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Lessons from the Greek Debt Crisis for Entrepreneurs



Greek Debt Crisis for Enterpreneurs

Here is a hypothetical “real” situation. Lets say you raise  some angel money from a few friends (IMF) and a few rich individuals (Germany and French banks). The money you raised is $250K, in a convertible note (loan).

The intention was to get product to market (stabilize your economy) with that money and hire 2 others besides pay for you and your cofounder. You detail that the money will last 5 months at $10K per month per person, plus expenses.

Greek in Crisis
Greek in Crisis

The angel investors are not happy that you and your cofounder are taking $10K in salary per month, which they feel is a lot (yes I know that it seems like a small amount in SF, or Bangalore as well), but really want in your deal (because they believe you will build a good business).

Then after 5 months, the product is not quite there and will likely take 5 months more to bring to market. You go back to your investors and let them know the situation. While not happy, they are still ready to back you and now are willing to put $25K for the next 6 months, and ask both you and your cofounder to forgo your salary (austerity) until product is shipped.

You and your cofounder realize there’s no choice but to accept the austerity measures and give in to better terms as well and think that the pain (no salary) will be short term so it would be worth it.

6 months pass and you need to raise more money. You have some early customers, the product is in the market. The money is needed to scale, grow and also to provide some relief to the founders in terms of getting paid.

The new investors though, are not giving you the valuation that will give you any relief and are not willing to pay for the “accrued” salaries of the founders. They also think that to grow the business, some of the loans from the angel investors needs to be “written off”. The previous investors will take a “haircut” on their debt.

Previous investors are unwilling to take the haircut, so your funding, goals and priorities are at am impasse. Neither side is willing to give up.

You now have 3 choices.

1. Exiting investors take a haircut on their debt, and their “investment” of $75K, is going to be valued at $25K instead, but they will be part of any growth going forward.

2. New investors are willing to value the previous investment at $100K (which includes the $25K in accrued salaries to founders for the last 6 months) and are willing to fund the company enough to pay salaries and support growth.

3. The founders are willing to take a haircut on their ownership (and give it to previous angel investors) and forgo their salary for the last 6 months as well.

That’s the Greek debt crisis and the options in a nutshell, with the players changed and the situation more complicated (Euro, Social programs, etc.)than I explained it.

The reality of the go-forward plan is that there will be compromises that need to be made all around. Founders, previous angel investors and likely the new investors will all have to find a solution to keep the company going.

Who’s the most vested – the founders (or Greeks) who have spent 12 months of their life trying to bring product and idea to market.

Who’s the least vested – the new investors, who are not going to invest unless they see upside.

Who’s taken a lot risk – the existing angel investors, who put money in expecting a return, but knew fully well that it was risky.

Asking the existing investors alone to take a haircut wont be right, neither will it be fair to have the founders take all the burden of the new investment.

Ideally if you can “carve” out a portion of the future potential for both founders and previous investors, it would be fair.

I have seen though too many cases where new investors “Cram Down” previous investors and in many cases dilute the founders way too much to have meaningful value going forward, which is why terms and provisions in the convertible notes are getting more difficult and involved.

What’s the best solution you think to the above problem? Who (all) gets the haircut?

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Creating Artificial Constraints as a Means to Innovation




Artificial Constraints

Many of the entrepreneurs I know have created new innovative startups thanks to real constraints they had. For example, I was hearing AirBnB’s Brian Chesky, on the Corner Office podcast and he mentioned that when he and his cofounder were trying to get some money to get started and the only way to keep afloat was to “rent” their air bed they had in their room. That, then led to Air Bed and Breakfast, which is now AirBnB.

This was a real constraint they had – no money to “eat” so they had to make it happen somehow.

I have heard of many stories of innovation where in the protagonists had real constraints of either financial, technology, supply, demand, economic, social or any number of other characteristics.

The interesting story that I have also recently heard of how Facebook has “pivoted” from being a desktop offering to getting a significant part of their revenue from mobile is how they were given the arbitrary constraint of only accessing Facebook via the mobile phone.

So there are ways that you can create “artificial” constraints to force innovation to happen.

Most larger companies and some smaller ones as well, have to constantly find ways to create artificial constraints – to find a way to innovate and be more be a pioneer.

While some constraints are good – lack of funds at the early stage for example and lack of resources, there are entrepreneurs that are stymied by these constraints and those that will find  a way to seek a path to go forward.

I think this is a great way for you to think about innovating in a new space. If you have constraints, find a way to use it to your advantage.

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The Great Mobile App Migration of March 2020




Mobile App Migration

Over the last few weeks as many in the world have been in lockdown, there has been a temporary “mobile app migration” happening. There are new apps downloaded and they replaced existing apps on the “home screen”.

While some of these apps are likely temporary use, for e.g. I have 6 “conferencing apps” – Zoom, Uber Conference, Webex, Google Hangouts, Blue Jeans and Goto Meeting. That is because of the many people I have conference calls with – each company seems to have chosen a different web conference solution.

Other apps seem like they will have staying power – Houseparty, for e.g. which has games, networking and video conferencing all built into one app to keep in touch with friends and relatives.


The apps that have moved away from my “home” screen, which I expect will come back once the crisis will be behind us include – Uber, Lyft and all the airline apps from Delta, Alaska and United.

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Perseverance with the Ability to Pivot on Data: 21 Traits We Look for in Entrepreneurs




Perseverance with the Ability to Pivot

There are 5 key inflection points I have noticed which makes founders question their startup, to either make a call to continue working on their startup, pivot to a new problem or quit their startup altogether.

It is at these points that you really get to know the startup founder and their hunger and drive to be successful. I don’t think I can characterize those that choose to quit as “losers” or “quitters” because of many extraneous circumstances, but there is a lot of value that most investors see in entrepreneurs who face an uphill part of their journey to come out on the other side more confident and stronger.

These five inflection points are:

  1. When you have to get the first customers to use and pay for the product you have built after you have “shipped” an alpha / beta / first version. Entrepreneurs quit because they have not found the product-market-fit – because the customer don’t care about the product, there is no market need, or the product is really poorly built, or a host of other reasons.
  2. When you have to start to raise the first external round of financing from people you are not familiar with at all. Entrepreneurs quit because while it is hard to get customers and hire people, it is much more harder to get a smaller set of investors to part with their money, if you do not have “traction”, or “the right management team” or a “killer product”.
  3. When you have to push to break even (financially) and sustain the company to path of being self sufficient. Entrepreneurs quit at this stage because they have now the ability to do multiple things at the same time – grow revenues and manage costs, and many of them like to do one but realize it is hard to do that without affecting the other. So, rather than feel stuck they decide to quit.
  4. When you have to scale and grow faster that the competition – which might mean to hire faster, to get more customers, to drive more sales, or to completely rethink their problem statement and devise new ways to grow faster. Entrepreneurs quit at this point because they are consumed by the magnitude of the problem. They overassess the impact the competition will have on their company, give them too much credit or focus way too much on the competitors, thereby driving their company to the ground.
  5. At any point in the journey, when the founders lose the passion, vision or the drive to succeed. Entrepreneurs quit a these points because they have challenges with their co founder, they don’t agree with the direction they have to take, or encounter the “grass is greener on the other side” syndrome.

While I have observed many entrepreneurs at these stages at  discrete points in time, I have also had the opportunity to observe some entrepreneurs in the continuum, and I am going to give you my observations on 3 of the many folks I have known, who, have quit.

Perseverance separates great entrepreneurs from good ones
Perseverance separates great entrepreneurs from good ones

One went back to college to finish his MBA after getting a running business to a point of near breakeven, another found the business much harder than he originally thought he would and got a job at a larger company and the third was just unable to have the drive to go past 11 “no’s”‘ from angel investors.

Over the last 8 years, if I look at my deeper interactions with over 90 entrepreneurs, who I would have spent at least 100+ hours each, I would say that of the 24 people that are not longer in their startup, the one thing that stands out among the ones that persevere is that it is not “passion” or “vision” at all.

It is the inherent belief that they are solving a problem that they believe is their “calling”. They also don’t believe that there is any other problem that’s worth solving as much, even though there may be easier ways to make money.

So most of my questions of entrepreneurs to test whether they will pivot or quit are around why they want to solve this problem (which I am looking to see if they know enough about in the first place) versus any other one.

The answer to that question is the best indicator I have found to be the difference between the pivots, the leavers and the rest.

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