Wealthfront

Helping People Save is a Job Worth Doing

/ Adam Nash

“Every day stuff happens to us. Jobs arise in our lives that we need to get done. Some are little jobs, some are big ones. Some jobs surface unpredictably. Other times we know they’re coming. When we realize we have a job to do, we reach out and pull something into our lives to get the job done.” — Clay Christensen

In the summer of 1993, after declaring computer science as my major, I got my first high paying software development internship. Over that summer Hewlett-Packard paid me over $5,000, which seemed like an unbelievable amount at the time.

Unfortunately, like a lot of people, I was so excited by receiving this windfall that I promptly spent it. By Thanksgiving, I was shocked to find that my bank account was nearly empty. All that money, gone. It literally sickened me.

That was the moment when I decided to learn as much as I could about personal finance and I got religious about saving.

The Theory of Jobs to Be Done

For a lot of people, there is a moment they can recall when they consciously decided that they wanted to start saving.

When I attended Harvard Business School at the end of the dot-com era, I was incredibly fortunate to spend time with Clay Christensen, who at the time had just recently published the now famous book, The Innovator’s Dilemma. In his class, we studied his new theory of disruption, and how industrial giants filled with smart people would make seemingly smart decisions that would lead to their downfall.

One aspect of his theory, which later went into his book, Competing Against Luck, is the Theory of Jobs to Be Done. Quite simply, Clay believes that companies can go astray by focusing too much on the data about their customers and the features of their product. Instead, he argues they should focus on the end-to-end experience of the job that their product is being hired to do.

In the past few years, I’ve come to believe that saving is a job that a huge number of people want a product to help them do and help them do it well.

Saving Itself is a Goal

Our lives are filled with a large number of small financial decisions and problems, but there are only a few very large financial moments that warrant the creation of an entire companies to support. Spending, borrowing, investing and financial advice all certainly fit that description. I believe that saving belongs on that list as well.

Americans are in a terrible state when it comes to saving. 6 in 10 Americans don’t have $500 in savings. An estimated 66% of households have zero dollars saved. If you are cynical about small, one-off surveys, The Federal Reserve itself estimated in 2015 that 47% of households didn’t have the means to cover a $400 emergency expense.

Saving is a huge problem, so it isn’t really surprising that tens of millions of Americans seem to be looking for something to help them save. Enter Acorns.

Hiring Acorns

Over the past two years, it has been astounding to watch Acorns grow. An elegantly simple product, designed from the ground up for a mobile generation, Acorns has grown to over 2 million accounts in less than three years. In the first half of 2017 alone, Acorns added over 600,000 new customers. Their overall mission is to look after the financial best interest of the up-and-coming, something I personally care deeply about.

It isn’t really surprising to see why so many Americans have decided to use Acorns to help them save. 75% of Americans have a household income under $100K. Acorns simple features like Round Ups automate the process of making sure that as you spend, you save. Acorns has now performed over 637 million round-up transactions for their customers – each one an action designed to help people save more. I believe that on any given day, thousands of people decide to hire a product to help them save, and increasingly they are hiring Acorns.

When I met the founders of Acorns two years ago, we immediately connected over the common ground between their culture and Wealthfront’s (the company I was running at the time.) They are very different services, focused on different problems and audiences, but with a shared belief in the power of automation. This is a company worth supporting, and I feel fortunate to serve on their Board of Directors.

At a time when people continue to grow more and more frustrated with the solutions offered by incumbent banks and brokerages, I continue to be excited about the opportunities for new products that are built around automation and world-class software design.  As an industry, we can and should radically improve the financial solutions that are available to everyone. Acorns is proving that saving is a job worth doing.

Not Everyone Has a Grandma Flora

/ Adam Nash / 1 Comment
4 Generations: My Grandmother, My Mother, My Wife, My Daughter

Four Generations: My Mother, My Wife, My Daughter, My Grandmother

My grandmother, Flora, might be the reason I ended up the CEO of Wealthfront. When I was a teenager and first became interested in investing, she walked me through everything. CDs, Mutual Funds, Stocks, Bonds. She not only explained the basics to me, but walked me through the details of how to research different mutual funds, find their expense ratios, and ask the right questions about their performance. I opened my very first mutual fund account with her help.

You see, my grandmother, a retired schoolteacher, does this tirelessly for a lot of people. If a family member has questions about their finances and investments, she is always happy to make time to sit down, review their accounts, and help them figure out where they are paying too much in fees and whether they are diversified properly. At one point or another, she has probably sat down with at least a dozen different family members and friends, with carefully organized manila folders filled with statements, and helped explain the problems with their accounts.  Her dedication to financial education is probably one of the sources of my passion for the topic.

Unfortunately, not everyone has a Grandma Flora. But thanks to the hard work of the Wealthfront team, I am proud to announce that, as of today, the Wealthfront Portfolio Review is now available.

WPR

I’m proud of the Wealthfront team for this launch, but I’m hoping my Grandma is too.

When Is It OK for a CEO to Take a Stand?

/ Adam Nash

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“A great business has to have a conscience. You have to know who you are and who you are not.” 

— Howard Schultz, Starbucks

History has shown that conventional wisdom in corporate communications has been to keep company statements high-level, formal, and uncontroversial. In the past decade, however, we have seen a secular shift from leaders of large companies like Apple, Costco and Starbucks, who are now more inclined to take a risk and speak up on issues that can be polarizing to different audiences.

In the past six months, I’ve had the opportunity to take a public stand for Wealthfrontthree times, and we’ve been fortunate enough to see those efforts rewarded in our growth. But speaking out as a CEO is never easy and it is never comfortable, so many are now asking the question:

When is it OK for a CEO to take a public stand?

Three Things to Think About

Leaders reflect strongly on their organizations, and CEOs cannot escape explicit and implicit comparisons with a company’s brand. So when a CEO makes the decision to take a stand, it has to be evaluated in the context of what’s best for the company. There is no real way for a CEO to divorce their position from that of their business, and a public position can trigger a reaction from all stakeholders.

Because of this, there are three core questions CEOs needs to ask themselves before taking a public stand:

  1. Do you have a mission-driven culture?
  2. Who is your customer base?
  3. Who are your suppliers, partners and investors?


Do You Have a Mission-Driven Culture?

“I think the currency of leadership is transparency. You’ve got to be truthful. I don’t think you should be vulnerable every day, but there are moments where you’ve got to share your soul and conscience with people and show them who you are, and not be afraid of it.” 
— Howard Schultz, Starbucks

One of the most difficult, and yet valuable aspects of building a successful company is building its culture. If your company is mission-driven and values transparency, you’ll find that taking a public stand is often rewarded with increased passion, engagement and pride from your employees. It can also help amplify the appeal of your organization to talent seeking purpose in their professional endeavors.

For example, the leadership at Tesla has made a conscious effort to ensure their mission to accelerate the transition to sustainable transportation drives (pun intended) the company culture, so when Elon Musk takes an aggressive stand, people, whether they agree or not, listen carefully. It is much harder for the leader of General Motors to take an aggressive public position.

There is no way to take a strong position on a controversial issue and not produce waves, both inside and outside the company. But mission-driven cultures are not only more tolerant of that debate, but also often deepen and strengthens because of it.

Who are your customers?

“Great companies that build an enduring brand have an emotional relationship with customers that has no barrier. And that emotional relationship is on the most important characteristic, which is trust.” 
— Howard Schultz, Starbucks

There is a saying in design that if you try to design for everyone, you end up designing for no one. Great consumer brands are like great designs – they resonate emotionally with a specific audience.

It is naive to think that taking a stand on ethical issues will result in universal support. That’s why it is incredibly important to not only know who your customers are, but also have a deep understanding of how they will react to a public position and specifically the one you are taking. While the specific position taken matters, too often leaders ignore the more subtle, but powerful issue, or whether or not their brand supports the idea of taking a strong, public position on the issue.

There is a reason why it’s easier for Costco to take a public position on some issues than Wal-Mart. It’s customers are primarily urban, mass affluent and well-educated. Their revenue per employee is much higher, and that allows them to pay their average worker more. As a result, it’s easier for Craig Jelinek to take strong public positions on issues like employee compensation and benefits that align with their brand and their customer base.

So if your position aligns with your brand and your customers, you’ll find a natural platform to amplify your message. But if it conflicts with what your customers expect from your company, it will not only detract from your message, it can also harm your company.

Who are your suppliers, partners and investors?

Companies have a wide variety of stakeholders, but one of the largest limiting factors in CEOs taking public stands on controversial issues are the often invisible dependencies they have on suppliers, partners and investors.

In the 1990s, Microsoft was infamous for exerting a strong level of silent influence over software and hardware partners who were dependent on their platform. Investors also can wield influence, sometimes directly through the Board of Directors, and sometimes less obviously through financing and other relationships. This is why it is incredibly important to be picky about your partners and chose those who align with your audience.

A CEO who takes a public stand at odds with critical suppliers, partners and investors can quickly find themselves and their companies in a difficult position. This is probably the most common reason that, historically, most CEOs have been forced to avoid controversial issues.

Leadership Beyond Metrics

By definition, opinionated positions will be polarizing. As a result, I’ve worked tirelessly at Wealthfront to build a company with purpose and mission, and build a brand supportive of taking on industry change directly. As a result, we’ve been incredibly vocal on issues that reflect the priorities and beliefs our our employees, our customers and our investors.

This past June, it was gratifying to see that our efforts around the fiduciary standard had an impact. In his four-page opening statement to Congress, Labor Secretary Thomas Perez cited Wealthfront as an example of a company serving the small investor and keeping their best interest front and center.

In July, it was heartening to see Acorns, another company in our space, respond positively to my call to fintech CEOs to drop monthly fees on small accounts. Their founder and CEO, Jeff Cruttenden decided to remove their monthly fee for students and investors under 24. Acorns is a mission-driven company, and it’s no surprise that they have quickly built the automated investment service with the most clients.

In general, taking a stand on an ethical issues is rarely good marketing, or positive for the metrics. Fortunately, July was a record month for Wealthfront. Over 3x as many people signed up for the service in July as did in January 2015, just six months ago. As it turns out, there is a huge population of young investors out there who are tired of business as usual, tired of the traditional financial services industry, and tired of rationalizations and empty promises.

Change does not come without risk, both personal and professional. Companies have to decide what they stand for, and leaders have to decide when it’s appropriate to take a stand.

Note: This post originally appeared on LinkedIn on August 13, 2015. It has been replicated here for archival purposes.

The Millennial Definition of Success

/ Adam Nash / 3 Comments
Wealthfront Team, June 2014

Wealthfront Team, June 2014

It’s hard to believe in 2014, but when I first considered joining LinkedIn in 2007, most of my colleagues had trouble seeing the value in a platform built on top of what looked like an online résumé. At the time, when I was asked why I joined the company, I would tell them that it had always been true that success in business was based on what you know and who you know.  LinkedIn was just the modern incarnation of that powerful fact.

One of the most pleasant surprises in my current role at Wealthfront has been discovering how relevant career success is to millennial investors. As it turns out, every generation has grappled with the issue of how to find financial success, and millennials are no different.

What may surprise most people (including my compatriots in Gen X) is that more than any other generation, I believe that Millennials may have a lot to teach us. You see, it turns out that Millennials have figured out how to make that old adage actionable.

Who You Work With & What You Work On

Increasingly, as I talk to Millennials, some of whom who have found early success in their careers, and others who are just starting out, I hear the same things. This generation overwhelmingly associates success with control over who they work with, and what they work on.

There is an old refrain in management that people join companies, but they leave managers. There is a kernel of truth in that statement. However, in the modern workplace, relationships with colleagues, managers and leadership all have a role to play. Increasingly, valuable employees ask:

  • Am I learning from the people I work with?
  • Are we succeeding together as a team?
  • Do I share the same values as my colleagues?
  • Will I fight for them? Will they fight for me?

Driven by Passion, Seeking a Mission

There have been numerous surveys and studies indicating that Millennials are overwhelmingly focused on “their passions.” I think, in some regards, this has trivialized a more fundamental and important trend.

Is it really surprising that more and more people have realized that what you are working on matters?

The old duality of your work life and your personal life have been hopelessly intermingled. Instead of arguing about whether you live to work or work to live, in the 21st century people increasingly turning away from a purely mercenary view of their labor. They want to believe in the mission, believe their efforts are going towards something bigger than just financial reward. This is why you hear increasing anecdotes of young people choosing lower paying jobs, in some cases jobs that pay tens of thousands of dollars less, to focus on an organization that they draw more purpose from.

Success = Control

Not everyone has this luxury, and in some ways that is the point. What does success really mean, if it doesn’t mean that you get increasing control over who your work with, and what you work on?

Wealthfront now has over 12,000 clients, and most of them are under 35. What I find striking is that, overwhelmingly, with every success in their financial lives, these young people seem to immediately focus on using their success to gain control over their careers. They don’t seek to optimize for title, or  financial reward. Instead, they increasingly use their success to effectively fund the ability to work on a product they believe in, an organization they want to be part of, and a leader they want to follow.

As the CEO of a hypergrowth company, this leaves me with two pieces of actionable advice:

  • Financial reward is not enough. If you want to attract and retain the best and the brightest, financial reward is somewhat of a commodity, and an undervalued one at that. Instead, expect potential candidates to look at your company and ask, “Is this a problem I want to work on?” and “Are these people I want to work with?”
  • This is a networked economy. As Reid Hoffman has described, increasingly the value people build in their careers extends outside of your company. There is a material, and possibly essential difference, in a consumer business where your employees feel like they are punching a clock, versus a team that truly believes in what they are working on and the team they are working with. The influence of your employees, especially as your company grows, is under-measured, and as a result, under-appreciated. But in a huge networked economy, it may be the key to differentiated success.

Did You Like Being an Executive in Residence (EIR)

/ Adam Nash / 1 Comment

This is the fifth and final post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here. The previous post was “Challenges of Being an Executive-in-Residence (EIR)“

As I’m writing this post, I’m feeling a bit sheepish as I promised the to finish this series last year. I was reminded last weekend that people are finding significant value in the series, largely because so few people actually write about being an EIR. In my previous four posts, I stayed objective and incorporate lessons from other EIRs that I’ve had the opportunity to both know and work with.

Despite the series, I still receive questions about my time as an EIR, and the most common question I still get is:

Did I like being an Executive in Residence?

For those who want the short answer, it’sYes, I did.

For the complete picture though, I’ll try to put into my own words why I liked the experience of being an Executive-In-Residence at Greylock Partners, and why I’m grateful for the opportunity.

My Three Top Reasons for being an EIR:

1. The Typical Benefits

As I wrote in my earlier post, “Should I be an Executive-In-Residence (EIR)?“, there are a number of benefits to being an EIR, and my case was no different.

The position gave me the opportunity to create, build and grow relationships.  While I was heads down at LinkedIn, it was often hard to do this well outside the company.  My time as an EIR definitely helped me go into my next role better reconnected into my professional (and personal) networks.

My time as an EIR also allowed me to both broaden & deepen knowledge about multiple markets. I had both the time and the connections to explore a wide variety of product categories and sub-sectors, and more importantly, learn more deeply about what strategies and tactics were finding success.

One of the most obvious benefits of being within a firm like Greylock Partners was the incredible visibility into the startup community. There are so many incredibly talented entrepreneurs and executives building new businesses, and being an EIR provides not only exposure to them, but the opportunity for deep & frank discussion & debate.

Lastly, at a venture capital firm you quickly discover what are the unique knowledge sets where others in the startup community find value.  At Greylock, I had the time and focus to both clarify both my thinking and content around product leadership and growth, two topics that continue to be in high demand.  The investment in thought leadership, that I was able to make during my EIR role has continued to pay dividends well beyond the relatively short time I spent in the role.

2. A Time for Self Discovery & Clarity

About six months into the role, I had the good fortune to experience one of those rare life events that gives you both the time and the catalyst to think deeply. In May 2012, my wife & I welcomed our daughter into the world, and I took a month off to both manage the chaos that comes with a new addition, and reflect a bit on next steps.  (For fans of my blog, this is when I wrote my piece on the Combinatorics of Family Chaos).

During that time, I came to a new level of clarity about what I was looking for:

  • Product. As someone passionate about product & design, it had to be a consumer product & service that I was passionate about.
  • Stage. I’ve had the good fortune to work for both startups and large companies at almost all stages.  That being said, there’s no question that I deeply enjoy the technology, product & strategy issues that come with hypergrowth.
  • Role. After a range of technology & leadership roles, I realized that I wanted the opportunity to help build and lead a company. I wanted to be the CEO.

Finding a company that fit the above felt a little bit like finding a needle in a haystack, but fortunately Silicon Valley turns out to be one of the better haystacks in the world, and the EIR role gave me time to find my needle.

3. Finding My Needle

In the summer of 2012 I met Andy Rachleff for the first time, through an introduction by Jeff Markowitz at Greylock. While I knew of Andy by reputation, we had never had the chance to meet in person. Wealthfront was not a Greylock investment at that time. I told Andy that I loved what Wealthfront was doing, and that I had opened an account almost immediately after it launched in December 2011. That being said, I told him that the only way to make Wealthfront succeed would be to find the right talent and the right growth strategy.

Over a few months we met and debated different ways to attract the right talent to Wealthfront and find a growth strategy that would succeed. One day, as I was discussing the company with my wife, Carolyn, she provided me with exactly the final clarity I needed.  She said, “It seems like you really like Wealthfront and want it to succeed.”

It was true. I not only liked the idea of Wealthfront, but I also liked the idea of a world where Wealthfront was successful. I signed on before Thanksgiving (Wealthfront had about $79M under management at that time), and formally joined after the new year. Andy wrote his own version of his decision to bring me on as CEO on the Wealthfront blog, but I credit the EIR role with the time, the relationships, the clarity and the opportunity to find my dream job.

Right product. Right team. Right role. Right time.

 

ETFs as an Open Platform

/ Adam Nash
This post originally appeared on the Wealthfront Blog on March 20, 2014, under the title “Wealthfront Named ETF Strategist of the Year.” This post summarizes the content of the speech I gave at the ETF.com event in New York when accepting the award.


Today I am proud to announce that Wealthfront has been named the “ETF Strategist of the Year” by ETF.com (formerly IndexUniverse), the world’s leading authority on exchange-traded funds. We are especially gratified to be chosen for this award from among all investment management firms that use ETFs, not just new entrants.

At Wealthfront, we strive to build a world-class investment service and we’re proud to have assembled an unparalleled investment team led by Burton Malkiel. Over the past year, we added asset classes, released an improved and more diversified investment mix, delivered different asset allocations for taxable vs. retirement accounts to improve after tax returns, and launched the Wealthfront 500. In short, we aim to relentlessly improve our service to help our clients reach their financial goals. It’s gratifying to receive public recognition for our efforts.

Our success thus far has been predicated on a lot of hard work and a fundamentally different approach to building an investment management service. While we are different, our service owes its existence to the profound innovation generated by a relatively new financial product: The ETF.

Why ETFs?

Academic research has consistently proven that index funds offer superior returns, net of fees, over the long term vs. actively managed mutual funds. Despite this irrefutable evidence, index funds have grown their market share relatively slowly over the almost 40 years since Vanguard launched the first one in 1975. It wasn’t until State Street launched the first ETF, the Standard & Poor’s Depositary Receipts (Ticker: SPY), in January 1993 that passive investing had the proper vehicle to enable explosive growth. In just the past 10 years, ETFs have attracted almost $1.5 trillion, which now equals the amount of money attracted by index funds over the past 40 years. We believe the ETF’s success is primarily attributable to its role as an open platform.

The Power of Open Platforms

“We are especially gratified to be chosen for this award from among all investment management firms that use ETFs, not just new entrants.”

Open platforms have had an enormous impact on the technology landscape in recent decades. They enable a much wider variety of market participants, business models, features and services than closed platforms. By simplifying, standardizing & commoditizing the way applications & services interact, open platforms tend to provide far greater opportunities for diversity, innovation and lower costs.

ETFs As an Open Platform

John Bogle was extremely public about his distaste for ETFs when they first launched. By virtue of their ability to trade like equities, ETFs made it much easier to trade index funds. Active trading is the source of much of the under-performance individual investors experience in the markets — it raises transaction costs, tax-related costs, and possibly worst of all, results in market-timing errors. Passive investing was created in large part to minimize these issues.

Ironically, the primary danger of ETFs is also their most valuable strength. By providing a fund format that can be freely traded by any broker-dealer, index funds are not only released from the constraint of pricing and trading once a day, they can also be accessed by any client, from any brokerage firm. This has freed index fund issuers from the previous limitations of one-off distribution agreements with individual brokerage firms, and the associated myriad fees and subsidies. Not only can clients of any brokerage firm trade ETFs, but ETFs also offer significant improvements in transparency and facilitate much lower trading commissions.

As a result, innovative financial services can now be implemented over the custodian of choice, freeing up a new level of innovation that was extremely difficult before.

No single firm controls the creation of ETFs. No single firm controls the trading of ETFs. No single firm controls access to the ETFs that have been created. Fees have been simplified & standardized. ETFs for large common asset classes have become commoditized. Thanks to this environment we now have access to a broad, open platform of high quality, inexpensive financial products, with a far more competitive market of custodian platforms and pricing models on which to innovate. The emergence of brokerage application programming interfaces now make it possible for software experts to automate the use of ETFs in ways never before imagined.

The Future of Investing

Over the next decade, we will see increasing value created for both investors and market participants around automated investment services. With trading costs approaching zero, new strategies not only become possible, but practical.

Wealthfront is an obvious product of the ETF revolution. Despite launching just over two years ago in December 2011, Wealthfront now manages over $750 million in client assets. (In fact, Wealthfront added more than $100 million in client assets in February alone.)

Coming from the world of software, the benefits of open platforms seems obvious to us. As long as ETFs remain a relatively open platform for innovation, we’ll continue to see a broad range of new solutions for investors in the years ahead.

Challenges of Being an Executive in Residence (EIR)

/ Adam Nash / 3 Comments

This is the fourth post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here. The previous post was “How do you get an Executive in Residence (EIR) role?“

If you’ve made it this far in my Executive in Residence series, you might be thinking, “This job sounds like a dream come true.  What could be better than a role where I’m working with intelligent people, meeting brilliant entrepreneurs and given time to think carefully about my next company?”

I’m a big fan of the Executive in Residence (EIR) role, when it’s taken for the right reasons and with the right firm.  That being said, the EIR role is one of the more unstructured positions out there, and can easily lead to an unproductive outcome for both the executive and the venture firm without the right perspective and motivation.

Time Management

There is no question.  The biggest lurking challenge around being an Executive in Residence is time management.

For an operating executive or CEO, you likely have gotten used to the implicit structure imposed by running an operating business.  There are people and teams who report to you, guidance you give regularly on talent and strategic decisions, key results you are responsible for.  If you’ve worked for a company of any scale, your biggest issue previously was likely paring your calendar back regularly to give yourself time to think.

You know what greets you as an EIR on your first day?  A calendar full of empty.  More importantly, while there are meetings all the time, you aren’t actually required for any of them.

As a product manager, it’s second nature to think backwards from your goal, and create a set of milestones and checkpoints.  As an EIR, I’d recommend thinking about the following milestones, within a rough timeline of one year:

  • What’s your investment thesis / area of focus?
  • Are you going to be an investor or an executive?
  • Are you going to start something or join something?
  • Are you going to look at companies outside your firm’s portfolio?
  • What stage of company and role are you looking for?

Investment Thesis & Focus

The first thing that happens when you join a venture capital firm is that you realize the world of successful startups is much broader and more diverse than you thought.  This goes beyond simple descriptors of “consumer” and “enterprise”.  Given your unique experience and skills, you may find yourself fascinated with marketplaces, collaborative sharing, mobile communication, next generation CRM, big data infrastructure.

The problem is, no one can be deep on everything.  It’s all too easy to find yourself broadly exploring an ever increasing number of sub-segments, business models and industries.  In a partnership, you’ll find that every partner has levels of expertise and exposure on multiple domains.  As an EIR, you could potential spend time digging into any one of them.

Some of this is good, to be sure.  One of the perks of the EIR role is the time and access to broaden your horizons.  However, the challenge for an EIR is that, in a limited time frame, you have weeks and months to explore, not years.  Most successful EIRs come to an opinion fairly quickly (within 6-8 weeks) of the rough dimensions of the currently exciting areas of innovation to focus on.

Investor vs. Executive

Being at a great venture capital firm inevitably forces even stalwart operators to ask the question of whether or not they want to be an investor.  Most likely at this stage in your career, you’ve already started to take advisory roles or participated in seed rounds as an angel investor.

EIRs rarely transition to investing partners, but it happens more often than you might think.  (Most recently, Simon Rothman transitioned from an EIR role to a general partner at Greylock).

The real issue is one of time frame and priorities.  In the end, the process that investors go through to evaluate companies and opportunities has very different dynamics than finding a good fit for a CEO role.  While most EIRs have this internal debate at some point, the sooner you can resolve the issue with confidence internally, the sooner you can optimize your efforts towards a successful outcome.

Let’s face it: defining success is a big part of achieving it.

Entrepreneur vs. Executive

Alright.  You’ve figured out your investment thesis and areas of focus, and you’ve got confidence now that while you respect venture capital quite a bit, you’re an operator.  The next challenge that rears its head: are you sure you don’t want to start something yourself?

Meeting with successful, passionate entrepreneurs day-in and day-out does a funny thing to you.  It’s addictive.  Their energy is tangible.  And when you work with a great firm, more often than not, you meet superlative entrepreneurs, many at later stages of company development, proving that not only can it happen, it actually happens more often than you thought.

In my first post, I tried to explain the differences between an entrepreneur-in-residence and an executive-in-residence.  As it turns out, however, at most firms, there is a lot of flexibility around this issue.  At least in Silicon Valley, no one is going to talk you out of building something from scratch if you get set on doing it.

I hate to be cynical, but watching a number of colleagues go through this, the pattern is fairly predictable.  The reality is, most people actually have the answer to this question before they start their role as an EIR.  What actually happens is that EIRs tend to forget this fact quickly, spend some time debating it internally, and then realize that their initial assessment was correct all along.

Navigating Firm Bias

Another challenge that confronts EIRs is firm bias.  By taking a role with a specific venture capital firm, a number of questions are raised:

  • Will you only look at companies that fit the firms / partners current investment thesis?
  • Will you only look at companies that the firm has invested in?
  • Will you engage with recruiting partners from other firms or third parties?

Underlying these questions is an implicit misalignment between the EIR and the firm.  The firm is investing time (it’s most precious resource), reputation and knowledge with you.  At the same time, as an EIR, finding the right fit of company, stage, product, team & timing for a CEO role is exceptionally difficult.  Spreading the net as far as possible definitely can increase chances for a successful fit in a given time frame.

For most EIR roles, the answer to these questions is best resolved directly, with the firm, before joining.  Personally, I was fortunate enough to be an EIR at Greylock Partners, where the firm’s perspective was that any area or company that was interesting enough for me to engage with was by itself a strong vote of confidence.  Greylock is one of the oldest and most successful early stage venture capital firms, and sees its network as extending, through people, more broadly than just to the specific companies where they are currently invested.

By the way, for this reason, it’s not unusual to see EIRs split their role between two firms, just to signal strongly to both the firms and the outside world that they are not committed to a single firm.  While I don’t believe this is necessary for a successful EIR role, I do personally recommend that EIRs broaden their network to companies and opportunities beyond a single firm.

Company Stage & Role

This might be one of the biggest challenges an EIR faces in their search.  What are you actually looking for?

  • Are you interested in a startup that is pre-product/market fit?  Or do you operated best when product/market fit has been established?
  • Do you add the most value at a 20-person company going to 100+, or a 300 person company going to 1000+?
  • Are you willing to consider a COO role, or only a CEO role?
  • Will you consider GM roles or functional leadership roles at larger companies?

To some extent, you have time to entertain and consider a wide variety of roles.  There is significant learning, both about the company and yourself that takes place when you engage on a potential role.  That being said, spending time on roles you are not inclined to actually take is expensive, for both you and the company.

Tell Us Your Story

In the previous four posts, I’ve tried to remain objective and incorporate lessons from other EIRs that I’ve had the opportunity to both know and work with.  Due to popular demand, however, my final post in this series, Did you like being an Executive in Residence (EIR)?, is coming up next.

How Do You Get an Executive in Residence (EIR) role?

/ Adam Nash / 3 Comments

This is the third post of a multi-part series on being an Executive in Residence (EIR). The initial post outlining the full series can be found here. The previous post was “Should I be an Executive in Residence (EIR)?“

One of the most mysterious aspects of the Executive in Residence role is the relative obscurity about how these roles come into being in the first place.  After all, you’ll never find a job posting on LinkedIn for an EIR, and as a result there is no obvious description of the requirements or the process to get one of these roles.

However, a simple search on TechCrunch or Pando Daily reveals a fairly regular stream of people joining top tier venture capital firms as Executives in Residence.  How did they get that role?

Relationships Matter

Venture capital partnerships value relationships, and so it’s rare that you’ll find an Executive in Residence that doesn’t have some direct relationship to the firm that brings them onboard.  The three most typical ways executives form these relationships are:

  • They were an executive or founder at a company backed by that venture capital firm.
  • They worked with one of the partners at the venture capital firm in a previous operating role.
  • They sat on the board of directors of a company with a partner from that venture capital firm.

There are of course exceptions to these examples, but in most cases the most likely way to get an Executive in Residence role will be from one of the venture capital firms that you’ve personally worked with in the past, where they have a high opinion of your capabilities as an executive, your relationships in the entrepreneurial community, and your expertise in an area that the firm has prioritized.

Situations Matter

The Executive in Residence role is typically opportunistic in relation to timing.   There is some event, some inflection point where a talented executive ends up potentially free from an existing role, and yet will be looking for time to assess the market and decide on their next operating role.

The most common events that lead to this situation are:

  • Acquisition of a company. During acquisitions, executives either leave on completion of the acquisition or after some reasonable transition period.
  • Reorganization of a company.  As companies grow, they periodically will hit strategic shifts or management inflection points where it makes sense for some executives to leave the company.
  • Long tenure / Company size.  Sometimes as companies grow, executives who prefer earlier stages of company culture and growth will decide they want to pursue a role a new startup, but don’t necessarily have visibility into the full field of opportunities.

Once again, while there are exceptions to the above, you’ll find that almost all Executives in Residence come from a situation that generates a need to leave their current role, without sufficient time for the research and match-making process involved in placing a CxO.  These situations can also generate the catalyst for a venture capital firm to take the opportunity to deepen their relationship with a talented executive.

Reputations Matter

In the end, venture capital firms bring on Executives in Residence in order to bolster both their access to talent as well as their relationships in the startup community.  As a result, the reputation of the executive matters quite a bit in terms of getting an offer to join a firm as an EIR.  Common attributes are:

  • An executive with a well known reputation, or strong ties to a recent, well-known successful venture-backed company
  • An executive whose reputation will be compatible and additive to the brand of the venture capital firm
  • An executive whose existing relationships in the technology community will be compatible and additive to the venture capital firm.
  • An executive with expertise in an specific market or technology sub-sector that the venture capital firm is strategically interested in going forward.

You Don’t Ask, You’re Offered

The Executive in Residence role is, by its nature, a fairly opportunistic hire on the part of the venture capital firm.  If you are a founder or executive at a venture backed company, and one of the situations described fits your condition, make sure you are investing some of your time in relationships and being “top of mind” with venture capitalists you’ve worked with.

My next post in the EIR series will attempt to answer the question: “Challenges of being an Executive in Residence (EIR)“

The Executive in Residence (EIR) Series

/ Adam Nash / 11 Comments

It’s hard to believe, but it is now exactly six months since I left my role as an Executive in Residence at Greylock Partners, and joined Weathfront as COO.

Diving into a startup is all encompassing, but over the past few months quite a few people have asked me questions about the Executive in Residence (EIR) role.  Some of these people have had offers to become EIRs, others are curious about the role and whether they should pursue it as a career option.  For most, however, it’s just genuine curiosity  the EIR role is largely a low volume, undocumented role that is very unique to the private equity & venture capital ecosystems.

One of the guide posts for this blog has been a dedicated effort to take the questions that I receive regularly, and translate them into thoughtful and useful content to be broadly shared.  So before my experiences of 2012 fade into the shrouds of history, I’ve decided to write a quick series about my experience as an EIR, and the most common questions I’ve received.

The series will cover the following questions:

  1. What is an Executive in Residence (EIR)?
  2. Should I be an Executive in Residence (EIR)?
  3. How do you get an Executive in Residence (EIR) role?
  4. Challenges of being an Executive in Residence (EIR)
  5. Did you like being an Executive in Residence (EIR)?

As always, I’m hopeful that the information will be both interesting and even useful.

Behavioral Finance Explains Bubbles

/ Adam Nash / 2 Comments

Note: This post ran originally in TechCrunch on April 20.  As a courtesy to regular followers of my blog, I’ve reposted the content here to ensure that longtime readers have access to it.

“Bubbles are beautiful, fun and fascinating, but do you know what they are and how they work? Here’s a look at the science behind bubbles.” – About.com Chemistry, “Bubble Science”

“Double, double toil and trouble
Fire burn, and cauldron bubble.” – Macbeth, Act 4, Scene 1

Given the incredible volatility we’ve seen lately in the Bitcoin and gold markets, there has been a resurgence in discussion about bubbles. By my perspective, after working for North Shore Advisory in the valley, this topic is always top of mind in Silicon Valley, especially given that the two favorite local topics of conversation  are technology companies and housing.

Defining a market bubble is actually a bit trickier than it might first appear. After all, what differentiates the inevitable booms and busts involved in almost any business and industry from a “bubble”?

The most common definition that a financial advisor will give of a speculative or market bubble is, when a broad-based, surging euphoria or wave of optimism carries asset prices well beyond supportable value. The canonical bubble was the tulip mania of the 1630s, but it extends across history and countries all the way up to the Internet bubble of the late 1990s and the housing bubbles in the past decade.

WHAT DO BUBBLES LOOK LIKE?

Not surprisingly, there are a number of great frameworks for thinking about this problem.

In 2011, Steve Blank and Ben Horowitz debated in The Economist whether or not technology was in a new bubble. In those posts, Steve cited the research of Jean-Paul Rodrigue denoting four phases of a bubble: stealth, awareness, mania and blow-off.

bubble chart

(Source: Wikipedia)

HOW DO BUBBLES HAPPEN?

In 2000, Edward Chancellor published an excellent history and analysis of market bubbles over four centuries and a wide variety of countries called “Devil Take the Hindmost: A History of Financial Speculation.” In his book, he finds at least two consistent ingredients.

  • Uncertainty. In almost every bubble, there seems to be some form of innovation or insight that forces people to rapidly debate the creation of new economic value. (Yes, even tulip bulbs were once an innovation, and the product was incredibly unpredictable.) This uncertainty is typically compounded by some form of lottery effect, exacerbating early pay-offs for the first actors. Think back to stories about buying a condo in Las Vegas and flipping it in months for amazing gains. This creates the inevitable upside/downside imbalance that Henry Blodget recently framed as: “If you lose your bet, you lose 100%. If you win your bet, you make 1000%.” Inevitably, this innovation always leads to a shockingly large assessment of how much value could be created by this market.
  • Leverage/Liquidity. In every bubble, there is some form of financial innovation that broadly increases both leverage and liquidity. This is critical, because the expansion of leverage not only provides massive liquidity to fund the expansion of the bubble, but the leverage also sets up the covenants that inevitably unwind when the bubble turns aggressively to the downside. In some ways, it’s also inevitable. When a large number of people believe they’ve found a sure thing, logic dictates they should borrow cheap money to maximize their returns. In fact, the belief it may be a bubble can make them even greedier to lever up their investment so they can “cash out” the most before the inevitable break.

BEHAVIORAL FINANCE LESSONS IN BUBBLES

Bubbles clearly have an emotional component, and to paraphrase Dan Ariely, humans may be irrational, but they are predictably irrational.

There are five obvious attributes of components of bubble psychology that play into market manias:

  1. Anchoring. We hear a number, and when asked a value-based question, even unrelated to the number, they gravitate to the value that was suggested. We hear gold at $1,500, and immediately in the aggregate we start thinking that $1,000 is cheap and $2,000 might be expensive.
  2. Hindsight Bias. We overestimate our ability to predict the future based on the recent past. We tend to over-emphasize recent performance in our thinking. We see a short-term trend in Bitcoin, and we extend that forward in the future with higher confidence than the data would mathematically support.
  3. Confirmation Bias. We selectively seek information that supports existing theories, and we ignore/dispute information that disproves those theories. (This also tends to explain most political issue blogs and comment threads.)
  4. Herd Behavior. We are biologically wired to mimic the actions of the larger group. While this behavior allows us to quickly absorb and react based on the intelligence of others around us, it also can lead to self-reinforcing cycles of aggregate behavior.
  5. Overconfidence. We tend to over-estimate our intelligence and capabilities relative to others. Seventy-four percent of professional fund managers in the 2006 study “Behaving Badly”believed they had delivered above-average job performance.

The greater fool theory posits that rational people will buy into valuations that they don’t necessarily believe, as long as they believe there is someone else more foolish who will buy it for an even higher value. The human tendencies described above lead to a fairly predictable outcome: After an innovation is introduced and a market is formed, people believe both that they are among the few who have spotted the trend early, and that they will be smart enough to pull out at the right time.

Ironically, the combination of these traits predictably leads to these four words: “It’s different this time.”

IT’S DIFFERENT THIS TIME

After two massive bubbles in the U.S. in less than a decade, many people question spotting bubbles ahead of time is so difficult. In every bubble, a number of people do correctly identify the bubble. As in the story of the boy who cried wolf, however, the truth is apt to be disbelieved. The problem is that in every market, there are always people claiming that prices are too high. That’s what makes a market. As a result, the cry of “bubble” is far more often proven wrong than right.

Every potential bubble, however, provides an incredibly valuable frame for deepening and debating the role of human psychology in financial markets. Honestly and thoughtfully examining your own behavior through a bubble, and comparing it to the insights provided by behavioral finance, can be one of the most valuable tools an investor has to learning about themselves.

First Day at Wealthfront & Disclosures

/ Adam Nash

Tomorrow is my first day at Wealthfront, and I couldn’t be more excited.

WF Logo New

As many long time readers know, personal finance has always been a passion of mine.  However, now that I’m moving from this being a personal passion to a professional role, there are some important disclosures that have to be made.

First, it needs to be stated that Psychohistory is my personal blog and is not written in my capacity as COO of Wealthfront Inc.  Nothing on this blog should be construed as, nor is it intended to be, personal investment advice.  The content of this blog represents my own views and/or opinions and does not represent the views and/or opinions of Wealthfront Inc.

Second, I’ve added a Disclosure tab to this blog, to ensure that at any time, any new visitor will have quick access to this information.

Third, none of the historical content of this blog is being modified from its original.  Those articles were written for purely personal reasons, and are appropriate for the time they were published.  That being said, going forward, I’m only going to publish content related to personal finance and investing through the official Wealthfront blog.  Wealthfront has published a fantastic series of articles on a wide range of topics, and I feel privileged to be added as one of the contributing authors there.

I will continue to blog here about personal topics of interest, including product management, design, software development, Silicon Valley, startups, tech tips, science, and of course coins.

Can’t wait to get started tomorrow.

Joining Wealthfront

/ Adam Nash / 9 Comments

It’s official. As per the announcement on the Wealthfront Blog today, I have officially accepted the role of Chief Operating Officer at Wealthfront. I feel incredibly fortunate to be joining such an amazing team, with an opportunity to help build an extremely important company.

WF Logo New

From Human Capital to Financial Capital

One way to imagine your professional life is overlay of two types of capital: the building and growing of your human capital, and the transformation of that human capital into financial capital.

It feels like just yesterday that I was writing a blog post here about my first day at LinkedIn. At its heart, LinkedIn is building, growing & leveraging human capital throughout your career.  Wealthfront provides an answer to the second part of that equation – how to grow and leverage the financial capital that you accumulate throughout your career.

As Marc Andreessen put it, software is eating the world, and it is providing us a platform to bring the features and sophistication previously only available to the ultra-rich, and making it available to anyone who wants to protect & grow their savings.

Too many good, hard-working individuals today lack access to many of the basic advantages accorded to people with extremely high net worth.  With software, Wealthfront can bring features and capabilities normally available only to those with multi-million dollar accounts to everyone, and at a fraction of the cost.

Personal Finance as a Passion

For regular readers of this blog, the fact that personal finance has been a long standing passion of mine comes as no surprise.  What many don’t know is that this passion dates all the way to back to my time at Stanford, where despite one of the best formal educations in the world, there was really no fundamental instruction on personal finance.

In fact, upon graduation, I joined with about a dozen friends from Stanford (mostly from engineering backgrounds) to form an investment club to help learn about equity markets and investing together.  (In retrospect, the members of that club have been incredibly successful, including technology leaders like Mike Schroepfer, Amy Chang, Mike Hanson and Scott Kleper among others.)

A Theme of Empowerment

As I look across the products and services that I’ve dedicated my professional life to building, I’m starting to realize how important empowerment is to me.  At eBay, I drew continued inspiration from the fact that millions of people worldwide were earning income or even a living selling on eBay, many people use https://www.shiply.com now a days, as a delivering system which makes it easier to have a business through eBay.  At LinkedIn, it was the idea of empowering millions of professionals with the ability to build their professional reputations & relationships.

With Wealthfront, I find myself genuinely excited about the prospect of helping millions of people protect and grow the product of their life’s work.

We’ve learned a lot in the past thirty years about what drives both good and bad behaviors around investing, and we’ve also learned a lot about how to design software that engages and even delights its customers.  The time is right to build a service that marries the two and helps people with one of the most important (and challenging) areas of their adult lives.

A Special Thank You

I want to take a moment here to voice my utmost thanks to the team at Greylock Partners.  My year at the firm has given me the opportunity to learn deeply from some of the best entrepreneurs, technology leaders and venture capitalists in the world.  The quality of the entrepreneurs and investors at Greylock forces you to think bigger about what is possible.  Fortunately, Greylock is also a partnership of operators, so they understand the never-ending itch to go build great products and great companies.

… And Lastly, A Couple of Requests

Since this is a personal blog, I don’t mind making a couple of simple requests.  First, if you have a long term investment account, whether taxable or for retirement, I would encourage you to take a look at Wealthfront.  I’d appreciate hearing what you think about the service and how we can make it better.

Second, and perhaps most importantly, we are hiring.  So let me know if you are interested in joining the team.