For those of you older than 40, it sort of felt like 2000.
If you are younger than 40, a massive tech bubble just burst. I expect you know that. For the past six months, many VCs have been podcasting, tweeting, publicly writing, … and generally prognosticating about what you should do and what’s going to happen next.
I think the best VCs didn’t prognosticate. They knew what was going to happen next. Instead, they worked with each company to help them deal with reality as it unfolded. Each company is different, and the dynamics of the bubble bursting were not generic.
For example, one of the companies I’m on the board of grew by over 30% last year. Its revenue grew by 30%+. Its gross margin grew by 30%+. Its EBITDA grew by 30%+. Its FCF, before debt service, grew by 30%+.
Another company had a revenue decline of 25%. However, their GM% increased, and their GM$ stayed roughly the same as the prior year. Their EBITDA loss decreased by 50%, and FCF was close to $0 in Q422.
I have 14 other stories from the companies in our portfolio that I’m responsible for. My partners have another 50+. Each one is different. Each one took a ton of work from the leadership team. Many of these teams took on a set of intense challenges as early as Q122 when it was clear that whatever was unfolding was not what they had just finished planning at the end of 2021 when they came up with their 2022 plans.
Almost all of the prognosticating I heard in 2022 was similar to what I heard and often said in 2000. I was 35 at the time and rationalized continually that things would magically and suddenly change for the better. I was wrong, and then 9/11 happened, and then Enron and Worldcom happened, and business kept getting worse. 2001 was a dreadful year for me. 2002 sucked, but it wasn’t as dreadful. But it still sucked. 2003 was hard. 2004 was the beginning of what I now refer to as “the grind,” which ended for me around 2007.
Nothing is going to magically and suddenly change for the better. No one is going to raise a $100 billion VC fund and start spraying money around at fantastical valuations, followed by everyone else suspending disbelief and believing companies, regardless of their businesses, are worth 50x next year’s revenue. No one will value a company with a GM% of 10% at the same as a company with a GM% of 80% just because they are growing revenue at the same rate. Boxes full of magic beans are going to result in jail time. Interest rates aren’t suddenly going back to 0%.
If you are a fan of Harry Potter, think of 2022 as the sorting ceremony. When you put the 2022 hat on your head, did you end up in Gryffindor, Hufflepuff, Ravenclaw, or Slytherin? Did you address reality early in 2022? Are you just now addressing reality? Are you considering what reality might be and hoping it doesn’t happen? Or are you looking around saying, “Huh, what?”
Whatever it is, there’s no looking back and hoping something different happens.
In the last seven months, the venture / entrepreneurial world has gone from “the only thing that matters is massive growth” to “the world is going to end.” For perspective, all you need to do is look at a dozen high-flying IPOs from 2020 or 2021 to see that the peak happened just before Thanksgiving.
The private markets lag the public markets. That’s not new. This time around, the lag was about a quarter, as many VCs started to talk about what was happening around the beginning of Q2.
There is no doubt that we are in the middle of, well, whatever you want to call it. “Correction” and “Choppy Waters” is probably a generous phrase for what is going on.
Having lived through this as an entrepreneur in 1987, an entrepreneur and VC in 2001, a VC in 2008, and a VC today, I embrace that this is just part of the entrepreneurial and economic cycle. I also know that many people freak out at this moment. If you’ve never been through this (like I hadn’t in 1987), it can be terrifying. If you are experienced and suddenly find yourself caught flat-footed for any number of reasons, it can be equally terrifying.
I no longer believe in clichés or prognostications such as “make sure you have three years of money in the bank” or “do a RIF quickly and deeply regardless of the situation you are in.” Instead, I think it is crucial for each company to understand its current reality clearly and make rapid and appropriate adjustments. This could mean “do a RIF quickly and deeply or “make sure you have three years of money in the bank,” but there are many other things to consider and do.
I’ve been involved in companies that have used these moments to gain huge market share from failing competitors. I’ve also been in companies that, in these moments, simply failed. I’ve been involved in companies that made adjustments, soldiered through, and came out the other side stronger. And, I’ve invested in brand new companies founded during these periods that ended up creating entirely new categories and extremely successful companies.
I expect that’s the tone of what we will discuss on 7/14 as part of Bolster’s Speaker Series about the VC Perspective on Navigating Choppy Waters. Fred Wilson has been through this many times, and his post on Amy and my 29th anniversary in Staying Positive is a wonderful perspective. Martina Lauchengco and Heather Hiles are long-time operators turned VCs who have also been through many cycles.
Join us on 7/14 @ 3pm ET for a discussion on Navigating Choppy Waters that hopefully will not be full of the same old clichés currently making the rounds.
Connie Loizos is one of the long-time tech industry writers who I respect. I don’t respond to many interview requests these days, but I’ll always talk to her.
She has a good article today in TechCrunch titled Embrace the down round (it’s going to be okay, maybe). I like the quote she pulled out of me in our conversation.
[Brad Feld] says his “strong belief” that “just doing a clean resetting — at whatever the valuation so that everybody is aligned and dealing with reality — is much, much better for a company.”
Now, I’m not encouraging anyone to do a down round if unnecessary., especially when many existing investors are currently willing to add on additional dollars at the most recent valuation. If you can do this cleanly, take the money.
Rather, when you have a choice between a financing at a lower valuation and a financing with all kinds of crazy structure to try to maintain a previous valuation, negotiate the best price you can but do a clean financing with no structure.
If you don’t know what I mean by structure, they are terms like:
… and a bunch of other things.
Sometimes, given your syndicate configuration, you have no choice but to take structure in a new round. But if you can do a clean financing at a lower price, I always think that’s a better option for everyone (founders, employees, and existing investors.)
While my optimistic personality hopes this downturn/adjustment is short-lived, I fear it won’t be. So, as an entrepreneur, I encourage you to deal with reality.
CU’s Silicon Flatirons Center Startup Summer is back!
Startup Summer provides a fantastic experience for college-age students and interns interested in entrepreneurship and the Front Range emerging company scene.
Startup Summer is a free offering that enhances your company’s internship program. Your company hires and pays your intern(s). You can hire an intern out of your own pool of candidates or, alternatively, let us know and we will get you student resumes from individuals who have reached out to us.
This program is free – there is no charge for companies or interns. Now in Year 10, Startup Summer is one of CU Boulder Silicon Flatirons’ most popular programs.
Startup Summer pulls college-age students together on Tuesday nights from 5:30 – 7:30 pm during the summer. Startup Summer students and interns get to (1) meet leaders in the Front Range emerging company community, and (2) build their own startups on the side. More info is available at our website Startup Summer page.
If your company is interested in Startup Summer, please reach out directly to Sara Schnittgrund (Sara.Schnittgrund@Colorado.EDU) and Brad Bernthal (Brad.Bernthal@colorado.edu) at Silicon Flatirons by Thursday, June 3.
I recently nominated James Oliver’s ParentPreneur Foundation for the new Techstars Accelerate Equity Program. Amy and I provided the lead gift of $100,000 through our Anchor Point Foundation. For a detailed look at what the ParentPreneur Foundation does, take a look at Techstars Foundation Empowers Black ParentPreneurs, So They Can Leave A Legacy For Their Children.
Through Accelerate Equity, the Techstars Foundation identifies early-stage nonprofits and ideas to empower and support underestimated entrepreneurs. We then call on the Techstars network to pitch in. The Techstars Foundation will add a 5% match to the total raised at the end of the calendar quarter.
Among other things, James has created a vibrant community for Black ParentPreneurs.
I’ve known James for a while, as we became friends when he started his previous company WeMontage. While I didn’t invest, we talked periodically and emailed regularly. I loved his book The More You Hustle, The Luckier You Get (it’s “pure James”). We connected after George Floyd was murdered, and he mentioned his initial dream of the ParentPreneur Foundation. I immediately jumped in to help.
It has been about a year since that conversation. Since then, a number of friends, including Mark Suster, Fred and Joanne Wilson, Seth Godin, and David Cohen have also supported the ParentPreneur Foundation. It has been awesome to see the progress that James has made. I’m delighted that the Techstars Foundation is including him in the Accelerate Equity program.
If you want to support James or support something I support around racial equity and entrepreneurship, please donate to the ParentPreneur Foundation through the Techstars Foundation.
My long-time business partner Seth Levine has written a book with Elizabeth MacBride titled The New Builders: Face to Face with the TRUE Future of Business. It’s extraordinary – buy a copy now!
For many years, Seth has been frustrated about the entrepreneurial narrative around the White male tech founder. He’s been active as an investor and philanthropist around entrepreneurship in rural Colorado and with organizations, such as Entrepreneurship for All, that are focused on accelerating economic and social impact in communities nationwide through inclusive entrepreneurship. He’s been exploring this and investing both in the US and other places globally, including Africa and the Middle East.
Pre-Covid, he started working on The New Builders with Elizabeth MacBride. They made good progress, and I remember saying hello to Elizabeth in our conference room after she and Seth had taken it over for a few days of writing, back when we met in conference rooms. As the Covid crisis began, they started writing a series of OpEds that got a lot of play, including To save the US economy, policymakers need to understand small business 101, and Communities across America rush to save Main Street as federal relief for small business stalls. These articles foreshadowed what they were digging into as part of their research for The New Builders.
Seth and Elizabeth obliterate the myth of the White male tech founder. Through detailed history, current stories, and many interviews, they bring life to new businesses started by Black, Brown, Female, and Older people. These entrepreneurs, including immigrants, are the next generation of business owners. Post-Covid, they will be key to redefining our economy.
While this group of founders and business owners may not get the same press that tech entrepreneurs get, they profoundly impact their local communities. Their efforts are foundational to the health, development, and growth of American cities, enabling a future where people have the economic freedom to pursue their passions.
Seth and Elizabeth have issued a powerful wake-up call for America with The New Builders. It’s time to see, understand, and value the next generation of business owners.
Over the past year, we’ve seen an increase of people from across the business and political spectrum join the fight against climate change and pledge to support a greener, more sustainable future. Investors are seeking both financial returns and environmental impact and looking for opportunities to partner with ventures that are working to tackle our world’s biggest energy and environmental challenges.
Enter Cleantech Open, the world’s largest and oldest cleantech accelerator for cleantech, climate tech, and sustainability startups. Through Cleantech Open, startups can build their entrepreneurship skills and professional networks, access expert mentorship, and connect with potential investors, partners, and customers. Cleantech Open is currently accepting applications for its 2021 cohort, and you can learn more and apply here by April 18.
Beth Zonis, the Director of Cleantech Open Northeast, and my wife Amy Batchelor met through a mutual connection. They are both Wellesley College alumnae (Amy is a Trustee of Wellesley College, and Beth is Vice President of her graduating class.) They hit it off right away and found a lot of common ground, especially in their shared passions for Wellesley, the environment, and innovation. This led to our foundation (the Anchor Point Foundation) partnering with Cleantech Open Northeast, the northeast region of Cleantech Open, managed by NECEC as the on-the-ground affiliate.
Cleantech Open is like a mini MBA for startups. Its mission is well aligned with ours, as Cleantech Open is focused on combating climate change, growing the green economy, and improving Environmental Justice through innovation and entrepreneurship. We are staunch advocates for the environment, and we believe that innovation is critical to addressing many of the world’s challenges.
Cleantech Open has a particular focus on incorporating diversity, equity, and inclusion (DEI) values into its program. It is working to increase the diversity of startups, mentors, and partners engaged with the program. In 2020, 63% of the startups in the Cleantech Open Northeast cohort were founded by women or BIPOC leaders. This year, the accelerator plans to offer programming to educate startups on incorporating DEI values into their ventures.
Cleantech Open Northeast is also creating new curriculum content for this year’s cohort to enable startups to measure their greenhouse gas emissions and carbon footprint to help them build a measurement mindset from the beginning. This is an effort in collaboration with NYSERDA, the New York State Energy Research and Development Authority.
Over the years, many Cleantech Open alumni have progressed to be accepted into other accelerator programs, including Techstars. A few examples of recent Techstars alumni who have participated in both programs are Virimodo, Sunthetics, and SparkCharge.
Virimodo is reducing greenhouse gas emissions in cities by making it simple for buildings to become carbon neutral. Virimodo was a 2018 Cleantech Open Northeast Winner and a Cleantech Open National Finalist and participated in the 2020 Techstars EnergyTech accelerator in Birmingham, Alabama.
Sunthetics is developing software in tandem with electrochemical equipment for more sustainable and efficient chemical manufacturing. Sunthetics was a top 10 team in the 2020 Cleantech Open Northeast accelerator and a participant in the Techstars Heritage Group Accelerator for hard tech.
SparkCharge is making the world’s first mobile and intelligent on-demand EV charging network with a portable, ultrafast charging unit for electric vehicles. SparkCharge participated in the 2016 Cleantech Open Northeast accelerator and Techstars Boston in 2018 and recently had a chance to pitch on Shark Tank, where the company signed a $1 million agreement with Mark Cuban and Lori Greiner.
Cleantech Open is a nonprofit accelerator that takes no equity in its participating startups. This year, Cleantech Open Northeast will award $50,000 in cash prizes, including $10,000 for a carbon sequestration startup that completes the accelerator, and more than $300,000 in goods and services, including incubator and co-working spaces, consulting services ranging from marketing and communications to accounting to assistance on special projects, software packages for startups, and even financial assistance for startups participating in certain states.
To learn more, register for a Cleantech Open kickoff event between now and the April 18 application deadline. These are great opportunities to meet the Cleantech Open team, entrepreneurs, and mentors. Startups will have a chance to pitch!
Cleantech Open Kickoff Webinar 11, April 13 @ 7:00 PM Eastern, Register here
Cleantech Open Kickoff Webinar 12, April 16 @ 12:00 PM Eastern, Register here
Amy and I, through our Anchor Point Foundation, are supporting HBCUvc’s VC Lab and Fund. If you are interested in supporting this initiative, send a note to firstname.lastname@example.org or email me.
Several people pointed me at Hadiyah Mujhid, the Founder and CEO of HBCUvc. We talked a few times and I offered to support HBCUvc in any way that she wanted. She asked me to support the expansion of HBCUvc’s VC Lab and Fund.
HBCUvc is seeking to expand its VC Lab and Fund program that invests in Black, Indigenous, and Latinx entrepreneurs building technology companies. The fund is managed by university students participating in HBCUvc’s Fellowship programs. Fellows originate and execute startup investments under the supervision of HBCUvc’s investment committee, a team of experienced venture capital investors.
Currently, while there are similar funding organizations for other universities, there are no funding groups affiliated with investing or supporting entrepreneurs from the HBCU ecosystem. For perspective:
The lab and fund builds on the foundation laid in HBCUvc’s fellowship programs and provides direct investing experience for the fellows with the following goals:
Primary learnings for the fellows include:
Expansion of the VC Lab and Fund will help bridge this funding gap, support more entrepreneurs, and provide venture experience to create a pipeline of Black and Brown VCs.
Amy and I, through our Anchor Point Foundation, are supporting the Grid110 – South LA program.
Austin Clements was one of the Black VCs I reached out to after George Floyd was murdered with the question, “What are two things you are involved in that I can support with time, money, and influence?” I knew Austin from his time at TenOneTen Ventures (we are an LP) and I reconnected with him when he joined the Kauffman Fellows Program (Class 25).
Among other things, he told me about Grid110 and why he was helping create and lead Grid110’s new program in South LA.
Grid110 is a non-profit with a mission is to foster the most thriving, inviting and inclusive community for entrepreneurs in Los Angeles. They believe that anyone with the goal of becoming an entrepreneur should have the chance to pursue it and receive support along the way. Their work impacts individuals who are often overlooked by traditional entrepreneurial ecosystems, making the the entrepreneurial path more equitable, inclusive and accessible.
I committed to providing funding for the program at the end of the call. Since then, the program has launched with its inaugural class and has been up and running since July.
Over 90% of the selected companies are led by Black and Latinx founders, and the majority of founders are women. The companies are wide ranging — from CPG products to B2B SaaS, from early childhood support all the way to death care services, from for-profit Co-Ops to non-profit boutiques. Some are first time entrepreneurs right out of college, others have long track records of shaping business and culture.
Tonight, I’m doing a virtual AMA with the program. I’m very looking forward to it.
If you are interested in supporting Grid110, you can make a donation here.