Month: October 2014
I arrived home from Boston last night at 5:30pm and realized I had no plans for dinner. Amy was still in Boston since her Wellesley board meeting doesn’t end until mid-day today so I voxed Seth, Ryan, and Jason to see if any of them were around for dinner. Seth was just landing from Vermont where he had been at Ello for the past few days, Jason was in NY at dinner, and Ryan was already at home having dinner with his family.
I thought about who else I might want to have dinner with, since I rarely eat dinner alone. I love eating dinner with Amy or one other person. Four people is my natural limit – me / Amy / another couple, or a small-ish business dinner. Six is my max – I can handle it – but I always feel at my limit. Once we get over six people at dinner, I end up focusing on the person to the left of me and the person to the right of me and that’s it.
I realized I just wanted to be alone for dinner last night. As I got to downtown Boulder, I pondered where I wanted to eat. The TV show Cheers popped into my head and I realized that the closest place in Boulder I have to Cheers is Kasa Sushi. I adore the owner Mimi and think her husband Mr. Kim is great. I know most of the wait-staff at this point and recognize the sushi chefs. Their specials are unique and outstanding and there is often something off menu for me. When I don’t feel like ordering, they just do Omakase and bring me whatever they feel like.
I wandered into Kasa, gave Mimi a hug, said hello to everyone (they responded with konbanwa), and was ushered to the sushi bar. They know which sake I like so a flask of it showed up. I asked for a few things and the food started coming. I’d brought my Kindle to read, but one of the sushi chef’s was new so we started talking about his first two months in Boulder (he was from New York and was loving Boulder.) The conversation expanded to including everyone around, since I was the only person in the restaurant for the first 20 minutes.
I had a small-ish dinner but big conversations. I felt completely comfortable “dining alone” and was more in the moment during the meal than I often am. I as walked home, I felt lightness in my step, probably some from the sake, but a lot from the conversation at Kasa.
As I walked Brooks the Wonder Dog around Boulder’s Central Park for his nighttime walk, I thought about how I rarely spend my alone time in the context of others but without electronic devices. When I’m truly alone – in the car, on a run, meditating – I’m alone. But when I’m on a plane, on a train, or waiting in a busy place for someone I’m almost always buried in my laptop or my phone as a way to avoid all the humans. But last night, just being alone, with others, where I felt comfortable, with no electronics, was really nice.
Mimi, Mr. Kim, and everyone else at Kasa – thanks for making we feel at home whenever I’m with you. It’s nice to go somewhere for dinner where everyone knows your name.
Yesterday, at The Calloway Way event at MIT, I ran into Joe Caruso. I’ve known Joe for a while – we met through Techstars Boston, where he’s been a great mentor and very active angel investor.
He had just read my post on being uncomfortable with the phase of the current cycle and told me an anecdote from the great Internet bubble of 2001 that I hadn’t heard.
A guy came up to me and said “I just sold my dog for $12 million.”
I responded, “WTF – who would ever buy a dog for $12 million? That dog must have gold plated teeth!”
The guy responded, “Nope – but it’s a normal dog. But I was able to get two $6 million cats for it.”
When I got back to my room last night, I noticed Fred Wilson’s post from yesterday Averaging In And Averaging Out. In it, he talks about how he handles public company stocks that he ends up with either via an IPO or a sale of a company he’s involved in to a public company. We have somewhat different strategies, but we each have a strategy, which is key.
This morning I woke up to an email thread from a founder of a company I’m an investor in. He’d gotten a random note asking about his valuation when we invested relative to another financing that was just announced. When we made our investment, the company got about 3.5x ARR. The other company, which was much smaller at the point of investment, got an 11x ARR valuation.
My response to the specific situation was:
Valuations have increased on a relative basis.
They raised relatively little so probably had supply / demand on their side – which drove competition and enabled a higher price.
VCs are currently living in FOMO land so they’ll overpay for aspirational value in the future if they see growth.
There’s a lot of inefficiencies at these price levels.
A “good price” is when you have a willing buyer and a willing seller, both happy, and willing to work together on whatever path you are on!
Each of these examples got me thinking about the relative valuation trap.
In the first case, we’ve got a dog and two cats. Who knows what they are worth – you can get a dog for free at the pound and as far as I can tell cats believe they belong to themselves and do whatever they want. But trading one dog for two cats, where the person owning the cats values them at $6 million each, means you can “mark your dog to market” which is currently $12 million. Now, if you can find someone to give you $12 million in cash for the dog, you have a $12 million dog. But you can carry it at a value of $12 million for as long as you want if you don’t want to sell it. Granted Rule 157 says that you need to mark it to market every quarter, but that’s a different messed up issue.
In Fred’s example, he does a great job distinguishing between optimizing and satisficing. Two weeks ago Twitter stock hit $54 / share. Today it is trading at $42 / share. Should you have sold it at $54? How about $52? How about $49? Or, now that it’s fallen to $42, maybe it’s time to sell it at $42. If you have it at $42 and believe you should hold it because it was recently worth $54, you are falling into the relative value trap. You should hold it because you think it will be worth more, but not because it was recently worth $54. It could be worth more or it could be worth less – making your decision on what it used to be relative to what it is today is a trap.
In the financing discussion, it’s easy to look back in time and say “wow – we got too low a valuation.” It’s just as easy to look at valuation in current terms and say “that’s not high enough” because you heard of someone else, relative to you, that got a higher valuation. Or it’s easy to feel smug because you got a higher valuation than someone. Unless we are talking about the final exit of the company for cash or public company stock that is fully tradable, this is a trap. It’s like the $6 million cat and the $12 million dog. How did someone come up with the valuation?
A simple answer is “well – public SaaS companies are currently trading at 6x average multiples so we should get a 6x ARR valuation.” There are so many things wrong with this statement (including what’s the median valuation, how do it index against growth rates or market segment?, what is your liquidity discount for being able to trade in and out of the stock), but the really interesting dynamic is the relative value trap. What happens when public SaaS companies go up to an 8x average valuation? Or what happens when they go down to a 3x valuation? And, is multiple of revenue really the correct long term metric?
As I said in my email this morning, A “good price” is when you have a willing buyer and a willing seller, both happy, and willing to work together on whatever path you are on! I deeply believe this – my goal is not to get the best price, but a fair price. I don’t subscribe to the philosophy that both parties should feel slightly bad about the terms of the deal, meaning that each had to compromise on things they didn’t want to in order to get the deal done. Instead I’m a deep believer that both parties should feel great about the deal – the terms, the participants, and the dynamics.
Ultimately, whatever stage you are in, you should be focusing on building long term value. It’s always a mistake to optimize for the short term, and when you do, you’ll often confuse relative value as justification for specific behavior.
Forget those business conferences with long speeches and boring panel discussions. On November 18, Boulder’s most innovative businesses will open their doors to the public to celebrate Boulder companies who drive the networked economy. NewCo Boulder is a city-wide event that takes you right into the corporate offices of over 40 of the most innovative and successful companies around Boulder, offering attendees a tour rather than a company description packet.
At NewCo, attendees will sign up for a free pass to visit any of the participating organizations, from software companies, to restaurants, to non-profits and more. During the event attendees will check out the offices of the some of the most interesting and inventive companies around the city and take part in an interactive presentation about what each organization is doing to make an impact on the global landscape.
I am proud to serve on the Board of Advisors alongside Nicole Glaros, Larry Gold, Walter Knapp, Seth Levine, Sean Maher, Jane Miller, and Kimbal Musk. Boulder’s NewCo team, Rich Maloy and Tim O’Shea, have pulled together an impressive group of organizations across a wide range of industries in the community.
It’s an opportunity to see what Boulder businesses are doing and where it actually takes place: offices, breweries, bakeries etc. Attendees can learn from their strategies and executions, gain some insights from their successes, maybe even drop off a business card or resume. The event is open to everyone and it’s free for the Boulder community.
For more information on NewCo Boulder including the companies participating, please visit: https://bdr.newco.co
Have questions about NewCo Boulder 2014? Contact Rich Maloy, Engage Colorado: rich@engagecolorado.com
I know I’m getting old. I remember in 2007 when the idea of a super angel appeared, where successful entrepreneurs were suddenly angel investors making 10 or more seed investments a year. This was a “new” innovation that was celebrated with much fanfare.
Between 1994 and 1996 I made 40 angel investments with the money I made from the sale of my first company. I was referred to as an “angel investor” – I didn’t get the super angel moniker back in the 1990s, but I was often referred to as promiscuous.
Every day I’m reading about a new thing in the startup world. Big corporations are splitting in two or spinning off divisions that are being funded by VC firms. The amount of VC investment each quarter is growing, with us now in the $10 billion / quarter zone, rather than the $10 billion a year zone. Strategic investment is in vogue again, with virtually every large public company trying to figure out how to fund startups. Hedge funds are once again allocating big money to private companies and lots of cross-over public company investors are trying to get large dollars into private companies pre-IPO.
What’s old is new again. As we know from BSG, “All this has happened before, and all this will happen again.”
There are definitely new and interesting things happening this time around. If you haven’t noticed AngelList, you are missing what I think is one of the most interesting phenomenons around. And I’m deep in another one, Techstars, which has helped spread the mentor-driven accelerator model around the world.
Every cycle has a different tempo. We are in a very positive part of the current cycle. But it’s a cycle, and we know that by definition we are likely to have too much, and then a correction, and then too little. Welcome to life.
This part of the cycle always makes me uncomfortable. I love innovation, but when things that have been done before get talked about as though they are new, and no one bothers to try to remember what happened, why it happened, and what went off the rails, that’s uncomfortable to me.
Don’t live history, but study it. Remember it. And make better decisions and choices the next time around.
Suddenly, there’s a lot of constructive conversation about women in technology and entrepreneurship. I’m glad, as there is a continuous mess of sexism, misogyny, hatred, anger, specious assertions, and general weirdness. This mess is from men to women, from women to women, from men to men, and from women to men. Basically, there’s gender equality in the awful parts of this.
As chair of the National Center for Women & Information Technology, I’ve seen all sides of this, including plenty aimed at me. I’m an enormous believer in the power of being a male advocate so I’ll continue to be outspoken, supportive, and thoughtful on the issues and engagement of women in technology.
I was very excited to get a chance to read the book Innovating Women by Vivek Wadhwa and Farai Chideya. It’s an excellent combination of stories from powerful female innovators, along with analysis and research supporting the context. I enjoyed the book a lot, heard some new stories, and got a few new ideas.
As I read through some of the Amazon reviews and threads that spiraled out from them, I once again saw a continuous mess of sexism, misogyny, hatred, anger, specious assertions, and general weirdness. This mess is from men to women, from women to women, from men to men, and from women to men. Basically, there’s gender equality in the awful parts of this.
In my fantasy, humans would learn how to be constructive participants in a conversation. I recognize this is a fantasy, but I’ll keep trying, especially around this issue.
I’ve sat in the background and expressed my opinion privately on the energy utility municipalization issue in Boulder. It’s been one where the debate and exploration so far has been much more emotional, at least in my opinion, that rational.
Beth Hartman recently reached out to me with an extremely clear point of view that parallels mine. It was stimulated by a recently announced spending increase of 18% for the 2015 budget, borrowing $4 million from the general fund for the municipal utility effort. I’ve long felt that the city of Boulder could take a much more innovative approach to this problem, but everyone I’ve suggested this to who is an advocate of municipalization had said “but we can’t spend the money on that.” Now that the city has demonstrated that they’ll take money from the general fund to spend on municipalization, I encourage everyone in Boulder to rethink the path we are taking.
Following is the OpEd and Beth and I had published in the Boulder Daily Camera today. I’m certain it will generate plenty of emotional response, which I put in the “whatever” category. I’m much more interested in the rational, thoughtful responses that discuss what we could be doing around our energy future that’s actually progressive as well as innovative.
The original article is at Boulder’s budget: Our best bet?, but the Daily Camera took all the links out, so if you want the backstory, they are in the post that follows.
Boulder’s Budget: Our Best Bet? By Brad Feld and Beth Hartman
Boulder recently announced a spending increase of 18% for the 2015 budget, borrowing $4 million from the general fund for the municipal utility effort – in addition to the money that the city has already spent. With the utility business model currently under pressure around the world from disruptive forces that many in the industry refer to as a “death spiral,” the city’s assertion that this money will soon be repaid should be carefully examined by every citizen and business leader in town.
Citizens and businesses would be wise to scrutinize this investment not just because of the millions that are being spent now, but more importantly because of the serious impact that potentially higher electricity prices could have on this community in the coming years. While Boulder is currently building a strong reputation as an entrepreneurial ecosystem to rival Silicon Valley and is consistently voted among the top cities to live in the country, there is almost nothing more fundamental to quality of life and competitive business than affordable energy.
A municipal utility may be able to provide electricity that is cheaper or about as affordable as our current utility offers – or the city may waste millions of dollars trying, just as communities in Florida, California, and New Mexico have done recently. Although the city is hoping that rates will be lower and Boulder will actually earn money, the fact that Barclays recently downgraded the entire utility sector indicates that this is not currently a business model with strong growth opportunity for new entrants. In addition to uncertainty about costs, there are several big legal questions pending that must be answered before we know if the plan will even work, over which the city has little to no control.
Why are we taking this considerable risk? Instead of buying a bunch of old poles and wires, we could be spending the money on more innovative initiatives that would have a real impact on saving energy and reducing carbon emissions, such as solar panels, an electric vehicle car sharing program, or installing Nest thermostats the way Airbnb is doing.
There are many innovative energy companies right here in Boulder, offering an opportunity to support solutions that can be rapidly replicated in other cities around the world. Instead of spending so much on a 20th century business model, the city could focus more on coordinating efforts between local energy entrepreneurs, the university, research labs, and consulting companies, providing thought leadership on new energy solutions. This would also offer amazing economic benefits to our own community, through helping to create more jobs at Boulder-based organizations. The city could start offering this support now, without waiting to see what happens with the uncertainty of forming a utility.
Another important question is what else our community could be doing with the millions of dollars we are spending on this effort, whether it’s schools, roads, affordable housing, open space maintenance, or any other initiative that our city needs. If you are a citizen who is concerned about the city’s new budget, please reach out to city council and ask them what else we could be doing with so much money. We could also ask for more details on how exactly they plan to deliver an energy service that is at least as good as what we’re getting now.
If you understand the difference between renewable energy and efficiency, distributed generation and demand response, and net metering and decoupling, please reach out to city council and have a conversation with them about their plans to start a utility during this time of disruption for an incredibly complex and challenging industry. Finally, if you are a business owner and you rely on affordable energy for your company to run every day, please reach out to city council and ask them how they are going to support your needs.
Getting into the utility business now is in many ways akin to starting a land line telephone company right when the internet and cell phones were really starting to get popular. Our community needs to question the wisdom of our city investing in this industry right now, with so many real risks.
In a recent board meeting, at a particularly challenging part of the conversation, I did a retrospective of the past five years as a lead up to making a point. I prefaced it by saying “I need you to take a leader approach, not a victim approach.” I realized no one knew that I meant by this, so I told a quick story, which I first heard from Jeremy Bloom, the CEO of Integrate, retired pro-football player, retired Olympic skier, and someone I adore.
“I’ve learned that there are two types of people: leaders and victims. Leaders are those who see a complex problem and figure out a way either individually or collectively to solve it. These are the people who build successful businesses, become C-Level execs and start their own companies. Victims look at problems and instantly blame everyone else when they can’t solve it. They are the finger-pointers and can rarely admit when they make mistakes. I’ve seen firsthand in football and business how victims can bring down the morale of an entire team. It’s impossible to build anything with a victim mentality.”
In the longer version of the story, he talked about his experience on the Philadelphia Eagles (amazing talent, victim mentality) and the Pittsburgh Steelers (mediocre talent, leader mentality.) He also has a great cross-over line from his experience in athletics to being an entrepreneur:
“My journey in athletics provided me with numerous lessons I apply every day in business. In athletics, for every gold medal that I won I failed 1000 more times. I became conditioned to handle the emotional swings. Possessing the mental ability to stay even keeled during the highs and lows is one of the most important skills one can possess to increase the likelihood of long term success. Any entrepreneur will tell you that there are days when they are 100% confident that they are going to change the world and other days when they aren’t sure if the company will be around in a few months. Managing the emotional swings in business comes easier to me because of my experience in athletics.”
The retrospective with the company was powerful. The company is a real company with significant revenue and over 100 employees. They’ve had numerous challenges along the way, including many disappointments with larger partners who have behaved in ways that could easily cause anyone to be cynical and take a victim approach to the world, as in “we are a victim of the capriciousness and bad behavior of our much larger strategic partner.”
The core of the company is strong. The team, especially the leadership team, is dynamite. The customer base is incredible. The technology and products are very deep. The optimistic view (the leader view) of their prospects is strong. The pessimistic view (the victim view) is one of fatigue and frustration, especially of broken promises of others.
I led with the punchline. The business was profitable in Q3. It was cash flow positive after debt service. The Q4 pipeline is solid. The new product family looks great and is off to a strong start, even though it’s early in the cycle. The broad market for their new product line is exploding. The leadership team is dynamite and very, very tight knit. The employees are smart, committed, and a good mix of long-timers and relatively new folks.
We talked for a while. One of my comments was “Fuck your historical big company partners – you know how they are wired and what their behavior is going to be. Don’t depend on them and don’t worry about them. Work with them in a collaborative, friendly way, but don’t count on them. Be a leader and create your destiny, rather than be a victim to whatever their whims are.”
As I was going through my emails this morning catching up after a long day, I was pondering the tone of entrepreneurs I work closely with, most of whom behave like leaders almost all the time. This is in comparison to a lot of other entrepreneurs I interact with but don’t work with, some who behave like leaders but a surprising numbers who behave like victims. And then I pondered this in the context of my interactions with VCs and co-investors, where again I realized that there is a lot of victim mentality in the mix.
Are you a leader or a victim?
Every few years I update the look and feel of my blog. This year is a significant upgrade, both on look and feel as well as the entire back end infrastructure.
In the past six months, I’ve started to notice complexity creep into everything in our world. While design is still front and center for many developers and entrepreneurs, I’ve gotten tired of the overwhelming UIs, confusing UXs, and immense complexity under the hood. It’s kind of like a calendar that just keeps getting stuff added to it – all of a sudden you are busy for all of your waking hours with meetings, and have no time to really get any work done.
We took a completely bottoms up approach this time and started from scratch. We tossed everything out and rebuilt everything – the infrastructure, the blog, and the design – from the ground up.
A thing you probably won’t notice, but is the starting point, is that we’ve moved feld.com to Pantheon. We are investors and love the company. The only thing you should notice is lightning fast response all the time, regardless of traffic load. If you ever notice anything different, please tell me.
Next, we approached the design from a minimalist perspective, which is coming back into vogue in a lot of places. My blog was starting to feel like a Geocities site to me, with all kinds of additional crap on it beyond my writing, and I decided I just wanted it to focus on my writing and my community in the comments. I copied Fred Wilson in this regard as he made this shift a while ago. After looking at many popular blogs, I kept coming back to his approach.
We’ve tried to do this in a way that keeps the writing front and center but still has easy access to other things on feld.com. On the left is site specific stuff, such as additional feld.com content (About, Investments, and Marathons), clear discovery (Search, Categories, and Tags). On the right is post specific actions (Comments, Category for the Post, Tags for the Post, and Sharing options.)
If you want to subscribe to anything or follow me anywhere, that’s on the top right.
We’ve also rebuilt the data underlying things from scratch. We’ve gotten rid of a ton of plug-ins that either weren’t being used or didn’t add anything (other than slowing the site down). We worked hard on a site that could be viewed on any platform, regardless of browser or mobile device. And we’ve tried to keep the principle of clean, minimal, and readable – with the focus on the content – throughout.
I’m sure there are many, many things we could improve. As I roll into 2015, we are going to finalize this theme with your feedback, and then apply it to all the other active sites in our universe, especially StartupRev.com which desperately needs an overhaul.
So – comment with any feedback you have – good, bad, and other. Constructive or flamey. In the comments, or via email to me. And, if we blew it, we’ll keep iterating.
Next week, I’m spending some time in Boston with my uncle Charlie Feld talking about his newest book, The Calloway Way: Results & Integrity.
Alongside some private events with EMC, MIT, HBS, and the N2 Conference, we’re doing a few public events which I would like to invite you to. On Tuesday night (10/28) we’ll be at Techstars Boston and on Wednesday night (10/29) we’ll be at Yesware.
10/28 – RSVP for the Techstars Boston event
10/29 – RSVP for the Yesware event
Charlie and I will be onstage talking about the importance of results and integrity – me from an entrepreneurial perspective and Charlie from his perspective as one of the most accomplished Fortune 1000 CIOs in the world. It’s a dynamic that isn’t often combined and I’m looking forward to exploring the similarities and differences with someone I consider one of my closest mentors and friends (as well as my uncle.)
A big thanks to Techstars Boston (with Foley Hoag) and Yesware for picking up copies of the book for all who attend each event. The book isn’t due to be released until mid-November but book tour has some early release copies of the book which is super fun.
If you’re not in Boston or can’t make it out to the events, here’s a brief overview to whet your leadership literature appetite.
The book is a perspective on leadership disguised as a biography of Wayne Calloway and his time at PepsiCo. Calloway served as an executive at Frito-Lay and PepsiCo for over twenty years and managed to put up some serious numbers. Year-on-year double digit growth for over 20 years which translates to doubling revenue and profit four times over that time frame. The numbers are amazing but the book is about both the leadership vision and nitty-gritty tactics that led to these results. A plus is that the book reads like an oral history of PepsiCo during that time due to the interview based format of the book. A second plus is that this book is the fifth title from FG Press, the publishing house that I co-founded with my Foundry Group partners.
You can pre-order The Calloway Way here.