There was some exciting news today - Mayfield has successfully raised its new fund, Mayfield XIV – it was oversubscribed and raised quickly! I’m very proud we have achieved this milestone which is due to a great team, strategy, and proven performance. With this fundraise, I want to write about some thrilling changes for me….
Before we started the fundraise and now that I’ve spent seven years as a VC/Managing Director and six as a founder/CEO, I reflected on the future. It’s been a very gratifying run at Mayfield – I completed successful and meaningful liquidity events and the current portfolio is looking good (companies with scale/momentum such as Qunar, Tagged, Rubicon Project, Fixya, Baihe and promising early stage companies such as Zimride and Fanhood).
That said, the operator/entrepreneur in me hasn’t gone away….so I decided to forge a new model which will hopefully combine the best of being a VC and an operator/founder. Although this model best sits outside of Mayfield’s venture fund structure, they are supportive and helping me develop it. I will be spending most of my time on this around when Mayfield starts investing Mayfield XIV (likely early next year).
I remain enthusiastic about Mayfield’s future and have a great relationship with my partners – I’m committed to my current investments - and will continue helping them at the board level as well as helping Mayfield source and invest in great companies (so keep sending me deals!)
…So what’s this new model about?
The Cofounder Model
The new model (I’m calling it the Cofounder Model for now) is about “institutionalizing” the cofounder role across several “founding” (pre-seed) stage startups – spending the equivalent of roughly a day a week at each startup and having a minority share of the founding equity - working alongside awesome CEO/entrepreneurs to help them build massive companies. I believe there is a market need to provide entrepreneurs with deeper, higher frequency ongoing help at the earliest stage that sits in the white space between angels, accelerators, and VCs. With this model, I can also retain one of the key aspects I enjoy about VC – working on several transformational companies in different sectors at once.
This model is likely limited to about 4-5 companies at any time. It can scale to more companies as I join with partners in the future that are like-minded experienced founder/investors. I’ve talked to a few such people as I’ve explored this opportunity and its clear that many operator/investors would love to do this. In fact, there are lots of great people in Silicon Valley who have done similar models and showing success - sometimes on a casual basis – Ariel Poler, James Currier, Stan Chudnovsky, Rick Thompson, Peter Relan, Dave Whorton, Oren Zeev, Yair Goldfinger, Venky and Anand of Cambrian, Aneel Bhusri, Mike Speiser, and the folks at Obvious, Tandem, Betaworks, and Science. As with most things, new models are rarely entirely new – however, I think there is an opportunity to institutionalize, standardize, and brand this version of it.
I believe the timing is right as capital is in abundance but time – especially from those who you need help from the most – and on a regular basis – is even more scarce. Also, entrepreneurs are increasingly comfortable giving early stage equity to accelerators (such as Y Combinator – which has done a fantastic job pioneering the Accelerator category and is a great choice for many entrepreneurs) and to strong mentors (such as my friend and former Mayfield Partner Allen Morgan who is a great “Sherpa” for companies like Klout and Fab) - they have shown they can materially increase the probability of success for a startup.
This model is somewhat of a “retro” approach given the trend of early stage investors (angels, seed funds, accelerators) each investing in dozens or even a hundred companies every year. It’s going back to the “artisanal”, craftsman approach to building great companies.
I don’t have it all figured out but here are some thoughts so far….
What’s In It for the Entrepreneur?
In a nutshell, (as stated in The Founders Dilemma by Noam Wasserman) the founding process is “a marathon made up of a series of 100-yard dashes” – every 100 yards the runner/founder faces a key decision with long term consequences – my role is to assist throughout the marathon. More specifically…
- Support of a true cofounder working at their side - with deep VC and CEO/entrepreneur experience
- It should lead to faster and smarter execution because they have the benefit of experience and learning all the mistakes I and my 14 portfolio companies have made ; )
- Reliable help on a regular weekly cadence over years (vs months in some models) as the company evolves through its stages – which includes:
- Help the entrepreneur be a great CEO – I like to be a coach, friend, and confidant on the journey
- Work alongside to get product/market fit fast - brainstorm and debate product and business strategy on a regular weekly basis as key metrics come out – I love product
- Mentor the key team members to become great managers and scale as the company grows
- Recruit vs just refer great hires
- Help prioritize, craft, sell, and execute business deals vs just providing BD introductions
- Apply proven marketing techniques (social, organic, paid, etc) learned over the years
- Share realtime lessons learned from other companies in my portfolio
- Increase the likelihood of a fast and strong fundraise for each round
- I will call on my network – which covers most stages of investors
- I’ll increase credibility as it’s one of only a few companies I’m deeply involved
- I will put skin in the game - participate in the seed round to show my commitment and attract other investors
- I’ve done a lot of financings – I’ll make sure we are treated fairly as founders
- Help figure out if and when to exit, who to exit, and how to make it happen - every step along the way – especially the tricky mating dance, tense negotiations, and getting to close – which helped me sell Snapfish to HP without a banker
- Do a bunch of other stuff I haven’t thought of – net net, I have a strong incentive and sense of cofounder pride to make the company successful!
Also, I believe the risk would be low for an entrepreneur to jump in as I would vest my cofounder equity over time - allowing either of us to part ways if the relationship isn’t meeting expectations.
In fact, I think there is more risk the way most founding teams are formed – typically with friends - Noam Wasserman from HBS has some great advice for entrepreneurs I've summarized from his book:
- Cofounding with friends is typically less stable because the founder optimizes familiarity far above complimentary skill sets and networks that the company needs.
- 65% of failures within VC's portfolio companies (from a survey) were due to startup management teams – which I believe I can help
The sourcing of entrepreneurs in this model is a bit different than VC as its less about finding the best company/momentum and more about finding the best founder(s) aimed at very large and disruptive markets. This is both an opportunity (less competition than in the VC/seed investor space) and a challenge (especially when there is low awareness of the model – also, its harder to hit the right window of timing when the entrepreneur is seeking a cofounder). Although I think every entrepreneur considering a cofounder is “in the market”, I think first time CEOs/entrepreneurs, repeat entrepreneurs entering a new sector, and out-of-bay area entrepreneurs wanting to move here are the most likely early adopters. I give credit to Reid Hoffman who told me about this last segment - it’s the “Migrator VC” model as I could help them jumpstart their Silicon Valley network.
Also, this model doesn’t require the entrepreneur to have the idea figured out – as Peter Relan has shown with Youweb - you can work alongside the entrepreneur to come up with the idea and iterate together until product/market fit is reached.
Finally, I think my network of entrepreneurs, angels, seed investors, and VCs will help uncover these founders as this role plays nicely with capital providers in the ecosystem.
This is a major commitment both ways and thus the entrepreneur and I should spend more quality time together than a typical investor. I envision working together in realtime situations - before either side commits to make sure the chemistry is spot on.
What am I looking for in the founder(s)?
- The entrepreneur is awesome in all regards except perhaps experience (smarts are a given)
- Passionate builders who obsess over product (the ability to build product is key)
- They should have demonstrated entrepreneurial zeal in their life experiences
- They are a sponge for information and learn the sector they want to disrupt cold
- One of them needs to have the strong passion and desire to lead and be the CEO of the company (that’s not my role)
- They should be self-aware of their strengths and weaknesses (check out my blogpost)
- They should demonstrate that they are collaborative vs soloist in nature – which is important not only for cofounders but to attract a strong management team
Although I have better pattern recognition spotting great entrepreneurs after meeting roughly 300 companies a year at Mayfield, I think I’ll have much to learn in this model. In fact, I’m working with a recent HBS grad and repeat entrepreneur, Erik Eliason, this summer to do some research from all the experts and interviews on how to find and pick great entrepreneurs pre-seed.
Net net, this feels a lot like when we started Snapfish –excitement, confidence, lots of unknowns, and exhilaration all wrapped together. It feels like being an entrepreneur again….
There’s room for many models to help founders succeed – angels, incubators, seed funds, accelerators, VCs – I believe this is another strong option. Someone asked me recently how I will measure success – I think for me its about impact - that every founder considers this option before starting companies – and some of the best ones come on board!
I’ll be blogging more about this model over time – stay tuned – and send me any ideas or comments you may have!