Month: January 2020
Jason Mendelson and I recently published the 4th Edition of Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist.
The book now has three forewords – one by each of Fred Wilson (USV), James Park (Fitbit), and Dick Costolo (now 01 Advisors, then Twitter).
The 1st edition had 13 chapters. We are now up to 19.
- The Players
- Preparing for Fundraising
- How to Raise Money
- Overview of the Term Sheet
- Economic Terms of the Term Sheet
- Control Terms
- Other Terms of the Term Sheet
- Convertible Debt
- The Capitalization Table
- Venture Debt
- How Venture Capital Funds Work
- Negotiation Tactics
- Raising Money the Right Way
- Issues at Different Financing Stages
- Letters of Intent: The Other Term Sheet
- How to Engage an Investment Banker
- Why Do Term Sheets Even Exist?
- Legal Things Every Entrepreneur Should Know
The new chapters in this edition are 11. Venture Debt (with help from SVB), and 17. How to Engage an Investment Banker (with help from Golding Partners).
We also significantly updated Chapter 2: Preparing for Fundraising and Chapter 19: Legal Things Every Entrepreneur Should Know (with help from Cooley).
As with each edition, we cleaned up stuff throughout the book.
Finally, we updated the website which is now at VentureDeals.com.
For everyone who has read the book, given us feedback, used it in a course, or recommended it to someone, thank you!
I’ve always been a vivid dreamer, but I’ve been getting a lot more REM sleep due to the combination of a CPAP machine and the prostate reduction surgery I had last year (solving a “getting older” problem.)
Following is the doozy that I had on Tuesday night, written down shortly after I woke up on Wednesday.
I’m being tossed around in the passenger seat of a car with a blindfold on. As I shout out to the driver, “Where are we going?” I’m met with silence, then a very loud version of AC/DC’s Highway to Hell playing on the radio.
The car abruptly stops. The blindfold is off. I’m at my house. I run inside and pack my bags, grabbing all my computer stuff and tossing it in with my clothes. We drive away to a plane that I get on alone which flies while I read a book. We land in the mountains.
A car, without a driver, drives me to a big mountain house with a giant construction ditch in front of it. My parents are there and say hello. I run inside, dump my bag, and race around in my underwear for no apparent reason.
People start showing up.
I can’t find my phone or my computer, but I know I have a conference call starting to finalize the shutdown of a company. I race outside and start screaming, “Where is my phone?” My cousin Jon is there and we run around the construction ditch. There are lots of dead, old mobile phones around the edge, but none are mine. I find one that looks like mine, feel relieved, and then realize it’s not mine. I’m screaming at my parents about my phone, my computer, and they are just staring at me. I run in the house to try to find a computer to log in to Google and figure out the dial-in number. All of the computers in the house are too old to use a web browser. I run around some more but can’t find my phone or computer and start smashing keyboards randomly.
Agitated, I walk into a big room full of people. They are just sitting down to get ready to listen to me about something, but I don’t know what I’m supposed to talk about. I go to the refrigerator and try to open it, but the door sticks. Eventually, I get it open and get a yogurt. Everyone is staring at me, waiting for me. I’m still in my underwear.
I go to the front of the room, sit down, and start describing how in 1992, a small group of us got together in Burlington, Vermont and came up with the idea of the Montana future, where no one would want to live in big cities anymore so everyone would migrate to the west, set themselves up on big pieces of land, and work from their houses. We called this event a Chautauqua and my business partner at the time (Dave) came up with the idea for “The Wall” which was a video wall of TVs that you interacted with.
Lots of bugs started racing around the floor. They were exotic with lots of colors, different body shapes, and multiple segments. Everyone ignored them as I became increasingly agitated by them. I finally said, “It’s time for dinner” and everyone got up and went to another room.
I run out of the room and started squashing the bugs. I got to a bathroom where the water in the sink is running and try to turn it off, but can’t quite get the tolerances right. My parents were in the next room, so I went in there to look for my computer some more. There was a giant scorpion-like color bug on my bag and I asked my dad to get rid of it. He grabbed a tennis racquet and started swinging at it, bouncing it off the wall and then smashing it into pieces on the ground.
My computer and phone were on the top of my back. I had ten notifications in the Messages app with requests to join the phone call that I had missed.
I wake up.
I wonder why we ended up in Colorado even though the Montana future seems deeply imprinted on my brain …
“Like so many others I just sucked it up, grinded away and punted, hoping for relief down the road. That strategy of denial and repression worked until it didn’t. My founder stress and burnout couldn’t be contained despite my best efforts. In fact, my mental unhealthiness impacted my physical health, by causing debilitating sleep apnea, as diagnosed by UCSF and missed by Stanford (but that is another post). I sold my 2nd company, Crackle, and vowed to leave the high anxiety of being a founder for the relatively easy life of venture, not that it’s actually easy. I was lucky to have exited Crackle before my situation worsened and ultimately found the relief I desperately needed to feel whole again.“
More importantly, he talked about his fear of discussing it with his investors.
“Unsurprisingly, my investors, back then, never once inquired about my mental state and certainly didn’t offer any resources I could tap. In fact if I’d shared my actual state of mind, I would probably have been fired or at the very least encouraged ostensibly to take time off. Those were the times.“
Thankfully, this is changing, in part to leadership by firms like Freestyle. The partners, Josh, David Samuel, and Jenny Lefcourt have announced an initiative initially focused on their portfolio founders in an effort to break down the barriers to better mental health for all in our industry.
- Meru Health is a three-month digital program for treating depression, anxiety, and burnout that leverages remote therapists/psychiatrists, CBT, meditation, and biofeedback.
- Hoffman Institute is a one-week intensive on-site program, leveraging therapy, meditation, experiential exercises and peer-to-peer community, designed to break the most formative negative patterns from our childhood.
I’m fortunate that I have a strong, long-term relationship with a psychologist who works with entrepreneurs. However, he, like many others in the field, is extremely busy so even though he is open to referrals from me, he is limited in who he can take on as a client. Part of the challenge here is the time delay that a referral takes, and Meru Health is an impressive approach to providing rapid response care in a specialized way with an economic model that can work in entrepreneurial contexts.
The Hoffman Institute was new to me, but after spending some time on the website, I went and signed up to attend one of the week-long retreats. While I feel like I’ve explored – in therapy – some of the things they talk about, I know that I’m still struggling with a bunch of this, especially as I shift into the next phase of my life.
As an LP in Freestyle, I’m extremely excited to see their leadership in this area. While they are not the first firm to announce an initiative like this – last year Felicis Ventures gifted Founders 1% Of Every Invested Dollar To Spend On Coaching And Mental Health – I’m hopeful that this is addition momentum in an area that needs a lot more attention, support, and help.
Josh, David, Jenny – thank you!
When David and I started doing the #GiveFirst podcast, I was told by a long-time podcaster that it takes about 20 episodes to hit your stride. Since then, several other podcasters have told me that the number is actually closer to 100. Given that hurdle, David and I are 20% of the way there.
In Episode 22, we review the last dozen podcast guests including Josh Hix, Rajat Bhargava, Elizabeth Kraus, Jason Mendelson, Jannet Bannister, Heidi Roizen, Marc Nager & Dave Mayer, John China, Sherri Hammons, Rebecca Lovell, and Harry Stebbings.
I’m enjoying co-hosting the #GiveFirst podcast with David. I hope you are enjoying listening to it.
As I was reading The Atlantic article Silicon Valley Abandons the Culture That Made It the Envy of the World I kept flashing to the end of Anna Wiener’s awesome memoir Uncanny Valley. And it was no surprise to see this article in the Boulder Daily Camera titled Big tech in hot seat at congressional hearing at CU Boulder.
Readers of this blog and my book Startup Communities know that I’m a huge fan of AnnaLee Saxenian. She has a great quote in The Atlantic article.
This is a full reversal of the language that tech promoters used to sell Silicon Valley–style innovation and competitiveness for decades. Saxenian has noticed the change in how the Valley describes itself, or at least in how the dominant firms do. “Advocacy of the small, innovative firm and entrepreneurial ecosystem is giving way to more and more justifications for bigness (scale economics, competitive advantage, etc.),” Saxenian wrote to me in an email. “The big is beautiful line is coming especially from the large companies (Facebook, Google, Amazon, Apple) that are threatened by antitrust and need to justify their scale.”
Margaret O’Mara, who wrote The Code: Silicon Valley and the Remaking of America, also has a good reminder.
“The story the Valley told about itself has been very much a small-is-beautiful story since the 1970s,” O’Mara told me. “It has a politics—this Vietnam-era rejection of the military-industrial complex, rejection of the mainframe, Big Business, Big Government, big universities.” This led people to take risks and launch new projects and firms. Entrepreneurs from all over the world migrated to a place where people understood why they wanted to start companies. And the idea even embedded itself right near the heart of the Valley, at Google. The company’s slogan, “Don’t be evil”, had a particular meaning when it was adopted around the millennium. In the classic Valley mind-set, “evil is bigness of all kinds,” O’Mara said.
The techlash is in full bloom and Silicon Valley is in the center of it. Ironically, of the three public companies that have > $1 trillion market caps, one of them (Microsoft) is headquartered in Seattle, which is definitely not part of Silicon Valley. Oh, and Amazon … Nonetheless, it’s part of the pending mess that is going to hit all of society very hard in the next few years, as the collision between the various factors—and factions—around innovation are going to be profound.
I expect historians will look back on this time with curiosity. They will wonder why there is such a huge disconnect between what is said. what is wanted, and what is done. Here are a few recent artifacts to ponder.
- The Silicon Valley Economy Is Here. And It’s a Nightmare. (The New Republic, Lia Russell)
- Google Loved Me, Until I Pointed Out Everything That Sucked About It (Elle, Claire Stapleton)
- ‘Techlash’ Hits College Campuses (NY Times, Emma Goldberg)
And, in case you thought the government was the solution, here are a few more to read.
- Why 40-Year-Old Tech Is Still Running America’s Air Traffic Control (Wired, Sara Breselor) – ok, is from 2015, but it makes the point.
- The IRS Really Needs Some New Computers (Bloomberg, Stephen Mihm)
Every time someone tells me they are going to “change the world” or “put a dent in the universe”, I think to myself, “For better, or for worse?”
Amy and I didn’t feel like taking a Christmas or New Year’s vacation this year so we just hung around Boulder, worked, and did our thing. We then decamped to Mexico last week for warmth, sun, beach, and books. News flash: there are a lot fewer people at a fancy resort in Mexico in the third week of January.
It was a good reading week.
How to Raise an Adult: Break Free of the Overparenting Trap and Prepare Your Kid for Success: We don’t have kids, but a friend recommended this. I decided to read it to see if any of it applied to being an investor or board member in a company. Yup – a bunch of it was spot on. After reading it, I’m still glad I don’t have kids.
The Heap: A Novel: This one ended up on my Kindle because of my weekly perusal of the NY Times Book Review. The premise intrigued me. A 500 story tall building collapses in the desert and a community develops around it to excavate it. Once it got rolling, it moved quickly, but the interwoven historical backstory became a little tedious. But, for a first novel, it’s a great effort.
Veil: I got to read a draft of Eliot Peper‘s new book. Wowza. Elliot has turned into an incredible writer who totally dominates a near-term science fiction novel.
Atomic Accidents: A History of Nuclear Meltdowns and Disasters: From the Ozark Mountains to Fukushima: Yum yum. Todd Vernon pointed me at this one. It was long, chewing, and spectacular. After watching Chernobyl on HBO, I’ve become fascinated with nuclear energy. Unfortunately, it’s impossible to get a short course on it and I’ve thought about going back to MIT to get a degree in Course 22. While that’s a pretty steep hill to climb, I’m just enjoying a bunch of books for now. And yes, count me on the side of more nuclear.
Uncanny Valley: A Memoir: Loved it. Fantastic. Go get it right now. I particularly enjoyed how the author called people and companies out without naming them. This book nourished my inner Silicon Valley cynic.
Atomic Habits: An Easy & Proven Way to Build Good Habits & Break Bad Ones. This one was recommended by Katie Elliott. I was hoping it was about nuclear energy, but it wasn’t. Amy looked over my shoulder while I was reading it and said, “James Clear’s book. You don’t need to read it because you do all that stuff already.” I read it anyway, one page at a time.
I sense an annual mid-January off-the-grid vacation in a warm place for the rest of my time on this planet.
I’ve noticed a degradation in presentation styles when displaying slides on a screen. This is starting to become a pet peeve of mine, so feel free to ignore me or tell me to get over myself if you disagree with this advice.
Assume a conference room with a large screen TV (or two) on the wall at the “front” of the room. The conference table – often a long rectangle – has chairs along the side perpendicular to the TV. The classical “head of the table” is at the far end facing the TV.
Why in the world would the presenter sit anywhere other than in one of the chairs at the end of the table closest to the TV?
Assume the TV is just showing slides. Don’t you want everyone in the room looking at you and the slides?
Assume there is video conferencing. In most cases, the slides will dominate and the video conferencing participants will be in small windows on the screen anyway. And, when they are looking at their computer while you are presenting, they will mostly see the slides anyway.
The only time this doesn’t apply is when there isn’t a presentation. When you are trying to engage the people on the video conference in the room during the meeting, and there is nothing being presented on the screen, the pet peeve that I have doesn’t apply.
In the world of paper presentations with no video screens, it made sense for the presenter to sit in the middle of one of the long sides of the table to engage the whole room. But, when there is a screen with stuff on it, position yourself near the screen so the people in the room can look at you and the screen at the same time.
As you might have seen in an earlier post, Foundry Group is helping to bring the Helium Network to Boulder. Another Helium fan – James Fayal – reached out to me about his effort to do the same in his hometown of Baltimore, as well as DC and Philly.
I’m hopeful that some of the readers of this blog live in Baltimore, DC, or Philadelphia and are interested in participating in the Helium rollout. If you fit this description, fill out the Mid-Atlantic Application.
James wrote me a little more about his background and motivation for doing this, which follows.
While I’m a consumer product founder by trade, I’ve been involved in various crypto projects since 2013. I’m excited about Helium because it is one of the first projects with significant real-world use-cases and the community has grown exponentially since they started selling hotspots earlier this year.
In short, Helium is building a ‘mesh’ network for LongFi data transmission, which can be used by IoT devices to transmit and receive data over long distances. You can see more about the technology here.
We’re looking to work with 15 – 25 locations in or around the cities of Baltimore, DC, and Philadelphia to host hotspots. We’ll be covering the cost of the unit and work with you to optimize the hotspot’s reach in the area. In return, we’ll be providing hosts with a % of the network’s tokens ‘mined’ by the hotspots.
If we’re successful, we could be one of the first regions of the United States with comprehensive coverage on the network!
To apply to be a host, fill out the Mid-Atlantic Application. Supply is limited and the Helium company is close to stocking out of their current batch of hotspots, but James will do his best to work with as many hosts in the area as possible.
And, if you are curious about the Boulder rollout, I’ve got 47 unallocated Helium hotspots in my office that are going to be provisioned in the next week. We will then start deploying them around town in the second half of January. While we have more than 47 people interested, if you have an interest and haven’t signed up on the Boulder Helium Hotspot Application, go for it so we know about anyone who wants to participate.
The phrase “frog in a blender” was in my head all afternoon. Earlier in the day, one of my partners described a situation as the cliche-ish “boil a frog slowly” and I responded with “We’d all be better off if we just put the frog in a blender.”
That generated grimaces.
I couldn’t find any “Will it Blend” for frogs, but I found the next best thing – Pickled Pigs Feet.
It doesn’t have quite the same rhythm, but you get the idea. As I hummed the song I made up to the phrase “Frog in a Blender“, I figured there must be a real song named this. There is, it’s awful, and the lyrics are horrifying, but whatever. My song is much better.
As I was driving home, working on the second verse, I flashed to a conversation with a friend I had a few months ago.
He said, “How do you eat a shit sandwich”? I responded with “Gross – no idea.” He said, “Quickly.” After I chucked, he said, “Ben Horowitz told me that.” So, I’m going to attribute that one to Ben Horowitz, which fits nicely with some of his anecdotes about shit in his book The Hard Thing About Hard Things.
I like to be as deliberate as I can about decisions. I try to make them quickly, but with a reasonable amount of data and critical thinking. Sometimes this works, other times it doesn’t. When I reflect on the things that have caused me the most pain, it’s when I let a shit sandwich sit in my refrigerator for a while, looking at it every day when I get a kombucha. Or, when I wake up one day and realize that I’m the frog that has been boiling slowly.
I wonder if eating a shit sandwich quickly is the same as putting a frog in a blender. Both are pretty awful, but it seems like the best approach is to get it over with quickly.
My post The Future Of Work Is Distributed received some good comments. More interesting was the number of direct emails I received back with detailed information about “remote-first” companies and how they did things.
There was a distinction in some of these emails between “remote-first” and “multiple geographies.” It’s an important nuance, as there is a big difference between a fully distributed workforce (which the blockchain kids refer to as a “decentralized workforce”) and a multi-location workforce.
Almost every company in our portfolio with more than 50 employees either has or is looking at a second (or third, or fourth) location. This is especially true for companies headquartered in Silicon Valley, Seattle, and New York.
While I’ve observed (and experienced) mixed success with second locations being implemented too early, I’ve concluded that this is mostly a function of the company not having a handle on how to deal with a distributed workforce. When the CEO prioritized either distributed or remote work and makes it part of the wiring of how the company operates, it’s effective. When it’s an afterthought, a lifestyle choice, or a reaction to something, it fails.
I’ve found that secondary/tertiary US cities work better than international locations, with the exception of software/hardware engineering locations. Several of our companies have had great success in Eastern Europe and Russia with technical teams. China and India work, but seem to be harder and more hit or miss. Cities in the US that have concentrations of technical, sales, or operational talent, usually because of one specific employer or a highly motivated university nearby, have been surprisingly effective.
The biggest magic trick seems to be the “direct flight.” When it’s a two hour or less direct flight to the second location, people move easily between places. I knew this instinctively from all of my time traveling between the east coast and the west coast from Denver. When I went west, it was easy. When I went east, it was hard.
Magic trick number two is well-implemented video conferencing. I learned an approach many years ago from my now-partner Chris Moody that he used at Aquent when he was COO. He set up video conferencing in a cubical at each location at left it on all the time. Today, we have the equivalent on our desktops, so the cubical trick isn’t needed, but easy ways to immediately start video conferences at any time, as a substitute for in-person meetings, without having to go into separate rooms in the office, makes a huge difference in interpersonal interactions.
It seems pretty clear that a very large, single location company in Silicon Valley, New York, Seattle, and several other cities (e.g. LA, Boston) is getting much more challenging. Sure, it’s possible, but is it advisable?