24 Hours in Spain

I wish this post could be as enthusiastic as the one I did from Paris. Madrid in spring is equally beautiful and the particularities of the madrileño are despite their reputation very endearing.

But the amount of people on the street and in front of bars is troubling. It feels like a nation that is boiling underneath the calm exterior. Unemployment is rampant. 26% overall and 55% of those 16-24 that are not in full time education. We are losing a generation.

Much of that is policy error and a hangover from an artificial construction boom. Some of it is Euro. But all of it can and should be fixed instead of waiting for the good times to roll around again some time in 2015.

I love Europe’s inclination to take care of its weakest. But when it so clearly means everyone loses, something is wrong. In a democracy (the benefits of which Spain hasn’t actually enjoyed that long) there are of course no easy fixes. But the tendency needs to be supply side, in particular doing away with red tape for entrepreneurs, abolishing minimum wages and allowing menial labour to flourish. We can redistribute once everyone is working, not before.

VC should do its part in backing work marketplaces that take advantage of the lower transaction costs in hiring contractors rather than full time employees. If you have a startup like that, I’d love to hear from you.

What’s in a good pitch email?

So you’ve decided to cold email someone. Preferably me, if it’s a Series A. Here’s how to do it well in five easy steps.

1. Pick a good subject. “Re: Hello” is a bad subject. A good subject is “Company name, Series A, location.”

2. Write a descriptive first sentence. “We have a mobile app for Star Wars enthusiasts” is a good one. “We are revolutionizing the location-enabled consumer ad space for science fiction” is a bad one. You get the point. Shorter words and no Latin (with nods to Orwell). Tell me what you have, not what you’ll be.

3. Give me a reason to believe. Traction can be users, revenue or social proof. “We have 100,000 DAU with average monthly in-app spend of $10 and Jeff Bezos told us to reach out” is good. “We are in development with our outsourced Belarusian development team and it’s going well” is bad.

4. Attach a deck. Everyone vastly prefers PPT to exec summary. But have more data in the email. Your three paragraphs above may be awesome but I will always ask for more material before committing to a call. Make sure the material talks about who you are (your team). It’s the most important thing in early stage.

5. Brevity. Nuff said.

I guarantee any email in the above format will be opened and read.

Anonymity & Wikileaks

Anonymity is a powerful tool. The ability to technically deny the establishment of identity can serve to bring about behaviours that due to existing power and economic structures have hitherto been unlikely. This is what allows things like Wikileaks and Mega and Tor/.onion and Bitcoin to flourish (though Bitcoin is not inherently anonymous). The Assange-Schmidt conversation transcript is definitely worth a read.

The history of anonymity in political dissent is long. What is new is the scale. I have a lot of sympathy with the Assange agenda, though I find his conduct far from admirable. I am uncertain whether human nature at scale can take the radical transparency he thinks will bring about more “justice”, which in itself is a rather dangerous term.

My proto-libertarian undergraduate self is still enamored by the possibility of online as a distinct space, a world away from the world, unencumbered by governments, race/identity and class/caste. I think Tor et al will become easier to use and more common over the next ten years. And with it we will face new challenges and new opportunities. 

Is my filter off or is everyone getting better at pitching?

I took a few meetings with founders in Paris and Berlin over the course of this week. I’m not sure whether the right people sent me the right type of companies or whether everyone has been reading a ton of VentureHacks lately.

I listened to a few pitches that were just excellent. A delightful clarity about what the business does, an infectious passion for the niche, good (if at seed stage theoretical) attention paid to acquisition costs, engagement metrics and churn, well-rounded founders with deep CVs, and just the right pinch of name-dropping and instilling fear of missing out.

You guys played me, and well. Go Europe.

Springtime in Paris

And suddenly it is upon us. That clear cool morning, the softened light, the buds on the trees, the asphalt still cold to the touch and the whole world feels like a giant promise. Buds is Knospen in German, which is a very pretty word. It is bourgeon in French, and its verb bourgeonner is equally nice.

I am sitting in a café in Paris, waiting for my next meeting, with clouds of coffee and cigarette smoke wafting over us, and scooters racing by, and tattered shreds of some German and Italian conversations drifting over.

What a privilege it is to work in a post-war Europe. In all the throes of European crisis, I am grateful that we are coming together in board rooms all over this continent, trying to build the future. Only two generations ago, we were in the trenches. Let’s hold onto this moment.

Flywheels and the long, slow ramp of death in SaaS

If you run a SaaS business, this video by Gail Goodman, CEO of ConstantContact, is a must-watch. It drills into the detail of attaining that “magic” number of customers, where your monthly recurring revenue (MRR) finally matches your burn rate. You may have been cash-positive before, since you charge for a few months upfront. But this is the point where your business starts looking more than investable: it’s profitable.

And guess what? This path usually doesn’t look like a hockey stick. There is no silver bullet. It isn’t selling via partners or signing that one big account. It’s a long, slow ramp of incremental improvements. Persistence pays. As it should.

Fiduciary Duty & Staying the Course

Over the last few months, I’ve seen several instances of founders throwing in the towel. Sometimes prematurely, sometimes perhaps with good reason. But I’m always saddened by that outcome. Entrepreneurship  should be about persistence. Once you have taken someone else’s money, once you have hired people, once you have customers and suppliers, there’s a duty to seeing things through, even if the outcome isn’t what you had hoped. I’m always reminded of this drawing:

I have a theory that as our industry continues to grow, we are seeing more me-too entrepreneurs. Folks who don’t realize that success is messy. Kids for whom what we do is “startup lottery” and who think that success comes over night. I think it’s the joint responsibility of institutional investors and angels to make sure that the teams who do raise money will stay the course. Not least because some of us are investing the money of pension funds, endowments and governments. It’s not something I take lightly.

Hyperlapse: the New Aesthetic and its Politics

I am fascinated by our new way of looking at the world as we start to be constantly accompanied by technology. The ubiquity of the connected mobile device - the Hypernet - means many of us are living our offline lives through the lens of technology. For some this means through the lens of a digital camera (see the Instagram/Nickelback parody). More broadly it means that we suddenly have points of reference from the digital/virtual world that collide, at times in spectacular beauty, with the physical. And some artists capture these moments very well. Here is a great timelapse video these guys made with Google Street View (bonus: you can make your own here:

And here is Irene RGB-p4 (oil on canvas!) by Davide La Rocca (gallery):

I am by no means an art theorist, but some of what they have called the New Aesthetic (link, link, link and link) resonates with me. Is it new? Maybe not. But it sure feels like our impressionist moment, our first daguerreotypes, our cubism, our very own abstraction. I think a type of New Aesthetic will keep developing over a generation or more, until it has pervaded society as deeply as software is already embedded in it.

I am also seeing more “polygon” art - the new aesthetic of video gaming (see here Matthew Reilly on Dribbble). 

I do hope the New Aesthetic will move from purely descriptive, delightful, aesthetic, to formative, prescriptive, political. I think work at the intersection of art and design can help in guiding our industry forward.

I don’t subscribe to the anthropomorphization of technology as proposed by the singularity (at least not yet), but software’s ubiquity in our lives means we have to fight to be in control of it. We have to have the right to inspect it, to de-obfuscate it, to alter it, to re-compile it. This will be a long political fight and I’m worried that the rest of the population has yet to really wake to the challenge. Art could help.

I guess this is a good time to link to the EFF.

On market intransparency

We had a Sunstone strategy offsite a few weeks ago in a charming Danish town called Tisvildeleje. It’s on the Danish riviera, with long sweeps of sandy beaches, sumptuous open sandwich lunches (pronounce “smørrebrød”, I dare you), and naturally some overnight snowstorms. My new partners keep reminding me that it’s the coldest Danish spring in 26 years, but that may just be something they say to reassure me.

We spent some time speaking about past and future Sunstone investment strategy and that raised an issue I have been thinking about a lot lately: market intransparency. From a VC’s perspective, our market is highly skewed. Only few companies ever go on to sell and, of these, only a few have big enough exits to provide the outsized returns that our investors expect.   A key problem for any venture firm is thus not just one of making the “right” investment decision, but of access to the “best” companies.

I’ll write more on how to recognise those “best” outliers, but my contention is that “access” is really just a question of market intransparency.

Intransparency explains so much. It is why entrepreneurs complain about having a hard time raising money. Why the large firms have an army of analyst/associates running around, cold-calling people and to some extent wasting everyone’s time. It explains the monster inefficient events. It explains the amount of advisors, some good, some less so.

In this context, it is surprising why something like AngelList does not have the traction in Europe that it does in the US. I guess that is mostly explained by the lack of a critical mass of investors that use it. Which in turn may be explained by Naval and Nivi’s not being local. But it’s a pity for entrepreneurs. I wish we had something that introduced greater market transparency. 

If you’re raising a Series A, do get in touch. I’ll even introduce you to some competitors of mine to level the playing field some.

Hello, world

I’m thrilled to be joining Sunstone Capital in Denmark as a partner. I will be focusing on investments in technology-enabled services. That means internet and mobile, consumer as well as enterprise. Continued focus on large networks of engaged users.

I hope to share some of the journey with you on here. You can stay in touch via Twitter (@maxniederhofer) or join my email list.

Thank you for coverage from: TNW, Techcrunch, VentureVillage and others.