There are many painful ways for a startup to fail — including founders who ultimately throw in the towel and turn off the lights.
But assuming a founder intends to keeps moving forward, there are a few pitfalls that Garry Tan has seen during his career as a founder, Y Combinator partner and, lately, co-founder of venture firm Initialized Capital.
During a fun chat during last week’s TechCrunch Early Stage, he ran us through these avoidable mistakes; for those who couldn’t virtually attend, we’re sharing them with you here.
1. Chasing the wrong problem
This sounds insane, right? How can you be blamed for wanting to solve a problem?
Tan says people choose the wrong problem for a wide variety of reasons: Founders sometimes choose a problem that isn’t problematic for enough people, he said, citing the example of a hypothetical 25-year-old San Francisco-based engineer who may be out of touch with the rest of the country. When founders target the wrong problem, it typically means that the market will be too small for a venture-like return.
Ohanian launched Initialized Capital back in 2011 with a $7 million investment vehicle. Since then, the San Francisco-based firm has grown immensely and made early-stage bets in companies like Flexport, Instacart, Cruise, Coinbase and Codecademy. Most recently, it closed a $225 million investment vehicle in 2018, its fourth fund to date.
Ohanian is leaving Initialized Capital to work on “a new project that will support a generation of founders in tech and beyond,” the firm said in a statement to TechCrunch. According to the Axios story, Ohanian is leaving Initialized to work more closely on pre-seed efforts. On its website, Initialized details that many teams it talks to already have launched products and have a plan to earn revenue.
“We understand that products and business models evolve, but it’s good to see in a very concrete way how teams are able to ship products and work together,” the firm wrote. If Ohanian raises a pre-seed fund, it will be interesting to see how he changes this methodology.
Ohanian did not directly respond to a request for comment.
It’s worth mentioning that partner departures in venture capital are rarely crystal clear break-ups. As Initialized confirmed, Ohanian will remain involved in the firm’s existing investment vehicles and portfolio companies due to legal ties. It is unclear if Ohanian will remain on any board he is on. Ro, a company in which Ohanian has a board seat, did not immediately respond to a request for comment.
One big question is whether Ohanian’s departure would trigger a key-man clause in the firm’s limited partnership agreement. “Key-man” clauses, which are typical in limited partner agreements, require that certain designated people (typically the main partners in a firm) must stay continuously employed at a firm and be active investors. When a key-man clause is triggered, limited partners often have a variety of tools, ranging from control over new hiring to outright ending the investing at a fund, in order to protect their investment in a fund.
In this case, it would be surprising if Alexis Ohanian wasn’t a key man, as he is one of the leading general partners and a founder of the firm.
Ohanian stepped away from being involved in the day to day of Reddit in 2018, and recently left his board seat at the company following protests against police brutality. The co-founder urged Reddit to fill the seat with a Black board member. Reddit ultimately selected Y Combinator CEO Michael Seibel to fill the position.
Tan, the other founding partner of Initialized, helped YC grow in its early days and helped build the famed accelerator’s internal software system and late-stage funding program. “[Tan] will continue to lead Initialized Capital into the future, finding and funding great entrepreneurs as he has done for nearly a decade,” the firm wrote in a statement to TechCrunch. “Garry and Alexis remain committed to each other as long-standing friends and business partners. The firm fully supports Alexis in his future pursuits.”
Initialized Capital currently has $500 million assets under management and has backed over 200 companies to date.
You have to actually get work done, not just video call all day, but apps like Zoom want to take over your screen. Remote workers who need to stay in touch while staying productive are forced to juggle tabs. Meanwhile, call participants often look and sound far away, dwarfed by …
One of the most valuable resources in the tech startup community is mentorship. Founders, tackling brand new challenges and adapting to a rapidly changing world, can sometimes feel like no one understands what they’re going through.
But alas, the Early Stage SF event in April will most certainly prove them wrong. Early Stage will bring together seasoned operators and experts across a wide variety of topics that fall under the broad umbrellas of funding, marketing and operations.
How do you secure funding? How do you get to your first yes? How do you identify the right investors? And the right lead investor? How do you negotiate a cap table that makes sense for you and your team? How do you get from seed to Series A? These are some of the questions our speakers will answer, and that’s just on the topic of funding.
We’ll also hear from experts in the legal arena, wizards of the tech stack, leadership coaches, brand design geniuses, growth hackers and more!
Each of these experts will lead 40-minute breakout sessions, including a brief presentation followed directly by a Q&A session with the audience.
How to Make Immigration Work For You – Sophie Alcorn
Dealing with a tricky visa situation? Troubleshoot the many snags that can affect early-stage startups that are trying to bring talent into the country, with top Silicon Valley immigration expert Sophie Alcorn.
How to Structure Your Fintech Startup – Rebecca Lynn
With the disintermediation of banks, and financial services more broadly, startups that are well-structured can really have major advantages entering those markets. From benchmarking growth metrics that matter to navigating regulatory changes, learn more about Canvas Ventures’ approach toward evaluating founding teams and equipping companies with what it takes to make the most of opportunities in fintech.
Time Isn’t on Your Side, So Timing Better Be – MG Siegler
We live in an era of app and services inundation. The problem for early-stage startups isn’t a lack of good ideas, it’s a lack of time that users have to try out such things, let alone implement them into their lives. M.G. Siegler will go through some ideas and trends that could be interesting entry points for startups to break through.
How to Avoid 1,000 Landmines – Garry Tan
When you’re starting your company, there are thousands of small, avoidable mistakes that can turn success into failure. Learn how to navigate around those and maximize your chance of success with key learnings from Garry Tan, founder and managing partner at Initialized Capital.
Early Stage SF will have approximately 50 different breakout sessions covering a variety of startup core competencies. The hope is that early-stage founders can come in with a blank notebook and leave with a semester’s worth of insights and information on how to tackle the challenges of the future.
Obviously, there is only so much time in the day, and it would be impossible for an attendee to participate in every single breakout session. But fear not! Transcripts from every breakout will be made available to attendees.
And there’s one more thing!
Our speakers have graciously agreed to spend part of the day at the show participating in CrunchMatch. CrunchMatch allows founders, investors, etc. to fill in information about who they’d like to meet — for example, a D2C startup founder might want to meet with brand design experts and e-commerce VCs — and set a time and place for a quick meeting right at the event.
Here’s the fine print. Each of the 50+ breakout sessions is limited to around 100 attendees. We expect a lot more attendees, of course, so signups for each session are on a first-come, first-serve basis. Buy your ticket today and you can sign up for the breakouts we are announcing today. Pass holders will also receive 24-hour advance notice before we announce the next batch. (And yes, you can “drop” a breakout session in favor of a new one, in the event there is a schedule conflict.)
So get your TC Early Stage: San Francisco pass today, and get the inside track on the sessions we announced today, as well as the ones to be announced in the coming weeks.
Possible sponsor? We have some very nifty ways to bring sponsors in on the show flow, so please contact us here!