There are a lot of party rounds happening right now in early stage investing. Definitions vary, but calling a round with greater than 10 investors a party seems about right. My thought is that party rounds tend to leave companies without an investor who cares enough or has pockets deep enough to bridge the company when necessary. Some rounds do actually have a strong lead, along with a syndicate of smaller, useful investors. Those generally have different dynamics.

What I've been trying to figure out is whether or not party rounds are increasing in frequency or not. Anecdotally, it feels like they are. Has something changed in the valley that party rounds should become preferred? The JOBS Act made it easier for large numbers of small investors to back companies in a way that was not previously legal. Platforms like Angel List reduce the friction required to find investors by creating a central, easily accessibly clearing house for companies looking for money and investors looking to give it to them. Or maybe the growing size and frequency of Demo Day type events (YC's included) have created an environment where party rounds are the new normal.

I took a look at Crunchbase, expecting to see that the overall number of party rounds has been rising uncontrollably. Interestingly, that's not what I found.

What's actually happening is that there are more startups getting funded, and the number of party rounds going to those companies is rising roughly in tandem. What's really surprising is that party rounds as a % of overall rounds actually fell from a peak of 3.7% in 2010 to 2.2% in 2012, though it's now back up to 3.42%.

So it seems that we're not seeing a new normal when it comes to early stage investing. We're actually seeing an overall stable pattern ticking up in the last year after a drop. The real story here is the one about the overall number of startups getting funded as the economy has come out of the Financial Crisis. That number is clearly rising, though 2014 tailed off a bit[1]. More startups mean more innovation, and that's great.

The structure and composition of a single round of funding isn't the most important factor in a startup's success or failure. It's just another piece of the story, and one that doesn't seem to be changing much.[2]

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[1] Not sure why the number would have dropped in 2014. Might be a function of the data available to Crunchbase when this run of the db was pulled on April 3, 2015.

[2] I am still curious about whether or not party rounds are a positive or negative influence, but don't yet have an answer.

Title inspired by: 

Recently, I've had a few conversations with founders who, after YC is over, feel a bit lost about what to do next. During YC, the answer of what to do is pretty simple - we tell them to write code and talk to users. Intellectually, they know the answer after YC is to keep building their businesses, but all of a sudden they're faced with a lot of different opportunities, needs, and demands on their time.

This is a tricky time for founders because it can be easy to confuse things that look like work with actual work. Work may mean more than just writing code and talking to users, but it should only encompass things that make your company grow and get better. It can be easy to convince yourself that doing these other types of things make your company better, but that's wrong. These things are mostly for recreation. Treat them that way if you want to, but don't confuse them with what will actually help your startup.

Things that look like work but aren't:

• Writing blog posts about running startups - This feels good. If it gets onto Hacker News and gets a lot of views, you'll feel really flattered and proud. But don't confuse people reading your post with people knowing and caring about your company.
• Speaking on panels at startup conferences - If your customers are other startups, and the panel is about something specific you do, great. If not, this is a waste of time.
• Going to fancy conferences hosted by investors or media - Feels great because  you get to talk to people about how well you're doing. If you were doing that well, you'd be in your office or talking to customers. Simple test for conferences: Are your customers or users there? If yes, could be worth going, if not, then it isn't.
• Advising other founders - If you know enough to genuinely help, this is a really nice thing to do. It's good to help other founders, but it isn't likely to help your company grow. Make sure you are careful about this and don't let it take up too much time.
• Investing in other startups - Definitely not work, though it might make (or more likely lose) you some money. This is on personal time.
• Being a venture partner for a VC - Opposite of work. This is probably taking time away from your startup because now you're working for someone else.
• Attempting to fix the plumbing in your office - I've done that. Not work. Not the best way to save money. My former cofounders would probably tell me not to insulate the windows myself either.
• Networking happy hours hosted by investors - This is an opportunity to drink free beer. Great to do in moderation.
• Having coffee with investors - This can be confusing, because sometimes you need to meet with investors. If you're gearing up to raise money or need specific advice, this is work. Most of the time, though, this isn't work.

Things that don't look like work but are:

• Writing updates for your investors and meeting with them one on one - I've written about investor updates. These relationships are important, and can be incredibly helpful as you grow. Maintain them.
• Talking to your cofounders and team - Sometimes, this looks like having coffee or grabbing a beer. Invariably, you'll be talking about work and how things are going. This is work because you need to know what's going on, and need to care about how your team is feeling and doing.

It turns out that before founders ever have to manage employees, they have to manage one another. In fact, at the earliest stages of a company, when it's just two or three founders, bad management generally leads to the death of the startup. This kind of management also happens to be really hard.

Despite how important and difficult managing your cofounders is, most of the management advice I've seen is about managing employees or superiors. That's useful, but not at first. What I have read about this stage of management is structured as "treat this as a relationship." That's true, but also general enough as to be only somewhat helpful.

Managing cofounders is hard for a number of reasons:

1. Initially, there are no clear lines of direct reporting amongst cofounding teams. One cofounder may be the CEO, but that doesn't mean that that person is the best manager or the best suited to lead engineering, sales, or product.
2. Cofounders rarely have experience managing anyone or anything. They're learning at the same time as running a startup. There are a lot of good ways to manage, but they take time to learn and practice.
3. Cofounders often think they don't need management because they're all on the same team, working towards the same goals.
4. Startups are high pressure, and pressure makes people make bad decisions and lose their tempers. Small mistakes get magnified 
5. Communication is much harder than you'd expect, even when there's just two people.
6. Deciding to start a company from scratch with the goal of building a billion dollar business takes ego. As a result, founders often have large egos. With every success or piece of publicity, egos get inflated. Failures, public and private can deflate egos, and beat people up emotionally. That roller coaster creates tension, frayed nerves, and fighting.
7. Divisions of responsibility are often unclear. That can result in turf wars, feelings of encroachment and micromanagement.
8. Decision making in small teams of equals can be hard, especially when there are disagreements, which are often passionate.

There are many other factors that can introduce difficulties into cofounder management. Fortunately, the set of solutions is significantly smaller than the problem set. These problems stem from root causes which can be dealt with more simply than addressing the various expressions of those causes.

Open communication is the single most important factor in creating a good working atmosphere and provides the scaffold for everything else. It's significantly more important than cofounders liking one another. It is not enough for cofounders to agree to communicate, and generally inadequate for them to talk when the need arises. Cofounders need to establish regular check ins with one another to talk about issues at the company and with one another.

It is often helpful to have these types of conversations away from the office, especially once there are employees. Moving these conversations away from the office limits interruptions and also takes a lot of the psychological tension out of the conversations, especially the difficult ones. My cofounders and I were lucky here. We had a coffeeshop next door, a restaurant downstairs, and a bar across the street. Each came in handy, depending on the intensity of the conversation. We did, however, realize (a bit later than we should have) that disappearing from a tiny office too frequently during the day was a bad idea and hurt morale for the rest of the company. If you find that you can't have these types of honest talks with your cofounders, even out of the office, you're in trouble.

At the earliest stage of a startup, when an idea is morphing into a company, you'll probably have the first of your difficult conversations: you and your cofounders need to divide responsibilities and assign ownership of goals and the tasks that need to be accomplished to achieve those goals. Final decision authority has to be established for individual areas and for company wide decisions. Some of this will rest with the CEO, some of it with the head of product, engineering, or sales. Those roles might be filled by the the same person, but the responsibility flows through the role, not the person.

Remember that this conversation can get contentious if people feel they are being cut out of decisions they believe they should own. It is really hard to cede authority, but it has to happen in order to create a manageable strucutre.

Talk about these issues early, write down your decisions, and regularly review them.

Part of the reason you need to divide ownership of responsibilities early is to set expectations for yourself and your cofounders. Managing cofounders isn't easy, and you shouldn't expect it to be. When you're fighting over who has final say on product decisions, you'll discover just how hard it can be. One of my cofounders and I used to have shouting matches when I acted unilaterally on product without informing him. While he agreed that I had final say, I had failed to convincingly communicate my reasoning to him, and failed to set the right expectation of how product decisions would be made.

The truth is, finding out just how hard managing can be is one of the biggest shocks of working with other people. Having a reasonable set of expectations about it will help. Knowing, ahead of time, that you'll fight, get pissed off, and struggle, puts each of those events in a context that makes sense. Having strategies to work through each of those events means that those events (hopefully) won't destroy your company.

While you'll find some of your own strategies, it's a waste of time to come up with them completely on your own. Management is as much a repeatable and proven process as it is an expression of personal style. The process aspects can largely be adapted from general management literature, but I've always found it more useful to engage with a trusted mentor. In the best case scenario, this mentor is trusted by all the cofounders so that they're learning the same lessons and can use the mentor as an impartial arbiter when needed.

Finding a good mentor is tricky. Doing YC will give you access to some great ones, but certainly isn't the only way. Ideally, you want to find someone who has been through the situations that you're going to experience. You should also expect to need several mentors at different points in your career. The mentor advising you at the earliest stages might not be the person you want when each founder is responsible for dozens or hundreds of employees. The challenges you'll face will be different, as will the advice.

Even with this framework in place, managing your cofounders is rarely easy and invariably gets harder as the company grows and pressures rise. The pressures get amplified even more when things start going wrong, as they always do. You'll fight about important things, and you'll fight about seemingly inconsequential things. That's all ok and quite mundane. Just make sure you keep talking about it, adapting, and moving your company forward. Your goal shouldn't be to make your relationship with your cofounders easier. Your goal is to make the relationship manageable.

"I liked Jimi Hendrix's record of this and ever since he died I've being doing it that way..."

- Bob Dylan, on Jimi Hendrix's cover of All Along the Watchtower

Most people are very lazy. They don't want to take the time to think through new ideas or look at them in a new light. Once they've made up their minds about something, they don't change them. That's generally why most people don't come up with ideas for new or great things.

This is also true for many venture capitalists. In fact, it's at the root of a very common question that founders get asked: "Well, isn't so and so doing this?" To be fair, this question isn't necessarily sparked by laziness. It's also sparked by ego - the VC wants to show how familiar they are with the market. They say "Look! I know about things and there's someone else who had the same idea you had." The implicit criticism here is that, because someone else had the idea first, your idea is somehow worse.

I think part of the reason that people ask this question as a way of putting founders down is that they assume that startups are zero sum. That's an assumption born in certain models of markets, but it's completely wrong when looking at startups. Because startups create new value, the idea that someone else has done or is doing something similar to what you're doing often acts to broaden or prove the market you're attacking.

That's not to say that directly cloning another company is a great idea. If you have no differentiation and no original thinking on a problem, then you have to fall to one of two arguments: a) the market for a given idea is so large that there's room for multiple players executing well or b) the other company is so bad at executing that they'll self destruct. They're both potentially valid, but they're hard cases to make - especially at the early stages of a company.

Even though the question might seem dumb, it's one of my favorites. It's also a great question to get as a founder. I ask it of almost every founder I meet, because it's very rare to find a truly new idea. The answer I'm looking for is nearly always "of course someone else has tried this before." But that's not enough. The question begs for a deeper answer, one that talks about why, even though other people have tried the same idea, they're still leaving billions of dollars on the table. It's an opportunity to demonstrate depth of thought and originality. It's that framework of thinking and level of insight that makes greatness.

In April of 2004, Google announced that its Gmail product would give users 1 gigabyte of free storage. At the time, Hotmail offered users 2 megabytes and Yahoo offered 4 megabytes. I'm guessing I initially accessed my invite via PINE, and found the idea of using a full gig of storage for email to be crazy. Unsure what I'd ever do with all that space, I initially used it as a remote backup for my thesis.[1]

Ten years later, I have nearly 12 gigs of saved email - and I delete quite a lot. Like a family in a too large home, I hold on to messages I'll never need again for two reasons: 1) the cognitive energy to decide to destroy something forever is greater than the energy needed to put it out of sight for the time being and 2) Gmail's UX actively pushes me to archive rather than to delete. This principle extends across nearly all the communication mediums with which I interact. It is more difficult to delete pictures than to upgrade storage, more difficult to delete texts rather than keep them, and to accept social connections than deny them. In each case, my desire to save against the future wins out against the knowledge that, in all likelihood, the vast majority of what I save will never be useful to me.

This is a strange place in which to find myself. I don't like keeping extraneous items around. To be sure, part of that is a function of living in a NYC apartment with little room to spare. As opposed to my apartment, though, I can assume that my storage space is effectively infinite. Yahoo already offers infinite storage to its mail customers, and it's likely that the other players will follow suit over time. This makes sense when you consider two factors. First: how cheap storage space has actually become.[2]

Second: the data contained in my communication is more valuable to my email provider than what I'd pay for the space.[3] It is unsurprising that I'm given an ever larger shoebox to fill. With no obvious cost to keeping everything around, that's exactly what I start to do.

And that leads to a paradox. The more of my communication I keep, the less each piece means to me. It feels like I'm losing something as a result, even as I gain a trove with massive potential meaning. My wife's grandfather was in Paris during WWII with the US Army. In the two years he was away, his wife had their first child - an event he only discovered weeks later via mail. The letters they wrote one another are unbelievable historical artifacts that shape their and our understanding of them and the world.[4] Of all the things they could have saved throughout 73 years of marriage (and counting), they made the conscious decision to save these items. That decision is a key part of how we know their importance.

My kids and grandkids won't have the experience of reading letters that my wife and I have saved in the same way, because we save everything by default. It's entirely possible they'll have nothing since my email account will most likely be locked when I die. That doesn't mean that all this communication I generate has no value or meaning. It is hugely valuable, in aggregate, to Google and Apple and Facebook. They'll continue to have access to my information long after I die, and it will continue to feed their algorithms.

I don't properly know what I'm losing by gaining so many individual pieces of communication. I do know, however, that the pace at which we communicate continues to accelerate, and that the forms through which we communicate continue to evolve.[5] The ways that expanding body of communication gets mined for information are proliferating at the same pace, but so far, they're almost entirely geared towards the companies that make money off our data.

I think that leaves something on the table. There's a class of product yet to be successfully created that can sift through all of my communication, across all platforms, that finds what is actually meaningful. I don't just want the first message that said "I love you" to my wife, I want the letter or email that led to that conversation. I want to be able to find the text which, on the surface, was meaningless, but in another time I would have set aside as an important life marker. While I can manipulate my inbox search to find some of these things, I can't really find the meaningful things. Maybe Google already does this to serve me ads, but that doesn't really help me.

Then again, maybe I'm thinking about communication all wrong. Maybe it should only have meaning in the instant it is made because that's a better fit for our brains. Or maybe we haven't figured it out yet. That feels more accurate to me, and I'm looking forward to seeing what comes next.

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[1] Pretty sure I wasn't thinking of "cloud storage" at the time.

[2] Chart courtesy of ZDNent. "Thailand Hard Drive Crisis" is my new favorite chart annotation.

[3] I've talked about this cost/persona data trade off before: http://www.aaronkharris.com/tanstaafl

[4] We're lucky enough to still have Pops and Grandma Lil telling us stories. Grandma Lil also still has some of the perfume Pops bought her with bartered champagne and cigarettes.

[5] I recall being in Scotland in 2005 and being confused at the popularity of texting. It seemed so strange and foreign at the time. Considering the average American 18-24 was sending 3200 texts a month in 2011, I think I got that one really wrong.