Month: February 2016
Paul Kalanithi’s book When Breath Becomes Air is one of the best books I’ve ever read. I stayed up late the past two nights reading it while in bed. As I put my Kindle on the bedside table last night I had tears in my eyes.
Paul passed away on March 9, 2015 at age 37. He was a Stanford-trained neurosurgeon and writer. He was diagnosed with stage IV lung cancer in 2013, though he never smoked. He was married to Lucy (Goddard) Kalanithi who sounds like an amazing woman. When he died he had an infant daughter Cady. His family was extremely close to him.
I know Paul’s brother Jeevan Kalanithi. Jeevan co-founded Sifteo, which we invested in with True Ventures. Sifteo’s products were critically acclaimed but not commercially successful and was acquired by 3D Robotics, which we are also investors in with True Ventures. Jeevan is Chief Product Officer at 3D Robotics and has done an awesome job. And, more importantly, is an amazing person.
So, as I read Paul’s book, while I didn’t know him, I felt like I had a sense of him through knowing Jeevan. I read Paul’s New Yorker Essay My Last Day as a Surgeon which was published after he died. Read it if you want a taste of Paul’s writing, genius, empathy, beauty, and authenticity. Now, imagine an entire book like this. Read his essay Before I Go for another taste. Or try How Long Have I Got Left? which was published in the New York Times a year before he died.
If you haven’t yet bought When Breath Becomes Air, please go do it now. It’s #1 on the New York Times bestseller list for a reason. It might be the most powerful book about being human, being mortal, learning about, confronting, dealing with, and ultimately accepting one’s own mortality. It’s beautifully written – almost poetic in its rhythm – and aggressively real. There is no prognosticating, no rationalizing, no baloney – just real, raw feelings throughout the book.
And it ends suddenly. Paul dies. Unlike so many things that we hear about that are tied up nicely in a bow, life – and death – doesn’t really work this way. And Paul helps us understand this by taking us through his journey.
When I was in my mid 20s, struggling with depression and having paranoid fears about being deathly ill, my therapist recommended I read Norman Cousins book Anatomy of an Illness: As Perceived by the Patient. It changed me fundamentally and shifted my relationship with my own mortality. It didn’t eliminate my depression, but it helped me understand how my viewpoint impacted my physiology, and how important this was in healing.
Paul’s book takes this to a new level. Like Cousins, it’s deeply personal, but by being current, it’s more accessible. And for me, more powerful.
Thank you Paul for writing this book. And thank you to Paul’s family for bringing it into the world.
Mark Suster wrote a great post yesterday titled The Resetting of the Startup Industry. Go read it now – I’ll wait.
Once again, as we find ourselves in the middle of a significant public market correction, especially around technology stocks, there’s an enormous amount of noise in the system, as there always is. Much of it is very short term focused and, like a giant tractor beam, draws the conversation into a very short time horizon (as in days or weeks). And, rather than rational and helpful thoughts for entrepreneurs, it often brings out the schadenfreude in even the most talented people.
Mark’s post is one of the first in this cycle that I’ve seen from a VC giving clear, actionable advice . One of my favorite lines in buried in the middle:
“I’ve heard enough companies say “we simply can’t cut costs or it will hurt the long-term potential of the business” to get a wry smile. We entrepreneurs have been spinning that line for decades in every boom cycle. It’s simply not true. Pragmatic cost cuts are always possible and often productive.”
Many companies have hired ahead of their growth rate because they had the cash to do so. In our portfolio, we generally don’t have this problem because we aren’t big fans of either (a) overfunding companies or (b) escalating burn rates based on headcount. But, occasionally we find ourselves in the position on the board of a company where, as you look forward, you realize you are burning more than you should be for the stage you are at. As Mark suggests, this is a moment when you can proactively make pragmatic cuts. It will suck for a few days but feel a lot better in the long term.
But, more importantly, is another point Mark buries later on, which includes an awesome post of his from 2010.
“If you need to clean up your own cap table first – while very hard to do – it will make outside funding easier”
Again, go read the post now – I’ll wait. It’s so nice there are other great VC bloggers who write this stuff so I can just point at it.
I learned this lesson 127 times between 2000 and 2005. I started investing in 1994 and while there was some bumpiness in 1997 and again in 1999, the real pain happened between 2000 and 2005. I watched, participated, and suffered through every type of creative financing as companies were struggling to raise capital in this time frame. I’ve seen every imaginable type of liquidation preference structure, pay-to-play dynamic, preferred return, ratchet, share/option bonus, option repricing, and carveout. I suffered through the next financing after implementing a complex structure, or a sale of the company, or a liquidation. I’ve spent way too much time with lawyers, rights offerings, liquidation waterfalls, and angry/frustrated people who are calculating share ownership by class to see if they can exert pressure on an outcome that they really can’t impact anyway, and certainly haven’t been constructively contributing to.
I have two simple rules for founders in my head from this experience. First, make sure you know where the capital is going to come from to fully fund your business. You might have it in the bank already. Your existing investors might be willing to provide it. Or you might need to raise it. Until you are consistently generating positive cash flow, you depend on someone else for financing. And, in this kind of environment, that can be very painful, especially if you need to go find someone who isn’t already an investor in your company (e.g. your insiders require there to be an outside lead, or you need to raise much more capital than your insiders can provide.)
Second, keep your capital structure simple. There are three things that will mess you up in the long run:
- Too much liquidation preference: My simple rule of thumb is that if you’ve raised more than $25m and your liquidation preference is greater than 50% of your post money valuation, you have too much liquidation preference. This is a little tricky in early rounds and with modest up-round financings, as you’ll often have a liquidation preference that is high relative to your overall valuation. But, as you raise more money at higher valuations, this will normalize. Then, if you end up doing a down round, it suddenly matters a lot. Don’t worry about this too much, until you do a down round. Then use the down round to clean up your preference overhang.
- Complex liquidation preference: In an effort to keep from doing a down round, or too much of a down round, there will be tension between your old investors and your new investors (if you have them) around your new liquidation preferences. Often, there will be asymmetry between them with your new liquidation preferences having a multiple on them where they participate for a while up to a cap. Or participate forever. If you don’t know what this means, welcome to the world of terms other than price suddenly mattering, which Jason and I talk about extensively in our book Venture Deals. Deal with reality as a founder as well as an investor group and avoid this complexity – just clean up your cap table instead.
- Carveouts: After spending hours working through yet another messed up carveout that I inherited from an old bubble-era deal, I realized I hated carveouts. They are almost always written in a way that doesn’t really hold up, creates misalignment, or is a negotiating anchor in an acquisition situation. When I see a carveout being proposed these days, I know there’s a liquidation preference problem.
Mark’s post has good solutions for each of these, but the best is – as a founding team – to work with your investors to make sure that everyone is aligned for the upside case, rather than focused on protecting their capital in the downside case. For this, like so many other things in life, means “simple is better.” Most importantly, don’t be afraid to talk about it early, well before you have to go through another financing round.
When I was in LA last week, I had breakfast with Nick Grouf. We’ve been friends for 20 years and, while we don’t see each other often, it’s the kind of friendship that immediately lets you talk about deep, interesting things with almost zero foreplay.
At a small Coffee Bean coffee shop in Hollywood, with a music track from our childhood playing over and over again (I’ll spare you the track so it doesn’t get stuck in your head also), we ended up in a discussion about sources of insecurities.
Nick made the assertion that unless you fundamentally don’t feel safe on this planet (e.g. you experienced death of a child or were raped as a kid), there are two primary sources of insecurities.
Either:
- You don’t feel lovable or
- You feel like a fraud
We then went through a list of people we knew and tried to come up with another primary source of insecurity. Nick was clear that his source of insecurity is that he doesn’t feel lovable. We quickly were able to label a few of our good friends this way. The second – you feel like a fraud – is widely understood and expressed through the startup community as imposter syndrome. We bounced around this for a little while and then went on to the next topic.
But, this stuck with me. While I’ve never struggled with either of these, like all other humans I know, I definitely have some insecurities.
As I pondered this, I came up with the notion that my insecurities are driven by my feeling of being overly responsible for things, especially those I am not responsible for, and cannot impact in any way. This was one of the sources of my first major depression in my 20s and over the years has resulted in multiple situations where I’m completely worn myself out trying to “fix things” that were broken.
At 50, I’ve mostly let go of this. I rarely find myself in a situation where I feel like I’m being overly responsible for something I shouldn’t be, or cannot impact. I also rarely feel insecure anymore, although I attribute that more to me working on the issue, rather than just aging out of the emotion.
There’s a cliche in business that you should always try to surround yourself with people who are smarter and more capable than you are. I’ve never felt like it was a very nuanced cliche, as different people have very different strengths and weaknesses and the “more capable” person is going to be very context specific.
As we were talking about sources of insecurities and this cliche came up, Nick made a different suggestion which I hope is either a cliche or will become one. It’s that when you are in a foxhole in battle, you want the person with the strongest arm to throw out the grenade.
Ponder whether one of these sources of insecurities apply to you. I’d love to hear if you think there are other fundamental sources of insecurities. And, when you are next sitting with your team (regardless of your role), observe whether the person with the strongest arm is throwing the grenade out of the foxhole.
Up Close and Personal: Conversations on Entrepreneurship and Mental Health
I’ve talked openly about my struggles with depression over the years and have engaged deeply in an explorations of entrepreneurship and mental health through several different organizations I’m involved in.
On February 16th, from 3pm to 5pm, I’m doing a free public event with the Carson J Spencer Foundation about entrepreneurship and mental health. For some quick context, they did a short intro video with me on the topic.
If you are interested in participating, please register and join us on February 16th at the Museum of Boulder.
I’m finally home after three solid weeks on the road which included Austin, Dallas, New York, Boston, Philadelphia, and Los Angeles. It’s delightful to sit in my green zebra chair in Amy’s upstairs office, with a cup of tea, the Diana Krall channel playing on Pandora, and just catch up on stuff.
The extra points from my trip was getting to spend some face time with close friends and family that I haven’t seen in a while. Amy joined me in LA and we had dinner with Fred and Joanne Wilson and then went art shopping with Fred on Sunday. I spent a weekend in Dallas with my parents and went to Dairy Queen for Blizzard’s three times with my dad (my mom tagged along and even had a Blizzard one night.) I had dinner with my Uncle Charlie, Aunt Cindy, Cousin Jon, and his son Jack. You get the picture – even though the travel was intense I got some time with humans I love and don’t get to smell as often as I’d like to.
At the end of the trip, I spent two days at the Upfront Summit in LA. This comes on the heals of Upfront managing director Mark Suster’s great post titled Embracing Your Community as a Strategy which I encourage you to read as it is magnificent.
I have a long relationship with LA. In my first company (Feld Technologies) my first large client was in LA (Bellflower Dental Group). While the company – a large 100 person dental practice – was based in Bellflower, the dentist that owned it lived in Mandeville Canyon and I usually stayed at his house when I was in LA (he was the step-father of a fraternity brother, which is how we got connected in the first place.) I drove a lot in LA and learned things like how the 10 connects to the 5 to the 605, or the 405 to the 605. I learned that if you left at the right time, each route was only 30 minutes, but if you left at the wrong time, it was over two hours. I heard about Wolfgang Puck before he was in airports everywhere. I enjoyed the non-meat dishes at Hamburger Heaven, went to The Palm when there was only one location, and hung out in Santa Monica before it was techie cool and the only thing around was Peter Norton.
Today, our current investments in LA include Oblong, Nix Hydra, and recently Two Bit Circus. In the last five years, there has been an explosion of startup activity in LA that continues to be exciting as the startup community grows and evolves. Mark and his gang at Upfront Ventures are in the middle of it and are having a huge positive impact on things.
Over the last 20 years, I’ve attended and hosted many VC annual meetings. I’m an investor in many early stage VC funds and, while I’m not a rigorous annual meeting attender, will go if one of the GPs asks me to. I always offer to be part of the content of whatever meeting / summit / dinner they do if it’s useful to them.
Since I was already in LA on Monday, I told Mark I’d stick around for the Summit if he thought it’d be useful to him and the team. He immediately programmed me into the content for Wednesday (LP/GP day) and Thursday (entrepreneur day). Mark also invited me to the Upfront annual meeting given (a) our Next strategy and (b) my new partner Lindel Eakman being a prior investor in Upfront when he was at UTIMCO.
The annual meeting was solid and consistent with high quality annual meetings. But the Summit on the follow two days was easily the best VC-driven summit that I’ve ever attended. The content was incredibly high quality, diverse, and stimulating. There was plenty of networking time organized around the content. The venues were awesome. The coordination and organization was first class. The attendee list was dynamite. My understanding is that Mark / Upfront are going to post the content online and I’d encourage you to watch many of the videos when this happens.
It being LA, the special bonus things I got to do, like the one pictured below, was about as good as it gets. Yes, Kevin Spacey is extremely smart, interesting, and extremely articulate – as I expected, but there’s nothing like getting to spend a few minutes with someone you admire (he’s always been one of my favorite actors), but have never met.
Mark, Greg, Stuart, and gang – thank you for including me in this. You are doing amazing things in the LA startup community.
If you are over 80 years old, you experienced the transition from the non-dial telephone to the dial telephone, which included the magic “finger stop.”
If you are 30, imagine what you will be reflecting on 50 years from now.
I was at a fascinating dinner with a bunch of founders and investors last night. Until I was 35, I was often the youngest guy in the room. While this was a seasoned crowd, much of the experience – both around creating companies and funding companies – started around the mid-2000s. As someone who has been doing this since the late 1980s (I started my first company in 1987) I definitely felt like one of the old guys in the room.
At some point, the conversation turned to the current state of things in the broad entrepreneurial ecosystem – both company-side and investor-side. It rambled around for a while but kept locking down on specific issues around the current state of financings and exits, alignment between founders/investors/acquirers, cultural norms that were front and center in today’s startup communities, and a bunch of other issues that tied back to the wonderful Game of Thrones line “winter is coming.”
Throughout the evening, I was regularly reminded of my favorite BSG quote. “All of this has happened before, and all of it will happen again.”
Another one of my favorite quotes is the one attributed to Mark Twain, “History does not repeat itself, but it rhymes.” Phil Weiser, Dean of the CU Law School and a good friend, often pulls this one out to remind us to look to the past to understand the future.
While we’ve been in a particular strong part of the startup / entrepreneurship cycle for the past four years, many people are nervous, talking about it, reacting to it, and getting confused, frustrated, and scared by what is going on. Others are in total denial of reality, which never works out well in the long run. Whether you follow the BSG theology or subscribe to Mark Twain, or are somewhere in-between, you recognize the value of understanding the past to exist in the present and deal with the future.
I came out of dinner with about 20 topics for blog posts, many which reflect on lessons I’ve learned multiple times over the past 30 years, which can be applied to today, and tomorrow, and the next few years, regardless of what actually happens. Until last night I wasn’t particularly motivated to blog around this stuff, but the discussion, and people in the room, really stimulated me to put some energy into this. So I plan to.
But remember, all of this has happened before, and all of it will happen again. So if you are impatient, I encourage you to go look at posts from me, Fred Wilson, and David Hornik from 2004 – 2007 for a taste of what I would characterize of “the re-emergence from winter.”