plan of where he wants to be in life and as an entrepreneur

He mentioned that I was “The Dreaded Call.” I was the hardest person to tell he had failed, that the financing had fallen through and that the acquisition offer was 1/10th of the original price.

While all that sucks for the investment, he told me that it meant the world to him that I was treating him like a friend, helping him through an entrepreneurial valley, and making sure he knew I wasn’t mad.

I’ve talked often about the stresses of being an entrepreneur and how lonely and isolated it can be as a founder.   I’ve felt that way many times over the years as I’ve been building Scout.

So I am grateful that I was able to make him feel just a little bit better. Yes, the outcome is obviously not ideal, but having perspective is crucial when a company fails.

We should never frown upon an entrepreneur trying to build something truly special. Failures happen, it’s just part of the game.


The Dreaded Call

What I’ve Learned From Being There For My Entrepreneurs

Last night, I had two great meetings scheduled back-to-back.

The first meeting was set up by an entrepreneur who I’ve known for about seven years.  I’ve been actively mentoring him to include recommending jobs that I thought would further develop his potential.  He asked me to meet with another entrepreneur whom he thought might be a perfect fit for one of our portfolio companies.  As he suspected, she is awesome, smart, articulate and happens to be extremely passionate about one area where we have both an investment and the potential opportunity for her to play a major role.

The second meeting was with a CEO of one of our portfolio companies where I am also on the board. Because I am involved in multiple ways, we spend a lot of time evaluating different strategic initiatives to grow the business. The reason for this meeting was to discuss an initiative that we both thought would be great for the business, but we had a disagreement on the execution strategy. I was upset because I thought he had initially cut me out of the process and was now asking me and my team to help him on certain things. These are things that would have never been an issue if we had executed the plan more inline with my original thinking. Turns out, there was a breakdown in communication and if we had simply had another conversation about the issue, we probably could have found a solution that worked better for both of us. I still love him, but it’s always good to have open and frank conversations to clear the air.

What I didn’t expect was the overlap between these two entrepreneurs last night. It provided an interesting environment where the entrepreneurs were talking about the value that we create as investors, but in very different contexts. Being in this position and industry, I have seen just about every roadblock that start-ups and growing companies encounter and most importantly, how to get past them. There were a couple of thoughts and insights that I wanted to share with you:

(1) If someone isn’t a fit either with work ethic or company culture, you need to make a change as soon as possible.  Most entrepreneurs really struggle when filling key positions early in their company’s evolution- as they should.  So the thought of spending six months to recruit a VP of Engineering, COO or Head of Marketing, and then realizing two weeks into the relationship that you made a mistake, is very emotionally taxing and terrible for morale. But that’s where we come in – our CEO said that pushing him and his co-founder to fire someone had totally changed the morale and company culture for the better and removed a huge weight from the founders already stressful lives.

(2) We all make mistakes, so make sure you discuss your mistakes to ensure they don’t happen again.  Being an entrepreneur often requires you to make decisions about things where you may have little or no experience. While we try and always make ourselves available as a sounding board for our entrepreneurs, inevitably they are going to make some decisions without any input. And in some cases, these decisions might not be the right decision for the business. Don’t linger on the mistake, move on and focus on being better next time.

(3) Building an awesome company should be fun. As we’ve discussed in the past, the level of stress that most entrepreneurs feel can be overwhelming, especially when you’ve raised money from friends and family. But it’s important to remember that you can’t perform at your best if you are constantly stressed, yelling at your team, or trying to do everything by yourself. Great companies are born out of great leaders – so spend time developing a positive and healthy company culture with regular team activities outside of the office.

As always, I hope this helps.

What I’ve Learned From Being There For My Entrepreneurs

Three Things That Kill Early Stage Companies

As a VC, we spend a lot of time thinking about where we want to invest our money.   Last night, I was with my friend Pedro Torres-Pincon who recently presented “How to Build an Investment Thesis”  providing good insight into determining how and where you decide to invest your money.

But writing the check is the easy part.    The real challenge in entrepreneurship is to build a meaningful and sustainable company.   To that end, one of the things we like to discuss at Scout with our founders is how to avoid the pitfalls that can kill an early stage company.

(1) Don’t run out of money.    I know this seems like a simple rule but it’s amazing how many entrepreneurs under estimate how much time and money they will need to build their business.   In most case, we see financial projections that too aggressively forecast revenue growth, while underestimating the cost of building a scalable product.    The other issue that tends to crush entrepreneurs is not allocating enough time to raise the next round of capital; fundraising is time consuming and requires a focused effort.    So beware – forecast more conservatively and budget more time to raise your next round of capital.

(2) Don’t make a bad critical hire.   We often invest very early in a company when they haven’t hired all their critical team members.  In many cases, our capital is being used to expand the team and help the founders grow their vision.  If the Company hires a rock star then everything will get much better, but if they hire a dud then the Company is sure to suffer.   The two areas that are most often affected are  technology and sales.    If the company is in the process of building a new product and their new CTO drops the ball, then it’s almost impossible for the company to meet any of their deadlines or achieve the metrics necessary to secure the next tranche of capital.    Likewise, if the Company hires a revenue generator like a VP of Sales and they fail to achieve their revenue goals, it’s often a devastating blow to the company’s forecasts and thus also hurts their ability to raise additional capital.

(3) Avoid bad investors.   The early stage landscape is much different today than it was when I started in this industry as there is more seed stage money than ever before.   Accredited investors are jumping into early stage investing with angel groups, accelerators, and equity crowd funding platforms like SeedInvest. This coupled with significantly lower barriers to entry means that it’s easier than ever to start a new company and raise a small amount of capital. The resulting increased competition among early stage companies has created a shortage of follow-on funding as described by Josh Kopelman of First Round Capital.    But more hazardous than the shortage of Series A capital, is the impact inexperienced investors, often from other industries who are looking to dabble in venture as an alternative asset class, can have on an early stage company.    The worst case scenario for a young entrepreneur is to get lured by an investor who is offering capital but wants to add terms and provisions inconsistent with standard early stage venture rounds.    These terms vary greatly but the most dangerous are the right to ask to get paid back, asking for too much control and/or the need for the investor to consent to future financing, etc.    It breaks my heart when a young team is crushing it only to have a disgruntled early investor call their $100,000 note – which represents a significant chunk of operating capital.    Smart money is always the best way to go.

Three Things That Kill Early Stage Companies


The first ten years of my grown up life, I spent four of them at West Point and the balance in the Army as an Airborne Ranger.   The key principals that we focused on were leadership, teamwork and integrity.   These are also the core principals that the team at Scout Ventures believes is critical to strong management teams.

This week I’ve been working with one of our teams and they are struggling with teamwork.    Each founder is bright with unique and relevant experience, and they all compliment each other nicely.    Unfortunately, they struggle with creating their own support structure because they are weak in their teamwork.    I know this because when they have heated discussions about the direction of their product and business, they often can’t reach a solution without coming to me to help broker the negotiation between each other.

In large companies, we see a strong focus on teamwork within certain verticals – sales, marketing, product, technology etc – but these teams often don’t see eye to eye when they compete for required resources like budget, personnel, etc

In early stage start-ups, resources are much more limited and it’s often teamwork and shared resources that enable these businesses to get things done.

But when there are more than two founders it is inevitable that someone is not comfortable in their role.   This happens when multiple founders want or think they can be CEO or if they simply can’t agree on titles and responsibility.    This can become even worse when the Company is raising money and there’s a prospect of hiring new people.   In all cases teamwork often suffers.

How can we help make this better?

First and foremost, we believe in leadership.   This means that one person must be responsible for providing direction to the team.   This is the CEO.  And this is a critical piece for creating a strong team.

Second, the CEO needs to set an environment based on mutual respect.  This is so important for getting each and every member of the team engaged with the understanding that their opinion matters.

Third, the CEO needs to engage his team and have them work to solve problems.   This often requires asking people to provide their perspectives and having a constructive conversation exploring opposite points of view.

Fourth, regardless of the outcome of a specific debate, the team needs to all embrace the decision and move forward.   It’s critical that moving forward means each team member needs to support their peers even if they didn’t agree with the decision.

And last, the CEO needs to bring the team together to bond and move forward.  At Scout, we like to have a good meal or take everyone out for a night – either way our goal by the end of the night is to hear the founders saying “I love you man,” “I understand the decision,” “I got your back,” and “We’re going to be a billion dollar company”

That’s teamwork.