How to unlock more capital across the Midwest

“How do we unlock more capital across the Midwest?”

That, it turned out, was the main question Steve Case asked as I shared my experience of visiting 42 cities last year.

I shot a couple ideas off the hip but decided to take the weekend to really think it through.

If you’re reading this, you already know that not every company needs to raise venture capital. The vast majority of successful — large and small — businesses have never taken an investor’s money.

And, even though it seems like early stage capital is easier than ever to raise, one visit to anywhere outside of Silicon Valley, NYC or any other large city will quickly open your eyes to the fact that there are venture-scale businesses popping up everywhere else.

Not everyone wants to be in — or visit — Silicon Valley. And no, the big coastal VCs are not going to go hang out in the Midwest regularly.

So, here are a couple of things we need to do if we’re going to unlock capital through the Midwest:

Force more collisions. It’s not enough to just visit tech hubs, we need to force more collisions. In order to make that happen, we need to be pulling other entrepreneurs, investors and community leaders to visit their peers in other cities. Midwestern community leaders need to think bigger. And, if you’re interested in joining us — for free — as we visit other cities this year, just fill this form out to join us on tour and I’ll send you an email about once a month with all the information you need.

Make more investments. The most surprising part of my 2016 tour was that there was at least one venture-scale investment opportunity in at least 3/4 of all the cities I visited. The local investors either didn’t see it or didn’t have enough cash to support it and the coastal investors almost always thought the opportunity was too small. If we’re going to unlock capital across the Midwest, it starts by incentivizing Midwestern GPs to raise funds that are more aligned (read: small) with Midwestern startups.

And not just in venture-scale companies. People building “lifestyle” businesses get unnecessarily written off as being too small. That’s terrible. We met at least a hundred companies this year that were doing between $20K-$100K per month that didn’t want to go the venture route but that would have gladly taken $100K (or more) if it was structured a little differently. If we’re going to unlock more capital across the Midwest, it starts by helping more successful entrepreneurs get to the next level — even if it means they’re not going to return 10X on our fund (though they may still return 5X on our capital). We’re going to make more of these kinds of investments in 2017.

Educate more LPs. It’s not hard to see that there is a ton of money sitting on the sidelines all over the country. It’s not that they won’t invest in small funds or startups, it’s just that they don’t know that it’s an option. I’m going to do even more investor education workshops on every stop of the 2017 tour and Steve, if you’re reading this, I hope you’ll consider doing the same during your next Rise of the Rest tour.

Mindset is everything

Everywhere we go, people complain about how hard it is to start something.

They complain that all the money is in Silicon Valley.

They make excuses about all the time they don’t have available.

Are. You. Kidding. Me.

Starting a company is the easiest part of the process. In fact, it’s never been easier.

Here’s the thing that Silicon Valley has over you, your city and your community: it’s the mindset.

People in Silicon Valley don’t talk about doing something, they build a prototype. They talk to people. They iterate.

If you get to spend any time in Silicon Valley, you’ll quickly notice that there’s an incredible sense of urgency. (For better or for worse.)

They’re not smarter, richer or more connected than you. They just make things. Quickly.

Instead of worrying about how hard it is to start something, turn your attention to how hard it is to get past the stages you’ll need to conquer

  • At $1 of revenue, you change from a startup into a business.
  • At $1,000/mo of revenue, you’ve got a side hustle on your hands. THIS IS GOOD.
  • At $10,000/mo of revenue, you’re a solopreneur and you’re probably ready to leave your day job (if you haven’t already).
  • At $100,000/mo of revenue, you’re on your way to going big. GO YOU.

I’m not saying it’s going to be easy but you’re not doing yourself any favors complaining about local investors or anything else you think is slowing you down.

The only thing between you and your success is you.

An Indian, a Southerner and a Labrador hop in an Airstream (again)

I know, that title doesn’t make much sense.

Driving 26,141 miles in less than nine months didn’t make sense.

Moving into an Airstream and living in 42 cities for a week at a time didn’t make sense.

Shaking hands with over 20,000 entrepreneurs didn’t make sense.

Sitting down for 1:1 office hours with over 1,200 startups didn’t make sense.

The tech tour didn’t make sense on paper but it was the right thing to do. And that’s why we’re doing it again in 2017.

Here’s the initial list of stops (fill this form out if you’d like us to stop in your city this year):

  • Lubbock, TX (Jan 29- Feb 3, 2017)
  • Myrtle Beach, SC (Feb 21-23, 2017)
  • Greenville, SC (Mar 7-9, 2017)
  • Phoenix, AZ (Mar 21-23, 2017)
  • Sioux Falls, SD (Apr 23-28, 2017)
  • Des Moines, IA (May 2017)
  • Kansas City, MO (May 2017)
  • Grand Junction, CO (June 2017)
  • Missoula, MT (June 2017)
  • Lincoln, NE (June 2017)
  • Knoxville, TN (Sept 2017)
  • Lafayette, IN (Sept 26-28, 2017)
  • Rochester, NY (Oct 2017)
  • Albuquerque, NM (Oct 2017)

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We learned a lot through the 2016 tour so we’re doing a couple things differently in 2017:

  • We’re going to make the events at each stop much more accessible and useful for all kinds of entrepreneurs. Not everyone wants to raise money. Not everyone wants to build a billion dollar company. And that’s ok — the more people we can get to attend one or more of the tour-related events, the more people that know about entrepreneurship locally and regionally.
  • We’re bringing more people with us to join office hours, do more workshops and add more content to our keynotes. The goal is to create even more collisions and give the local community more perspectives than just my own. We’re going to bring more investors, more entrepreneurs and other community builders from around the country.
  • We’re bringing a 2-3 person video crew with us to all 2017 stops. The goal is to capture content constantly. We’ll turn that into daily vlogs while we’re on the ground, roll that up into a longer weekly summary video and create 30-60 second snippets that we’ll drip out to our audience for weeks after we leave town. We want to tell the story of entrepreneurship across the continent — think more Anthony Bourdain and less Gary Vaynerchuk. 🙂

If you’re interested in helping us help more entrepreneurs, investors and community leaders, here’s what you can do:

  • Invite us to your city. Fill out the form, we’ll hop on a quick call and see how we can make it happen.
  • Join us on the tour. Fill out the form, I’ll email you ~once a month with upcoming opportunities and we’ll all have some fun together.

If you see us on the road, say hi!

What we’re going to do in 2017

If you’re excited by technical terms, we’re going to continue building an API to venture capital and functional expertise outside Silicon Valley and NYC. If you prefer plain english, here’s our plan for 2017.


Results Junkies = Tour + Content + Investments + Network

North American Tech Tour. We visited 42 cities, drove 26,141 miles in 2016, primarily focused on cities with less than 250,000 people and I learned a lot — personally and professionally — along the way. We’re going to do that again in 2017 and we’re going to reach 10X more people on the ground. I hope you’ll join us on the road.

Ramping up the content machine. We really dropped the ball on this in 2016 — we shook hands with over 20,000 interesting people. We should have been collecting more stories along the way and sharing them with you. We’re going to do this right in 2017: think blogs, vlogs and maybe even a book.

More investments. We closed only a handful of the ~40 investments I would have like to have made through 2016 and I was the bottleneck. I’m hopeful that we’ll still be able to close most of those deals this year (check your emails, founders!) but we’re going to streamline the investing process in 2017 (back the syndicate, investors!). Based on what we’ve seen this year, there are great companies emerging in the smaller cities around North America and I want us to be the most active early-stage investor in those regions.

The Network. One of the biggest learnings of the 2016 tour: most cities now have an intra-city network of entrepreneurial resources but there’s more we can do to connect them with their peers around the country. We’re going to build a series of weekly events and workshops that can be dropped into any coworking space or accelerator cohort around the country. There’s no reason that ambitious entrepreneurs in Tulsa, Butte, Grand Junction or anywhere else shouldn’t have access to the same level of resources as their peers in Silicon Valley or NYC.

So that’s the plan. We probably won’t get this right on the first try — or even the second try — but we’re going to make it happen.

I’ll share more details soon. 🙂

What you should do in 2017

I’m convinced that becoming a better entrepreneur is similar to becoming a better athlete. You’ve got to do the work.

You don’t become a better runner by reading Runner’s World. You don’t become a better person by reading Men’s Health. You become better by doing the work.

If you want to be a better entrepreneur, here’s what you have to do: sell one thing to one person you don’t know.

It’s that simple.

You don’t have to quit your job first.

You don’t need to learn to code first.

You don’t need to get business cards first.

At the end of the day, entrepreneurship is about sales.

Just make one sale this week. It doesn’t matter whether it’s a product you’re thinking about building or if it’s a few hours of your consulting time.

Invest in yourself this year: learn how to sell things. Your future self (and career) is depending on you.

 

26,141 miles of mistakes, learning and growth

It’s comforting to be back in DC this holiday season — close to my daughter, our friends, our local bar, in our home and back to all the other things we know.

It’s hard, after spending most of 2016 wandering around the US and Canada, not to want to get back on the road again. Back to the long roads, weird rest stops, new people and adventures — both mundane and unbelievable — that I’ve experienced this year.

So I’m going to do it again in 2017. But first, I want to tell you the truth.

Divorce has a way of making you untouchable. The people you knew in your previous life — including your family — aren’t sure what to say or do. The people that you learn to know in your new life aren’t interested in the baggage. You’re stuck somewhere in the middle.

That’s how I started 2016: somewhere in the middle but mostly broken — personally and professionally.

You may have heard stories — especially from me — about the tech tour but here’s the truth:

At the beginning of 2016, Dana and I weren’t ready to move in together and I couldn’t move back in with my parents. I didn’t know where else to go, so I moved into an Airstream travel trailer. Full time.

I wasn’t sure what to say to my friends and family in the DC area, so I started thinking of ways to get away. That was the beginning of the tech tour: a plan to get away from the things I knew.

It was cheaper to keep the Airstream moving than it was to keep it parked in one campground, especially in the DC area, so what started out as a six city tour became a 42 city tour that would take me across North America and back three times over the course of 9 months.

Along the way, I shook hands with over 20,000 people. I ran out of gas twice. I saw things — the most beautiful things — that few people ever see.  And I learned about myself.

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These are a few of those things:

  • Take your family with you. For the first half of the year, Dana was only able to join me on the road sporadically. For the second half of the year, she joined me full-time and I’d like to think that the quality of both of our lives improved dramatically. You don’t need to be together 24/7 — there’s value in alone time — but there’s something incredible in traveling with your significant other. There’s something amazing about going places together, experiencing new things together and growing together.
  • Everyone’s pretending. I grew up in a culture that prefers to keep everything hidden. Most of us work in a professional culture of keeping everything hidden. You don’t need to broadcast your issues to the world, just find your tribe and keep them close. At the very least, make sure you never pretend around your significant other.
  • Everyone is (mostly) good. When I moved into the Airstream full-time, I worried about my safety. A year later, I’ve learned that full-timers watch out for each other. More importantly, I’ve learned that the vast majority of people are good. They just want to help and they hope you will do the same.
  • Reduce friction in your daily life. When I first moved into the Airstream, I quickly learned that trailers have more water than most people want and less electrical storage than most people need. I invested in a huge power upgrade (600A of lithiums, 900W of solar panels, a hybrid inverter and a 3000W generator) and my quality of life became nearly indistinguishable from apartment living. If you use something every day, invest in it.
  • Always top off the tank. Every time I’ve made a mistake — personally and professionally — it’s because I didn’t take care of myself first. It’s not selfish, it’s a fact: you can’t take care of others, make good decisions or do anything else important if you’re not in a good place mentally and physically. If you can get an extra hour of sleep, do it. If you see a gas station, top off the tank — even if you still have half a tank (unless you want to run out of gas 50 miles from the next station, like me).
  • You’re capable of much more than you — or anyone around you — thinks. I would have never thought I could spend a night on BLM land miles from the nearest human being or spend a night in a Walmart parking lot. The truth is that you’re capable of so much more, especially when you’re back is against the wall. Get a first-aid kit and a small toolbox, then learn how to use everything in it. Watch your self-confidence skyrocket.
  • Never stop learning something new. Some people learn how to code, other people learn how to knit but I decided to learn how to long board — so I got a Boosted Board. I’ve taken more than a few nasty spills but there’s no faster way to put an ear-to-ear smile on your face than cruising on one.
  • Be intentional. Be methodical. Every time I’ve rushed to do anything with the Airstream, something goes wrong. (Remind me to tell you about that one time I almost rolled the Airstream off a cliff in Whistler, BC… with Dana inside. She wasn’t happy.) The world wants you to rush everything, don’t fall for it. Some people like checklists, other people like processes — find your system and stick to it. Some people grow up when they’re 18 years old. I grew up at 35.
  • Laugh more. Smile more. At the risk of this sounding like a self help thing, just trust me on this. I love that Dana and I laugh all the time. I love that I really smile in photos now. I love that I feel happier than I’ve ever felt. I don’t know how to measure it but I know that smiling and laughing has helped me be a better person this year.

If I can leave you with one thought as we enter the new year, it’s this: Change makes you better. Traveling makes you better. Do both, if you can.

No, the big VCs are not coming to your small city.

It’s nearly impossible to mix local geographic interests with venture-scale returns. That’s why the big brand name venture firms from Silicon Valley or NYC are unlikely to setup shop — or even visit — your small town.

The first step is to understand how investors make decisions. The second step is to realize that VCs aren’t incentivized to visit your town. Let’s take a quick look at how they get paid and then I’ll explain exactly why they’re not planning to visit you.

VCs are paid on management fees and carry — you’ll hear something called “the 2 and 20” to describe this. The first number is the management fee and the second is the carry.

Let’s pretend, for example’s sake, that I was the sole investing partner of a fund managing $10M. On a typical “2 and 20” model, I’m taking home 2% of the fund every year just to manage the fund and I get to keep 20% of any profits after I return the original $10M principal back to my LPs.

Let that sink in for just a minute.

When you’re getting paid on the standard 2% and 20% model, the overall incentive for a professional VC is to raise larger and larger funds. When they raise larger funds, the number of investable companies becomes smaller and smaller.

Still with me?

Here’s the bottom line: VCs paid on the typical model are incentivized to raise bigger and bigger funds. The problem, however, is that the average startup that survives long enough to build anything meaningful is more likely to get acquired for $20M-$100M instead of going public.

NEWS FLASH: Big VC firms don’t have to travel. Anyone building anything big is going to go visit them. Stop wasting your time, money and efforts trying to win those big funds over.

Here’s what you should do instead:

  1. If you really want to bring VCs to town, aim for funds managing less than $75M.
  2. Teach your founders to talk and act more like their coastal peers.
  3. Recognize that there are great companies that will never fit the venture returns model and that’s OK. It’s better to have 10 companies making $1M/year consistently than it is to have one company hoping to make $100M/year.

As an aside, I believe there’s room for a new venture firm to completely dominate the early stage tech startup  scene across the Midwest. Here’s the sneak gist: raise a $10M fund, invest $100K into 30 companies, reserve the rest to follow on in the best of them and repeat this every six months.

How professional investors make decisions.

Something I learned when I used to sell cars: if you understand how someone makes money, you can better understand how they make decisions.

The business of investing is about deal selection, not deal sourcing. The best investors see 100x more deals than local angels, VCs and anyone else in-between. That’s why it’s easier to get coffee with a professional investor than your local angel group. If you’re a founder, you should skip the local investors first. If you’re an investor, look at deals outside your hometown first.

VCs are easier to understand than angels. VCs are investing other people’s money while angels are investing their own. When angels choose not to invest in your company, it could be for any reason at all (eg, they don’t like your shoes, they hate the weather outside, it’s a Tuesday…”). When a VC chooses not to invest in your company, it’s because they don’t believe that the financial return of your company aligns with the financial returns they promised their investors.

The goal is to make money. When anyone invests in companies, the goal is to return their principal and another three times on top of that. So, for example: if I’m investing $1M in companies this year, my goal is to spread that across X number of companies and hope that one or more of them returns enough money for me to make ~$4M back.

Angels usually earn a paycheck from their day job and keep all the profits when you exit. VCs earn their paycheck from the fund’s management fees and split the profits on your exit with their investors. This is why VCs are incentivized to raise larger and larger funds… and why they’re less and less likely to spend any time outside of Silicon Valley, NYC or other large cities. (More on that tomorrow…)

If you think you’re going to raise money for your company at some point, start by understanding how investors make money before you begin pulling your deck together. Better yet, get to $1,000/month first.

Don’t “do” a startup.

Look, you’re either building a business or you aren’t.

There’s no in-between stage and this is true whether you decide to raise other people’s money or you choose to bootstrap things yourself.

When you say things like “doing a startup,” you’re undermining your own credibility.

If you can’t describe your exact customer in a sentence, you probably don’t know your customer at all. (Dead giveaway: “anyone that needs [X] will need us.”)

If you can’t figure out how to make your first $1 of revenue within the first 30 days, consider doing something else. (Dead giveaway: “we need to spend the next 6-12 months making the app and then we’ll launch big!)

If you’re reading this from a bigger tech hub — like SF or NYC — all of the above is obvious to you. If you’re reading this from anywhere else, please share this advice with every entrepreneur you meet.

The most common complaint I hear from local community leaders across North America is that they can’t get coastal investors to come to their cities and they can’t get the local investors to open their wallets. The problem isn’t the investors, it’s the founders.

If you want to make yourself more successful, pay attention to the details — all of them. If you want to make your community more successful, teach them the things that the coastal entrepreneurs are told every day.

Fundraising don’ts.

Aside from actually building your business, asking others to invest in your company is the hardest thing a founder will do.

You can find all sorts of tips across the web on how to find investors, how to structure your term sheets and almost every other detail you’ll need to know. It’s what not to do that isn’t shared often.

  • $250,000 is the minimum to raise. Anything less will send the wrong signals to professional angels and VCs.
  • Never be an investor’s first deal. It’s hard enough to get professional investors to commit to your deal, why make things harder on yourself by dealing with someone that may not be prepared for the risks associated with early stage investing?
  • The smaller the check, the bigger the headache. The minimum check size you should take directly into your company is $25K. Anything smaller needs to get routed into an AngelList Syndicate (here’s mine) or rolled up into some other SPV (ask your local angel group about this).
  • Raise 18 months of capital or nothing at all. Once you step on the venture treadmill, the expectation is that you’ll raise more money at a higher valuation roughly every 12-18 months. If you raise too little capital, you’re unlikely to hit the milestones needed to get that next round. Don’t set yourself up to fail.
  • Investors check references on founders. Founders need to check references on investors. Check AngelList. Ask other founders in their portfolio. Read what others might have said about them anywhere else online. The truth of the matter is that it’s easier to divorce your spouse than to “undo” an investment. Trust me on this.
  • Use AngelList to fill your round, not start it. The same is true for any other online fundraising service you choose to use. Getting the first person to commit is a function of handshakes and time — actual meetings.