Tag: startups

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Why Jason Jacobs started Runkeeper

by bijansabet

As a follow up to my post a few weeks back about why founders create their companies, I’m delighted to share Jason Jacobs story with you all today. 

Jason is the founder and CEO at Runkeeper and we are proud investors in his company. Jason is a tireless entrepreneur. His passion is authentic and infectious. 

Here’s Jason’s own words about his story.

* * * 

When Bijan asked me to write a blog post about what the motivation was to start RunKeeper, I thought it was timely since we are approaching the 5-year anniversary. In June of the day we were incorporated – great time to look back and reflect on the journey so far.

I had known for a long time that I wanted to be an entrepreneur. I was the little kid in my neighborhood growing up who rounded up the other kids after a snowstorm to go around shoveling people’s driveways and undercutting the price of the snow plows. I was also the kid who went to almost every small business in my hometown selling ad space in our hockey tournament program. While the extra spending money was nice, my real motivation was much more the sport of it and the feeling of accomplishment when I experienced success.

A year out of college, I joined a software company that had around 100 employees. When I left two years later, they were more than 700 employees and publicly traded. While the bubble burst and the company came crashing back down to Earth, this experience was a phenomenal learning opportunity for me and I knew then that I wanted to build enduring technology companies from small to very big for a long time to come.

From then on, I viewed all of my professional experience as ‘practice before the big game’. I had yet to come up with an idea for a business I was really passionate about, and I figured while I waited for the right idea to come along, I would continue to build up my skill set so I would be better equipped to bring the right idea to life when I found it.

It took me several years to lock in on the ‘right idea’. I hoped that whatever company I started would be one I built from small to very big over a number of years, which to me, meant it had to be an important problem that I was deeply passionate about solving in a big market. Other than building technology companies, I didn’t know what I was passionate about at the time, which made for a grueling process.

I would come up with idea after idea that seemingly met all of the criteria, but in hindsight, they were all missing the most important element – passion. I was so frustrated with the vetting process that I signed up for my first marathon as a way to stay sane as I figured out which company to go and build. It was during this marathon training that the idea for RunKeeper came to be.

With all of the innovations coming in mobile, health/fitness sensors, social networking, etc., it seemed there was a big opportunity to build a simple, social, fun digital fitness platform that tied together all of this disparate health/fitness data into a single, cohesive experience.

This was a huge breakthrough for me on multiple levels. The biggest breakthrough was that I discovered a deep passion of mine that had been with me my whole life – healthy living! I realized then that I wanted to build a big company at the intersection of fitness and technology. The funny thing is that I came to realize this as I went out on 20-mile training runs, wracking my brain along the way about what I was really passionate about. Plus, this hypothesis of a simple, social, fun fitness platform for the masses felt like a solid, well-timed starting point.

I got to work right away, and quit my job a few months later to focus full-time on building RunKeeper. Five years later, we have an awesome team of almost 40 employees, $11.5m in capital raised, over 16m users, and we are just getting warmed up!

While it was a grueling process for sure, I am very glad that I had the patience to wait until it felt right.

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Founding CEOs

by bijansabet

There is no question that I prefer to invest in startups where the founder is the CEO. 

A few years back, Ben Horowitz wrote about why startups led by the founders are best. I completely agree. At this time, every board I’m serving on has a CEO who is also a (co) founder. 

In addition to all of the many reasons Ben listed, I would also add a few. 

-founders as ceo are the best at recruiting. it’s their mission and no one can tell the story like a founder. 

-startups go through severe ups and downs. losing a big customer, losing a key employee, seeing their stock price fall or worse. lots of reasons why morale is beyond tricky in a startup. loyalty to the founder is a key thing that keeps the team together through good and rough times. 

-founders are the soul of the company. their instincts are what brought us altogether in the first place. they drive the vision. you can feel them in the products they have been dreaming about. 

There are other reasons why I prefer founder led companies.

But that actually isn’t the purpose of this post. 

This post is about why founders lose their job as CEO.

It’s often not discussed too often, if ever, so I thought I’d start about why it sometimes happens. Here are a few different scenarios:

0. Sometimes a founder doesn’t want to be CEO. I’ve been on boards in the past where the founder doesn’t want the job. The founder just wants to focus on product and wants someone else to run the company. 

1. Board members believe what works in one company must work in other companies. They try to transplant the same system into all companies. “our other young founders need an experienced coo” or “a coo is the worst idea”. See what I mean? Each startup is different and what works in one company may not be the best approach for another. 

2. Board members believe in the silver bullet. “all our problems go away if we can get a world class operator”. As bad as it sounds as I type those words, it sounds even worse to hear it in a meeting. 

3. CEO loses the confidence of the board. When the CEO makes promises and consistently doesn’t meet those promises, board confidence is at risk. The best way to deal with this is to speak openly and honestly between all members of the board with the CEO. This will help address whether the CEO is problematic or there are other issues at hand.

The worst way to deal with it is to stop making promises or to dramatically lower expectations beyond what is reasonable or useful to the company (the latter is known as putting ones own interest in front of company interest). 

4. But the absolutely hardest & most painful scenario is when the team loses confidence in the founder/ceo. The management team goes to the board and basically says, “we don’t believe anymore and can’t work for this ceo”. This becomes a very dire situation and essentially the board has to decide if they go with the team or the founder/ceo. 

It’s painful for many reasons. Often the founder/CEO doesn’t see it coming. The team hasn’t been willing or effective in getting their message across and had to trigger the nuclear option. And if the board chooses to support the team then they must protect them as well for the good of the company. 

Scenarios 1-4 are all difficult and hard. You never want to lose the founder’s leadership. That’s why early stage investors got in business with the company in the first place.

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Our new fund

by bijansabet

Late in 2004, Todd, Santo and Paul had this idea of starting a new venture capital firm. They wanted to do something entrepreneurial and build something from scratch. They asked me to join and we ended up calling the firm Spark Capital.

The premise of this new firm was to begin from a consumer perspective and invest in early stage opportunities in media, technology and entertainment.  

Over the last almost eight years, our team has expanded to include some exceptional people that are not just my colleagues but my friends. 

The truly best part is we are lucky to have the opportunity to work with extraordinary entrepreneurs who are building the things that they want to see in the world. And we want to do everything we can do to help them reach that goal because we want to see these things in the world too. 

Today, I’m delighted to announce that we have raised our fourth fund — Spark IV. Spark IV is a $450MM venture capital fund. We will remain a principally early stage firm but also have the ability to invest in category leaders as well. My partner Todd wrote down some of his observations about our new fund here and Sarah Lacy wrote about our new fund here. 

We’re excited about what is happening in technology today. More people are connected than ever. Software continues to disrupt massive industries through decreased costs, more transparency and network effects. 

We’ll continue to look for these opportunities, always starting with a consumer perspective and in search of common threads across categories including media, finance, education, healthcare, enterprise software and infrastructure. 

I am as excited about our purpose today as I was eight years ago when our earliest limited partners took a chance on us.  I’m extremely grateful for our investors who believed in us as a startup and for their continued support in our newest fund.

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Ah, stealth mode

by bijansabet

I’ve read several posts over the years from VCs discussing whether stealth mode as a startup is a good thing or a bad thing. Those that oppose stealth mode say you are only hurting yourself by not coming out early (feedback, mentorship, recruiting, investor interest, etc etc).

Just look at YC and TechStars startups as good examples. Or Kickstarter projects. They are amazingly open at a very early age. There are clear benefits.

But there are some founders that know exactly what they want to build but because of the complexities involved it could take 9-12 months to launch. And some of those founders choose to remain in stealth mode until they take the covers off.

There are plenty examples of companies that start in stealth mode, recent example include Nest Labs and Aero operated as Bamboom Labs before launching.

Back in the day (late 90’s) stealth mode was more popular or at least that is my perspective. Before publicly launching as WebTV Networks, the founders hid behind the name Artemis Research for about a year. I love that the site is till up and running.

Before co-founding Android, Andy Rubin, Joe Britt and Matt Hershenson created Danger Research. I can’t find the original website but it was amazingly creative. It had these little videos of a gorilla and a girl skipping with dynamite. And a countdown until launch (hopefully someone can find a link).

And then there was other successes like Optigrab and not so successful but well hyped Ginger.

Anyway, this post isn’t meant to suggest that stealth mode is a good thing or a bad thing per se.

But I do appreciate what stealth mode represents to me — namely an idea that takes a long time to build with founders that are wonderfully proud, crazy ambitious with a healthy dose of paranoia.

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Are you happy with your product?

by bijansabet

I was in a board meeting yesterday that was extremely interesting.

The founder came to the meeting with a number of ideas on how to improve growth. The ideas ranged from stuff that he personally wanted to see fixed & improved combined with a number of ideas that came from the user data they had collected since launch.

These days there is a lot of talk about “growth hacking”. It’s a natural desire to be interested in that stuff. We all want to see numbers going up and to the right every week and every month. And paying attention to the data provides a seductive way of optimizing the product to see the charts move.

But the thing to keep front and center is recall the reason why this product and company exist in the first place.

Why are we building what we building? Why are we doing what we are doing?

The answer is typically from the founder who started the company for a reason. They wanted to see their vision exist in the world. And the early team that decided to throw caution to the wind and join the founder, had a shared belief in that vision and that founder.

Yes, it’s easy to be drawn to growth hacking, improving optimization, a/b testing, improving on boarding, improving registration flows, adding viral hooks, etc. Yet I think it’s useful to find a quiet place and each day put away the board deck, put the spreadsheets face down, hide the dashboard window, and ask yourself one simple question.

Are you happy with your product?

Pay attention to the answer. It’s the soul of your product talking.

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Scale first, monetize second

by bijansabet

With every (venture backed) consumer web startup there is always the question of when to start thinking about monetization.

If the monthly burn is modest, I usually suggest that startups focus on reaching scale first.

It’s not because I don’t care about revenue or because I embrace “hope as a strategy” (which never works).

Rather it’s because:

1 – when your user base is small it really doesn’t matter if you can get advertising, digital goods, subscription revenue going. The base is so small the conversion will be even smaller.

2 – startups need to focus, especially in the the early stage. With limited resources, the company needs to focus on the product and the users. If you start tinkering revenue too early then you suddenly find yourself having to borrow precious team resources to deal with various revenue projects. They always look small and innocent at first but they can snowball and can distract the team.

3. the ultimate revenue model may surprise you. as the product develops and evolves and your community grows, the revenue model is likely to reveal itself in an entirely new way. I’ve seen this happen several times and it’s a powerful reminder each time.

So when I meet a founder and he/she tells me that they are confident that they can monetize their future service with ads or subscription or whatever, I blow by that slide. I want to know about the product and how they are planning on growing the service to reach scale. That’s a leap of faith we both need to take at some level but that’s what I want to talk about vs a 2015 revenue forecast.

p.s.: Congrats to our portfolio company Tumblr for focusing on growth. Last year I remember David Karp, the founder of Tumblr, came to a board mtg. and said he was going to delay his monetization experiments and focus on growth. He had a game plan and told us about it. I’m so glad he did just that.

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Stock options: vesting & change of control

by bijansabet

Fred has a post about option pools and their impact on valuation this morning. It’s a great post and will be very helpful to many folks without a doubt. I share the same point of view and it’s one of many reasons I like co-investing with USV.

Once you set up a pool there are some typical and different ways to structure the terms and rights associated with them. There are number of issues but for this post I want to talk about vesting & change of control.

Vesting

Vesting is important for retention but more importantly it allows the company to put the equity in the hands of the folks that have put in significant time & value into the company.

We have a vesting schedule with our team at Spark Capital and I’ve had a vesting schedule everywhere I’ve worked previously.

Since startups require a fairly long time to create & build the company most options have a 4 yr vesting schedule (or less especially if the team has been working for some time) with some sort of initial hurdle period – also known as a cliff.

The structure I’ve seen the most is one that requires the employee to work at the company for a year before vesting any options. At the one year anniversary they vest ¼ of their option grant on the spot. After that they vest the balance of their options on a monthly basis.

I’ve seen cliffs as low as 6months and in some cases I’ve seen zero cliff. But the latter is extremely rare and I don’t like it much.

Change of Control

This is a term that describes what happens to the employee vesting schedule if the company is acquired by another company.

Let’s say you work at a company for 2 years, vested half of your options, and the company is acquired.

If the company option plan doesn’t have a change of control provision then either:

a) everyone lives with their original deal. You own what you vested. If you remain with the new company you vest the balance as you continue to work

b) a new deal is cut between the company/employees and the acquirer. The terms become jump ball at that point. New compensation, new vesting, retention bonus’, etc.

Founders like to have some sort of change of control acceleration. I’ve seem partial or full acceleration upon a change of control. That means at the time of the company sale some/all the invested options vest.

The challlenge with the change of control acceleration clause is that the buyer (acquirer) most of the time is buying the company because of the people that created the value. So if the employees are fully vested at the time of sale it will impact the purchase pice of the company.

One compromise I’ve seen is a “double trigger change of control” clause. That means the acceleration only happens if the company is acquired and the employee is fired without cause.

It’s a reasonale compromise. Although the double trigger will impact price and will make the acquistopm a bit more complex. The other issue is that it sets precedent. If you give it to yourself as founders and your senior team this right, than most likely you will have to give it to everyone in the company. You don’t have to of course but it can become complicated when everyone has a different set of terms.

Keep it clean & simple

I believe startups should adopt a clean and simple stock option plan. The cleanest way to do this is to make sure everyone has the same terms and rights (not everyone will have the same strike price which is expected and fair). And its a plan that you can live with as the company grows and won’t cause complexities in the future.

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A friend asked me for advice: startup or big company

by bijansabet

Last week a friend called me looking for advice.

He was working on his own thing for the past year or so but it hasn’t really taken off. Now, his personal life requirements make it necessary that he joins a company in the near future.

He has an offer to join a few different startups or take a senior role in a large established company.

His question: Should I do the startup or big company? And one day I want to work for a venture back startup again so will the big company thing help or hurt for my next thing?

My response:

-First, I asked if he loved any of the startups. His answer: not really

-Then I asked if he liked the people at the big company and would he learn a lot and have the opportunity to be successful. His answer: yes.

This was the easiest call I’ve had in sometime. I told him to take the big company gig.

Look, I love startups.

But the reality is that they are hard, risky and stressful. I believe you should only join a startup if you are inspired and love the vision, people and product. And you will have far more responsibility in a startup than in any large company position. That’s the beautiful stuff you get back in return for risk.

Of course, there is huge potential upside if the options become valuable at some point – but that shouldn’t be the primary reason for joining a startup.