Why CEAi?

A few reasons! For context, I recently started helping out over at CEAi. After several years of running my own companies, I decided to join forces with Bradford Cross, because I have wanted a new way to launch startups, find product-market fit, and scale companies, at scale. How do you build a better meta-startup platform? And where do you start, what do you do first? Lots of fun questions, but these things below were my starter hypothesis:

Artificial Intelligence

AI will eat the world.

I’ve been a Lisper for a long time, I’ve enjoyed all the AI books from back in the day, and often wondered when the “AI Winter” would end.

It certainly ended!

With more and more powerful (and cheaper) computing power, newer algorithms are becoming practical, both from a speed and cost perspective. Software was going to eat the world, now AI will eat the software that isn’t using AI techniques.

Cutting Edge Problems

The type of stuff that we’re working on at CEAi is pretty awesome – starting with Merlon Intelligence: an AI driven platform to manage end-to-end financial crimes and compliance (FCC) for banks, insurance, fintech, cryptos etc., to real-estate investment platform that uses data and AI to price homes (B&B), to cyber insurance (TowerStreet), to managing clinical trials using digital mobile end-points (HealthMode), and a new automated trading platform for multiple digital assets (Q).

And many others coming up over the next 2-3 years. Exciting stuff!

Abstractions

Further, I believe in the power of abstraction. At CEAi, a venture studio, we’re refactoring everything that goes into building the companies themselves.

Shared services across business functions such as recruiting/HR, sales development, marketing and growth hacking, etc – these are all often much more powerful and impactful to a startup than just pure software.

And so we’re building these abstractions upon which to instantiate new startups.

Startups!

I’m a huge startup fan-boi. Creating something from nothing, this is what innovation is all about, what the hustle is all about. Sure, not everything succeeds, but that is ok!

Venture Capital, as an asset class, returns pretty poor results – about 7.5%. For all the grand talk that VCs output, this is a pretty shitty showing 🙂

This is all because of the fact that pretty much only 1 in 20 startups really do anything for the IRR. The goal at CEAi is to create a better platform to launch new startups off of, and use all the organizational shared services and learning, to improve these rates. If we’re able to make 1 in 2 startups fail (or succeed!) then we’ve just improved the numbers by 10X. Heck, we’re shooting for a 4X improvement.

Global

CEAi is truly global – we are 2 years old, but thanks to an explicit design decision to be truly distributed, we have 7 offices (and counting!). These include SF and NYC in the US, Prague, Bratislava, Brno, and Kosice in Central EU, and Bangalore in India. Next – probably Budapest and Vienna, along with Tokyo and Beijing/Shanghai.

We go where there’s business and talent!

What’s not to like? 😉

So that is it – doing fun stuff, building amazing things from scratch, the hustle, the game, it’s all here! And that’s why CEAi.

On convertible debt, and why it now seems rather insidious

Cross-posted from Zolo Labs.

I’ve been researching early-stage financings. I know I’ll soon be talking to investors, so I figured I’d better understand what the various options are and what they mean. I also thought I’d share my research with others, and so if you’re in the same boat as I am, then perhaps this post on the evils of convertible notes will help you 🙂

Before I started researching this topic, I always thought convertible notes were a great way to raise your first round of outside money. The benefits were touted by everyone who were supposed to be in the know:

  • they’re faster to get done
  • they’re cheaper to get done
  • they’re easier to get done (term-sheets are simpler)
  • they delay the pricing question so you have time and money to build out your company a fair bit before a price is set on it. That’s obviously in your best interest, since your company probably isn’t worth very much when you just start out
  • everyone is happy, and there are no real downsides to this type of financing

Here’s what I believe now:

  • it isn’t fair to the very people who take the most risk and believe in you before any one else did. Why? Because, the better your company does, the higher the price they pay for their shares. That just isn’t the right way to treat your earliest backers and well-wishers.
  • this situation is why most convertibles now have valuation caps on them. So if you’ve raise 2M with a 8M pre cap, you expect to give away at most 20% of your company. And you’re probably cool with that, in fact, the higher the cap, the better, eh? But a cap is not a (minimum) valuation, so what if you later find that you can only find investors at a price of 4M pre? You’d have given away 33% of your company to those initial investors. Maybe that’s OK, but you no longer have a choice in this decision
  • convertible notes also have a discount associated with them, so in the above scenario, if that discount was 25%, you’d actually have to give away 40% of your company, when you were only ready for 20%. Again, if you thought this was OK to begin with, maybe you’d be OK with it, but you’d no longer have any control on this decision either

These are the reasons that, as an entrepreneur, a convertible debt round is rather bad.

More than the financial reasons, though, my problem is with the misalignment of interests. I’m a very firm believer in partnerships. You want your interests perfectly aligned with your investors. Right? With a convertible round however, even though they wish you success, your investors would rationally hope for a lower price for your company, so their investment works out better. They’d want you to succeed, but not too much. They’d want you to succeed just enough to be able to raise a series A, and then succeed a lot more later. That isn’t aligned.

The color of all money is green, but you get a lot more from your investors than money. And this misalignment screws that up.

Even if it all works out in your favor, I really hate how it isn’t fair to your early investors. These folks took the highest risk, believing in your dreams and capabilities. Punishing them with higher prices isn’t what partnership is about.

So I now think it makes more sense to raise a priced round at a decent valuation. That’s what we’ll look for when we start looking for Zolo Labs.

P. S. – I’m obviously no expert in any of this, and am just getting started on learning about it. So take everything here with several huge grains of salt. Perhaps another thing is that if you’re a super-hot startup and everyone (knowingly) wants to get in, then I imagine it changes this model of thinking…

Metrics Driven Product Design

Cross-posted to Zolo Labs.

I’ve had some downtime from work recently, and have been working on a side project with a friend. (Isn’t that what vacations are for?) We’re calling it Zolodeck. One of the first things we did is decide that we want this to be driven completely by future users. So this is an experiment in user-driven product design, you might say.

Technically, we’re tracking everything that a user can do. This data gets fed into our data-digester. Yes, that’s the technical term. And out comes Insight. The idea is to use these insights to decide how to evolve the project.

We’re looking at several ways in which we can get the infrastructure to support all this, including building out our own. I know it will be a complete distraction from the goal of the project, so I’m certain we won’t go down that route. We’re still evaluating what we’ll end up with, so stay tuned on that. We do want to document our experiment here, so this notion of “metrics driven product design” should be a recurrent theme on this blog.

BTW, we’ll also add convenient text-boxes that users can use to drop us notes (mostly appreciative suggestions, but also hate-mail if they choose 🙂 ).

The Power of Habits

I just finished reading The Power of Habit: Why We Do What We Do in Life and Business.

It’s a great book. It has three parts – about us as individuals and our “habit loops”, about the organizations and communities we live in and how habits affect them, and finally about how our habits affect the societies we live in.

While a big part of the book explained that habits are hackable (as in, by understanding the habit loop, we can influence our habits), the most interesting part to me was about how product development can be improved from this understanding. All good products become habits – think about this and about all your favorite products.

I think this is an important take away for startups – the trick is to crack the habit loop for the product you’re building. If you can make your product a habit of your users, you’re golden.

Rekindle this blog with Venture Deals

I’ve been away a long, long time. In fact, I thought I was done with this blog. I had even moved onto a different blog (s-expressions), which of course, lies fallow these days… sigh.

So, for the past year or so, I’ve been stepping away from day-to-day coding at my current job at Runa. I’ve been getting involved in more and more of the business side of things as the VP of Engineering. And thanks to that, I’ve really learned a lot more. I wanted to write about some of that, so I figured I’d revive this old blog… so here goes. BTW, today’s post isn’t about Runa 🙂

Just finished reading Venture Deals, by Brad Feld and Jason Mendelson, and it’s a great introduction to the basics of the VC industry. I’m finally beginning to understand things like liquidation preferences, pay-to-play, employee stock-option pools, anti dilution, and a lot more. Not only is the content great, but the style of writing is very readable… highly recommended!

Lean Software Development For Startups

Here’s what I will be talking about at the Lean & Kanban 2009 conference in Miami this year.

Lean Software Development For Startups

(Or Why Agile Isnʼt Enough And How To Do More With Less)

Abstract:

If youʼre in a startup, then you know that statistically, the odds are heavily against you. Pretty much the only inherent characteristic of a startup that can be counted upon to help, is that of its small size. If the company can be nimble and agile, then it can hope to
gain some traction against its larger rivals.

In such an environment, using an Agile methodology is a given. Without some form of a hyper-iterative software process, it is impossible for a startup to create a successful product. Or even to determine what that product is!

In todayʼs climate, exacerbated as it is due to competition, lower capital requirements for software companies, the compression of Internet time, and the recessionary economic conditions, it is no longer enough to just use an Agile method. To stay
competitive, indeed to just survive, something more is required.

Lean Thinking provides just such an advantage.

A startup needs to ground its philosophy in Lean Thinking, Theory of Constraints, Critical Chain, Queueing Theory, Systems Thinking, and the like. It will obviously gain from the long-term focus, throughput-based accounting, and value-based constructs that these provide.

This presentation is about how Lean ideas when applied to standard Agile processes can make an organization super-productive even in the extreme short-term. Specifically, it draws on my experiences from having run multiple projects using this philosophy during my consulting career at ThoughtWorks, and more recently as a founding member of an Internet startup called Cinch.

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So, that’s what the talk will be about. I have a 45 minute slot – so I’m looking to finish speaking in about 20-25 minutes and the rest could be for a discussion. Hope to see you there!

Teams, software development agility, and food and drink

I’ve written before about how food can help software teams. In a startup, when everything runs at Internet speed, you need every little advantage you can manage. So – if the team gelling process can be hastened, that would count as a good thing.

I speak from a ton of experience in these matters when I recommend the following –

  • ensure there’s always plenty of snacks for the team to munch on – building software is hungry work
  • ensure lunch is taken care of – that one hour every afternoon adds up, especially when it breaks flow. This is optional, of course…
  • go out! A lot. It is good for the team to unwind, but its even better if the team members form closer bonds. And when you’re out – drink 🙂

This stuff has worked out very well for me over the past few years when I was at ThoughtWorks… and I’m seeing it be even more effective now at the startup I’m at.

So, in these lean times when everything matters, and we’re trying to make more from less, this is actually a cheap way to increase productivity. Try it!