Box Office Space

How much does office space and your work environment matter to foster innovation?

I was never one to care about a “great office space and environment”. I used to think that if you did great work, and have a great open culture, that’s all it took to build a great startup or foster innovation at a large company.

Turns out office spaces give out vibes.  In a recent survey of office spaces by (yes I know it is biased), by a co-working magazine they found that startups whose employees considered their office space to be “great” raised 30% more funding and grew 25% faster annually.

Great Office Spaces for Startups

Great Office Spaces for Startups

Why did I read this report, or was referred to this report?

I was at the Virtusa event speaking to 60 of their top customers, partners and consultants about innovation. I had a side conversation with 2 folks from a large company who were in the mid-west. They are a fairly traditional company and to jump start their innovation efforts, they moved out of their “office” and rented a fairly trendy retail office in the downtown area, and retrofitted it complete with a kegerator, hipster office digs and bright colored furniture.

They got 50% more resumes and more resumes from interested employees from “top tier schools” than they did when they were in their old digs.

Who knew?

Well, Microsoft did apparently, spending millions in moving from older, office environments to cooler, hipper, open offices.

Google already does, this, spending a lot of money on great office space, so their employees have a “inviting and enriching” work environment.

Color me skeptical, but I am obviously wrong on this one. I used to think this was what the “entitled kids” straight out of school wanted. Turns out everyone benefits from a open, colorful and not drab office environment.

Accelerated Vesting of Stock Option

The pros and cons of accelerated vesting for employees on change of control

Accelerated vesting of stock options is a fairly unusual clause for founders to worry about. It is however, a very important term that I would highly encourage you spend enough time thinking about. Most founders end up doing accelerated vesting for themselves and maybe for the advisors but rarely for the employees.

What is accelerated vesting?

If you are giving 100 stock options to be vested over 4 years for employees, and there is an acquisition event in the 2nd year, then single trigger acceleration means all the remaining shares vest immediately. Your employees now have 100% of the shares they were going to get in 4 years at the close of the acquisition. A double trigger acceleration means if for any reason the acquirer fires your team or your team decides to quit because the acquirer is in Santa Monica and your team is in the Bangalore, they would still vest 100%.

Accelerated vesting is a good clause for employees to have by and large.

The acquirer, however, in many cases, but not all, wont like this, since most acquirers are buying your company, which is worth the software, technology and the services of the people who are in it.

With acceleration, the acquirer has to now budget new stock options to keep the employees for the period of time they think they need to get value from the acquisition.

Accelerated Vesting of Stock Option

Accelerated Vesting of Stock Option

The pros of accelerated vesting:

  1. Takes care of employees and gives them confidence that if there is a “change of control” – meaning if you raise money and the VC’s decide to fire the founders, get a new CEO, etc. then they will vest 100% immediately. Or if you get acquired, the employees will hit pay dirt immediately.
  2. Gives you a negotiating chip when potential acquirers want the team to ensure they keep you and the team around.

Cons of accelerated vesting:

  1. Potential acquirers dont like this, since they are not sure how many of the new members will accept new jobs in the acquiring company and they are buying the team and company, not just the software and technology
  2. It might artificially lower the acquisition price since the acquirer might negotiate the new employment contracts with your employees directly and try to pass the costs of the new contracts to your purchase price.

What’ my experience:

Accelerated vesting upon change of control is absolutely important for founders and critical for employees.

I wish I had done it at BuzzGain and lost close to $250K because of it. I would highly recommend you do it for founders, advisors and employees.

Email Open Rates by Industry

Increasing email open rates – 3 top techniques for newsletters

One of the things I have been very focused on over the last 2 weeks is email “open rates”. Since this blog now has 100K+ subscribers, it is a very important metric to me. I dont get too many metrics beyond the open rate since the WordPress hosting that I use provides only that metric.

Email open rate research suggests that open rates vary from 15% to 25% with the average being 22%. The open rate for this blog had hovered around 17% (that’s low) and now after a few tweaks has inched up to 19%.

Email Subject line length

Email Subject line length

The best days for open rates for this blog have been Thursday and between the hours of 7 am Pacific (730 pm India time) to 9 am Pacific (10 pm India).

There are 3 changes I made which have progressively yielded better open rates.

  1. Writing more effective headings / Subject lines of the right length. This is the #1 thing I am focusing on. On an ongoing basis, I spend 23-28 minutes a day writing a blog post. In the first few months, I’d spend 95% of that time writing the blog post and less than 2% of the time writing up the heading or Subject line. Now I am spending 15% of the time coming up with the right heading. The other experiment I am conducting is taking my old blog posts and ReTweeting them with new headlines to understand how to write catchy and effective Subject lines.
  2. Moving from inline images to featured images. WordPress has an option called “featured image”. If you choose that, it appears as an image at the top of the post, instead of inline. While most email clients filter images and the use has to explicitly download them, images are very important for people reading blog posts on my site. So the best compromise is to not have inline images but instead have it featured. That way it does not appear on the email body but definitely appears on the blog post. If you can do 2 images, then your open rates increase even further.
  3. Consistent time of publishing.This is pretty obvious, but if you setup a routine to send emails and publish posts, you will get a higher open rate. So, even if you write your blog posts at a time that’s not your usual time, publishing it “later” helps ensure the open rates are higher.
Investment banking services

What to negotiate on your investment banking advisory engagement letter

If you have a profitable, but slow growing business, which complements another larger existing company in a relatively small market, you will have the opportunity to shop your company for sale.

Many founders who have organically (customer funded) or via outside investments (VC / Angel funded) grown their company, get the 7 year and 10 year itch to sell their company.

Whether you have decided to sell your company or just wanting to shop it to see the potential value, you will likely run into investment bankers who will offer their advisory services to help position, pitch and sell your company,

An investment banking firm is typically a partnership, (similar to a legal or accounting firm) with the founders having the capability to leverage their connections and expertise of certain markets, to create “synergies” for new companies.

Investment banking services

Investment banking services

When an investment bank is hired by a company that wants to acquire other companies, they represent the “buy side” and if they are helping you sell your company to acquirers, they are known as representing the “sell side”.

If you engage with an investment bank to help shop your company to acquirers you are giving them a “mandate“. Most, (likely all) investment banks will expect an exclusive mandate, meaning, you cannot have anyone else shopping your company to potential acquirers. Even if you do have others and they end up selling the company, your investment bank will likely get a portion of the sale.

I was going to focus this post purely on sell side services of investment banks. The agreement letter or advisory letter or “letter of agreement” is a contract between the investment bank and your company.

Most entrepreneurs get hung up over just the commission or the “rake” the investment bankers take for the transaction – that’s only one part of the agreement – similar to your valution. Most bankers typically charge between 2% (highly unlikely, but possible if you are a hot company, with a high probability of sale at a large price) to 7% (smaller transaction, < $5 Million).

The analogy I hear from a lot of entrepreneurs is similar to a “HR consultant” or a recruiter, who works on a non-exclusive basis to fill a position. I do get questions as to why investment consultants demand exclusive rights. To which, I’d say that even the best HR consultants and those that work on executive positions work on a exclusive mandate.

There are 3 things that investment bankers like to call their “service value proposition” – their knowledge of the industry to help you navigate the buying landscape, their connections to potential buyers and their expertise in helping you structure and negotiate your final sale agreement.

Thee are 5 items you want to pay attention to in your advisory agreement:

  1. Term of the agreement – Since most M&A transactions take 3-6 months, these agreements will last at least for that duration. Most agreements also specify that if your company gets sold for 6-12 months after the start of the engagement, the investment bank will likely get a portion of the sale, even if they did not make the introduction or help negotiate the final sale. While many will claim it is standard to have a 12 month clause, there is no “standard” – it is all negotiable.
  2. The engagement fee or retainer: To help prepare your documents, pitch deck and start to position your company, the company will ask for a retainer fee between 10% and 20% of the expected final sale price (or about $25K to $100K) – whichever is lower. This fee is purely for them putting the time and energy to get your documents together and is independent of whether they final sale happens. If your company is “hot” many will waive this fee. If you are looking to sell, expect to pay this amount – 50% before they start and 50% after 3 months of the final completion of the agreement whichever is earlier.
  3. List of preferred buyers or list of buyers already in agreement. In your agreement sometimes, you will have a list of companies you might suggest to the banker to not approach since you have already been taking to them or the opposite – you have a term sheet from one buyer which you are not 100% happy with, so you want to shop for more deals. In this case you might specifically ask for a certain company to be on this list to be shopped to.
  4. Other considerations. If the buyer directly does not approach you, then in a lot of cases, you will find them to want some protection clauses, such as 3 year commitment for the founders to stay at the company etc. To ensure this happens, they will have an “earn out” amount associated with the sale. That is usually counted as part of the acquisition price, but is paid over time. An investment banker, typically will not have the patience to wait for that period of time or control over the longer term outcome, so they will want their “fee” to be paid in full for the net amount. That’ s something you can negotiate as well.

There are a few other negotiable clauses, but these are the main ones. At the end of the day, I would say that like most agreements, it depends on who needs who more. If you are eager to sell, expect to give in on certain parts of the agreement. If your banker, however needs you more, they will be willing to give you more leverage.

Finally in certain cases entrepreneurs use bankers to help raise their series B investment round, so most of these clauses hold good for that type of agreement as well.

Building your personal brand: How I would do it 30 min a day

Personal branding is becoming more important for individuals in the Gig economy. It is important since it ensures “inbound” leads for freelancers, opportunities for individuals at larger companies and also makes it easy for entrepreneurs to raise money or hire people.

Let me outline what personal branding is:

To me personal branding is creating enough value for the set of people who you are trying to influence or persuade. Those “influencers” know about your work in a certain area, domain and would consider you to be the preeminent expert in that area. The “recall” for your name associated in that area, should hence, should be significant.

Let me also outline what personal branding is not:

I believe personal branding is not about blowing your own horn, bombarding people with messages and content that’s not unique or differentiated.

The best way to create a personal brand is to create compelling content. Or so I thought.

That’s not sufficient any more is what I have learned over the last 6 months.

The “community” or influencers who you are trying to influence are equally if not more important.

Personal Branding Map

Personal Branding Map

The 2X2 Matrix above shows the 4 types of personal brands according to me. If you have good content and build a great community you are perceived as a leader. That’s where you should aim to be.

Initially you wont have either, and so the question becomes where do you start?

The nuanced question is – where do I start if I have limited time – say 30 minutes a day?

My experience states you are better off building a community and not spending time initially creating content.

You can curate great content from others – in the form of an email newsletter, or frequent (2-3 posts and links on the topic) daily.

Spend time reading about the space you want to build your personal brand before you have an opinion or a point of view.

Learn about the different people, their points of view and the pros and cons before you start to write and speak about the topic. Engage with people on twitter, by asking questions, connecting with them and learning about their point of view first. Then spend time building relationships.

I wanted to also put my money where my advice goes. So, for the next 3 months I am mentoring 2 of my friends Marc and Nancy to build their personal brand using my suggestions and strategies. They are not known as experts in their space. They are trying to build their niche  – Nancy as an angel investor – her niche is to be determined and Marc in the SaaS space – his niche within SaaS is also TBD.

Over the next 3 months I will report once a couple of weeks on their progress, the tactics they are using and the methods they have followed.

The measure of their success will be determined by 3 specific goals they have set out for themselves.

  1. Both want to be invited to speak at a major event (which is yet to be determined) as an expert on the space they chose.
  2. They want to be interviewed by either a podcaster or a blogger on their thoughts on the space.
  3. They want to be associated with a unique piece of content (examples Dave McClure and AARRR or Sean Ellis and Growth Hacking.

They both have specific metrics on # of engagements (key influencers who know them, etc.), # of Twitter followers (which I think is a useless metric, but nonetheless) and email open rates, etc.

Double opt in Email Introduction

Double opt-in email introductions are painful, but more useful than blind intros

A typical week for me is about 15-20 introductions to entrepreneurs and VC’s. I love that part of the job, in fact. If I could do more, with less time, I would any day, but I am getting more judicious lately.

There are 3 primary reasons why I am slowing down my “warm” introductions.

First, even though I know both the parties well enough to make the introduction, turns out many things change in 3-5 months that I am not on top of. One of my friends at a VC firm, decided to focus on B2C later stage instead of B2B. After 2 introductions, which I made to entrepreneurs, I found that out and also found out that he was “forwarding” my emails to his colleague. What I thought was “helping” was actually creating more work (useless and unnecessary) for him.

Similarly, an angel investor wanted an introduction to an entrepreneur who was looking to raise money a few months ago. Turns out by the time I made the intro, the entrepreneur had changed roles to be  the product guy, got a new CEO and also had finished raising money. Again, creating more work for him was not my goal but I ended up doing just that.

Second, in many cases the entrepreneur or the investor is not a good fit at all. Take a case this week. A very smart investor is a hugely sought after lady in my network. Not a week goes by, when I am asked to make an intro to her. I was asked this week by a good friend and entrepreneur to make an introduction to her. I like the team, so I was willing to help. Turns out, the investor had already looked at the company and decided to not engage because she has a competitive deal in the space.

Now, I had obligated her to find a way to “help” my entrepreneur friend in some way. That’s negative brownie points for me, even though I wanted to actually help them both.

Finally, there is a power dynamic in play with most situations. The “requester” of the introduction and the “recipient” are not sure in most cases who will actually benefit. Neither am I am very clear about who needs who more. In most cases, when entrepreneurs ask for an intro to an investor it is clear, but in many cases when I have a “hot” entrepreneur in my network, it is not unusual to have 3-4 investors seek my help for a warm introduction.

While making introductions is a critical part of the role that I play, it is becoming clear that the work that it generates for me is becoming onerous.

The best approach is to email the person who is the recipient of the introduction if they’d like the introduction, then wait for their response and then respond back to the requester of their response.

Double opt in Email Introduction

Double opt in Email Introduction

So one email introduction now becomes at least 3 if not more in some cases. Multiply that by 15 a week and I am spending close to an hour making introductions. There has to be a better way.

What do you suggest? I like the connecting and the introductions, but the work involved in doing this is getting to be too much.

Angel List Database of Investors

What percent of active angel investors are on #AngelList?

Every week, I get about 2-3 emails from entrepreneurs asking me to introduce them to angel investors who might be interested in a startup.

Besides this, I get about 3-5 introduction requests to specific investors.

Looking at my reports from Conspire, I end up helping more than 70% of the specific requests and only introduce 25% of the folks from the generic requests to “connect” to investors.

I’d love to help a lot more, but I unfortunately dont have the time. For the entrepreneurs who want connections, I end up saying – Can you please check on #angelList. Which is what I would do if I were in their position.

I usually get a note from the entrepreneur who say most of the investors on Angel List are “fake”. I think they are confusing getting “lead investors”, who are on Angel List versus, getting the entire round done, with investors who are not on Angel List.

Somehow, many of them come back telling me that there are a host of “other investors” who are actively investing, but are not on angel List.

That lead me to the topic of this blog post.

“What percent of active angel investors are on #AngelList?”

Angel List Database of Investors

Angel List Database of Investors

Most entrepreneurs believe that like the iceberg featured above there are a lot more actual investors than the # on any database. Or that there is opacity in the identification of angel investors.

I am not sure of the data, but I wanted to do some quick and dirty data checking.

Here are the assumptions I am making about the startup.

1. I assumed that I was looking to raise money in Bangalore, India or Mountain View, California.

2. I am starting a company in the SaaS (Software as a Service) space.

3. I am looking to raise $500K from angel investors

4. I have early product and some customers (none of them are paying, or a few are paying too little).

5. I dont have a large network of investors and I am not from Facebook, Google, LinkedIn or a “hot company” on my resume.

I then looked at Angel List with these assumptions and got about 35 “individual investors” in India and 512 investors in Silicon Valley. There are actually a lot more, but I weeded out the ones who have done only 1 investment over 2 years ago and those that are not SaaS specialists.

I also then looked at the recent 9 SaaS investments (last 2 years) in India, and 14 SaaS investments in SaaS in the Bay area. I got this list from Owler and Crunchbase and also looked at data from 5 accelerators – YC, 500, Alchemist, Angel Pad and StartX. I wanted to check who are the investors in these startups.

The data on some of the investors is available but most of the startups that recently got funded have 3-5 investors who are public and rest (similar number) who are “behind the scenes”.

The quick and dirty research suggests that close to 40%-50% of angel investors are not on Angel List.

The reason I was able to determine that only 20%-50% of the investors were publicly identifiable was by speaking to 7 of the Indian startups and 9 of the US ones.

The most common 3 reasons why not all investors were listed on the company’s Angel List page were:

1. The angel investor was not on Angel List.

2. The other angel investors did not want to be identified or preferred to keep a low profile.

3. The angel investors were part of the syndicate, which was led by one of the well identified investors already on Angel List.

I spoke to 5 of the “lead investors” and 3 of the “not on Angel List” as well.

There are 3 takeaways for entrepreneurs from my research.

1. To get an angel round done, you need a lead angel investor who is very likely on Angel List and is pretty active (you need a lead for other rounds as well, BTW, so no surprises here).

2. If an “angel investor” is not on Angel List, it is highly unlikely they will lead the round or help you close the round.

3. Most of the “other investors”, not on Angel List purely work on recommendations from their trusted “Angel investors” NOT from other entrepreneurs. This is different from professional investors (such as Micro VC’s or VC’s) who get most of their recommendations from other entrepreneurs.

So, my recommendation is start on Angel List, get your lead investor and then use other sources (LinkedIn is the better source than Angel List for this) to find investors who are connected to your lead on that platform, but are not on Angel List. Also use recommendations from your lead investor to help you get to other investors who invest with your lead.