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Fred Wilson's MBA Mondays

By Joel Monegro

Introduction

Entrepreneurs and Aspiring VCs

Joel Monegro — Software Developer (A.S.), Economist (B.A.), & tech entrepreneur heading the Dept. of Digital Economy at ...

1 How To Calculate A Return On Investment

The Gotham Gal and I make a fair number of non-tech angel investments. Things like media, food products, restaurants, music, local real estate, local businesses. In these investments we are usually backing an entrepreneur we've gotten to know who delivers products to the market that we use and love. The Gotham Gal runs this part of our investment portfolio with

2 The Present Value Of Future Cash Flows

My friend Pravin sent me an email last week after my "How To Calculate A Return On Investment" post. He said: I wish there was a class that I could take that would teach me how to properly research stocks/companies for investment purposes and how that could be made into a private tutoring business. It'd be for people like me,

3 The Time Value Of Money

It's Monday, time for MBA Mondays. Last week, I posted about The Present Value Of Future Cash Flows and in the comments Pascal-Emmanuel Gobry wrote: That being said, before even covering NPV, I would have first talked about the time value of money. To me, time value of money is one of the top 3 concepts that blew my mind

4 Compounding Interest

It's time for MBA Mondays again. For the third week in a row, the topic of the post has been suggested by a reader. Last week, Elia Freedman wrote: "A suggestion for your next post. The logical follow-on is to explain the second half of the TVM (time value of money), which is compounding interest."Before I address the issue of

5 Corporate Entities

I'm taking a turn on MBA Mondays today. We are moving past the concepts of interest and time value of money and moving into the world of corporations. Today, I'd like to talk about what kinds of entities you might encounter in the world of business. First off, you don't have to incorporate to be in business. There are many

6 Piercing The Corporate Veil

Yet another MBA Monday topic comes from the comments of last week's post. This series is turning into a conversation which makes me very pleased. Mr Shawn Yeager said: As a recovering lawyer, and a serial entrepreneur, I constantly have associates, friends, and family coming to me for advice on formation issues (amongst other things). I think your high level

7 Accounting

I'm making up the curriculum for MBA Mondays on the fly. The end game is to lay out how to look a businesses, value it, and invest in it. We started with the time value of money and interest rates, we then talked about the corporate entity.

8 The Profit and Loss Statement

Today on MBA Mondays we are going to talk about one of the most important things in business, the profit and loss statement (also known as the P&L). Picking up from the accounting post last week, there are two kinds of accounting entries; those that describe money coming into and out of your business, and money that is contained in

9 The Balance Sheet

Today on MBA Mondays we are going to talk about the Balance Sheet. The Balance Sheet shows how much capital you have built up in your business. If you go back to my post on Accounting, you will recall that there are two kinds of accounts in a company's chart of accounts; revenue and expense accounts and asset and liability

10 Cash Flow

This week on MBA Mondays we are going to talk about cash flow. A few weeks ago, in my post on Accounting, I said there were three major accounting statements. We've talked about the Income Statement and the Balance Sheet. The third is the Cash Flow Statement. I've never been that interested in the Cash Flow Statement per se. The

11 Analyzing Financial Statements

This topic could be and is a full semester course at some business schools. It is a deep and rich topic that I can't cover in one single blog post. But it is also a relatively narrow skill set at its most developed levels. If you are going to be a public equity analyst, you need to understand this stuff

12 Key Business Metrics

The past five MBA Mondays posts have been about accounting concepts, financial statements, and related issues. I don't know about all of you, but I'm a bit tired of that stuff. So I'm moving on to something a bit different. Every business should have a set of metrics that it tracks on a regular basis. These metrics could include some

13 Price: Why Lower Isn't Always Better

I want to tackle the issue of forecasting and projections next in the MBA Mondays series but I don't yet have an outline in my head of how I am going to approach this critical subject. So I am taking a breather this week and instead will tell a story I heard from a marketing professor in business school. This

14 Projections, Budgeting and Forecasting

MBA Mondays is starting a new topic this week. It's a big one and I think we'll end up doing at least four and maybe even five posts on this topic in the coming weeks. I said the following in one of my first MBA Mondays posts: companies are worth the "present value" of "future cash flows"The point being that

15 Scenarios

In last week's MBA Mondays, I introduced the topic that we'll be focused on for the next month or so; projections, budgeting, and forecasting. In that post, I described projecting as a "what if" exercise that is done at a higher level of abstraction than the budgeting and forecasting exercises. I said this about projections: These are a set of

16 Budgeting In A Small Early Stage Company

Today and for the next two weeks, we are going to talk about budgeting on MBA Mondays. Since the budgeting process works differently in companies of various sizes, we are going to focus on three company sizes; 10 people, 75 people, and 150 people. Today we will talk about the 10 person company scenario. As I said in a previous

17 Budgeting In A Growing Company

I failed to post a MBA Mondays post last monday. Sorry about that. I had something else on my mind when I woke up, wrote about that, and didn't realize that it was monday and I was supposed to do an MBA Mondays post until late in the afternoon. So we are now picking up from where we left off

18 Budgeting In A Large Company

Last week we talked about budgeting in a growing company. I defined that as a company between 50 and 100 employees. Today we are going to wrap up the budgeting series by talking about what happens to the process when you get to be a "big company." The context for the whole of this MBA Mondays series of posts is

19 Forecasting

This is the final post in a long MBA Mondays series on projections, budgets, and forecasts. Today we will talk about what happens when reality starts to differ from what you've budgeted - you re-forecast. Let's go back to the framework I laid out at the start of this series. Projections are long-term high level efforts to establish the scope

20 Risk And Return

One of the most fundamental concepts in finance is that risk and return are correlated. We touched on this a tiny bit in one of the early MBA Mondays posts. But I'd like to dig a bit deeper on this concept today. Here's a chart I found on the Internet (where else?) that shows a bunch of portfolios of financial

21 Diversification

I was talking to a friend over the weekend and he told me a story about a person he knows who made hundreds of millions of dollars of net worth in his career and then lost it all. I asked my friend how that could happen. He said "he made a lot of risky bets and none of them worked

22 Hedging

This is the third in a series of MBA Mondays posts about risk and return. Last week we talked about diversification, my favorite form of risk mitigation. This week we are going to talk about another favorite risk mitigation method of mine - hedging. There are different types of investors in any highly developed and liquid market. There are speculators

23 Currency Risk In A Business

I'm in europe this week, using euros for everything instead of dollars. So I thought it would be an appropriate time to talk about currency risk in a business. When you have a business that only generates revenues in your local currency, you don't have to concern yourself with the fluctuations of one currency versus another. But if you start

24 Purchasing Power Parity

Continuing the international theme, we are going to talk about Purchasing Power Parity today on MBA Mondays. I learned about purchasing power parity in business school and it has always helped think about international exchange rates. The theory is far from perfect and fails miserably in many situations, but I still think the basic construct of purchasing power parity is

25 Opportunity Costs

We are going to turn our attention on MBA Mondays to some costs that are important to recognize in business. First up is Opportunity Cost. Opportunity Cost is the cost of not being able to do something because you are doing something else. These costs don't end up on your income statement but they are expensive, particularly in a small

26 Off Balance Sheet Liabilities

In the past couple weeks we've talked about some costs that don't always appear on the income statement; opportunity costs and sunk costs. Today, I'd like to talk about some liabilities that don't appear on the balance sheet. The technical term for them is "off balance sheet liabilities" and they are something to be very wary of as an investor.

27 Enterprise Value and Market Value

Last week I mentioned that sometimes I am at a loss for something to post about on MBA Mondays. Andrew Parker, who got his MBA at Union Square Ventures (largely self taught) from 2006 to 2010, suggested in the comments that I post about the differences between Enterprise Value and Market Value. It was a good suggestion and so here

28 Bookings vs Revenues vs Collections

A reader suggested this topic for MBA Mondays. It is a good one. When a customer commits to spend money with your company, that is a "booking". A booking is often tied to some form of contract between your company and the customer. The contract can be simple or very complicated. And some bookings do happen without a contract. Examples

29 Commission Plans

Last week's MBA Mondays post about Bookings, Revenues, and Collections generated a number of comments and questions about sales commission plans. So I decided to ask my friend and AVC community member Jim Keenan to write a guest post on the topic. Jim's blog, A Sales Guy, is a great read for those who want to get into the mind

30 What A CEO Does - AVC

I was working on a CEO search for one of our struggling portfolio comapnies. We had a bunch of them. I started in the venture capital business just as the PC hardware bubble of the early 80s was busting. Our portfolio was a mess. It was a great time to enter the business.

31 What A CEO Does (continued)

Last week's MBA Mondays post on What A CEO Does was a huge hit. Matt Blumberg, who is one of the finest CEOs I've had the pleasure of working with, wrote a follow-up post on the topic for his blog. I asked him if I could run it as a guest post here on MBA Mondays and he agreed. So,

32 Outsourcing

This MBA Mondays topic was suggested by Aviah Laor, a regular member of this community. I'll start this post by describing outsourcing and explain why companies do it. Then I'll talk about outsourcing in the context of startups. Outsourcing is when a company hires another company to perform certain functions. Wikipedia defines it as "contracting to third parties." The term

33 Outsourcing vs Offshoring

A lot of the discussion about last week's MBA Mondays post on Outsourcing was about the differences between outsourcing locally and outsourcing outside your home country. A popular term for the latter approach is offshoring. The advent of modern electronic communications has allowed companies to efficiently source and manage labor all around the globe. This is one of the megatrends,

34 Employee Equity

One of the topics I get asked about most on MBA Mondays is "options." But options are only one form of employee equity. I am going to do a series of posts on this topic over the next month of MBA Mondays. I will start by laying out the logic for employee equity, going over some target ownership levels, and

35 Employee Equity: Dilution

Last week I kicked off my MBA Mondays series on Employee Equity. Today I am going to talk about one of the most important things you need to understand about employee equity; it is likely to be diluted over time. When you start a company, you and your founders own 100% of the company. That is usually in the form

36 Employee Equity: Appreciation

This is the third post in an MBA Mondays series on Employee Equity. Last week I talked about Dilution. This week I am going to talk about the antidote to Dilution which is Appreciation, specifically stock price appreciation. When you start a company, on day one the stock is basically worthless. There are some exceptions to this rule such as

37 Employee Equity: Options

A stock option is a security which gives the holder the right to purchase stock (usually common stock) at a set price (called the strike price) for a fixed period of time. Stock options are the most common form of employee equity and are used as part of employee compensation packages in most technology startups. If you are a founder,

38 Employee Equity: The Liquidation Overhang

We're five posts into this MBA Mondays series on Employee Equity and now we are going to start getting into details. We've laid out the basics but we are not nearly done. I am just starting to realize how complicated the issues around employee equity are. That's not good. It's like paying taxes. Everybody does it and nobody but the

39 Employee Equity: The Option Strike Price

A few weeks back we talked about stock options in some detail. I explained that the strike price of an option is the price per share you will pay when you exercise the option and buy the underlying common stock. And I explained that the company is required to strike employee options at the fair market value of the company

40 Employee Equity: Restricted Stock and RSUs

For the past six weeks, we've been talking about employee equity on MBA Mondays. We've covered the basics, some specifics, and we've discussed the main form of employee equity which are stock options. Today we are going to talk about two other ways companies grant stock to employees, restricted stock and restricted stock units (RSUs). Restricted stock is fairly straight

41 Employee Equity: Vesting

We had a bunch of questions about vesting in the comments to last week's MBA Mondays post. So this post is going to be about vesting. Vesting is the technique used to allow employees to earn their equity over time. You could grant stock or options on a regular basis and accomplish something similar, but that has all sorts of

42 Employee Equity: How Much?

The most common comment in this long and complicated MBA Mondays series on Employee Equity is the question of how much equity should you grant when you make a hire. I am going to try to address that question in this post. First, a caveat. For your first key hires, three, five, maybe as much as ten, you will probably

44 M&A Fundamentals

This is the first post on the "acquisition finance" series we started last week in MBA Mondays. I am going to try to lay out the basics of mergers and acquisitions in this post. Then we can move on to some details. As the term M&A suggests, there are two types of deals, mergers and acquisitions. Acquisitions are way more

45 Buying and Selling Assets

MBA Mondays are back after a week hiatus. We are several posts into a series on Merger and Acquisitions. In our last post, we talked about the key characteristics of mergers and acquisitions. And we touched on the two kinds of purchases, the asset purchase and the company purchase. Today I'd like to talk about the asset purchase. As I

46 Selling Your Company

It is Monday so it is time for another MBA Mondays post. We are a few weeks into a series on mergers and acquisitions. The first week we covered the basics of mergers and acquisitions. Last week we talked about asset sales. This week we are going to start a conversation about selling your company. I will kick off the

Added by Joel Monegro: “Why should your students learn this?

47 M&A Case Studies: ChiliSoft

The AVC community's very own Charlie Crystle has a great story about the sale of ChiliSoft at the height of the late 90s bubble. I've asked him to tell it as case study number one in the M&A Case Studies on MBA Mondays. We will be discussing this case in the comments. There's a bit of shorthand in Charlie's story

48 M&A Case Studies: WhatCounts

We continue with our M&A case studies on MBA Mondays. Last week we saw the impact VCs can have on your exit. This week we are going to look at the opposite situation: what happens if you've entirely bootstrapped your company. AVC community member @daryn introduced me to David Geller who, over ten years, bootstrapped, built, and sold an email

49 M&A Case Studies: WhatCounts Sale Process

Last week we got a primer on the WhatCounts story and events leading up to the decision to sell the company. This week we are going to hear what a sale process looks like. There are a bunch of great lessons that come out of this story but my two favorites are doing your diligence on the buyer and only

50 M&A Case Studies: Feedburner

This MBA Mondays M&A case study is about the effect that stock option acceleration provisions have on M&A transactions. I am reblogging a blog post that Feedburner founder/CEO Dick Costolo (now Twitter CEO) wrote in the wake of the acquisition of Feedburner by Google. This post is still live on the web at its original location. While the names are

51 M&A Issues: The Integration Plan

For the past month we've been doing M&A Case Studies on MBA Mondays. It's time to go back to the basics of M&A. I laid them out in this post. For the next few weeks, I am going to discuss each of the key issues in detail. First up is the integration plan. The integration plan is the way the

52 M&A Issues: The Stay Package

We continue our discussion of M&A Issues this week on MBA Mondays. Today we are going to talk about the "stay package." When a company acquires your business, they are buying the people as much as anything. Experience has shown that the most successful acquisitions require the team to stick around, at least for a while. But if everyone is

54 MBA Tuesday

Yesterday I went up to Harvard Business School and participated in a lunch and a class. My friend Jeff Bussgang arranged the trip and we were hosted by HBS Professor Tom Eisenmann. Jeff and I sat in front of Tom's class Launching Technology Ventures and talked for almost 2 hours on topics like Lean Startup Methodology, Pivoting, doing a startup

55 M&A Issues: Breakup Fees

Continuing our discussion of M&A Issues, we are going to talk about breakup fees today. A breakup fee is a payment made by the buyer to the seller if the M&A transaction doesn't close. Many M&A transactions do not include breakup fees, particularly smaller transactions. But as the value of the transaction rises and the potential disruption to the seller's

56 M&A Issues: Reps, Warranties, Indemnities, and Escrows

Yet another post on issues in M&A. This one is about the things you will sign up to when you sell your business and the money you will set aside to cover them. First things first. I am not a lawyer. And this post is about legal stuff. I barely know how to spell indemnities. I had to double check

57 M&A Issues: Timing

Yet another post in the M&A Issues series. This one is about timing, ie how long it should take from the first serious conversation about a sale transaction until the closing. I've seen acquisitions done in a week. I've seen acquisitions take over a year from the first serious conversation to close. And one thing I know for sure, if

58 M&A Issues: Consideration

We are getting to the end of the series on M&A. Two more M&A Issues to talk about and then I am done. The final two are consideration and price. Today I'll talk about consideration and next week I'll talk about price. Consideration is the way in which you and your shareholders will get paid. The most common way to

59 M&A Issues: Price

This is my final MBA Mondays post on M&A Issues. I've been posting about M&A since last December. It feels like a semester long effort. And frankly I'm a bit tired of talking about M&A every monday. But selling your company is an important topic and I think we've done it justice now on MBA Mondays. Price is certainly the

61 360 Reviews - AVC

I'm a fan of 360 reviews for companies of all shapes and sizes. I was talking to the CEO of one of our portfolio companies yesterday about his company and he said "we have about 50 employees. is it time to do 360s?"

62 Margins

Margin or margins is a word you hear a lot in business. I want to talk about what it means and why it is important today on MBA Mondays. I did talk about margins once before, in the context of the income statement, back when we were walking through the basic financial statements. But I'd like to talk about the

63 Margins (continued) - AVC

It is important to pay attention to these metrics. You might have two businesses with identical operating margins but one has high gross margins and high operating costs (like Salesforce) and the other has low gross margins and low operating costs (like Apple).

64 LTV > CPA

A couple weeks ago, in a comment to an MBA Mondays post, Dan Lewis wrote "LTV has to be higher than your CPA or you're not going to make it." I asked Dan to elaborate in a MBA Mondays guest blog post on this topic and he agreed. Here's Dan's post: ----------------------------------- LTV stands for "lifetime value" of a customer.

65 Ordinary Income vs Capital Gains

I'm wandering a bit on MBA Mondays right now. I don't have a strong view of where to take this thing next. So I'm just going to post about stuff I think people should understand until I find the next vein we can mine for a while. Today, I'd like to talk about ordinary income vs capital gains. This is

68 Sizing Option Pools In Connection With Financings

We've talked about this issue before here at AVC. Investors like to require that an unissued option pool is in the pre-money valuation calculation when they put money into early stage companies. If you don't entirely understand what I am talking about here, go click on that link at the start of the post. Hopefully it will explain the issue.

70 Financing Options: Friends and Family

This is the first in a series of posts about financing options for startups. By "financing" I mean obtaining cash to fund your business. There are all sorts of strategies to avoid needing funding, but this series is not about them. Many entrepreneurs turn to friends and family for their first funding needs. In fact, it is common for non-tech

71 Financing Options: Contests/Prizes/Accelerator Programs

This is the second in a series of posts about financing options for startups. By "financing" I mean obtaining cash to fund your business. There are all sorts of strategies to avoid needing funding, but this series is not about them. I did not have this option in my original list but it was suggested so many times in the

72 Financing Options: Government Grants

Governments will provide capital for startups and I've seen many entrepreneurs over the years take advantage of this form of financing. The grants are usually "free money" in the sense that they do not need to be paid back and they don't cost any equity. But nothing in life is free. You do pay for this money in ways that

73 Financing Options: Customers

I wrote in an earlier post in this series that friends and family is the most common form of startup financing. If you are talking explicitly equity investments, then that is probably true. But the most common way that startup businesses get money to get going is they sell something to someone. In this context, someone means customers. Customers are

74 Financing Options: Vendor Financing - AVC

Development for equity is when a third party development firm builds something for you and takes equity in your business (or less commonly, a loan) in return for the development services. It is fairly common for a development partner to take some of their compensation in equity but it is rare for them to take all of it that way.

75 Financing Options: Convertible Debt

MBA Mondays are back after a one week hiatus. Today we are going to talk about convertible debt. Convertible debt can also be called convertible loans or convertible notes. For the purposes of this post, these three terms will be interchangeable. Convertible debt is when a company borrows money from an investor or a group of investors and the intention

76 Financing Options: Preferred Stock

Today on MBA Mondays Startup Financing Options series, we are going to talk about the financing option that I specialize in - preferred stock. Almost all venture capital firms and many angel and seed investors will require the company they are investing in to issue them preferred stock. The vast majority of equity dollars invested in startups are securitized with

77 Financings Options: Venture Debt

It's Monday, time for MBA Mondays and the next post in the Startup Financing Options series. Today we will talk about Venture Debt. If there were two words less likely to be found together, it would be venture and debt. Startups are not credit worthy enterprises. They have little to no assets and no cash flow. Equity is the appropriate

78 Financing Options: Capital Equipment Loans and Leases

Today on MBA Mondays we are going to cover yet another topic in the Financing Options series, financing capital equipment like servers, routers, switches, computers, etc. Equity capital is expensive. Every time you do a raise, you dilute. It makes sense to look for places where you can use other less expensive forms of capital to fund growth. As we

79 Financing Options: Bridge Loans

Today's post in the financing options series on MBA Mondays is about Bridge Loans. Bridge loans are so called because they are a "bridge" to something else. They are short term loans intended to fund a company to an anticipated event in the future. Bridge loans exist in many sectors outside of the startup world. Big banks will often bridge

80 Financing Options: Working Capital Financing

We are coming to the end of the Financing Options series. This is the final post in the series. Today we are going to talk about working capital financing. For those of you not steeped in finance and accounting matters, I suggest you go back and read the Balance Sheet post before reading on. Working Capital Financing relies on a

81 Pricing A Follow-On Venture Investment

Today on MBA Mondays, I am going to walk you through some math that our team does when looking at a venture investment in a company that is starting to scale its business. Let's assume we have a portfolio company. I will call it fit.sy. It is a marketplace for fitness experiences. We invested in it last year as it

82 Determining Valuation Multiples

Last week on MBA Mondays, I talked about valuing an internet marketplace business. In that post, I talked about using 1x gross marketplace transactions and 20x EBITDA as multiples to determine value. In the comments, I was asked about multiples for other sectors. That's a good question so I figured I'd show how to calculate multiples for various sectors. For

83 EBITDA

Last week's post on valuation brought a couple questions about EBITDA. The first of which is how do you pronounce that acronym? The answer to that question is e-bit-dah. The second of which is what does it mean? The answer to that is Earnings Before Interest Taxes Depreciation and Amortization. The way I like to think about EBITDA is the

84 MBA Mondays: Cap Tables

Cap Tables (short for capitalization tables) are spreadsheets that show how much everyone owns of the company. You can get a stockholder ledger from your lawyer that will list all the stockholders and show how many shares or options they have, but I don't consider that a cap table. For the past 25 years, I've used a simple form, mostly

86 Liquidation Analysis (Continued)

Last week I pointed out that when your company is sold at price points around or below prices where you have financed your company then your proceeds in a sale transaction will not equal your fully diluted ownership percentage times the sale price. You will get less because some or all of the preferred shareholders will choose to take their

87 Revenue Based Financing

Back when we were doing our MBA Monday series on Financing Options For Startups, I got an email from my friend Andy Sack. Andy was one of the first entrepreneurs we funded by in the mid 90s with our Flatiron Fund. He's done something like a half dozen startups since then and he's a veteran in the very best sense

88 VP Finance vs CFO

Today on MBA Mondays we are going to talk about the financial leader in an organization. Sometimes this person is called the VP Finance and sometimes they are called the CFO. What is the difference? When will a VP Finance do? And when do you need a CFO? Like all titles, they can get mangled. A person might be promoted

90 A New MBA Mondays Series: Business Arcanery - AVC

I'm going to do a series on Business Arcanery. I don't even know if arcanery is a word, but I like it so we are going to use it as a name for this series. It is about arcane words that are used in business but regular people have no idea what they mean.

91 Business Arcanery: Going Concern

We got so many ideas for this Business Arcanery series on MBA Mondays that I'm not going to do it as a series. I am going to do one of these every month. There is enough business arcanery out there that I could do a years worth of weekly posts without running out of material. We'll start with the term

92 Sustainability - AVC

And sustainability is all about figuring out how to be in business forever. It is about business models that are win/win and lead to happy long term customer and supplier relationships. It is about avoiding the temptation to overeach. It is about avoiding the temptation to mazimize near term profits at the expense of long term health.

93 Burn Rate

MBA Mondays is back after a week off. Today we are going to talk about burn rate, or cash burn rate to be more specific. Your burn rate is the speed at which your cash balance is going down. If you had $1mm in cash on January 1st, and now it is October 1st and you have $250,000 left, your

94 Burn Rates: How Much?

In the comments to last week's Burn Rate post, I was asked to share some burn rates from our portfolio. I can't do that. But an alternative suggestion was to write a post suggesting some reasonable burn rates at different stages. I can do that and so that's the topic of today's post. The following applies to software based businesses,

95 How Much To Burn While Building Product

In last week's MBA Mondays, I wrote about burn rates at three stages of a startup. The first stage is what I called "Building Product Stage" and I suggested that a burn rate of $50k/month was appropriate for that stage. I got a fair bit of pushback in the comments for that part of the post. My favorite push back

96 Scaling The Management Team - AVC

My friend Bijan wrote a great post last week about the challenges a startup faces in scaling its team and building a management layer. His post inspired me to start a new series here on MBA Mondays about scaling a management team. Here's what I have in mind:

97 The Management Team - While Building Product

The first stage of a startup, what I call the Building Product stage is management light. The team should be small. We have portfolio companies like del.icio.us and duck duck go where the Building Product stage was accomplished by one person, the founder of course. That is not typical. What is typical is a team of five or less. The

98 The Management Team - While Building Usage

So you've built and launched your product. It is well received. You've acheived "product market fit" and it is time to get more users or customers. You've graduated from the "building product" stage and have entered the "building usage" phase. What does this mean for your team? Well first and foremost, it means you are going to have start building

99 The Management Team - While Building The Business

This is the third and final post on the subject of the management team. The final phase of company development I am going to cover is "building the business." Building the business largely means building the management team. They are one and the same. Many founders are naturally talented at building product and building the user base. But building the

100 The Management Team - Guest Post From Matt Blumberg

Now that I've completed three posts on The Management Team over the last three MBA Mondays, it's time for four or five guest posts on this topic. The first one is from Matt Blumberg, CEO of our portfolio company Return Path. I've been on Matt's board for over a decade and I've watched him develop into one of the finest

101 The Management Team - Guest Post From JLM

Next up on our guest posts on the subject of The Management Team is AVC community regular JLM. For those that don't know, JLM runs a public company and before that built and sold a large real estate operation. He's also written one of the best guest posts ever on AVC. With that intro, here's what JLM has to say

102 The Management Team - Guest Post From Phil Sugar

At a very early stage: a couple of gals in a garage, nothing gets done unless somebody goes out and does something. No customers are going to call, no partners are going to want to meet, no bankers, lawyers are going to reach out. Everything is outward. Nothing happens unless you do something and frankly anybody calling in to you

103 The Management Team - Guest Post From Joel Spolsky

Today's guest blogger needs no introduction. Joel Spolsky one of the best bloggers out there. He also runs one of our portfolio companies, Stack. And his approach to management is unorthodox at times but amazingly effective. I asked him to tell us a little about how he does it. I think you'll enjoy this post, it's great advice on many

104 The Management Team - Guest Post By Jerry Colonna

This is the final post of the MBA Mondays series on The Management Team. It is my favorite MBA Mondays series so far. The guest posts in particular have been fantastic. Back when I started this series, I outlined it and decided that I would ask Jerry Colonna to wrap it up for us. Jerry, when he was my co-founder

106 The Board Of Directors: Role and Responsibilities

This is the first of a series of MBA Mondays posts on the topic of The Board Of Directors. I want to dig into the role and responsibilities of the Board as a way to kickoff this series. But first a few disclaimers. I am not a lawyer and I am not giving out legal advice on this topic. I

107 The Board Of Directors - Selecting, Electing & Evolving

Every company should have a Board Of Directors. At the start it can simply be a one person board consisting of the founder. But it should not stay that way for long. Because if you are your own board, you won't get any of the benefits that come with having a board. These benefits include, but are not limited to,

108 The Board Of Directors - The Board Chair

Continuing our series on The Board Of Directors, this week I'll talk about the role of the Board Chair. The Board Chair runs the Board Of Directors. He or she is a Board member with the same roles and responsibilities as the other Board members. But in addition, the Board Chair is responsible for making sure the Board is doing

109 The Board Of Directors: Board Chemistry

One of the least discussed elements of a Board of Directors is the chemistry among the Board members. It is critical to a well functioning Board but not always considered in Board construction. Like a well functioning startup or a top flight sports team, the chemistry between the participants on a Board must be strong. That doesn't mean they need

110 The Board Of Directors: Board Meetings

The Board Meeting is the primary way that Boards function. This post is about making Board meetings effective and helpful for everyone involved. A Board cannot be effective if it doesn't get together frequently. Some Boards meet monthly. I like that approach when the Company is young and there are a lot of changes happening frequently. But for most companies,

111 The Board Of Directors: Board Committees

A Board has real work to do. In addition to the most important work which is providing strategic advice, accountability, and feedback to the CEO and the management team, the Board is required to provide oversight on the Company's financial statements, the Company's compensation plans, and the ongoing maintenance of the Board. As such when a Board gets big enough

113 The Board of Directors: Guest Post From Scott Kurnit

I am developing a standard format for these MBA Mondays series. I do five or six posts on a topic and then I solicit four or five guest posts to wrap it up. Today we begin the guest posts on the Board Of Directors series we've been doing for the past six weeks. Hopefully everyone who has been following this

114 MBA Mondays Live: Employee Equity - Archive and Feedback

The first MBA Mondays Live class was last monday night. I had an incredible time and I can't wait to do it again. There isn't much better in life than standing up in front a bunch of eager learners teaching something you know well. The archive and photos from the event is permantly hosted on this link. Here's the video

115 The Board Of Directors: Guest Post From Matt Blumberg

In last week's guest post Scott Kurnit advised entrepreneurs to put a friend on the Board and keep co-founders off. This week we'll continue the theme of "who should be on your Board?" with a re-run of a post that Matt Blumberg wrote for Brad Feld earlier this year. The topic is "what makes an awesome Board Member." I am

118 MBA Mondays: Culture And Fit

Kicking off our series on People, I am going to talk about the importance of culture and fit in the hiring process. What I have to say on this topic is mostly aimed at companies that are going from five employees to five hundred employees, but I do believe it is applicable to companies of all sizes. I want to

119 Twilio's Nine Things - AVC

It helps a lot to have a one pager that outlines the core values of the company. I just saw our portfolio company Twilio's version of that. They call it "Our 9 Things." I wish I could publish it here but I don't have permission from Jeff and so I will resist the urge.

120 MBA Mondays: Where To Find Strong Talent

One of the most vexing problems entrepreneurs face is where to find strong talent for their companies. The kind of people you want to hire for your company are in short supply and they are rarely out looking for a job. You have to go find them and recruit them to join your team. But where to look? Here are

121 MBA Mondays: Optimal Headcount At Various Stages

This is the third post in the MBA Mondays series on People. The number of people you have in your company at any time is a very important part of getting the company building process right. Too many and you will slow things down, burn through too much cash, and increase management overhead for no real benefit. Too few and

122 MBA Mondays: Best Hiring Practices

Hiring is a process and should be treated as such. It is serious business. The first step is building a hiring roadmap which should lay out the hiring plan over time by job type. This should be built into your operating plan and budget. You want to be very strategic about how you invest your scarce resources into hiring and

123 MBA Mondays: Retaining Your Employees

I hate to see employees leave our portfolio companies for many reasons, among them the loss of continuity and camaraderie and the knowledge of how hard everyone will have to work to replace them. Many people see churn of employees in and out of companies as a given and build a recruiting machine to deal with this reality. While building

124 MBA Mondays: Asking An Employee To Leave The Company

I don't like using terms like "fire" or "terminate." To me they have too much emotion attached to them to be appropriate when splitting with an employee. I like to say that "fred was asked to leave the company" or "fred, we need you to leave the company." That works better for me and, I think, it also works better

125 MBA Mondays: Leveraging Your Partners To Grow And Develop Your Team

This is the final post I am writing in this MBA Mondays post on People. Next week we will start with the guest posts and I've lined up about a half a dozen of them. I am going to finish off my posts with something I know a fair bit about which is leveraging your partners to grow and develop

126 MBA Mondays: Guest Post From Donna White

Now we start the guest post part of this MBA Mondays series on People. First up is AVC regular Donna White. In this post, Donna explains that recruiting is fun if you approach it the right way. I know many founders who don't really enjoy recruiting so this post is for all of you. ---------------- Recruiting is Fun! My husband

127 MBA Mondays: Guest Post From Angela Baldonero

Angela is SVP of People and Client Success at Return Path. She joined Return Path over five years ago to focus on the People job and she has added responsibilities since then. I asked Angela to write one of the guest posts in this series on People because she and Matt Blumberg have built one of the most impressive cultures

128 MBA Mondays: Guest Post From Chad Dickerson

Chad is the CEO of Etsy and I think I'll skip the intro because this post speaks for itself. ------------ Recruiting & Culture When Fred asked me to write a guest blog post, I told him initially that I was going to write about recruiting and culture. Both are topics that I've learned a lot about in nearly twenty years

129 MBA Mondays: Guest Post From Susan Loh

When I introduced this series on People, I stated that it was going to have a bunch of guest posts because there are many people who know a lot more about the people side of business than I do. One of them is Susan Loh who is Head of Talent at Foursquare. I asked Susan to write a guest post

130 How to Be in Business Forever: A Class On Sustainability

Last fall I wrote a post on Sustainability and ended it with this thought: I am tempted to develop a course on this topic. I think we need a lot more of this type of thinking in business. It seems in such short supply these days.So I am excited to announce that I am going to teach a class on

132 MBA Mondays: Guest Post From Dr. Dana Ardi

Dr. Dana Ardi is a friend, former colleague, and an expert in the fields of talent management, organizational design, assessment, leadership, coaching, and recruiting. Dana has taught me a ton about these areas and was a partner at Flatiron Partners where we made a big investment in the talent side of the business. I asked Dana to "bat cleanup" on

133 MBA Mondays From The Archives: The Profit and Loss Statement

Continuing the visit back in time to the MBA Mondays Archives, today we are going to rerun the post on the Profit and Loss Statement, which I called "one of the most important things in business" in the original post. ----------------------- Picking up from the accounting post last week, there are two kinds of accounting entries; those that describe money

134 MBA Mondays From The Archives: The Balance Sheet

Continuing the visit back in time to the MBA Mondays Archives, today we are going to rerun the post on the Balance Sheet, which is a financial snapshot into the health of your business. ------------------- Today on MBA Mondays we are going to talk about the Balance Sheet. The Balance Sheet shows how much capital you have built up in

135 MBA Mondays From The Archives: Cash Flow

Continuing this month's practice of pulling an accounting related blog post from the archives, this week we feature the post on Cash Flow. The Income Statement and Balance Sheet get more attention, but there is nothing more important in keeping your business afloat than Cash Flow. ------------------------------ This week on MBA Mondays we are going to talk about cash flow.

136 MBA Mondays From The Archive: Analyzing Financial Statements

My favorite course in business school was Financial Statement Analysis. It was like taking a course in investigative journalism or learning how to be a police detective. The professor explained that if you look hard enough, you can learn most anything you want about a business from the numbers. I've learned that numbers themselves are not the most important thing

137 How To Be In Business Forever: A Lesson In Sustainability

Its time to kick off my Skillshare class on Sustainability. I will do a post each week this month (on Mondays of course). I will do office hours on Google Hangouts on Mondays at 6pm eastern for 30 minutes all month. We will do a project together which is to create a sustainable business model canvas. And there are groups

138 How To Be In Business Forever: Week Two

First we'll take care of some logistics and then we'll get to the post of the week in my Skillshare Class on sustainability in business. Office hours will take place at 6pm eastern today. The link to the hangout is here. I don't like the way office hours worked last week and so I am changing them up. I will

139 How To Be In Business Forever: Week Three

It is week three of my Skillshare class on Sustainability in Business. I will be doing office hours today at 6pm eastern. You can watch them here on this link. If you want to submit questions for office hours, you can do that here. Just like last week, I will review a few business model canvas projects and then will

140 How To Be In Business Forever: Week Four

This is the final post for my Skillshare class on Sustainability. I will not do office hours this evening but I will do one final office hours next Monday, Oct 29th, from 6pm to 6:30pm. The link to attend that office hours is here. For this final post, I want to focus on the Business Model Canvas and how to

141 MBA Mondays: Sustainability Class Wrapup

I've enjoyed teaching the Skillshare class on Sustainability. I've learned a few things about the hybrid class model and I have shared them with the Skillshare folks. It's tantalizing to think about the power of teaching a class to 2,731 people at one time. But when I compare that to the power of teaching 75 people in person, the hybrid

142 MBA Mondays: One More Thing On Sustainability Before We Move On

I'd like to tie together two posts and make a final point on Sustainability. In my first post for the Sustainability class, I wrote: Clay Christensen talks about this kind of thing all the time. Big company executives are asked to calculate an return on investment (ROI) on the investments they want to make. If the ROI isn't greater than

143 MBA Mondays: Next Topics - AVC

Back at the end of April I wrote a post asking for ideas for the next few topics for MBA Mondays. Out of that came the series on People which I followed with a series on Sustainability. It's time for a new series and I want to check in with everyone to see where you'd like me to go next.

144 MBA Mondays: Revenue Models - AVC

We are kicking off our next series on MBA Mondays with an assignment. We are going to peer produce an exhaustive list of revenue models for web and mobile businesses. Then I will publish that list and use it as a template to do this series.

145 MBA Mondays: The Revenue Model Hackpad

The idea of peer producing a comprehensive web/mobile revenue model list was a success. The hackpad I created and linked to last week got a ton of contributions. I took the time this morning to clean it up a good deal. I will outline the high level changes I made in a bit. But since that hackpad is still wide

146 MBA Mondays: The Revenue Model Hackpad, Take Two - AVC

What happened is I am using a product, hackpad, that I don't really know how to use correctly. I am learning how to use it in real-time. Which is how I learn to use everything. Screw the manual. Just turn it on and get going.

147 MBA Mondays: Revenue Models - AVC

I will kick off this series by making an important point about focus. I strongly believe that entrepreneurs should pick one revenue model to start with and focus 100% on making that work before rolling out another one. It is very hard to execute two or more revenue models at the same time.

148 MBA Mondays: Revenue Models - Advertising

My friend Darren Herman helped me think about this post. He sent me this deck along with some thoughts. This slide from Darren's deck is a good place to start this discussion: It is true that the vast majority of consumer web apps have been and continue to be monetized with advertising. On mobile that is less true, but becoming

149 MBA Mondays: Revenue Models - Commerce

Commerce has to be the oldest business model. Sell something to someone. Or maybe it was barter back then. In any case, ecommerce revenues topped $200bn in the US in 2011 and are growing at close to 10% annually. Global ecommerce revenues are at least double that, maybe as much as $500bn depending on who you ask. So selling something

150 No MBA Mondays This Week or Next - AVC

So as a placeholder, I am re-running the video of the Skillshare class I did on Employee Equity in April of this year. If you haven't seen it, I think it's a good primer on how entrepreneurs should think about managing the employee equity in their companies.

151 MBA Mondays: Revenue Models - Subscriptions

When I got into the venture capital business in the mid 80s, software was sold. You would pay a large sum to acquire a license to the software and then a much smaller annual fee for maintenance and support. Today, most software is sold in a subscription model. You pay a monthly fee for the right to use the software.

152 MBA Mondays: Revenue Models - Peer to Peer

We've covered advertising, commerce, and subscriptions so far in this series on business models. And while they are the big three of Internet business models, they all existed well before the Internet. They are not Internet native business models. If there is one thing I have learned investing in Internet businesses over the years it is to pay attention to

153 Guest Post: Startup Business Development 101

Holger Luedorf has been doing business development in the web/tech/mobile sectors for almost 15 years. He currently leads Business Development (BD) for our portfolio company foursquare. Holger has contributed a guest post with a bunch of great advice for startups that are just getting around to BD and what they should do and what they should not do. His views

154 MBA Mondays: Revenue Models - Transaction Processing

Transaction Processing is not a "net native" business model. There have been businesses built up around processing transactions for a long time. But the Internet and Mobile present some challenges in processing transactions and therefore there are opportunities to build substantial businesses around helping companies process transactions. If you look at the Revenue Model Hackpad, you will see that there

155 MBA Mondays: Revenue Models - Licensing

Licensing, according to wikipedia, is an authorization (by the licensor) to use the licensed material (by the licensee). Of all the business models listed on the revenue model hackpad, licensing is the least net native business model. There is very little about the internet that makes licensing work better and there is a lot that makes it work worse. Here

156 MBA Mondays: Revenue Models - Data

The Internet is a data generating machine. According to Eric Schmidt, every two days now we create as much information as we did from the dawn of civilization up until 2003. It's also incredibly good at presenting that data, both to humans and machines. So it makes sense that collecting and publishing data is one of the primary business models

157 MBA Mondays: Revenue Models - Mobile

The last two categories in the revenue model hackpad (mobile and gaming) are not really revenue models, they are sectors that have interesting revenue models worth discussing in this series. Today we will discuss mobile and next week we will discuss gaming. Here is what we filled out for mobile in the revenue model hackpad: View Mobile on Hackpad. Mobile

158 MBA Mondays: Revenue Models - Gaming

Like last week's post on mobile revenue models, gaming isn't a revenue model itself, but it does offer a number of interesting revenue models and is worth discussing in a post in this series. This is the last post in the revenue model series, which is based on the peer produced revenue model hackpad we created at the start of

159 Revenue Traction Doesn't Mean Product Market Fit

I recently had lunch with Mark Leslie, a successful entrepreneur and CEO, who now teaches at Stanford and works with startups, often as a board member. He told me about a paper he and a colleague published in Harvard Business Review called The Sales Learning Curve. I read the paper and it articulates something I have seen quite a few

161 Tenacity And Persistence Pays Off

Continuing the theme of case studies for MBA Mondays, I want to use a milestone that was passed last night to make a bigger point about startups. I have known Scott Heiferman since the late 90s. He was one of the early NYC web 1.0 entrepreneurs. We were quite friendly with Scott but we were not early investors in Meetup,

162 You Are Working Too Hard And Not Getting Anywhere

Continuing the case method on MBA Mondays, I am going to tell a story about a business model pivot that was not a full business pivot. In the lull between Flatiron and Union Square Ventures, I made a few angel investments and the best one was in a company called TACODA that went on to become a Union Square Ventures

163 Because It's Standard

Case studies are true stories that teach lessons. And one of the great lessons I got in my career was care of a lawyer named Morty. This is a reblog of a post I wrote in Feb 2007. I thought about it last week in an email discussion with a friend. And so I decided to share it with all

164 Great Entrepreneurs Will Listen To You But Will Follow Their Own Instincts

I told this story in the comments to saturday's video post, but since not everyone reads the comments and I want this to make it into MBA Mondays, I figured I would turn it into a case study. In the early days of Tumblr, I used to bug David Karp, the founder and CEO of the Company, about comments. Though

165 You Can Do Too Much Due Diligence

It's Monday, time for another lesson I've learned in the venture capital business. Today I will tell a story that I love telling. It has some of my favorite people in it. Back in 2004, early in my blogging career, I heard about a service that had just launched called Feedburner. It provided a number of useful services for a

166 Success Has A Thousand Fathers - AVC

I have a couple rules that I try very hard to live by in this regard: 1- the management team always gets the credit. VCs don't do the dirty work and should not get the accolades when things work out. 2 - don't gloat. it's not becoming.

167 Product > Strategy > Business Model

One of the mistakes I see entrepreneurs make is they move to business model before locking down strategy. The way I like to think about this is get the product right first, then lock down the strategy of the business, then figure out the business model. Getting product right means finding product market fit. It does not mean launching the

168 MBA Mondays: Sales Leads On A Small Budget

So today on MBA Mondays we are going to talk about something useful - Generating sales leads on a small budget. Every startup that wants to sell something runs into this challenge. I asked Russell Sachs, who runs sales for our portfolio company WorkMarket to tell us how they do it. And this is what he put together. I think

169 What Is Strategy?

My post on Product>Strategy>Business Model got a lot of comments and other reactions out there on the social web and from that I realized that many confuse strategy and tactics. And so I thought I would attempt to define strategy in business. I like this definition that I got at wikipedia: Strategic management is a level of managerial activity below

170 From The MBA Mondays Archive

In the comments to Valuation vs Ownership, Mike Nolan said: Just today I talked with an entrepreneur developing a SAAS in an educational space. His questioned focused on how to set up his first LLC and be prepared for funding rounds. As usual, I recommend reading past articles on AVC.com for a look at how investors think. Fred's post today

171 Startup Management - AVC

The idea, as I understand it, is to aggregate and tag blog posts about startup management from all around the web and curate them into a community site focused on educating entrepreneurs on how to be better leaders and managers of their companies. William will also create original content on the site.

172 A Table Of Contents for MBA Mondays - AVC

What I want is something that I expect others might want as well. I want a cloud based solution that crawls my blog regularly and looks for posts that are tagged MBA Mondays (and tagged other things) and then generates the front end code to render a real-time table of contents on my blog that links to the actual posts ...

174 MBA Mondays: Turning Your Team

A serial entrepreneur I know tells me "you will turn your team three times on the way from startup to a business of scale." What he means is that the initial team will depart, replaced by another team, which in turn will be replaced by yet another team. I have been closely involved with over 150 startups in my career

175 The Similarities Between Building and Scaling a Product and a Company

This has been a theme of mine since Roelof Botha put it in my head a few years ago. He said that entrepreneurs should approach building a company with the same passion that they have for building a product. I've been thinking about scaling the team a lot this week. There are parts of building the team that are like

176 MBA Mondays: When Its Not Your Team

Phil Sugar left a great comment on last week's MBA Mondays about Turning Your Team: If you aren't growing, its likely to be a product problem, a strategy problem, or a competition problem. I have rarely seen a management team problem be the reason for lack of growth. Company building is not this simple, but I do like to think

177 Exit Interviews - AVC

Doing exit interviews is a lot like doing references. The patterns that emerge over multiple interviews are the most telling and that is what you want to be listening for. Exit interviews are a great way to get those patterns out on the table where you can see them.

178 Profitless Prosperity

If a Company is making huge profits this year but will not make any profits in the future, it is worthless in the eyes of an investor. But if it loses money this year and next year and may lose money for a few more years, it can still be very valuable in the eyes of an investor. Amazon had

179 Employee Equity - AVC

Where Andy and I differ a bit is how to calculate how much equity should be granted. Andy suggests using market comps. I don't like doing that because 0.1% of one company can be worth a lot more or less than 0.1% of another company.

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