When was the last time one of the big companies truly beat someone with any early traction?

Here are some examples:

• Google couldn’t beat Yelp
• Google Video didn’t beat YouTube
• Facebook Places didn’t beat Foursquare
• Facebook questions didn’t beat Quora
• Facebook didn’t beat Instagram

So here are some “not so bold” predictions:

• Google won’t beat Evernote
• Google and Microsoft won’t beat Dropbox
• Facebook won’t beat Snapchat
• No big company will beat your startup (if you have early product/market fit)

Keep going. Don’t be scared into selling to one of the big guys because you think they’ll kill your startup.

It should be pretty obvious that on the consumer web, if you have early product/market fit, the big guys can’t kill you.

Startups shouldn’t be afraid. It’s the big guys that should be afraid.

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Hat tip to James for sparking the blog post.

I’ve been a 2x founder, so I remember what I used to say I wanted and what I really wanted as a founder. Related to that, one of those things was around investor communications.

I used to say “if an investor isn’t interested, don’t humor me” and that’s what I really wanted too.

But it turns out not every founder is the same.

I recently was working on a compelling project and after a ton of work I realized the day before the partner meeting that there was a key, missing gap in the opportunity. And that it wouldn’t be something we would ultimately fund, because there was no way I was going to hide that gap from my partnership.

So I called one of the partners, shared my findings, he agreed with me on the findings, and we spoke about what to do. And then it came down to the “compassionate” thing versus the “objective” thing to do.

The “compassionate” thing would be to sit through the meeting the next day and then update the entrepreneurs later that day. The “objective” thing to do would be to tell the entrepreneur clearly and asap what we found and to call off the meeting, to save them time and hassle, as well as not play a game of charades.

We debated this for a long time, this partner and myself, and we ultimately called off the meeting the next day. This gave the entrepreneur about a day’s notice, as opposed to sitting through the meeting and pretending like we were going to fund it, and wasting everyone’s time.

I obviously wish I had found that gap 2 or 3 days earlier. But it was hidden and I spent +20 extra hours working on the project over the weekend, so I don’t think I could have found it earlier.

I’m still thinking through the compassionate thing versus the objective right thing to do. Because I don’t want to be like most every other venture capitalist. I might get burned in this case for doing the objective right thing and it pains me that a great person might be hurt. But in the long run, doing the right thing over and over again is the way to do things, even if there are short term setbacks.

A couple founders have asked me over the past two weeks what are some good proxies they can use to filter through VC funds. [1][2] Here are the ones I looked for and used myself when I was a founder - and somehow, they are still really under-the-radar proxies:

• Look if a fund has raised in the past 3 years or so: that’s because typical VC funds raise every 3-3.5 years based on how capital is deployed by funds. Let’s say you have “Fund III” raised in 2010. Presumably, a successful firm is raising “Fund IV” around 2013. This is because “Fund III” was mostly deployed in 2010, 2011, 2012, and some of 2013 - and the reserves and management of the fund are taken care of in the following 7 years. So now “Fund IV” is going to be deployed in 2013, 2014, 2015, and some of 2016. Which means that if you meet a VC firm with a larger gap, it means they don’t have as much capital to deploy into new investments (unless they’re doing something odd with their reserves…)
• Look if the fund raised the same size or an up fund: raising a down fund from the previous one means that the firm either 1) raised too much with their previous fund - see the go-go days of the first dotcom bubble or 2) more likely, they couldn’t raise as much as before because their performance has been lacking. [3] On the other hand, take the “Fund III” and “Fund IV” example - raising the same size fund means the VC firm has enough performance and/or reputation to have its LP’s bet on it for another 10 years and could just mean the firm is being disciplined about not raising too many dollars. And raising an “up fund” where Fund IV in our example is a bit more capital than Fund III means that the VC firm definitely has performance and a track record, was likely oversubscribed and so a bit extra was taken to appeas LP’s, and/or the firm could want a bit more capital to augment its winning strategy or approach.
• Look at the stage of investment, not the brand of startup: this is a funny one that founders miss often. Remember - nearly anyone can get in late on a premier deal at the right price. Which means that it stops being quite so special of an investment. However, some investors like to invest really late, get a nominal return at best instead of a venture return, and then say they are investors in “Iconic Company X.” It’s a fairly clever marketing strategy until founders start to realize what’s really going on - and I am seeing more founders start to realize what is really going on :) so it’s necessarily becoming less smart. This is aside from the fact that if firms keep doing these super-late stage investments (and therefore super pricy investments) they won’t have the returns to keep raising new funds and solve problems 1 and 2 above.

These are some under-the-radar proxies that founders can use to get a sense for the VC firms they are considering. This is still important because there remains a lot of noise out there. Meanwhile, finding the signal is all that founders should and generally do care about in this part of the startup journey. And in this case, the signal is finding the best partners, who have a track record of being helpful and who will be around for the entire journey, to help build the most iconic companies.

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[1] Anytime I find myself repeating advice privately, I know I’ve got a blog post already cooked up

[2] “Secret” works better in a blog post title than “under-the-radar”

[3] Note: if there are 3 down funds in a row, the argument about accidentally raising too much becomes entirely hollow, not just somewhat hollow