Category: Entrepreneurship
I try to respond to all of my emails. I’ve always been like this – it’s just part of my value system. I used to be annoyed by other people who don’t, but I let go of that emotion a long time ago. But I still try to respond to all of my emails. A big hint, which is the reason for this post, is to ask specific questions if you want a real response.
Part of my morning drill is to systematically go through all the emails from the previous night. I usually end up at close to – or at – inbox zero when I finish this drill. Over the course of the week I get a little behind on non-urgent stuff so I end up responding to them over the weekend.
The result is a lot of what I like to call cliche loops. Here’s an example of the “will you look at our business, no, will you make a referral” loop.
Fortunately I use Yesware so I can respond quickly via templates I’ve already set up. Here’s how the more detailed conversation goes:
Entrepreneur: Happy New Year! Attached is the our BP. Please let me know if you are interested to talk.
Me: Thx for reaching out again. I took a look – I don’t think it’s something we’d be into investing in but hope to run into you at anonymous-place at some point.
Entrepreneur: Thanks for the quick reply. Can we apply for the techstars?
Me: Of course!
Entrepreneur: Thanks for the advice. If you are willing, can you please comment on our BP? We wish you can be our advisor.
Me: I can’t be “an advisor” in any formal way. I’m also not part of the selection process for Techstars so I encourage you to just apply.
Entrepreneur: Thanks. We understand. You turned down our BP almost right away. So we are really appreciated if you can tell us what we can improve, or whats wrong there.
Me: I wrote a post about saying no in 60 seconds a while ago – https://www.feld.com/archives/2009/06/say-no-in-less-than-60-seconds.html. Your overview is ok – just not something I’m into.
Entrepreneur: Thanks for the detailed message. Do you have any other investors that you can point us to?
Me: Re: Asking for a referral – I wrote a blog about this a while ago – I hope it makes sense. https://www.feld.com/archives/2007/11/dont-ask-for-a-referral-if-i-say-no.html
Now, I’m not try to be an asshole with my responses. I’m just trying to get through one of “yet another email I’m not interested in” and be polite to the sender. If the entrepreneur had asked me any specific questions about his business, I would have tried to answer it or said “sorry – I have no clue” if I have no clue. But all of the questions are of the “please engage more with us” kind. Even the most specific question “So we are really appreciated if you can tell us what we can improve, or whats wrong there.” is painfully generic.
I realize that part of the reason I’m writing the book Startup Opportunities is so that I can point people like this at it. I get between one and five emails like this a day and have for a long time. I’m happy to get them – I just wish I could help more.
My friends at the Kauffman Foundation have released the Kauffman Thoughtbook 2015.
It’s a beautifully done, well-organized, and super rich with content web document about entrepreneurship. There is extensive content and examples around Startup Communities, included in the Paths to Entrepreneurship section. I made a few guest appearances, including in the long article about the Kansas City Startup Village.
If you are interested in startup communities, entrepreneurship, and how it grows and develops, spend some time online with the Kauffman Thoughtbook 2015.
One of the dynamics of going away for a month off the grid is that you come back to a wall of data. I’ve been absorbing it the past two days and it’s fascinating to ponder how my brain is processing it versus the normal continuous flow of information on a real-time basis.
I’m not a predictor. As we enter the time of year where every media-related thingy publishes it’s “best of 2014” and “predictions for 2015” lists, I simply pass on participating in all of them and read none of them. So – I’ll start with that – this is not a prediction, rather it’s a hypothesis, which is as long as there isn’t a cataclysmic macro event, Q115 financing activity is going to be insane.
The number of large, “later stage” financings are remarkable – both in size and velocity. We had several close last month and have some more in process. The number of companies I’ve heard of (mostly outside our portfolio) who are “getting ready to raise money in Q1” is a very long list. I’d noticed this before I went away, but the wall of data that I came back to reinforced it in a way I hadn’t completely processed.
The deals tend to fall into two categories – easy and immediate, which multiple bidders generating an rapidly escalating valuation or a long slow slog through lots of “almost there but we are passing because of some arbitrary reason.” If you translate the passes into english, they seem to fall into one of three categories.
- You aren’t growing fast enough. If you are less than 100% year over year growth or have declining year over year growth rate you are likely in this category.
- We are worried about some exogenous thing you can’t control or influence.
- There is some characteristic about your business we don’t like.
At some level, these are obvious reasons. But they are often extremely frustrating to strong, mid and later stage companies growing 25%+ year over year. They are maddening to mature CEOs who have built real companies that dominate their market segment but are in either an out of favor segment or using an approach (e.g. enterprise software license sales) that is no longer trendy.
In our world, none of this matters that much to us. We aren’t momentum investors. We are syndication agnostic and are happy to continue to finance strong, later stage companies in our portfolio with or without new co-investors. We are transparent with our financing intensions early in the process. We are happy to support whatever process an entrepreneur wants to go through.
Regardless, it feels like it’s going to be an insanely busy Q115.
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.
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.
I’ve been listening to the Hyperion Cantos on my iPhone while I run/bike (it’s amazing – I’m almost done with book two) and I’ve been wondering why we still have airplanes.
We’ve already figured out how to go from analog form to digital form back to analog form. Consider the telephone.
We’ve already figured out how to go from atoms to bits to atoms. Consider the 3D printer.
We can transmit energy and information, so why can’t we yet teleport?
Who is working on this?
In Hyperion, the machines (the AI) ended up figuring this out for the humans. It feels like we are on the cusp of this as a species.
Ponder that as you board your next plan. Wouldn’t it be better to farcast to where you are going? Or would it?
UP Global just released a great new white paper titled Fostering a Startup and Innovation Ecosystem. As you might know, I’m on the board of UP Global and think they are doing amazing things for startup communities around the world.
Our friends at Google for Entrepreneurs helped with this and I’m doing a hangout with Mary Grove (Director, Google for Entrepreneurs) and Marc Nager (UP Global CEO) on Tuesday September 23rd, 2014 11am PDT for 40 minutes.
Join us as we discuss thriving startup communities and creating alignment and not just density in your community.
Enjoy the white paper and join us for the hangout.
I love origin stories. The moment of the beginning of something new, or a key point in the founding of something, is always powerful to me.
On the 238th birthday of the United States of America, I think it’s useful to reflect on America’s origin story. So, after seeing an email by Bart Lorang at FullContact where he said that he read the Declaration of Independence to his new son, Laser Lorang, I decide to go read it again.
After reading it slowly and carefully, I decided to post it here as my birthday tribute. It’s pretty amazing to reflect on what was happening in the country 238 years ago that caused the committee of five (Adams, Jefferson, Franklin, Sherman, and Livingston) to draft, and then for Congress, to adopt, the Declaration of Independence.
Happy birthday America.
IN CONGRESS, July 4, 1776.
The unanimous Declaration of the thirteen united States of America,
When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.–Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.
He has refused his Assent to Laws, the most wholesome and necessary for the public good.
He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.
He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.
He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public Records, for the sole purpose of fatiguing them into compliance with his measures.
He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.
He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the Legislative powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.
He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.
He has obstructed the Administration of Justice, by refusing his Assent to Laws for establishing Judiciary powers.
He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.
He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.
He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.
He has affected to render the Military independent of and superior to the Civil power.
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:
For Quartering large bodies of armed troops among us:
For protecting them, by a mock Trial, from punishment for any Murders which they should commit on the Inhabitants of these States:
For cutting off our Trade with all parts of the world:
For imposing Taxes on us without our Consent:
For depriving us in many cases, of the benefits of Trial by Jury:
For transporting us beyond Seas to be tried for pretended offences
For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:
For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:
For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.
He has abdicated Government here, by declaring us out of his Protection and waging War against us.
He has plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.
He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.
He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.
He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.
In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.
Nor have We been wanting in attentions to our Brittish brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.
We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.
I just read an amazing post from Nikki Durkin, the founder and CEO of 99dresses.
It’s titled My startup failed, and this is what it feels like and it is one of the best posts I’ve ever read about startup failure.
I almost titled this post “What Failure Tastes and Smells Like” because Nikki does such an awesome job of describing not just what happened, but what she felt throughout the process. The post is long and goes through multiple ups and downs, just like a startup. It covers four years, several near death experiences, recoveries, and then final failure.
I don’t know Nikki but have immense respect for her taking the chance to put this out there. In today’s world of “look how great we are doing”, we know we all aren’t doing great. It’s fucking hard to fail, deal with failure, and recover from failure, especially when you look around and feel like you are the only failure.
Nikki – if you ever want to turn this, and other lessons you learned from this experience into a book (as you hint near the end of the post), my friends at FG Press would love to talk to you about working with you on it.