We're conviction investors - what does that even mean

We’re conviction investors. That means we rely on our own judgement to make decisions. And when we really like something, we're ready to pounce.

We don’t wait to see who else is investing. We don’t ask you to come back in a few weeks with social proof or other numbers. We don’t equivocate. We make you an offer as soon as we can, because we’re respectful of the entrepreneurial process and see you as our customer.

That doesn’t mean we don’t do our diligence. In fact, diligence is crucial for developing conviction. How do we know what to like if we don’t know what it is? 

So sometimes we’ll need more time than other investors in the market who are technical traders – and who will invest because of other folks in the round, because the segment is hot, because the founders are pushy, and so on. We feel we owe it to the founders to be more thoughtful than that. Our investment is a recommendation to the rest of the market and we take that role seriously.

The flipside of conviction investing is passing with conviction. We strive to avoid FOMO. We like saying No clearly and as early as we can. We want to be respectful of your time. Again, you’re our potential customer and just because we choose not to work with 99% of the customers who come through our door, doesn’t mean we think less of them. We’re just not the right investor in these cases.

Like everyone, we will sometimes be a little vague about why we’re passing. Mainly that’s because we don’t want to hurt your feelings. It’s awkward telling someone that our judgement of their capabilities or character is the main reason we’re not investing. And it’s not like people don’t change over time. Leaders and teams evolve. So when you feel our reasons aren’t super clear, frequently it’s a team issue.

When passing, we may tell you that our decision is often wrong – because it really is. Of course in the vast majority of cases we should have passed. But the false negatives are significant (we saw e.g. Zendesk, Spotify, Deliveroo at seed and failed to invest in any of them). Mistakes of omission in venture tend to get bigger over time.

We’ll also often tell you that we’d like to revisit our decision at the next financing round. Yes, that’s an option to change our mind. Because see above – we’re frequently wrong. But it’s also an invitation for you: at the next financing round, get back in touch and we’ll take a look. Just because we’ve passed doesn’t mean our door is closed forever.

What it isn’t, however, is the invitation to send us an email every two weeks to tell us how it’s going. If we wanted you to do that, we’d tell you. Assuming you’ll raise every 12-18 months, an update once every six months is the right sort of frequency.

 What most people don’t realize is that venture is very much a head, heart and gut kind of investing – more so than any other investment activity I’ve seen. And once the decision is made, I recommend dignity – you won’t win someone over at that point with rational arguments. You may if your metrics go gangbusters, you’ve added significantly to the team, or made other changes to the business. But explaining to us why we’re wrong when we already know that we're often wrong is mostly a losing tactic. 

That brings me to my last point: work with the nice VCs – and I don’t just mean charisma. Work with the folks that don’t posture, that aren’t overly aggressive, that aren’t pushy. You want to have calm, steady, wise people on your cap table – because it’s a long, long journey and the guys that let themselves be guided by fear before the investment will do so while they’re on your board, too. And the aggressive and greedy ones will be a nightmare when you have to sell the business.

Do we live up to all of these principles all of the time? Of course not - we're human, we make mistakes, we veer from the plan, we get busy and shortsighted and fearful. But as a statement of intent, this is how we see ourselves and what we try to live up to, every day. 

Rethinking the scale-up organization: leadership is not an ego game

When you're five or ten people or even twenty, purpose takes care of the organization. Things happen organically. Everyone collaborates. There's the excitement of a new beginning (see Hermann Hesse's Steps). Product gets built fast.

But as you start to scale the business and hire more people and things start being a little chaotic, there's this one moment. I call it the "now it's time to become a REAL company" moment (I am not great at naming stuff). Usually it's a founder who contracts that feeling and then starts spreading it like a virus. 

 This is a moment of fear. Fear contracts and people contract it.  It's often the moment the company adopts a traditional domination hierarchy. Reporting relationships are set up. The first deterministic processes, foreshadowing the onset of the great bureaucracy, are introduced. Overnight the business becomes a less wonderful place to work. What most VCs don't see: this is often the point the business starts to lose its full potential.

 And the true insanity is this: as the company scales headcount to 100 and beyond, hierarchy as an organizational model ceases to work well. Instead, the founder/CEO realizes we need a variety of small, cross-functional teams. Responsibility and the power to make significant decisions needs to be devolved to the edge of the organization. Alignment should happen at the lowest possible level (subsidiarity principle, anyone?).

So why do most companies have to go through this phase? And why do many not make it across this "organizational chasm"? It's egoic leadership, a leadership that's driven by fear, the wish to retain the success that has been achieved (attachment to outcome), and a lack of trust. Most founders instinctively hire phenomenally well in the beginning, but then destroy that achievement by withdrawing trust and seeking control just as things start to scale.

My favorite (radical) book in this context is Reinventing Organizations by Frederic Laloux. I'm not saying adopt all of that - just be aware of the principles. And know that the very first step is _not_ to force things in your company, but to gently use the momentum that exists to guide things to their natural outcome.

*Leadership is not an ego game.* 

 

Rocking the 'Gram: read this if you want to become Instagram famous!

I don't know whether you've ever seriously faced the issue of why your heart is so empty? I guess that's for another post. In the meantime, you're here because you clicked that baity link about becoming the new Insta sensation. Do you have a mirror? Look in it. Now back to me. Now... jk. 

Seriously I read a lot of books, some of them very silly. So here's my key learnings from the wonderfully titled "Read This If You Want To Become Instagram Famous." Which is a real thing and I read (well, skimmed) it. The things I do for you! But seriously, it makes for a great coffee table book. It's so pretty: 


I took these notes while browsing through the book. Here's how to become a God(ess) on the 'Gram: 

  • Hard Work. There's no overnight success. Insta is hard work and it has become super professional. Behind every great account, there's "a super snazzy snapper" (haha) who knows exactly what they're doing. Even if they kind of stumbled onto the formula (yes, there's a formula), they're now an execution machine. They probably live in that influencer house in LA. Good luck keeping up with their passion for themselves. Narcissus has nothing on them. 

  • Nail the Basics. Your @handle is obviously superimportant. You'll have to be creative nowadays to get something that isn't fugly long. Your picture is your brand identity aka logo and should be recognizable in thumbnail, so don't make it too subtle/detailed. Your bio should be English if your audience is global. Keep it short and add some emojis for personality. Or, you know, don't. Because emojis are so 2017. 

  • Technical Proficiency. Insta is all about the visuals. So there's a measure of being able to take an objectively good shot. Read about light - fresh shades make for fresh photos. Look at the lines - visuals where the lines lead from the edge into the photo draw in the viewer. Train your eye - see the hidden details in common things. Wait for the right light. Use colors to great effect. Just google photo composition and do that.

  • Consistency. You have to stand for something and then you have to keep delivering that. Change up the mix too frequently and you'll lose loyal followers. True for content. But this also means sticking to the same editing tools. Trust me, I screw this up all the time. I mean, I'm writing a blog post about being awesome on Instagram. Yesterday I wrote one about the market for something to believe in being infinite. Be less random than Max.  

  • Be Yourself. But Then Be Different, Too. The world wants your conformity. Your parents want your social respectability (you do, too, but from other people). Instagram wants you to be different but also not too different. Yourself, but not too much. You know what I'm talking about, weirdo. 

  • Think Omnichannel. While the 'Gram may be your main channel, other social platforms can push traffic and hence new users to Instagram. So check for the same handle on Snap and Tumblr. And maybe FB and Twitter if you're an oldfag like me (is 4chan language still cool? Showing my age here). 

  • Participate. Comment with care. And empathy. Treat people like people. This is generally very solid advice. 

  • Use Tactics to Get Noticed. Break-out accounts do break-out things - new and memorable and category-defining. To drive engagement, use poppers - pics that stick out. To increase retention, take a mini-series. From a composition point of view, getting down low or up high changes scenes dramatically. 

  • Editing Apps: use 'em. VSCO, Darkroom, PicTapGo, Snapseed, SKRWT, Cortex... and obvs Glitché (haha)

  • Be Human. Let your photos speak volumes. Tell true stories. Put yourself in your shots (partially). Be enthusiastic. Be relatable. 

  • Go for Geometry. Shoot straight on symmetrical architecture. Shoot flat lays (preferably food!) with lots of natural light. Full frontals. Create breathing space with powerful borders. People want order. 

  • Hashtags. Use them, but sparingly. No need to be so desperate. Don't copy generic ones - do your research. Also: you can hide hashtags in a comment that will disappear with volume. Also, don't forget about the weekend hashtag project! 

  • Geotags. Massively under-rated. Geotags lift engagement by like 80%. Even more so than a person or face or another user's handle (which are other good predictors of engagement). 

  • Become a suggested user. Don't over-cook your photos (Insta loves it au naturel). Keep it pure. Post consistently but not too often. Follow the zeitgeist.

  • Hot. The book doesn't talk about this, which is weird, but it is good to be attractive. More attractive people with exhibitionist tendencies tend to be more popular on Instagram. Just don't take off too much (that'll get you banned).

So if you're anything like me, at this stage you're a little disappointed in this beautiful book. Because it turns out the formula is pretty much the same as being successful online in any other way: make beautiful stuff that has meaning. Which just goes to show (we've known this for a long time) that you can't learn much about the internet from printed materials. It's better to just, you know, use the internet.

Thanks for letting me be silly today.

Much love,

Max

The market for something to believe in is infinite

This year marks my tenth year in VC, and the fifth year co-running our own firm, Sunstone Capital. I've backed a good two dozen companies at this point. And yet there's one lesson it took me a long time to learn. My friend Hugh Macleod sums it up well on this Hughcard, my absolute favourite of his work: 

Copyright Gapingvoid/Hugh MacLeod 

Hugh posted about his 2004 Hughtrain manifesto (2004 ChangeThis PDF here) a few days ago: The Hughtrain (2018 version). It's just as fresh - maybe more so given all that has happened in the last decade - as it was 15 years ago:

"We are here to find meaning. We are here to help other people do the same. Everything else is secondary... great branding is a spiritual exercise."

Go read it. It touches on a lot of things that we're going to talk about soon in our direct-to-consumer investment thesis. 

Music Saturday: Tracking Treasure Down (Gabriel & Dresden)

I started in VC at Atlas Venture (now: Accomplice) in 2007, right around the time Last.fm sold to CBS (my first exit as an angel investor). The focus of that gig as an analyst/then associate was 90% sourcing and I worked 100 hour weeks doing just that. It never felt like work, looking at new products and reaching out to interesting people. At the time it was still possible to pretty much know every tech startup in Europe, something that seems crazy today. 

I have a vivid imagination (my whole family does) and at night I'd listen to music (no Spotify yet) while reading about emerging companies. This one track in particular I thought of as my "anthem"": I was there alone in the office at midnight, tracking treasure down. 

Good (if lonely) times. 

Hope you like the track (it's aged slightly!). 🤟🏻

P.S. these posts tend to be the least popular on my blog and I'm going to see if I will vary them. If you have suggestions of what other media content to post (videos of talks? podcast episodes?), let me know. And have a peaceful weekend, everyone.

The worst thing about the tech industry and what we're going to do about it

Sometimes our industry tires me. Because everyone is always so exhaustingly successful. And smart and amazing and crushing it.

But all there is really is the Now, the present moment, and the quality of attention you put into your work. It takes a decade to become an overnight success, and sometimes more. And sometimes you have it all but there's no luck.

There's no such thing as failure. It's all a giant opportunity to grow. Which is easy to say if you're not worried about where your next paycheck is going to come from. Or how you're going to get out of bed if you're so sad.

While we're on the journey all we really want is to be listened to, accepted, and occasionally understood. Loved perhaps for what we're trying to be again and again every day. Or maybe just loved for no reason at all except that we are.

I'd like to build a venture capital fund around that idea. One that puts our joint journey at the center. One that doesn't deny that it's bloody fucking hard and that we feel so much sometimes.

That's what we're building here at Sunstone at the moment. And we've only just started.

Innovation by ideology - what's new is the story

Back when I (too briefly) worked for Bruce Golden at Accel, he'd look at one of the companies I brought in and ask: what's the significant invention or innovation here? The question bugged me at the time and I wasn't sure why. Bruce encouraged arguing from first principles and frequently the stuff I liked wasn't fundamentally new, so we wouldn't proceed. There was no "better mousetrap."

It's the worldview of engineers and (many) business people. Make something ten times better and the world will flock to your door. You corner the mousetrap market by building a more effective trap. 

But many of the companies that I had seen succeed didn't do that at all. They did something slightly different, sometimes somewhat better in one dimension, and significantly worse in another. And it wasn't like the better dimension was 100x better - this wasn't an innovator's dilemma thing. 

What these companies did instead was change the conversation. They hit upon the zeitgeist or mainstreamed some subculture in an important way. To keep with the analogy of the mousetrap, today that consumer market (in Europe) is dominated by humane designs. There has been a silent but significant revolution in how we think about the sentience of animals and the primacy of humans in nature over the last 50 years. And the guys who started building non-fatal mousetraps tapped right into that - perhaps not even consciously but because it was the *right* thing to do.

I've gotten more conscious about this kind of ideological or cultural innovation over time. You can see it everywhere around us. It's human progress enabling commerce enabling progress. I'm a big fan of that cycle. And I nowadays recommend it frequently to founders.

Want to build a car subscription company? Why not make it just for electric cars. Want to build a digital FMCG? Start by removing all paraffins, perfumes, and animal testing. 

And so the world gets better, one small company at a time.

Image source: Bodha, Come Back to Yourself, a DTC aromatherapy company from LA (not in our portfolio)

Travelperk raises $21 million Series B for its business travel SaaS platform

I met the Travelperk founders Avi Meir and Javier Suarez in 2016 through an introduction from Johannes Reck, co-founder and CEO of our portfolio company GetYourGuide. It was ten days after our first daughter, Charlotte, was born and I had to fly to Barcelona to meet these guys and here's a shout-out to my wife for being amazingly supportive in these situations 🤟🏻😍🚀

Avi and Javier were the real deal - serial entrepreneurship in travel, massive domain expertise from their time at Booking.com, the passion and ambition level to match ours, a sense of purpose. In business travel, companies have two bad options: either antiquated enterprise agencies that are both crappy and expensive, or a mess of consumer tools that result in a flurry of invoices, payment methods and general confusion. Travelperk fills that gap - it hides the complexity from the traveller by offering a complete end to end solution and not just a sexy interface (it also has a sexy interface). Its simple purpose is to "fix" business travel. We joined the $7M Series led by Alex Finkelstein at Spark Capital (Medium post from June 2016).* 

In the two years since our investment, Avi and Javier have put together a phenomenally capable team in Barcelona with some great hires from Skyscanner, Booking, and others. Demand has grown more quickly than forecast. Customers now include Transferwise, Typeform, Outfittery, GetYourGuide, CityJet and many more. Charlotte's grown a lot since 2016, but not quite at the 1,200% YOY rate that Travelperk has. 

The new $21M Series B is led by our friends at Target Global and Felix Capital. Sunstone participated above pro rata. The round brings total raised for Travelperk to $30 million and sets the company up for scale: scaling team (engineers, support, product management, sales), accelerating internationalization, and opening a slew of new markets.

We're thrilled to continue supporting Avi and Javier - thanks very much for having us along on your journey! 

Techcrunch post here

* The seed round was led by Robin and Saul at Localglobe. We would have preferred investing at seed, but didn't see the company back then. 

Refragmentation and why corporates don't really get it

Refragmentation is a secular trend - meaning it's here to stay. The decrease in transaction cost that has empowered consumers is shrinking the boundaries of the firm (Coase) and making it more porous. Hence the Cambrian explosion in startups. Hence managing contractors becoming a core skill. 

In a refragmented world without lifelong corporate tenure, maintaining and providing value to your own network has become a key determinant of career success. Tech industry karma is alive and well - we're open and we give. When our people are successful, it's good for all of us. Pay it forward. 

Large companies are often stuck in a previous paradigm. Power and responsibility aren't devolved. The hierarchy can't process the edge cases and so starts inventing process and bureaucracy. And then people at the edges stop acting like people and start acting like corporate automatons driven by greed and by fear.

That's the thought I had when I saw this craziness that Holger of German Autolabs posted on Facebook:

I really hope that we find out who this is. Not unlike METRO's disappointing ad campaign, there are a set of rules about how to engage with small companies hoping to make a dent in the universe. This breaks most of them. 

#taketheexit? Not quite yet, METRO

For a few weeks posters on the streets of Berlin have been pleading with developers to #taketheexit (see below). Ostensibly because of poor working conditions in startups. 

Having been involved in a fairly large number of startup companies at this point, I've seen crunch times, shitty offices, and managers who succumbed to their anxieties and shouted at employees. The latter is never acceptable. I'd always encourage anyone to #taketheexit from an abusive or otherwise toxic environment. 

But overall, people love working at startups for a whole number of reasons: more freedom, more responsibility, less need to conform, fewer overheads, fewer stupid meetings, a strong sense of purpose/meaning, higher impact, cooler people, fewer rules and regulations, etc. 

So the axis of working conditions is a bit of a weird one as a dimension of competition because it was always very unlikely that the advertiser would be able to compete. Maybe with "fewer hours." 

Today it was revealed that METRO, the retail group, is behind the campaign. Too bad only that they don't list any jobs on their Work With Us page. Feels like a pretty big investment to screw up conversion that way...

If you want to make people shop a bit more frequently at METRO companies, or increase average order value there, or make sure there are fewer hiccups in the METRO supply chain, by all means do go work at METRO.

But for those of us who want to change the world, feel free to stay in startupland a bit longer. We love having you and are working hard to #giveyoutheexit you deserve.