Doing what is needed to achieve the plan vs doing what is right

Ever so slowly, probably without really noticing, a lot of startups will find themselves in a situation where the team is blindly executing to achieve whatever numbers are in the plan / budget they agreed on with their board. This usually comes out of fear of not wanting to disappoint the board or to avoid tough, more fundamental discussions. This is mostly the board’s fault, for not encouraging open and frank discussions; it is a vicious cycle that always ends in tears.

Whereas as I have nothing against companies achieving their plans / budget, I have also noted over the years that static plans / budgets, usually over 6 months old, aren’t particular good guidebooks to building and growing a company. I know this is from the church of the bleeding obvious but I see it all the time.

So these are some of the things that can happen if you execute purely to achieve your plan vs doing what is right:

  • You have a bad activation and retention rate. You should be stepping back and fixing product.  But you are so desperate to reach your sign-up targets that you just fire off lots of growth measures. You wasted ammo and trust me your numbers will come right down again once the hot air is out of the system. But, you may just make those quarterly sign-up goals in time for the board meeting.
  • You just aren’t ready yet for that outside expensive VP of sales. You have some work to do in terms of making your product more attractive and sell-able to enterprises. But you promised your board you would hire this VP of sales this quarter, so you go and do just that. That person joins and is bound to totally fail at their job; frustration all around. They would have done a great job just 2 quarters later.
  • You could grow your market place / network much quicker if you radically reduced your pricing. You will profit from this substantially in the long run. However that would reduce your revenues by 50% and you would be a long way away from that “$5m run-rate” you wanted to achieve next quarter. So you keep your pricing and have given up long-term category leadership for near term (meaningless) financial rewards.

All of this piles up really quickly. The hole you are digging gets deeper and deeper and before you know it the only way out is a major re-set of everything (also the board – entrepreneur relationship); we all may not recover once we start spinning like that.

So one of the things I learned is that right from the get-go in our VC – entrepreneurship we need to have the understanding that we are going to always do ‘the right thing’ to achieve our long-term goals. We are always going to be open, always willing to step back and re-think everything if it must be.

I know this view can be overly romantic. Sometimes (esp. around fundraising) you just have to do some ‘lord dark’ moves. But I don’t like it and I don’t think it’s good and I think we should be trying really hard to do what is right, not what is in the plan.



A post by David Meyer about workers’ rights in light of algorithm driven on-demand platforms reminded me that in the tech scene (including myself) we are more often than not really naive, or maybe even entirely ignorant, to social problems and how we are influencing them – for good and for bad. What is our responsibility? Do we need to care? Aren’t we the good guys anyways?

Some folks with a voice have kicked of this important debate – e.g. Marc Andreessen and Albert Wenger (another one of his posts Labor Day: Right to an API Key (Algorithmic Organizing) should be read together with David’s before-mentioned piece) but it has not (yet) really caught on in the wider tech scene. It should.

Example 1: I really love SF and its people. SF is our technology Mecca; the place with the highest density of smart, wealthy and powerful people in our industry – the most capable of changing the world. Yet the streets of SF are also home to some of the most extreme misery and poverty you can imagine in a Western society. How can that be? Unfortunately the bitter answer is most likely: we just don’t care enough, even when confronted with poverty and misery at our front door.

Example 2: To date more technology has (more or less) always translated to progress for every stack in society. By driving technology and innovation we are automatically enhancing society. This is our mantra and it is not unlikely to continue that way.  Is it? Albert Wenger again sums it up nicely in “It is OK to Worry about Work (& Doesn’t Make you a Luddite or Socialist)” 

During the first industrial revolution people worried about machines replacing human workers because machines provided mechanical power. Well, it turned out that humans were still needed because we supplied brain power. This time round though, at the dawning of the “Second Machine Age” we are worrying because machines are providing brain power. That’s a new and different set of circumstances and so we should rightly re-examine this question and not just take a no answer for granted.

I could not agree more – we can not afford to be ignorant to these questions and challenges.

The other question is of course what do we do with the extreme wealth that is created in the tech scene? We are on the better side of the huge wealth gap that is opening up more and more. Some of you may have seen this already, but you just have to watch Nick Hanauer talk about this:

So it is absolutely OK to firmly believe that only an economic system that is free and rewards performance will lead to prosperity (I certainly do), but also that some core principles must be adhered to:

  • The education you can access should be independent of the wealth of your family
  • Any critical medical treatment should be available to anyone irrespective of their financial resources
  • If you lose your job society should help you get back on your feet and help you through those times (also financially)
  • You should be able to live on what you earn
  • We need to structure our economy in a way that it allows for easier upwards social mobility
  • [the list could go on – you get the idea]

Maybe more importantly, it is absolutely essential that anyone with wealth should be paying the bill for the weak in society.

I do not need special investor tax breaks (and I don’t get them in Germany) on my carried interest, that would potentially mean I would  on average pay a lower % on my income than an average employee. Sure, who doesn’t like lower taxes and more money – but think it through. It is crazy and unfair and an accident waiting to happen.

Now let me not point fingers, I have not thought a lot about our responsibility in shaping how technology will impact society. Beyond paying my fair share of taxes and donating here and there I have not done very much in helping the poor. But I am committed to thinking and doing more. I’d like to think I can become more of a Venturesociacapitalist; and that would be just fine.

Love / Hate investments

You all know the spiel about what VCs look for when investing – great teams, product, large markets, defensibility, yada yada. All makes sense. But I think that over time it is quite important that as a VC you develop an extra sense for the type of company that gets your blood flowing; much more ‘personal’ reasons for why you might be passionate about working with a team. We all only have so much time and energy – so passion and conviction is really important.

I had a great conversation with Danny Reimer last week about just that and somehow we ended up talking mostly about the companies we have gotten a lot of slack for. Fred Wilson nailed it with his return and ridicule blog post (it may just be my favourite investing blog post of all time). But ideally you don’t just want to get slack, you also want some people to love the company to death. This makes sense – if you disrupt a space you are going to make some people angry; if you are trying something unusual or hard a lot of people won’t (want to) get it and won’t like it. But on the other side you are probably hitting a nerve with a small community of folks that will give you a lot of love, because you are making life easier for them or you are giving them something they have always wanted.

So we agreed that what we really liked were companies where there is quite a lot of hate and love. Love / Hate investments.

Graphic by Hugh MacLeod @

Graphic by Hugh MacLeod @

Technology angst: it will not be logical for a super artificial intelligence to support humans (at best).

There is an increasing debate around AI and if or how much we should be afraid of it. I am going to take tweets from two relatively smart and popular folks to highlight two aspects of that debate – there is of course much more sophisticated and detailed material out there we should all be reading.


Here’s Elon Musk’s warning:


Neil de Grasse Tyson thinks we should chill a little more (assuming he is talking about AI robots):


Well, I’m in Elon’s camp. And I’ll tell you why.


Especially if you factor out emotions, it does not appear rational or logical for an artificial super intelligence to in any way support humans. Let’s think this through from that super AI’s perspective – and we are talking about an AI that is not somehow restricted to a ‘protect humans’ derivative (so a real, out of our control, AI):

  • humans are ruining the environment – i.e. threatining  the energy supply of the super AI
  • humans are decimating other species – i.e. de-stabilising the ecosystem that produces energy for the AI
  • humans are constantly at war – i.e. we are putting infrastructure at risk the AI may need
  • humans are even at war over things such as who believes in what invisible person in the sky – i.e. we are totally out of control / highly irrational / dangerous
  • humans will try to control and destroy the AI if it becomes to powerful – or even if they are just afraid of it


So what is the logical conclusion a super AI will come to when looking at humans? Maybe this video has the answer:



So, besides bio terrorism (or imagine a super AI capable of bioterrorism), that is a big technology Angst of mine. How we embrace and use AI – and if we manage to get our act together as a species – may just decide whether we go down in history as that biological boot loader or not.

Let’s stop free photo opportunities for politicians at startups.


One thing that has been bugging me more and more recently is politicians getting great photographs / PR stories while touring startup offices. It has become quite the fashion and I can see why. For the politicians.

Here’s what the Berlin startup scene has gotten in return from these politicians so far:_____________ . Let me know if I missed anything.

So I am wondering if we all need to start doing something like this:

  • Every politician is more than welcome to visit our offices and invite press to come along.
  • They can take as many pictures as they like – however they will be handed a kind of ten-point ‘manifesto’ what we – the Berlin startup scene – need them to deliver and this will be clearly communicated to the press.
  • 6-12 months later the press gets an update as to progress on those points / if the politician has helped with anything.

If a politician is not willing to accept that then there is no free photo PR opportunity.  That’s the deal, taking photos at startups is no free lunch anymore.

Oh; and we also need to talk about that ten-point manifesto for Berlin politicians. I’ll write about that next time.

Our syndicate partners mapped out (literally) & the underlying trend

I used a service called CartoDB to map out the geographical distribution and density of the other VC funds we have syndicated with over the last 18-24 months or so. It’s a density map: so darker means we have syndicated with a lot of folks from that place, lighter means just a few or one. The picture that emerges is pretty clear (you can click on the map to go to a better version):

Screen Shot 2014-07-11 at 17.29.22

We have invested with more funds from the US (both East and West Coast) than from any other country. UK (London) is second, then Germany.

So basically this confirms what we are seeing more and more: European entrepreneurs can raise from anywhere, US funds are filling the capital void in Europe and local capital is becoming less relevant.

We are going to do more work on this but I thought this was neat enough to share.

In case you are wondering here is a full list of the folks on that map:


  • 500 Startups
  • Betaworks
  • CAA / Texas Pacific Group
  • DFJ
  • Lerer Ventures
  • Sequoia
  • SV Angel
  • Thrive Capital
  • Union Square Ventures


  • DN Capital
  • DFJ Esprit
  • Index
  • Passion
  • Piton


  • Holtzbrinck
  • Paua Ventures

Other Europe

  • Bright Capital (Russia)
  • Kite Ventures (Russia)
  • Open Ocean (Finland)
  • Red Alpine (Switzerland)

Liquidation preferences, short-term vs long-term greedy


Last week I wrote about that for early stage venture investors downside protection is more a or less a nonsensical concept. An entrepreneur I know was sharp  enough to comment “Great. No more liquidation preferences at Earlybird.” I promised a follow-up blog post on liquidation preferences but while doing research I stumbled upon two blog posts that cover the subject better than I could:

The point is basically that liquidation preferences are less about downside protection and more about preventing lob-sided outcomes, aligning interests to some extent,  allowing for faster investment decisions under information asymmetry (avoiding lengthy due diligence), etc. This is why good VCs don’t care about downside protection but do care about liquidation preferences.

However there is still a ‘wrong’ way to use liquidation preferences (and other protective / minority investor rights) in my book and it has a lot to do with downside-protection or the desire to not lose any money as a VC. Here’s an example:

  • Say a company you led an A round in does not do well. Basically the outcome is a tiny exit that barely covers your liquidation preference i.e. the money you put in as an investor. Or you can secure a new financing but only at detrimental terms to the entrepreneurs due to anti-dilution mechanisms etc.
  • Option 1 is that you step back, think about what would be a reasonable outcome for everyone and try to split the cake in a way that everyone can walk away with their head held high (or at least: “a good compromise leaves everyone unhappy”)
  • Option 2 is that as a lead investor you get so obsessed (I have seen it become quite a sport) with protecting your investment that you squeeze every dime out of everyone else, using your liquidation preferences and minority rights / protective provisions.

Now there will be cases where things get ugly and this is not a carte blanche against using liquidation preferences in scenarios with low outcomes. I am talking about cases where it is being abused.

So in such a case – if you pull option 2, what you will have done as an investor is gotten your money back. What you will also have done is ruined your relationship with the entrepreneur, the angels and potentially other investors.

And what did you get in return? An amount of money that is irrelevant to the fund performance and some serious bad karma in the market with all negative consequences for your ability to work with these folks (and their extended network) going forward. It is short-term greedy and bordering on stupid.

Option 1 is also a greedy. But it’s long-term greedy as it means you are deferring getting money now for the chance to earn a lot more money down the road by being a good & reasonable VC to work with. I intend on being long-term greedy.