This week on the startup to scaleup journey:
Challenge convention to improve funding outcomes
Conventional wisdom says that founders are born and not made. You either have what it takes or you don't. We are told that founders are driven first by a personal passion to pursue a market insight, then an innate capability to build a business around it. But Entrepreneur First (EF) has challenged this orthodoxy, turning this concept on its head. The team identifies individuals that are caught in careers where they can't optimise their outcomes. They are pursuing what EF co-founder Alice Bentinck calls "culturally approved career paths". They are "default employed" not "default founders" like they might be in Silicon Valley. In each year's cohort of hopefuls, EF enables such individuals - that give up their current jobs to join EF and pursue the founder path - to first team up with a co-founder from the same cohort. Only then do they collaborate on an idea. After starting EF 10 years ago in London, over 3,000 entrepreneurs have now been backed by this "factory for founders". There are over 600 companies in the current portfolio, with a combined valuation of $8.5B.
The EF story resonates with some of the unintended consequences of the early days of US startup incubator, Y Combinator. Back in April 2005, Paul Graham and a group of friends decided to give some funding to a promising bunch of new startups. This was the initial experiment, with Graham and company looking to fund younger founders than most investors ever would. There were 227 applications. Graham said at the time, "We expected to divide them into two categories, promising and unpromising. But we soon saw we needed a third: promising people with unpromising ideas." The unexpected insight from the very first cohort was they were good at solving problems, but bad at choosing them - rather than the other way around. Graham claimed: "I'm convinced [this] is just the effect of training. Or more precisely, the effect of grading. To make grading efficient, everyone has to solve the same problem, and that means it has to be decided in advance. It would be great if schools taught students how to choose problems as well as how to solve them, but I don't know how you'd run such a class in practice." Perhaps this is the key to the EF recipe?
The more you look, the more you realise that the startup world is full of conventions and orthodoxies that should be challenged. One is the expectation that founders, especially first-time founders, should naturally be highly adept at raising institutional capital - even if they have never done so before. This is now regarded as a 'core founder skill' and any founder that doesn't profess this skill is somehow not a true founder. But skills, unlike talent, must be acquired. It seems that the school of trial and error is the 'default method', where founders incrementally acquire the knowledge and skills required on the hoof. But this is incredibly risky for a task so vital, as well as being so inefficient for a startup CEO whose most valuable asset is their time. Duet's 'Guided Fundraise' challenges this orthodoxy by giving founders access to an experienced funding coach, a proven capital-raising framework, and VC-grade investment research. Now, 12 years in, we have helped over 50 founders - some on multiple occasions - prepare for and execute over $450M in early-stage transactions. Many of them have been first-time founders, determined to jettison the accepted norm of the trial and error approach.
Good cultures help startups through crisis moments
Recently we talked about the power of a startup's culture. Our contention was that 'A startup can pivot on anything - except this'.. This is because the culture is the DNA of the startup. It's created by the values, behavioural characteristics, and leadership style of the founders. It's built into the foundation of the business. But there are times when it needs to be strongly reasserted. During crisis moments - the departure of a cofounder, the loss of a key business partner or major customer, a failed funding campaign, or the like - the pressure that piles up on the founder is intense. Under such circumstances, stakeholders - especially investors - want to see corrective action. If this isn’t immediately forthcoming then some will start to wade in with their own ideas and plans. Nature abhors a vacuum. This is a moment where the (unwelcome) intervention of others may drive a founder to question their own beliefs and values. But it must not. It is the culture itself that is most likely to provide the steadying force.
Top-tier investors, the ones founders seek out as the most dependable long-term partners, will respect the culture the founder has established. It's one of the core reasons they invested in the first place and it's the last thing they want to see changing. They may challenge the business plan, the strategy, and even the vision during times of crisis but they know a 'good' culture when they see one - because it fits with their own beliefs and values. VC Hunter Walk expresses this in a most tangible way: “Good” cultures are clear, consistent, scalable, actionable, well-matched to the company’s business model, and legal. By this definition, he says there are lots of 'good' cultures that aren’t attractive to him as a team member - and that’s fine. Each to their own. He cites Amazon ("I've never felt a gravitational pull"), and Coinbase ("quite aggressive in defining what's expected of you - isn't my cup of tea") as examples. He describes 'bad' cultures as "those that undermine the business strategy or promote unethical behaviour".
Bad cultures have recognisable facets that will usually turn investors away - if they can spot them in time. It's why increasing numbers of VCs are placing culture ever higher on the list of due-diligence assessment topics. The first of these is inconsistency in how values are implemented into management practices, hiring strategies, reward and recognition. A founder that blows with the wind creates uncertainty and doubt as they interact with stakeholders. This undermines trust and erodes goodwill - both essential for long-term success. The second is lack of self-awareness, which prevents potential employees from understanding what that company values, and prevents current team members from improving or codifying practices. Again, this weakens trust. In times of crisis, a good culture enables a founder to reassert the values of the business through their behaviour and leadership style. This is the constant that employees and other stakeholders, including key suppliers, depend upon. It is the anchor that prevents self-doubt from eventually running the ship onto the rocks.
Battling founder burnout
Mathilde Collin is the co-founder and CEO of Front, a communications platform that has developed almost cult status. We have followed Mathilde's remarkable journey since Front's Series A back in 2016. Mathilde has captured many of the big milestones in her blog, a wide-ranging collection of powerful insights. But it has not all been plain sailing. As she revealed recently, 5 years ago she began suffering from extreme anxiety - to the point where she was unable to go to work. A combination of severe overwork and the declining health of her co-founder due to cancer, conspired to make her believe her world was collapsing. She felt unable to share this worsening situation with anyone, worried that her colleagues and investors would panic. Her anxiety became so debilitating, she had to return home to France - from her HQ in California - for a period of rejuvenation. Gradually, she turned the corner, although it took a whole year before she felt confident enough to discuss her experience openly.
Mathilde's experience is not unique. Many founders face periods of extreme stress and burnout is sometimes only a few steps away. But in finding a route back, sharing her experience with the world, and making some important lifestyle changes, Mathilde has offered other founders some valuable inspiration and ideas. Meditation, exercise and logging off from work at the weekends are now entrenched. She says, "After all, building a company is not a sprint, it’s a marathon. If I continued to push myself without taking the time to recharge, Front wouldn’t be sustainable in the long run." This philosophy applies to her employees too. She learned that as a founder, she needed to set the example and introduced initiatives that encouraged employees to prioritise their health and happiness. She now feels that she has developed a company that has even greater resilience.
In May, Mathilde closed her latest round, a $65M Series D led by new investor, Salesforce Ventures. As always, Mathilde shared her observations about the process in a post. She attributes the progress that the business has made in large part to the culture she has now developed and to a group of understanding investors. She talks about this openly and speaks regularly on the subject of how to motivate a happy and productive workforce. In a revealing Forbes article she says “What people want is meaning, calling, purpose, being fulfilled, and I think companies should live up to these expectations.” As Covid hit, her proactivity in caring about the welfare of her team as they shifted to remote working was striking. Since then, her focus on increased communications, enhanced employee benefits, and online events to drive the caring culture forward has been well documented. Mathilde's journey makes remarkable reading and offers inspiration to stressed founders everywhere.