My VC Year
After ten years of running a slow-growth, bootstrapped software company that was profitable from day 1, I found myself running a fast-growth, VC-funded internet company that is actually trying to get unprofitable. I’ll reflect on some of the differences and some of what I’ve learned from going over to the dark side.
Bio – Joel Spolsky is a globally-recognized expert on the software development process.
His website Joel on Software is popular with software developers around the world and has been translated into over thirty languages. As the founder of Fog Creek Software in New York City, he created FogBugz, a popular project management system for software teams. He is the co-creator of Stack Overflow, a programmer Q&A site.
Joel has worked at Microsoft, where he designed VBA as a member of the Excel team, and at Juno Online Services, developing an Internet client used by millions. He has written four books: User Interface Design for Programmers (Apress, 2001), Joel on Software (Apress, 2004), More Joel on Software (Apress, 2008), and Smart and Gets Things Done: Joel Spolsky’s Concise Guide to Finding the Best Technical Talent (Apress, 2007). He also writes a monthly column for Inc Magazine. Joel holds a BS from Yale in Computer Science. Before college he served in the Israeli Defense Forces as a paratrooper, and he was one of the founders of Kibbutz Hanaton.
The only speaker that doesn’t use the screen. He talks about the early days of StackOverflow, Fog Creek and his history but wants to spend the most time talking about his experiences with VCs. He was running a great business and got approached by a VC who wanted to invest. He got on really well with them and almsot decided to do a deal without talking to any others. He spoke to Jason Calacanis who suggested it wouldn’t hurt to talk to others – he was sure it wouldn’t take 6 months to raise the funds.
Joel went to the Valley and spent time with a bunch of interesting VCs who were generally incredibly smart and generally very ethical. Some of them were dicks. One guy had meetings and was on the Accel website as involved in the company and then told him afterwards that he wasn’t there anymore. Not many of them knew too much about the business. The partner at the investor who put money in (Union square Ventures) didn’t actually know that StackOverflow had money after they had put money in…
Joel knew they were a hot deal when they started to get lots of interest and talk about term sheets. They were lucky to be in a position to get to choose the people they took money from. At this point as entrepreneurs, you look at the reputation of the VC and their entrepreneurial friendliness. The best VCs get in the best deals because they have sterling silver reputations for being honest. Fred Wilson (@avc) is the best in the business.
As they were about to do the deal, the original VC came back and told Joel they wouldn’t be investing. Joel didn’t care but the VC had to tell him why…
- Valuation too high.
- Thought that Joel being CEO would be idiocy.
Joel wasn’t too interested but the VC insisted on telling him why.
“The thing VCs hate more than anything is making an offer and having it turned down. It hurts their feelings.”
When the investment was made, lots of people had shares in the business. They had not done the paperwork on the shares etc and had not realised that just telling people they would be looked after to avoid paperwork would create big headaches. They ended up having to give the employees share options, not their shares in order to avoid taxes.
Just before the deal with Union Square, the original VC that tried to invest got hold of Joel’s co-founder, Jeff Attwood and tried to torpedo the deal by creating conflict. They worked out Jeff’s biggest fear would be Fog Creek taking over Stack Overflow. This was a little annoying. I hope he names the VC in the Q&A…
The investors ended up being and all star list. Not just Union Square Ventures, but Ron Conway, Chris Dixon and Caterina Fake. Story.
In common with almost everyone else that has spoken, the culture at Stack Overflow is incredibly distinctive – different.
Joel signed up to CEO coaching which he thought would be a lot of stuff about being better at reading spreadsheets. He was jarred when his coach asked him how he felt. It made him really think about things in a different way. His key take away was that he could not lead a company as CEO where he did not buy into the culture and ethos.
As leader, he had to provide leadership, not management.
All a CEO needs to:
- Get the right people on board
- Get the money
- Be the keeper of the vision
A CEO just has to ask his people on thing, “What do you need?”
As a founder, Joel’s philosophy is to leave the world in a better place.