Fred Wilson Union Square Ventures

What Fred Wilson, Union Square Ventures says about topics vital to entrepreneurs

Fred Wilson Posts – Titles

Fred Wilson  Posts  – Titles  (39 posts)

 

What's the Magic

Two Rules of Thumb for Early Stage Fundraising

Fred Wilson's Comfort Zones on Fundraising & Valuation

There's No Science to Early Stage Valuation

Building the Business First

Bootstrapping Leads to Great Products & Great Companies

What's the "Right" Monthly Burn Rate

Fred Wilson’s Two Burn Rate Calculations

No One Gets More Diluted than the Founders 

Fred Wilson: The Reality of Founder Control

Fred Wilson: Never Seen VC Board Control in Early Stage Deals

Hire Slowly & Wisely, not Quickly

Culture, Values & a Vow to a Great Workplace are Everything

Where & How to Find Great Talent

Fred Wilson: The CEO is responsible for hiring

Fred Wilson: Hire for Culture & Fit

Management is Relevant when Building Usage

Building Product is about having the Right Team

Fred Wilson Admires Creating Simplicity

Sustainability by Fred Wilson

Sustainability:  Short Term Profits vs. Long Term Health

Fred Wilson:  Board Chair Responsibilities

Fred Wilson:  Thoughts on Well-Functioning Boards

Fred Wilson:  Board’s Role & Responsibilities

Fred Wilson:  Board’s Main Job is Providing Strategic Advice  

Board Member Chemistry is Critical 

Wear your Failures as a Badge of Honor

Social Proof is Nonsense

Determine Option Pool Needs ‘Round to Round’

Option Pool Gets Increased for Subsequent Rounds

Options Don't Vote

An Option Pool is about Price

Options have Board Oversight

The Only Way to Make Money

Great VC’s Care Most About the Company

What Great Entrepreneurs Have

Entrepreneurs Have to Have the Hustle

The Valuation Environment is Tough Today

Why I Believe Twitter Picked Us as their Investor

Why I Believe Twitter Picked Us as their Investor

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“[] we were probably alone at the time in advocating that approach [to various strategies for scaling the product, etc.] and I think that’s why they [Twitter] picked us [Union Square Ventures VC firm]. [] I think, I don’t know for sure, I think they probably wanted an investor who was aligned with the way that they wanted to run their company.”  This Week in Startups, Fred Wilson, episode # 523, Mar 10, 2015 @ approx. 6 min. http://thisweekinstartups.com/fred-wilson-launch-festival/

 

The Valuation Environment is Tough Today

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“It’s very competitive here [Silicon Valley]. [] Here [Silicon Valley] nobody is willing to take money on terms that are fair to both parties.  They’re willing to take money that’s fair to them, but not to me.” []

“It makes me nervous that we cannot find an investment in a Series A or B or C that is priced at a level that we really think is the right price, that makes me nervous. [] Most of the time it’s 50% higher, sometimes it’s double. [] It’s harder to make money in the venture business given the valuation environment that exists today.  It was a lot easier 5 or 10 years ago [].”  

This Week in Startups, Fred Wilson, episode # 523, Mar 10, 2015 @ approx. 35 min. [first quote] & 55 min. [second quote]

http://thisweekinstartups.com/fred-wilson-launch-festival/

 

What Great Entrepreneurs Have

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“He [David Karp, Tumblr CEO] has that thing that Ev Williams has, that Jack Dorsey has, that Mark Zuckerberg has, and lots of great entrepreneurs have:  he just knows how to build a great product and he has instincts about it, he knows what to do and knows what not to do.”

This Week in Startups, Fred Wilson, episode # 523, Mar 10, 2015 @ approx. 24 min.  

http://thisweekinstartups.com/fred-wilson-launch-festival/

Great VC’s Care Most About the Company

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“I think that great venture capitalists care more about the company than they do their investment. []

They’re not focused on money, they’re not focused on how much of the company they own, they’re not focused on the financial metrics so much. [] They’re focused on strategy, product, management team, building a world class organization, all those things [].”

This Week in Startups, Fred Wilson, episode # 523, Mar 10, 2015 @ approx. 8.48 min.

http://thisweekinstartups.com/fred-wilson-launch-festival/

The Only Way to Make Money

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“So Bill Gurley one time wrote something that I think is really really true which is the only way to make a lot of money is to believe something that everyone else believes is wrong [] that turns out to be right. [] The only way to make money is to believe something that turns out to be true that nobody else believes.” This Week in Startups, Fred Wilson, episode # 523, Mar 10, 2015 @ approx. 16.42 min.

http://thisweekinstartups.com/fred-wilson-launch-festival/

An Option Pool is about Price

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“One [] contentious [] negotiation [point] between an entrepreneur and a VC [], particularly [in] an early stage financing, is the inclusion of an option pool in the pre-money valuation. [] [The] fact [is an option pool] is simply about price.  [Example]:  [] $3.25mm pre-money with no option pool [can be equivalent to] $4mm pre-money with one. [] What an entrepreneur needs to do is find out what the market price for [his] company is with and without an option pool in the number. [Then], the negotiation over this point is [] less contentious.”

“[] [Wilson acknowledges that if] options are counted in the pre-money, entrepreneurs will want commensurately higher valuations to compensate for the additional dilution.”

“[][The] option pool request needs to be reasonable and based on [a] budget.  [Wilson looks for] enough options [in] the "pre-money pool" to fund the hiring and retention needs [] until the next financing.”  Wilson wants an option pool in the pre-money when he invests.  Fred Wilson, Valuation and Option Pool and comments, Nov. 6, 2009;  http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

Option Pool Gets Increased for Subsequent Rounds

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

When entrepreneurs go to market for subsequent investment rounds, Wilson says that “as part of the transaction the [option] pool will get increased again.   [Wilson likes] to do these refreshes as part of the financing negotiation since it is all about price.”  Fred Wilson, Valuation and Option Pool, Nov. 6, 2009 comments section http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

Determine Option Pool Needs ‘Round to Round’

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Even if one expects multiple investment rounds, Wilson says it’s better to determine option pool needs “round to round [vs. earmarking all expected future option pool needs upfront] because you can never know where this thing is headed and when you'll sell.”  Fred Wilson, Valuation and Option Pool, Nov. 6, 2009 comments section, http://www.avc.com/a_vc/2009/11/valuation-and-option-pool.html#comment-22043449

Social Proof is Nonsense

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“I have always hated the idea of social proof. It's just the herd instinct at work. It's nonsense.

If you can't figure out why you like an investment and why it will be successful, don't make it. []

But we don't care who else wants to invest. In fact, I'd prefer if nobody else wants to invest in it. That would be great.

Make up your own mind. Don't follow the herd. Don't chase.”  Fred Wilson, Social Proof Is Dangerous, Jun. 6 2012 http://www.avc.com/a_vc/2012/06/social-proof-is-dangerous.html

Wear your Failures as a Badge of Honor

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

“So don’t hide your failures. Wear them as a badge of honor.  And most of all, learn from them.”     Fred Wilson, Learn from Your Failures,  Pg 159-160 from book Do More Faster -  TechStars lessons to accelerate your startup by David Cohen & Brad Feld  copyrt 2011 

 

 

Board Member Chemistry is Critical

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

 “[] Chemistry among the Board members [] is critical to a well-functioning Board [] [just as it is among team members.]  [] Chemistry [] must be strong [] [with mutual respect and reliance] on each other's strengths to [make] right decisions.”  Investing in chemistry should be for the long term including participating in activities outside the Board room.

“Unless [a] Director has a contractual [Board seat or a unique skill], [Wilson recommends removing that director who doesn't fit in and] replace[d] [] with someone with similar skills who will in fit better.

[][A] company needs a strong Board and [the CEO] must do everything [to ensure getting one including getting input from other entrepreneurs and CEOs to improve the Board]. [] [If certain directors can’t be replaced, Wilson advises adding independent directors] to balance them out [] [to] build chemistry between the independents and the investors.” Changing 1 or 2 directors can change chemistry.

“[] [A well-constructed, well-managed Board with strong chemistry functioning effectively] [] is a tremendous asset to a company.”  Fred Wilson, The Board Of Directors: Board Chemistry,  Mar. 26, 2012; http://www.avc.com/a_vc/2012/03/the-board-of-directors-board-chemistry.html

Fred Wilson: Board’s Main Job is Providing Strategic Advice

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

The Board’s primary job “is providing strategic advice, accountability and feedback to the CEO and the management team. [] [It also] provide[s] oversight on [] financial statements, [] compensation plans and [ongoing Board maintenance].

[] A [key question] is “when is a Board big enough to need committees?” [for these responsibilities].  A three person Board should not have committees. [] A five person Board could have committees and should [if there’s much audit and compensation work].  A [seven+ person Board] should [] have committees.”

The 3 most common committees are:  audit, providing CFO function oversight and related issues; compensation, providing oversight creating and managing compensation plans, especially for the CEO and senior management.  Its goals are “to attract and retain the best talent [possible yet insure compensation isn’t so generous it results in a loss of shareholder value to management and employees]”; and governance, which oversees Board composition and other “self-governing” matters.

“[Wilson likes] three person Board committees with one chair and 2 other[s], [believing it most efficient]. [] Strong, well led [engaged] committees [] make for better Boards” because they handle necessary logistical work.  That frees the Board to offer substantive strategic guidance “where Boards can add the most value”.  Fred Wilson The Board Of Directors: Board Committees, Apr 9, 2012;

http://www.avc.com/a_vc/2012/04/the-board-of-directors-board-committees.html

Fred Wilson: Board’s Role & Responsibilities

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

 “The Board of Directors is the [company’s governing body].  All major decisions [require Board ratification, including approval to sell, hire or fire a CEO, make major acquisitions and do major financings, including an IPO].”  All strategically significant issues need Board involvement and support.    

“[][The] Board should not run a company [][but ensure] the right team is at the helm []. [Boards] must always act in the best interests of the company and its major stakeholders:  [] employees,[] customers, []shareholders, [] debtholders, [etc.]   [] The company works for the market [] and the Board and the management team work for the company.” 

Often, as director a right answer isn’t straightforward.  “There are no formulas [][nor “right answer”].  Only time will tell if the right decision was made [which can be debatable].” 

A good board is engaged, debates openly and honestly and tries reaching consensus.  The Chairman should drive the Board.

CEOs shouldn’t manage the Board. “A great Board manages itself, [] treats the CEO as a peer, [and considers the CEO's opinion,][but isn’t] a rubber stamp.  [It] pushes the CEO and the company to make the most of [presented opportunities and asks necessary hard questions]. 

[] [Boards] should evolve [with members changing occasionally, and some but not too much churn is good.] [] Boards should always be looking for new blood.”  Fred Wilson, The Board Of Directors: Role and Responsibilities, Mar 5 2012; http://www.avc.com/a_vc/2012/03/the-board-of-directors-role-and-responsibilities.html

Fred Wilson: Thoughts on Well-Functioning Boards

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

 “Every company should have a Board of Directors. []  [Benefits] include [] advice, counsel, relationships, experience, and accountability.

[Shareholders] elect the [Board] [] [usually via] a nominating entity that puts directors up for election by the shareholders. []

[Wilson likes] a three person Board early on in a company's life [including the founder with two others he trusts and respects].

[] [Investors sometimes negotiate a Board seat - less common for angels, moreso for VC’s].”

A founder can still control a three or five person Board.  “As a company moves from founder control to investor control, [an independent director is considered]. [] [Wilson likes] independent directors [].  The more independent minded the Board [], [usually the better].

[][Wilson argues] that an investor controlled Board is the worst possible situation” since an investor’s interest is narrowly his financial return, not a broader company perspective. “[Investor directors should not control the board.] The founder should control the board in a company he [] controls and independent directors should control a board where the founder does not control the company.

[] [Boards should evolve, recruit new members regularly and have term limits]”, preferably 4 years. 

“Most importantly, build a great board.”  Fred Wilson, The Board Of Directors - Selecting, Electing & Evolving, Mar 12, 2012;   http://www.avc.com/a_vc/2012/03/the-board-of-directors-selecting-electing-evolving.html

Fred Wilson: Board Chair Responsibilities

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

 “The Board Chair runs the Board of Directors [and] is a Board member with the same [] responsibilities as the other Board members. [He also ensures the Board functions:] [meeting regularly], [getting the CEO what he needs from the Board],[ensuring all members contribute], [and giving the CEO a single contact on various issues]. []

Small boards (three or less) don't really need Board Chairs. [] At [seven +], [Wilson] believe[s] it is critical to have a Board Chair.”

Although common, Wilson doesn’t believe the founder/CEO should also be Chair. “[] [Wilson] think[s] the Chair should be an independent director who [helps] the CEO manage the Board.

[] When it works, the Board Chair role is hugely impactful.  It allows the CEO to spend [his] time [] running the business and not worrying about the Board.” Fred Wilson, The Board Of Directors - The Board Chair, Mar 19, 2012; 

http://www.avc.com/a_vc/2012/03/the-board-of-directors-the-board-chair.html

Sustainability: Short Term Profits vs. Long Term Health

Fred Wilson venture capitalist and Co-Founder Union Square Ventures

Wilson discusses sustainability within the context of “[] short term profit maximization vs. long term business health []. If you want to stay in business forever, you have to focus on the long term [] [with] a business model that [ensures customer trust to keep them returning].

[][Wilson believe[s] business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). [] [The] goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc.) can rely on [it][] long term.”

When considering investments, entrepreneurs should employ survival instincts to ensure future survival.  “[][When considering whether] to disrupt their own business [] the [] choice is [not short term profit maximization but] [] survivability” even if it likely results in lower future profits. 

“[] When you construct your business model and create the [business culture], emphasize sustainability over profit maximization in everything  you create and do. [] Profits are the essence of survivability. [] But just because you need to make a profit doesn't mean you need to maximize it.  Balancing the need for a profit with [] sustain[ing] the business is the art of what [the business leader must do to win.]”  Fred Wilson, How To Be In Business Forever: A Lesson In Sustainability, Oct. 1, 2012; http://www.avc.com/a_vc/2012/10/how-to-be-in-business-forever-a-lesson-in-sustainability.html