Tag: cycles

Jul 19 2018

Early Stage VCs – Be Careful Out There

In addition to our own funds, we are investors in a number of other early-stage VC funds as part of our Foundry Group Next strategy. Yesterday, in one of the quarterly updates that we get, I saw the following paragraph.

“Historically, the $10 million valuation mark has been somewhat of a ceiling for seed stage startups. But so far this year, we’ve seen that a number of companies, often times with nothing more than a team and a Powerpoint presentation, have had great success raising capital north of that $10 million level. Furthermore, round sizes continue to tick up, with many seed rounds now in the $2.5 million to $4.0 million range.”

We are seeing this also and have been talking about it internally, so it prompted me to say something about it.

I view this is a significant negative indicator.

It has happened only one other time in my investing career – in 1999. I remember when, in a period of about six months, the ceiling on seed financings vanished. It wasn’t the uncapped note phenomenon (which seems to have come and gone for the most part), but instead, it was seed rounds of $5m – $10m at $40m pre-money.

In some cases, these rounds were with experienced founders who had previously had a success and could dictate terms. VCs rationalized it as “skipping the seed round” even though there literally was nothing to show yet except an idea.

In this six month period, the need for an experienced founder vanished. Suddenly every company was raising a seed financing of at least $5m, regardless of the experience of the team. In many cases, these rounds were pre-vaporware – just an assertion about what business they were going to create.

For anyone that remembers 2000-2003, this obviously ended badly. By 2002 investments at the seed level had evaporated (there were almost no seed financings happening). In 2003 the angels started to reappear (some of the best angel deals of all time were done between 2004 and 2007) and the super angel language started to be used around 2007.

All the experienced finance people I know talk regularly about cycles. If you believe in cycles, this one feels pretty predictable. Of course, there is an opportunity in every part of the cycle. But, be careful out there.

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Feb 3 2016

Is History A Guide In Business?

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.”

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Aug 10 2015

The Beginning of the End or the End of the Beginning

I was in a conversation last week with a friend who asked “do you think this is the beginning of the end?” We were discussing something totally wacky that had just happened that clearly could be viewed as an indicator that we have crested the peak of this economic cycle. Then, earlier today, I was on the phone with one of my favorite lawyers and he made a joke about a deal I’m doing as harkening back to the late 1990s. He asked if I thought it was an indication of the top of the cycle. We had a good chuckle (probably PTSD gallows humor from 15 years ago) and I suggested that they slow down the hiring of the associates at their law firm so they wouldn’t have to lay off so many in the inevitable downtown.

Somewhere in between these two conversations I told someone that I thought this was actually the “end of the beginning.” And, tonight at a wonderful dinner, I made the statement to the friend that we were having dinner with that I thought the next 30 years were going to be incredible.

I think we are at the end of the beginning of a dramatic shift in how our species deals with existence. Depending on who you believe, we are either 30 years from the singularity (Kurzweil) or only 15 years away (Vinge). The new science fiction coming out is doing a remarkable job of helping us set a context for the different aspects of what we’ll need to deal with. Some of it will be just as off as Philip K. Dick can be while some will be just as accurate as Philip K. Dick can be. If you are a fan of Philip K. Dick, like I am, you know exactly what I mean. And if you aren’t, I suggest you start with Do Androids Dream of Electric Sheep?

Humans have serious issues with exponential curves as we want to make everything a line. But a lot of the stuff around us is happening exponentially and we don’t realize it. As a result, we’ve dramatically underestimated the impact of technology on – well – everything. And, since so much of it is exponential, it compounds at an incomprehensible pace. When we look outside at concrete, steel, and glass going up slowly, it lulls us into a sense of normalcy.

The machines want us to feel this way.

Think about it for a brief moment. Suspend disbelief. Wind the clock forward 100 years. Do you think, as a species, we will still be struggling with the things that vex us today? Will we still be arguing about the same stuff? Will physical instantiation of things have the same meaning? We will still be eating Cocoa Puffs?

We are at the end of the beginning. It’s going to get wild. Buckle up.

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Oct 28 2014

What’s Old Is New Again

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.

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