Month: July 2019
Over the years, I’ve written about my belief in the importance of giving back to your communities and #givefirst. In this spirit, one of the key organizations my partners at Foundry Group have helped create and nurture is Pledge 1%.
In 2007, we were a founding member in the predecessor organization to Pledge 1%, called Entrepreneurs Foundation of Colorado (or EFCO). EFCO started as an experiment here in Boulder, not unlike Techstars and Startup Week/Weekend that got their start in our backyard. In 2014, Pledge1% Global launched as a joint effort between Foundry Group, The Entrepreneurs Foundation of Colorado, The Salesforce Foundation and The Atlassian Foundation which we helped seed financially and continue to support.
While all of the Foundry Group partners have been involved, Seth Levine has been spearheading our engagement and the transformation from EFCO to Pledge 1% (he, along with key members of the teams from Salesforce, Atlassian and Ryan Martens are the founders of Pledge 1%). At a partner offsite at the end of last year, we were reflecting on some of the gifts from Foundry Group through our Pledge 1% involvement, which included:
- The Community Trust of Boulder – We believe that a rising tide raises all boats and wanted to do our part to support our local community here in Boulder and Colorado.
- United Way Foothills – After the Colorado flood in 2013 we decided to step up and fill a gap in funding from Foothills United Way.
- Museum of Boulder – Our city has a rich history on numerous dimensions. We now have a museum in downtown to be proud of.
- BCH Foundation Mental Health Campaign – Mental health is a major issue in our society, as well as in entrepreneurship. We are pleased to be able to help expand the mental health resources in our community.
We had some extra money left in our Pledge 1% Colorado account from distributions over 2018 and decided that, rather than saving it up for another larger gift, we’d give a series of modest gifts to a handful of local (and one non-local but nearby) organizations as a surprise holiday gift. Those organizations were:
- Access Opportunity
- Boulder Community Foundation Leadership Fellows
- Colorado FIRST Robotics
- Community Food Shares
- CU Science Discovery
- Defy Ventures Colorado
- Donors Choose – Sphero Match
- Emergency Family Assistance Association in Boulder (“EFAA”)
- I Have A Dream – Boulder
- Our Center
- Ranger Projects Yellowstone Forever Institute
If you are a co-founder at a startup, leading a company, or an employee at a company and want to learn more, check out the Pledge1% (or here if you’re in Colorado). Or email me or Micah Mador if you want to get involved.
When I was in Boston a while ago (it was very cold, so it must have been January), I had a wide-ranging conversation with Eric Paley. This was before the IPO Summer of 2019 when all conventional valuation metrics have entered the land of “suspension of disbelief” which is short-term good and long-term well-we-will-see-…-eventually
One of our conversational threads was about how to value companies. We ended up talking about using Gross Profit, instead of Revenue, to do valuation analysis.
We’ve been doing this for a long time at Foundry Group. Since we invest across a number of different themes, we’ve had to deal with very different revenue and gross margin profiles since the beginning, whether we realized it or not.
For the purpose of clarity, in my world GP (gross profit) is a dollar amount while GM (gross margin) is a percentage.
Revenue is often equated with Net Sales, which is true in many cases, but Net Sales is actually more precise a measure than Revenue in situations where you have Gross Sales or Gross Merchandise Value as the “top level” revenue number. Also, I often see GM listed as GM%, which is fine. Some people also refer to GM as Gross Profit Margin.
This is regularly confused, even in accounting texts, so depending on which business class you took, you are going to call it a different thing. Oh, and if you use Quickbooks, you’ll probably refer to Revenue as Income, unless you have the current version of Quickbooks where this has finally been fixed. Isn’t accounting fun?
Even if a lot of people realize that SaaS companies have a different gross margin profile than hardware companies, many don’t acknowledge it when playing the valuation game. And, this logic – or lack thereof – applies to marketplaces where GMV is different than Net Revenue which is different from Gross Profit, or Adtech companies which have yet a different “Top Number to Gross Profit” calculation. And, it gets really exciting when a company has multiple revenue streams that include services and derivative transaction-based revenue (say, BPS in a fintech company.)
Today, I’m seeing almost all entrepreneurs and investors in growth companies talk primarily about revenue and growth rate. They tend to adjust the multiples to try to align with a group of comparison companies, but these comps rarely have a similar supply/demand economic associated with the equity of the company in question. And, when the comps are mature cash flow positive public companies, the multiple math diverges even more from anything particularly rational.
I’ve started encouraging the companies I’m involved in to focus on Gross Profit and the growth rate associated with their Gross Profit, rather than Revenue. Try the exercise and see how you compare to the companies you think you should compare to. And think about how much more value you could be creating with the same Revenue number but a higher Gross Margin percentage …
I’m a huge fan of Elizabeth Kraus, Sue Heilbronner, and the work they do through MergeLane.
Recently Elizabeth started a platform for the next generation of venture capitalists called Fund81. It includes a podcast, which has both a public section for everyone and a private section for the Fund81 members.
Elizabeth recently interviewed me for Episode 13 where we talked about maintaining mental health in the fast-paced venture capital world while supporting portfolio companies, colleagues, friends, and family wrestling with mental health issues. The public section follows.
Elizabeth and Sue – thanks for everything you and the team at MergeLane do for entrepreneurs and now other VCs.
I’m lazy blogging this week as I get ready to go on vacation for the July 4th holiday. So, here’s another set of videos to watch, which is the entire Street Level Startups series from Colorado Public Television. I’ve watched them all now and they are a great history of how the entrepreneurship scene in Colorado has evolved recently, along with a bunch of fun highlights of people and companies.
Street Level Startups: The New Gold Rush
Street Level Startups: When an Idea Strikes – Stories of Inspiration
Street Level Startups: Three Phases of a Startup
Street Level Startups: Mentorship & Integration
Street Level Startups: Startups to Watch
Xiao – nice job weaving in a Mary Oliver quote at the end.
“Tell me, what is it you plan to do with your one wild and precious life?“
I’m honored that I get to work with you.