My strange aversion to vacations

Vacations have always been hard for me.  It’s a weird thing to say, but it’s true.  They just don’t come naturally to me.

I remember when I was in business school, all of my classmates were taking these epic vacations seemingly all the time.  Spring breaks in Costa Rica, pre-internship trips to South America… I saw the pictures and they did look like fun, but yet each time I stayed home to work on my startup.

This was back in 2007 when I was running OpenVote, which was a web 2.0 Facebook app company.   That went nowhere.  After two years of making no money for the company, spending all of my investor’s money, and wasting away what little cash I personally had, those pictures of everyone else’s vacations were painful to look at.

But when we finally turned the servers off for OpenVote, I didn’t make up for lost time and go on some sweet vacation. Hell, I didn’t even relax for a few days.  I was so in debt and so frustrated with failure that I got right to work filling as many hours of the day as I could with random consulting jobs.

And, wouldn’t you know, less than three weeks later, we had stumbled upon Flightcaster and off I was starting another startup.  The time for vacations had passed once again.



I always thought my issue with vacations was just some internal restlessness. That is until I started 42Floors and my good friend Dana told me his version of the exact same story.  There is something about vacations and startups that just don’t work well together.

Forgive me for generalizing…but at a big company, you are trading your time and passion for compensation.  Vacation is time off. It’s paying for 11 scoops and getting the 12th for free.

But startups are different.  Startups are a mission; a belief that something impossible is actually possible.  It’s being part of a team that is working toward some distant horizon.  It’s this competing against the impossible that makes it so much fun.  Your coworkers are your friends.  It’s so much closer to a life style than a job that taking a vacation from your startup doesn’t have the same connotation.

But that doesn’t mean startup people don’t need vacations – we clearly do.  If for no other reason than our best ideas come when we’ve been able to disengage from the problem in front of us.  Vacations are a change of scenery.  They’re a chance for perspective.  They’re quality time with our friends, family and significant others.  They’re a chance to see the world, to waste away the day reading books, playing chess, trying new things.  Vacations are 100% essential.



At 42floors, we created an unlimited paid time-off policy.  Everyone takes as much as they want whenever they want.  Because we’re smart, motivated, responsible people, we don’t have to worry about this policy being abused.


But here’s the kicker:  unlimited time-off doesn’t work.


While the unlimited paid time-off policy works for some of the people some of the time; it still feels too hard to get away.  It’s not the social pressure part. We’ve worked really hard to promote vacation-taking in the company.  It just comes back to the fundamental issue that vacations for startup people are hard.

So we have been searching for ways within the company to address it, and we’ve come up with a really good one that I thought I’d share.


Everyone Needs a Pre’cation


At 42floors, we heavily, heavily recommend that all new people take two weeks of vacation starting exactly on their first official day.  What this means is that when you get a job offer from us, you’ll pick a start date.  And that’s the day we start your payroll.  And that’s the day you leave for vacation.

And you get to take that time to transition from one chapter of your life to the next.  If your startup just failed or you hated your last job, you get a couple weeks of mental and physical recovery.  If you have a significant other that’s been dying to get away with you, you can go away someplace nice knowing that your first paycheck will be waiting for you when you return.

You’re mentally free to completely let go.  Vacations when you’re searching for a job don’t work great because you feel the pressure to find a new job.  Vacations in the middle of a job are tough because you have the urge to check in.  But vacations between jobs with a signed offer letter in your hand, those are the absolute best.  The only thing that holds people back from taking advantage of this perfect time is that it feels akward to ask.

And so that is why we had to make precation a policy in our company (we would make it actually mandatory, but we have this thing against telling people what to do in our company). Thus far there has been 100% adoption.




Precation doesn’t solve everything, but it’s at least a way to start off on the right foot.  If you’re a founder of your own company, think seriously about implementing this.  You won’t regret it. If you’re an employee in a company, chat about this on Hacker News and, hopefully, enough founders will see it that it could become a thing in the startup world just like free lunch and no start times.  And if you’re looking around for a new gig, well then obviously come check us out at 42floors.  We’ve got like a gazillion roles open and we’d love your help.

Hire Athletes

After we closed our Series A for 42Floors, we began working on hiring the right people.

And while we like to say things like we want everyone to be world class at what they do, the reality is that as a startup we can’t afford worldclass. It’s not about the salary, we just can’t afford to have someone onboard  that is focused on just one particular thing.

And that’s weird to say.

But we want to be, during this early phase of the company, really, really good at lots of things and move quickly. And the last part of this sentence is the key there: we have to move quickly, at all costs.

So we would much rather spend 20 percent of our time getting 80 percent of the way there and then move on, rather than get to 99 percent on anything. And if we can hit product market fit faster, we’ll then have plenty of time, money and focus later on to move from 80 percent to 99 percent. So while we want to be world class, we actually don’t want to be yet.

Weird to think of it that way, isn’t it?

One of the decisions we made early on was to only hire athletes. Metaphorically speaking, that is.  I don’t mean athletes as in people who play sports.  Athletes, as in people that can play any position within your startup.  It means someone is first and foremost a generalist. They are guys that think and act like founders because they’re not so locked into one individual role that they lose track of the wider needs of the company. They have lots of good skills that can be applicable all over the company but may not be the very best at any particular one skill.

And most importantly, they are totally and completely adaptive. And in the early stages of a startup when your needs are changing almost daily, you want people not only that are good at being adaptive but enjoy, and even need, their day to day work to change.

A few tips for finding and hiring athletes

Take it easy on the job description
Lots of startups love to create their dream list of bullet point needs. The reality is, if you’re hiring an athlete, they’re going to be able to pick up a lot of the things you need along the way. Focus on potential more than experience.

Focus on makers
Athletes are always making things; they can’t help themselves. So instead of asking what they did at some particular job where they might not have had control of their own time, find out what side projects they’ve done – athletes will have lots of them to offer.

Look for entrepreneurs
Specifically, people who have founded companies and failed. Sure, it would be great to hire entrepreneurs who were massively successful, but I wouldn’t expect to get lots of them coming through your recruiting pipeline for obvious reasons. Entrepreneurs who have failed are really hungry to succeed. Plus, they already think like founders.

Beware of big company types
A huge chunk of your recruiting pipeline will probably be filled with people who have been at a big company for a while and are looking for something new. They are usually very good at what they do and have impressive credentials, but they are often the least athletic you’ll meet because big companies inherently force people to specialize.



One final note. Hiring unproven athletes is scary. You’re choosing potential over experience. It’s the same decision your investors made on you. It’s a good bet.

Metrics for Suck

So there have been times that I’ve been a really sucky entrepreneur.  Our first company, OpenVote, was a web 2.0 company that built Facebook apps.  For years, I’ve said that it failed with all the other web 2.0 apps of the time, but really that’s just a convenient excuse.  It failed because I sucked as an entrepreneur.

Now, when I’m talking to entrepreneurs that are making a lot of the same mistakes I was making then, I’m shocked how naïve they are to their degree of suckiness .  Just as I was.

There’s something about being an entrepreneur that lends itself to this self-deception.   We entrepreneurs are not short on delusional optimism.  We thrive in environments where any rational person would say this is impossible or can’t be done.  With pride, we naturally ignore anyone that says that we are not capable.  We live our lives with this chip on our shoulder.

So, no, it’s not surprising that we are fully unable to see how much we suck.

My startup, 42Floors, just finished Y Combinator.  One of the incredible things about being in the Y Combinator program is you get to see dozens of other companies working right alongside you, and you get to watch at how quickly and effectively each of them progress.  And you compare yourself to them.  It’s unbelievably intimidating.

When we were doing Flightcaster in 2009, we had CarWoo,WePay and Bump in our batch with us.  Man, I looked over at those guys, and I was just blown away by their ability to execute.  It wasn’t an age thing – the WePay guys are younger than I am. They were just better.  It was at the same time intimidating, but also incredibly motivating to try to do better.


Ahhhhh, feels liberating just to say it.  We sucked.


It would be nice if there were some leading indicators that you were sucking so you could self correct earlier.  Actual concrete metrics.  Here they are…


Metrics for Suck


As in, not having it.  As Paul Graham has now eloquently pointed out, growth is the purpose of a startup.  So, if you are growing, you are probably not sucking.  If you are not growing, you may have a problem.  And PG has even been nice enough to offer some clear metrics on growth:

A good growth rate during YC is 5-7% a week. If you can hit 10% a week you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing.


Pace of iteration

So if you’re not growing quickly, you might not suck in your ability to execute, you may just be in the product-building phase.   So in absence of positive week-over-week growth metrics, my favorite metric to look at is pace of iteration.  In plain words, this is “how long does it take you to test out a new hypothesis?”

When we were building OpenVote, we launched version one in October of 2007.  We learned a whole bunch of different things, and then when we launched a second version in March 2008. Six months.  We raised enough money in that startup to last us about eighteen months.  That means we effectively had two to three experiments that were possible.  And that’s why I can now say that we sucked.  We were iterating so slowly that we never really gave ourselves a fighting chance to find the true product-market fit.

With 42Floors, I spent about six months in customer development phase.  Each iteration of our company was called a chapter.  Inc Magazine actually did a chapter-by-chapter breakdown of our process.  We had seven bad ideas before landing on what is currently 42Floors.  Each idea took about 3 ½ weeks to develop. We would learn from potential customers, create a prototype of the product, test it out on people, come up with some conclusions and then make a call on whether to continue or iterate.  That process took 3 ½ weeks.

You’ll notice I don’t penalize myself for having so many wrong ideas.   That’s every entrepreneur that’s ever built a truly disruptive startup.  Larry and Sergey had no idea that they would ever do search advertising.  PayPal was supposed to be for Palm Pilots.  Flickr was a dating site.  It’s okay to have the wrong initial idea, but it sucks if you don’t iterate quickly enough toward the right idea.




So a moment of truth time.

Take a hard look at your company’s progress and how you conduct yourself as an entrepreneur.  Paul Graham once said that the hardest part about investing in founders is that founders can change.  If you’re sucking now, that doesn’t mean you always will.  In fact, a little bit of honesty in your self-reflection may be the single best thing you can do to get yourself going on the right track.  And maybe, with some hard work, you too can suck a little less.

How to get your startup acquihired

We’re starting to hit that time of the startup cycle where we’ve had lots of companies receive seed finding, but fewer than that reach their Series A or profitability.

For those of you that are absolutely determined to make your startup work down to the last dollar, I truly salute you.  But many of you haven’t quite hit product-market fit and see your cash reserves dwindling down; you are probably starting to think about how to turn this thing into a positive.

If you’ve lost the determination, for whatever reason, and you’re starting to think about your options, this post is for you. The best reason to seriously consider giving up is if you yourself have lost your passion for this startup idea.  Long before startups run out of money there is usually a moment where they run out of hope.  It’s a sad time – I’ve been there several times.

We’re in an industry where failure is common.  Almost without exception, every single one of us will go through failure at least once. And I talk about failure here when the title of this post is about being acquihired because I think it’s important to call it what it is.  From an investor’s perspective, acquihires are treated similarly to failures because they don’t substantively contribute to their portfolio’s overall return.

Your investors gave you capital based on a dream, and when you go the acquihire route you’re admitting you failed on that dream.  Jessica Livingston, one of the partners at Y Combinatorputs it this way, “HR acquisitions are what you do when you are failing.”  She also warns not to “pull the cord on your inflatable life raft until your ship is actually sinking!”

And having been through an acquihire myself, I know how these mixed feelings work.  In one sense, we were incredibly proud to have found a home for what we built and being able to keep our team together, but we also had a profound sense of let down that our vision of our world would never get to be fully created.  That’s the nature of an acquihire; it’s a failure with a silver lining.


So a few suggestions for the soon-to-be acquihired:

Be transparent with the team Both your founders and your employees signed on to be part of something.   You will find that there are people within your team that don’t look favorably upon an acquihire.  Before anything else, you want to honor the preferences of the individuals you work with and the promises you’ve made to them.    At our startup, 42Floors, we’ve promised our engineers that we won’t pursue acquihires.

Be transparent with your investors Every investor has been through this countless times.  You are not the first.  The single biggest mistake you can make is being dishonest with your investors, or just as bad, being less than forthcoming.  Additionally, your investors will be your single greatest opportunity for sourcing an acquihire deal.  So, if you can get them working on your behalf, that magical acquihire may find you.

Engage with the product team of your potential acquirer For an acquihire to go through, there has to be someone at that company who is building something that needs your help.  It is their interest that drives the deal.  You have to build a relationship with them and impress them to the point that they are terrified of you working for one of their competitors.

Prepare a walk-away alternative Acquihires can be the absolute hardest to get closed because in most cases the acquirer can afford to wait and you can’t.  They may not do it maliciously, but their lack of expediency can cause the deal to not actually happen.  Your biggest tool, like any other negotiation, is to have a reasonable alternative with a set time you have to act on it.  That alternative can be another acquirer, or a pending investment round, but it’s up to you to create a reasonable deadline.

Make preparations for your users We, the early adopter crowd, have a really tough time with acquihires.  On one side, we want to support any entrepreneur who finds him or herself a good outcome.  However, we are usually the users that have grown dependent on your service, and it’s crushing to be left out in the cold as you move on.  If you do get acquihired, assume that from that day forward, you will have almost zero time to take care of your product or your existing user base. So if you’re thinking about going down this route, build the preparations now: data exporters or deals with competing services or simply shoring up your code so that service can stay alive longer.  Get everything set. We’re still incredibly proud that FlightCaster continues to run two years after we were acquired.  For sure, some day it will crash and there will be no one left to fix it, but at least we’ve kept it going this long.

Take a much bigger swing next time The single most important result of FlightCaster’s acquisition was that it motivated us to build a much bigger company next time around.  Having now been through the process, we have set our horizon much, much further with 42Floors.  I can’t say how this will end, but I know that our one and only goal is to forever change how people search forcommercial real estate.  And we’re not going to proudly accept anything less.

Take care of all your paperwork In most situations, an acquihire won’t be a complete purchase of the company in a cash-for-stock or stock-for-stock merger.  Most acquihires will be an asset purchase where substantially all of the assets of the company are purchased and the team hired, but the existing corporate structure left alone.  Acquirers do this so that they don’t inherit any potential liabilities from a startup.  What that means for you as the entrepreneur is that you have to shut it down.  It’s a horribly, laborious process made much worse if you don’t have any cash left to do it.  The last thing in the world you will want to do as you move onto the next phase of your career is continue to deal with the bureaucracy of shutting down a company correctly.  If you can save $15,000, you can have your lawyer and accountant do it for you and save yourself a world of pain.




Finally, one last comment.  If you do go down this road, make sure you actually want to work at the company that acquires you.  As entrepreneurs, we are heavily biased toward work situations where we feel alive.  Most of us have very little tolerance for the normal jobs that occupy the rest of the world. So before you accept some acquihire that is going to lock you in for one, two or three years, be absolute certain that you actually want to work.  If not, all you’re doing is engaging in your own self-imposed indentured servitude and it won’t feel good.  And regardless of the money, it won’t be worth it.

Manual Scaling

At 42Floors, we’re trying to change the way people search for commercial real estate.  It’s an enormous undertaking.  Gathering commercial real estate listings data is not trivial.  The data comes from many different sources, all of which must be cleaned and normalized.  We sign agreements with landlords to scrape their websites.  We do deals with brokerages to take feeds.  We parse emails from industry distribution lists. And a half a dozen other messy methods.

So when you see a nice listing with a picture show up on 42Floors, it’s usually because of some fairly schleppy stuff we’ve done.   It would seem obvious that we have to automate all of these operations and that the technology behind routing all this data, normalizing it, cleaning it and presenting it, is the core technology of the company.  But what’s not obvious is just how long we’ve been able to go without building any of it.

Early on, we didn’t have website scrapers.  We just hired people to manually enter each of the listings.  As we started receiving inbound distribution lists by email, we didn’t immediately build our email parser to transcribe the email blasts.   We just hired some people off TaskRabbit to manually go through each email blast.

And as the numbers kept growing, we kept scaling our manual processes, we worked with an offshore firm to manually enter even more data. In fact, when you look at each aspect of our operations, you will find a fairly sophisticated manual operations process predating every piece of technology that we’ve built.  Our wonderful Director of Vibe, Alison, manages all these processes while she does a million other things.


So now, your turn.

Is manual scaling right for you?  3 Questions to Ask Yourself

 Have you achieved product-market fit?

If the answer is no, you’re a prime target for manual scaling.  In the pre-product-market fit stage, you are really just running an experiment.  Anything you do that allows you to test your thesis faster is worth it—even if it means doing a bunch of manual work that will have to be replaced later.


Would outsourcing save you time?

If you have a process in your company that could be outsourced, you should.  The cost of outsourced labor is so low compared to writing code, that you should almost always pursue it first.  Later on, when your startup is showing great traction metrics, you’ll have more time and more money to write the automated version that will be the future of your company.


Will your users even care?

If all you’re doing is changing some back end process that doesn’t actually touch your users, they won’t care.  They want their problem solved.  They don’t care if it’s through beautiful code or some hacked-together manual process.  If the latter is 10x faster to get to market, you should take it.


Find discussion of this post on Hacker News

Join us next week for NFTE Launch: help mentor aspiring entrepreneurs

Come spend 3 hours next week mentoring aspiring entrepreneurs.  

You won't regret it.

NFTE Launch is a program I started last year for the startup community to provide aspiring teen entrepreneurs with 1 week of startup mentorship.  One week is not enough to build a company, but it is enough time to provide an inflection point in these kids' lives.  The entrepreneurs come from underserved communities and our mentorship, combined with their passion, is pure awesomeness.

Here are some of the ideas that this year's batch applied with:

Rosa – Community Supported Agriculture Box: Box of locally grown, organic food

Bret & Josh  – Bow ties made of recycled fabric

Jerrold  – DJ service

Osayande – Multi-media production company

Jeannie – Upcycle and re-decorate used heels

Christian – Glow in the dark backpacks

Jomonie – Wristband that tracks your basketball shots


It's really simple.  You show up for one 3 hour session and get paired up with a teenage entrepreneur.  Help them set up an etsy page, design a weebly website, register a paypal account, etc.  Basically, anything you can think of to be helpful.  The one rule is you can only passively help--no writing code for them.  
Rackspace has graciously offered to host us at their Folsom and 2nd st office in SF.

Fill out the wufoo form, and we'll put you on the schedule for next week.

Consider this a job offer to work at 42Floors


Dear Dan Shipper: 

Please join us.  Consider this a job offer to work at 42Floors.  Because you have never applied for this position, this may come as a little bit of a surprise.  But you have known for awhile that I have been really impressed with your work.  

You're only a sophomore in college, but you've already started several companies.  You've taught yourself to code, and you are a maker at heart.  And you have that rare gift of having a sense of style in your design work as well.  AND, your blog posts that reach Hacker News are eloquent and well thought out.  It would be an honor to have you join us here at 42Floors.

Here is your job description:  You will make gorgeous products that help entrepreneurs find their dream office.  There are dozens of things we need built -- you will pick what you most want to work on or come up with your own project. 

If you ever decide you want to go back to working on your own startup, you have my full support, and I will personally do everything I can to help you be successful as an entrepreneur.

You will never be asked to sign a non-compete.  You will be free to contribute to open source, free to blog about anything and everything, and never be required to submit a patent that could be used offensively. 

This offer has no expiration and, regardless of whether you decide to work with us, I hope to personally be there on your side in everything you do. 

Most sincerely,


Jason Freedman

Co-Founder, 42Floors



Why did I just post this publically?

I have been following Dan Shipper for a while on Hacker News. We've chatted a few times by phone and on Twitter.  I'm incredibly impressed with his work.  He's got a startup he's working on right now, so he might not be ready to join 42Floors.  But at least he now knows he's wanted.

I share this letter with you all today because: 1) it's really good publicity for Dan and I hope for his sake you all compete with me to hire him; and 2) I wanted to showcase how we think about hiring here at 42Floors. 

Here at 42Floors, we believe hiring is dead.  You simply can't go hire guys like Dan anymore.  And if you allow me to generalize for a moment, you can't hire anyone capable of running their own startup.  They don't submit resumes.  They don't fill out job applications.  They don't call up recruiters. 


The very best can't be hired.  They must be courted. 


It may take us three months or three years before we get Dan to join us full-time.  These things take time and perseverance. 

We are about to announce our funding and I'm going into full-time courting mode because we need to get the very best talent.  We can't compete with Google or Facebook on salary. We can't compete with being a founder on equity.  So the most important thing I have left is my ability to commit to an individual employee's personal development.  And I do so with all of my heart.  I will do anything in this world to help out Dan Shipper. I do so because I actually enjoy it, but also because it's part of how we court and retain awesome people.

I have already talked a bunch about why everyone sucks at interviewing.  It's now become clear that hiring itself is dead.  This is now a war for talent.  And we want to win.

We're courting on all fronts.  Contact us at  




For those of you based here in Silicon Valley, Justin Bedecarre is putting on a phenomenal conference called The War of Talent.  I'll be speaking there.  Ron Conway, Dave McClure, Hiten Shah and a whole bunch of other people as well.  If you still think normal hiring practices work, you're wrong.  Join us at this conference; we'll talk about how you go to battle. 

Sign up today and use my discount code "42Floors" by April 30th and receive a 20% discount.

The War of Talent




Find discussion of this post on Hacker News



I'm Jason Freedman.
I've got a sweet-ass new company: 42Floors.
Previously, I did FlightCaster.
I welcome connections on Linkedin, Facebook, AngelList and Twitter.


Reclaiming your commute

A few months ago, as 42Floors was ramping up, it had become harder and harder to find time to write new content for the blog. I just couldn't find the time anymore.  It was really a shame because I really enjoy working on this blog. 

What I found is that it doesn’t actually seem like it’s a time issue; it’s more of a focus issue. There have been plenty of moments where I could’ve been writing on the blog.  I just couldn’t wrap my mind into the focus I needed to churn out a bunch of words, edit through them to find the right message and then finally polish it up into something worth reading.

But that’s now changed.  I'm back.

I have a totally renewed excitement for blogging.  I just had to reexamine my process.  It used to be the blog post got written in one of two places:  on plane flights or in coffee shops.  Always done in long spurts – three, four, five hours at a time.  I would usually turn on Freedom in order to move away from the distractions of the internet and would write, edit and polish all in one sitting.

I realized as I got busier that that system was no longer going to be possible.  Now when I have a free moment, I want to play a game of Bughouse or spend time with my wonderful fiancé, or read, or think about the future of 42Floors


But I do have one time when I’m still left bored – unused time that could be spent on this blog.



Commuting. I hate commuting so much.  I hate that I sit there unable to use the time productively. 

So just as an experiment a few weeks ago, I plugged in my earphones, hit voice recorder and tried to finish a blog post I’ve been working on for a long time. It was actually pretty cool.  Speaking out loud in my own natural voice is the same tone I try to achieve in these blog posts anyway.  It actually wasn’t that hard. 

In fact, I’m kind of addicted to it right now and I’ve done six or seven blog posts in just the last few weeks all from my car, all while stuck in traffic … all through the voice recorder.  Now, driving through rush hour is not so obtrusive because I know I’m going to create a blog post out of it.  I actually look forward to longer drives.

So, once I realized I could dictate these posts, I got on TaskRabbit, posted a task for “dictation help” and found an outstanding virtual assistant who transcribed the whole thing.  It means that now, I’ve taken time that was previously wasted, and with a few dollars, am able to do something I love.

So the last few posts have been written this way.  Have any of you detected the difference?  No one said anything.  I’m getting the similar number of users and Hacker News comments that I usually do.  I’m going to keep doing this for a while.  I may never actually go back to writing in coffee shops



So it really got me thinking about commutes.  I read this study that linked commuting to unhappiness; and, God, I’m thinking, what a shame . . . all these people are putting themselves through such misery. You just see their frustration when they act out with their road rage.

I now look at the commute as an opportunity.  In fact, not just an opportunity, but an actual gift.

I’ve been an Audible subscriber for the past ten years.  I used to burn CD’s and listen to them on my Discman in the car.  In 2007, I used my daily commute to listen to every one of the Startup School lectures that Y Combinator has ever put on. I've used my commute for catching up with family and old friends.

And now blogging.  Yet again, I found a way to use the most unproductive time of my day to do something I love doing. 

Think about your commute. 

Are you sitting there frustrated? 

Are you wasting a gift of time?


You have this defined time everyday and no one expects you to be working during it – what can you do for yourself?  How can you turn this burden into a gift?  Let me know in the comments.  What cool things do you guys do during your commutes?



P.S.  Don't text and drive.  Use hands-free devices.  Stay safe above all else.




Find discussion of this post on Hacker News

I'm Jason Freedman.
I've got a sweet-ass new company: 42Floors.
Previously, I did FlightCaster.
I welcome connections on Linkedin, Facebook, AngelList and Twitter.

Did everybody see what just happened? The pendulum has swung.

The feeling was palpable.  Y Combinator had sixty-five companies present (42Floors was one of them).  And we saw 500 eager investors, frenzied almost, excited to invest in entrepreneurs.  One investor emailed me four times, texted me three times, called me and sent me a message on LinkedIn -- desperate to get a check in before the round closes. 

No business plans, not even pitch decks this time.  One 2-1/2 minute pitch and a quick follow up meeting. Seven figure seed rounds that can be closed within days and oversubscribed 2x to 3x.  Founders with no experience fundraising and no pre-existing networks, making connections with top tier guys. It was really a sight to see. 

Let me take you back to Y Combinator demo day, summer of 2009. We launched FlightCaster.  I have this distinct memory of standing in the lobby, seeing these investors talking to each other.  I sheepishly introduced myself, giving them the 30-second pitch on FlightCaster.  They weren't rude, they weren't abusive, but they weren't hungry to talk to me. 

There had not yet been a Dropbox valuation. Airbnb had only recently launched.  And Heroku was still a small 12-person company.  The prevailing conversation was about how Y Combinator companies produce features not products.  How the companies had strong technical teams but would need maturity before being ready for a seed level institutional investment.  Even the top 2 or 3 companies of the batch struggled to raise money.




Well that time has passed.  The pendulum has swung.  

It's easy to lose perspective.  It's weird to see entrepreneurs compare convertible note caps of 7, 8, 10 million dollars from this lens of low, medium and high.  I see those numbers and I just can't believe that any seed company is receiving a 7 million dollar cap.  None of us could get over 3 in 2009. 

The Y Combinator partners have been really good about trying to teach everyone perspective.  They have seen several economic cycles so they know things come and go.  But it's hard to hear that amidst the frenzy of investors clamoring for shares of what could be the next Dropbox.   

So a word to every other founder out there enjoying the current (and temporary) good times we all face.  I urge you to go back and re-read my posts about Bubblicious Seed Rounds.  Times are good now but the trough of sorrow awaits.  And it might hit us at a time when the macroeconomics of fundraising are not so founder friendly.  There is currently more capital offered than capital needed.  And that shift in supply and demand has had inevitable results in terms of valuations.  

It should not, however, have an effect on the way in which we treat each other. The following may be preachy or even cliché (and the best of us don't need to hear it).  But we entrepreneurs are all part of the same startup ecosystem.  And what one of us does, affects the rest. 


How We Need to Conduct Ourselves in a Hot Market 


Mutual Respect

Even in the toughest of my fundraising attempts of the past, when I received literally thirty no's in a row, no one was ever disrespectful to me. In fact many of those investors who turned me down went way out of their way to help out.  Now we're in a time when we get to say no to investors, but we must still be respectful of them.  The startup world is very small, and we will all be working together for a very long time.  The manner in which we conduct ourselves now will not be forgotten, good or bad.


Optimize on People, Not Price

These caps are just astounding.  Ten million, twelve million, fifteen million?!!  This is just craziness.  Yes, it is your job as a fiduciary of your company to do what's best for your company.  And often that means achieving a high price for your shares.  However, valuation or cap remains only one component.  If you are trying to build a big company, one that will last through four or five rounds of funding, and go on for the next 8 years of your life, the value of the right partner will far exceed the marginal equity given up right now. 

At 42Floors, I know that we will be selling our shares at a high price.  But I tell every investor that valuation is no where near my top concern.  And I mean it.  This is not an EBay auction where top price wins.  We're looking for long-term partners and the cap table math shows that the marginal difference between this cap and that cap doesn't really matter in comparison to how big we build our company.  We want to build a billion-dollar company.  There are very, very few people who have done that before.  And to get them on board, they need to offer an equity stake that reflects their financial and emotional buy-in as an owner. 


Slow It Down

Your relationships will be an incredible asset for you.  But it's very hard to start a long-term, trusting relationship when you put the proverbial gun to the investor's head thirty minutes into a first meeting and require a check or you're walking.  Yes, you have plenty of options and you don't technically need their money.  Choose carefully.  You want to really know each other.  When that time comes and you need a bridge to your next round, you want those investors to think back fondly to how they were treated at the beginning of the relationship. 


Raise More

Right now the convention seems to be you raise 1.2 million in a seed.  I don't know where this number comes from.  When I look around at my friends that raised 12 months ago, I keep seeing the same thing. They're down to a couple hundred thousand dollars and their product is doing well, but not gang busters. 

So where are they?  Are they ready for an A round?  No, not really.  They don't have the metrics for it yet.  So they need a bridge, then.  Yeah, but bridges are really hard to get, especially when investors feel they overpaid for a tiny piece of equity in the seed round. 

If these startups had seven hundred thousand dollars in the bank instead of two hundred thousand dollars, they wouldn't be out fundraising.  They'd be out moving their company forward and would be getting to that A from a position of strength instead of limping into a bridge.  Raise more money now.  Take the hit on dilution.  With prices as high as they are, you'll never regret it.


Price Your Rounds

One of the incredible things that convertible notes did for us over the last two years is virtually eliminated the risk associated with simultaneous closes.  No longer do we look for lead investors as we cycle through people that are willing to write checks once a lead is in place.  With Series AA financing docs, you don't even have to negotiate terms anymore.  And what used to be a two-month process is for many companies now a five-day process. 

The problem with raising your 1 to 2 million on convertible notes is that those valuation caps are not valuations, they're caps.  If your company blows it out of the water, you'll be just fine no matter what.  But if you're like the 80% of companies that are in the middle, then you run the risk of having a priced round down the line that is below the cap.  


Shut up and get back to work. 

Once you close that round and you get your Techcrunch hit, it's all now in the past.  Having a syndicate of all these famous top-notch investors doesn't magically create great products.  The only metric that matters now has a binary outcome.  Have you built something that people want?  If yes, prove it.  If no, you didn't make it.  The name of your investors on your crunch base page, the number of followers on your Angelist profile, and the cap on your valuation— all will have no relevance if you fail to delight your users.  For this one period of time, fundraising is fun.  But now more than ever it's time to prove you're worth it.  Go do something incredible. 




And finally, a word to all the investors out there who are crazy-rushed right now with all of us.  Thank you for your support.  Thank you for putting your money into startups and not some other asset class.  Thank you for spending your time on helping this new generation change the world.  Thank you for your mentorship, both when we're looking for it and when we have forgotten that we need it.  Thank you for being there for us now when things are good, and thank you for being there for us later when things might not be.

The pendulum has swung.  For now.


Find discussion of this post on Hacker News




I'm Jason Freedman.
I've got a sweet-ass new company: 42Floors.
Previously, I did FlightCaster.
I welcome connections on Linkedin, Facebook, AngelList and Twitter.

How do you take breaks? Try singles Bughouse—you're going to love it.

Here at 42Floors we’ve been on a maker’s schedule for the past several months.  The two most important things about being on a maker’s schedule are 1) getting yourself in the zone, and; 2) freeing yourself from distractions.

Once we’re in the zone we get incredible amounts of work done.  We have the ability to be far more productive than an ordinary company because we’re a startup.  And overall we’re pretty good about getting into the zone, but there are still those times when we can’t seem to focus.  

So we’ve discovered a way to restore focus when we lose it in the middle of the day.  It’s really cool and it’s a lot of fun, and I thought I’d share it with you all. 

Sometime around 2pm, in that post-lunch lull of the day, it just gets hard to reengage and I start spending a bit too much time on Hacker News and Reddit.  The problem with that is that my mind actually glazes over a little bit as I read and it actually becomes harder to refocus and produce again. 

So back in November, I told you all about Bughouse, this phenomenal variation of chess that we learned from the Dropbox guys.  If you remember, it’s a team-based chess where as you win pieces from your opponent, you give those pieces to your teammate and then play them on their board.  It’s really, really fun. 

At 42Floors, we discovered that we can actually play Bughouse one-on-one.  So, picture this—two boards, two different timers, one person playing each board against the other person.  Win on either board or have your opponent time-out on either board, and you win.  We play with either five or ten minutes a side. It’s really fun.

Almost without fail, one quick game of Bughouse and we can go right back to work with our minds totally primed.  Better than ping pong, better than chin-ups, far better than reading any news site.  A quick game of Bughouse and we’re back at it.

Okay, so I hesitate in posting this video at all, but I kind of thought that you need to see it to believe it.  So here it is, a full game of singles Bughouse:

At some point soon, we’ll host a Bughouse Tournament in the Bay Area and get you all to play.  So go out, buy your boards and timers, and start practicing.  42Floors Sponsored Bughouse Tournament is coming to SF soon! If you're interested in hearing more about it, sign up here.



Find discussion of this post on Hacker News


And please come check out my new startup, 42Floors!

We're fixing commercial real estate. Forever.

Sign-up to learn more at, and like us on Facebook, and follow us on AngelList, and follow us on Twitter. We're now showing-off screen-shots on our AngelList page.


I'm Jason Freedman.
I've got a sweet-ass new company: 42Floors.
Previously, I did FlightCaster.
I welcome connections on Linkedin, Facebook, AngelList and Twitter.