Redeye VC

Josh Kopelman

Managing Director of First Round Capital.

espite being coastally challenged (currently living in Philadelphia), Josh has been an active entrepreneur and investor in the Internet industry since its commercialization. In 1992, while he was a student at the Wharton School of the University of Pennsylvania, Josh co-founded Infonautics Corporation – an Internet information company. In 1996, Infonautics went public on the NASDAQ stock exchange.

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American Idol

Americanidol Over the past year there have been several insightful posts on the similarities between Deal or No Deal and the venture business.  Lately I’ve found that there’s another popular show that good lessons can be drawn from – American Idol. (I admit it -- I watch American Idol.  Think what you want of me.)

As an entrepreneur, I watched the first few seasons of American Idol and found myself empathizing with the contestants; the person whose hopes and dreams were on the line.  Just like a technology startup, with so much competition the "beta" is very high. 

Now that I'm a VC, I find myself identifying much more with the judges sitting on the other side of the table.  They filter through thousands of hopeful applicants to find a handful of the most promising candidates.  And for every candidate they accept, they pass on hundreds of others.  Kind of like my job.  Last quarter we reviewed over 600 deals -- that means that my partners and I were passing on an average of 10 deals a day.  I've found that this is one of the toughest parts of making the transition from being an entrepreneur to a VC.  I know how hard it is to be an entrepreneur -- and I'd love to be able to be helpful/supportive/encouraging to all of them.  And it sure is not fun to say no to people 50 times a week.  And unlike most VC's, as a seed-stage firm we can't use the most common excuse: "It's too early for us, come back to us after you've proven XXX."   

So watching American Idol, I can’t help but wonder: which judge’s style would be most effective in the venture business?

Is it Simon’s brutal honesty and candor?  While he comes across as an unsympathetic ass, I have to admit that I usually agree with his assessment.  More often than not he’s right, and his feedback tends to elicit that ring of truth among viewers hearing something they know to be true but may never verbalize. On the other hand, although most contestants would be better off heeding his advice and not quitting their day jobs, his unvarnished assessments appear rude, leaving them upset and disillusioned.

Is it Paula’s unbridled enthusiasm and politeness? No matter how much a contestant sucks, Paula will always find something nice to say, even if it’s just about their outfit.  Although the candidate may come away feeling better, are they really getting the kind of advice to help them decide whether to dedicate a couple of years and potentially millions of dollars to their idea?  ("Your powerpoint looks hot" or "You made that demo your own" just don't seem to work)

Or is it Randy’s noncommittal, whats up dawg feedback? Often on the fence, Randy’s comments tend to be vague, lacking in any real substance. But his lack of an opinion can leave the contestant guessing as to what he really thought, which makes it difficult for both of them to make any real progress.

So which style is best for an investor? The answer is that I’m not quite sure yet.  My wife (frequently) describes me as "often wrong but never in doubt."  As such, my natural tendency with entrepreneurs has been to candidly share my thoughts and opinions.  However, when I'm looking at a plan that is a clear "Sanjaya", if I give an entrepreneur my straight-up opinion (like Simon) I often find that I've made an enemy for life.  When I give false encouragement like Paula, I'm misleading them as to my true level of interest.  And when I am non-committal like Randy, I drag the entrepreneur along.

My thoughts on this are definitely still a work in progress.  Fred Wilson has some good perspective on the subject.  What do you think?

Comments

Adam

I like this approach to self-analysis. Good post.

You might enjoy Paul Graham's take on judgement and how it is and should be seen by the judged. Find it here: http://paulgraham.com/judgement.html

Anonymous

Coming from an entrepreneur who has had a number of conversations and met with you and your partners, and got a quick, honest answer after some diligence on your side, I definitely appreciated the Simon approach. Letting me know the parts you didn't like gave me the opportunity to change your mind on some (and not on others), and when you passed, I knew exactly why and respected your decision - whereas other VCs have definitely done the Randy (or Paula) and it's frustrating beyond words.

I'd much rather have a quick, reasonable no (Our phone calls, meeting, research, and no took place over about three weeks) than be given false hope and dragged along - keep it up.

John

A combination of all three would be best. Honesty - being honest with feedback is always good. Sensitivity - be sensitive with feedback. This doesn't preclude honesty. Many people achieve this by focusing first on something positive, which encourages someone and allows them to better handle critical constructive feedback. Even Randy's noncommittal approach can have a place in the feedback loop. The fact that you don't believe in something doesn't mean it won't succeed, only that it's not for you. The reality is the market decides, and I've yet to meet anyone who hasn't been wrong with a prediction. Being honest, sensitive and humble in your feedback is best.

Shripriya

I think the best thing you can do when saying no is to just say it. And tell them why. That way you save yourself tons of time and give them input they can use. So, I vote for Simon, BUT with a caveat on the style.

The issue is that with Simon, the core message is right, but the style is wrong or wrong for most situations.

So, go with the Simon message but with a kinder, gentler style.

Robert

I think a lot of people go to VC's way too early. Even if you're "seed stage", you can still be too early. Going to a VC and saying "I have an idea" won't get you anywhere - you need a prototype at the very least.

I'm the type of entrepreneur that will not approach a VC for funding unless it's a do-or-die situation. The only time I would re-consider is if a VC approached me - then I know due dilligence will be (or has been) performed.

Phil

I agree with lots of feedback written above.

Yes,
1) being candid is good. But, showing it in a respectful manner speaks volumes
- Of course this is assuming you are "passing".

2)From an entrepreneurial point of view. There is nothing worse then visiting with a VC who has no clue of what you are attempting to build/accomplish. Frankly, sitting in a fancy boardroom with VC's looking like deer in the head lights is frustrating... assuming you have
- a decent idea
- go to market
- initial team
- market opportunity

3) Educating VC's is the worst part.

4) Educated Angel's are the wave of the future... Educated from a standpoint that they are
- working/living in the daily environment of the dynamic marketplace

Simon - on a good day says "beat is squirrel". Most VC's won't even respond to you. I've never understood this. These VC guys/gals are making hundreds of thousands of dollars, per year, just in salary, and yet they can't send an email saying, "Thank you, but, no thank you"

Paula - nice, but, she lacks the confidence in her tone one way or another. Perhaps the deer in the headlights syndrome.

Randy - yes, you don't know where you stand, dawg. But, this perhaps is the person who personifies a "typical" VC. In other words no straight answer. Your typical VC who has had "maybe" had a one hit wonder and it launched his/her career.

If you take all three judges DNA and build the prototype DNA for the right VC you would hopefully find a VC that
- is candid
- shows a level of diplomacy
- encourages the entrepreneur to move forward and not give up on their dream, but, they just have no interest in their venture
- has built or started a company

Josh, this is no reflection of you. I think that you (and The Founders Fund) are the new breed investor and can empathize with the struggles of an entrepreneur. Of course,
- assuming you were not born with a silver spoon in you hand.

btw - I also like American Idol


Andrew

Josh has no idea, but, through a brief meeting with him, he is responsible for providing me concise clear-cut advice that provided me the impetus to refocus my business. Though we are now focued on the next phase, his seed stage advice to simply get out of the gate with something, anything - even an imperfect beta was simple, yet much needed advice. Thanks for the push.
Oh, I would say Josh is most like Randy. Thanks Dawg!

JohnKenney

I'd lean towards a Simon-like realism, but with less harshness. In my (somewhat limited) experience as an entrepreneur meeting with VCs, I've been frustrated by the lack of insightful commentary and feedback. Perhaps they get tired talking to folks with halfway formulated ideas and it's tough to rally the energy to run through the rationale for why they are dinging an idea. But it would really help to get under the covers a bit and understand the thinking behind a maybe or a no.

Wesley

Great post. Good clear feedback is always the best, but no need to ever be an a-hole. So a mix of Simon and Paula is best. The "Randy" version is worthless but my experience is that is what the majority of VCs act like. The reason, IMHO, they gain nothing and lose a lot by closing the door on you completely so it's better off to simple befuddle you. That way if you defy the odds and actually develop something of value you won't be remembered as the a-hole VC who shot my idea down.

For the record this is what A&R people in the music business do as well.

fewquid

I say "Simon" all the way. Keep it short and to the point, and based on fact.

Going "Paula" on me does you a disservice. I'll assume you don't know what you're talking about.

Act all "Randy" and I'll assume you're not interested anyway -- I didn't interest you enough to get a real opinion.

You've got to have a thick skin as an entrepreneur. And it's a natural tendency to re-interpret anything that's said to "fit" within your personal view of the world.

The last thing you need is someone pretending to sip the coolaid in order to "break it to you gently".

Tell me why my idea sucks/doesn't work. Then tell me if there's any value in any of it. If we disagree, well fine. But maybe a bit of honest feedback will put me on the right track too.

Yay Simon :-)

David Armstrong

I think the simple answer is "help the entrepreneur" Find a way...either through some basic advice, networking, or a simple "good try...bake it some more and let me see how you are doing in 6 months." Idea's evolve....so time is a key component of success. Chris F has done this with me...simple, basic advice to help. There are VC's that I won't go near due to their asinine arrogance coupled with never having walked in my shoes.

Skip

Josh - thanks for introspecting on this important question. If you want your feedback to be heard without making "enemies for life", then appeal to human nature.


Candid feedback is the most helpful - but doesn't have to be delivered in a cold, simon-centric style. I like the "sandwich technique" in giving any kind of critical feedback. The technique is to provide some form of positive feedback, deliver the meat of the message (which might be negative) and then wrap with some positive message.

BTW - when delivering the meat, make your language objective... don't focus on the "person", focus on the "problem". So instead of "I'm going to pass because you don't have any practical experience in this arena", you can say "I'm going to pass because your management team doesn't have enough prior experience in this arena" - and it is perceived as less offensive.

The message doesn't have to be watered down, just embedded in something that preserves the entrepreneur's dignity.

This approach has also served me well in delivering employee feedback. My two cents.

Jamie Quint

I appreciate the direct approach, but with a touch of class.

I'd say Simon with a touch of Paula, leave Randy out of it.

Salman FF

As an entrepreneur, I certainly appreciated Josh's straight forward ‘Simon’ approach! And given the comments above, it seems like many entrepreneurs think the same way (though the ones who took it less well may have given up on reading this blog :) )
But in my role as a VC, I've sometimes run across entrepreneurs who don’t like that approach. Does that mean they are the kind of person that you never want to fund?
In other words: Can you judge an entrepreneur by the way they react to the judges?

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I appreciate the direct approach, but with a touch of class.

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