Historically, almost everything I do uses a network model. Foundry Group runs as a network. If you take a look at the Foundry Group partner funds or talk to us about our investment strategy, you’ll immediately see the texture of a network. Techstars is a worldwide network that helps entrepreneurs succeed. All of my ideas around Startup Communities incorporate network theory. If you are involved in any organizations I’ve helped create, such as Energize Colorado, you’ll immediately recognize the network model underlying them.
For me, a network is very different than a social network such as Facebook, Twitter, and LinkedIn. Now that my entire life has shifted to a virtual one, I’ve been playing around with a lot of new network concepts and how they apply to work.
My long time friend Matt Blumberg just launched a new company today called Bolster. It’s a new way to scale your executive team and board. Fred Wilson, also a long time friend of Matt’s, has a great detailed post up today about it titled Bolster Your Management Team And Board that goes through Bolster in detail. A key section from Fred’s post is:
The Bolster team believes that scaling a high growth company means that you need to adapt, grow, and supplement your management team continuously along the way. And a big part of doing that is accessing “fractional talent” which means people that don’t work for your company full-time and permanently. All of this is outlined in the Bolster Founding Manifesto which explains why they started this company.
Sign up for Bolster if you:
While we are not direct investors in Bolster, we are indirect investors in three of Bolster’s investors: High Alpha, USV, and Costanoa. It’s a great example of our investment strategy around a network model.
I know the near term plans for Bolster and there’s an enormous amount of value coming quickly around executive and board hires, especially on the dimension of networks, inclusion, and diversity. I encourage you to give it a try and get involved at the beginning.
I got the following email from Reid Hoffman this morning.
Inspired by Lin-Manuel Miranda’s Hamilton, I produced a battle rap music video about centralized and decentralized currencies, pitting Alexander Hamilton against Satoshi Nakamoto. I hope the video gets more people talking about crypto and its evolving role in global commerce.
It seemed oddly coincidental with Fred Wilson’s post from yesterday titled Some Thoughts on Crypto.
I’m waiting patiently for someone to start talking about Crypto AI.
Insight Timer popped up this message after my daily morning meditation yesterday.
I’ve been meditating on and off for a while. But it’s been an on and off thing, not a daily habit.
In April, after some complex emotional dynamics (how’s that for a euphemism), I decided to start meditating daily. I missed a few days here and there and then in mid-May decided to cut the bullshit with myself and just do it first thing every morning when I woke up.
Last week, both Fred Wilson and Seth Godin blogged about the power of streaks and how they’ve both built daily blogging habits. Fred highlighted the same section of Seth’s post that I’m highlighting below, which is just pure gold.
Streaks are their own reward.
Streaks create internal pressure that keeps streaks going.
Streaks require commitment at first, but then the commitment turns into a practice, and the practice into a habit.
Habits are much easier to maintain than commitments.
I made a conscious decision many years ago that I wouldn’t blog daily, but regularly, partly in reaction to my desire to go off the grid for chunks of time (digital sabbath, weekends, weeks, or even longer in some cases.) I didn’t want the blog to be a habit that I did daily, but then took vacations from.
I’m the same with running. It’s a deeply developed habit that I love, but I know the importance of rest, so I don’t try to run every day.
But, for me, meditation is different. I’m 90 days into a daily routine and it has definitely become a habit. It’ll be interesting to see if the streak lasts 180 days, or 365 days, or 3653 days.
I spent the past few days in Tokyo at the Kauffman Fellows Annual Summit. Over the past five years, there has been a large increase globally in the number of venture capitalists and people interested in becoming VCs. As a result, an organization like Kauffman Fellows is more important than ever as it helps build an incredible community of the next generation of VCs to learn from each other.
In the mid-1990s, I learned how to be a board member by sitting on a lot of boards, learning from other experienced board members, and making a lot of mistakes. I still make a lot of mistakes (that’s that nature of venture capital, and of life in general), but I like to believe that I’m a much more effective board member than I was 25 years ago. That said, I still have my bad days and walk out of a board meeting feeling unsettled for one reason or another.
Recently, Mark Suster, Fred Wilson, and Seth Levine each wrote excellent posts on how to be a good board member. Each post is worth reading from beginning to end carefully.
Mark Suster: How to Be a Good Board Member
Fred Wilson: How To Be A Good Board Member
Seth Levine wrote a five post series: Designing the Ideal Board Meeting
I especially love Fred’s punch line, which I strongly agree with.
“Which leads me to my rule for being a good board member.
It comes down to one word.
If you care, really care, deeply care, like the way a parent cares for a child, you will be a good board member.”
If you are a board member (or interact with a board as part of a leadership team) and want to go even deeper on this, I encourage you to grab a copy of my book Startup Boards: Getting the Most Out of Your Board of Directors
And, if you are having a board meeting that I’m a part of, take a look at my post from 2014 if you want hints about My Ideal Board Meeting.
It’s the second week of December, which is about the time that all of the predictions for 2019 start occurring. Last week’s announcements of the confidential S-1 filing of Lyft, Uber, and Slack helped prime the pump for some of these. By the way, did anyone other than me think it was a strange turn of events that companies are now announcing their confidential S-1 filing?
Fred Wilson’s post Thinking Ahead To 2019 is worth reading. Unlike the endless stream of predictions that are about to come out, it’s an analysis of the spread between the public market and private company valuations. Fred is not predicting anything in particular but makes several useful observations, including the following:
“And yet storm clouds are on the horizon for the capital markets in 2019. Rates have risen significantly in the last eighteen months, pulling capital out of the equity markets and into the fixed income markets. There are some leading indicators that suggest a business slowdown is on the horizon, which would be the first one in the US in a decade. And, of course, the situation in DC is getting dicey and that will weigh on markets as well.”
Last week I was talking to a friend who is a growth investor. He and his firm see most of the bay area growth deals (e.g. the unicorns stampede to their front door). He made an observation that a number of deals he’s now seeing are for flat rounds with companies that need to raise more money to keep going and he’s feeling the slow down of investor interest at this level. This dynamic is reflected in the article Scooter Firm Chases Funding to Staunch Losses about the current Lime and Bird financings.
Any student of history knows that there is a linkage between the push to the public markets, demand dynamics of the public markets, and the availability and attractiveness of capital in the private markets. If you lived through the Internet-bubble between 1999 and 2002 you know this cycle well. And, you know that the companies that survived it were the ones with very strong fundamental businesses (e.g. Google), regardless of whether they were private or public at the time.
At the same time, entire categories collapsed. The web hosting business – lead by Exodus – almost entirely went bankrupt or was restructured. Out of this mess came several long-term companies and a huge number of pennies on the dollar type acquisitions. If you were on the winning side of this, it was incredibly lucrative, because even in a massive collapse there is a huge long-term opportunity. But you had to be thinking about the economics and capital structure of the business, versus just chasing growth with more equity dollars.
I have no interest in predicting anything, including how any specific category or company will perform. I also have no idea what the timing of anything is. I do know that if you are an entrepreneur or investor, you should pay attention to the context but be very focused on building a durable long-term business. And this moment in time is one that feels like you should be aware of how much capital you have, how you are spending it, and when (or if) you will need to raise more.
Remember – it can all go to zero (a post I wrote when Bitcoin was at $12,000.)
While it’s easy to tell people things, it’s much more powerful to learn things. And, as I get older, I see the same lessons being learned by subsequent generations. While this isn’t a post that says “everything is the same as it was before”, there are foundational lessons in life that play out over and over again.
I spent the weekend with a friend from the last 1990s who was the lead banker on the Interliant IPO (I was a co-founder and co-chairman.) Last night, at the Aspen Entrepreneurs event, I was asked to describe several failures and I rolled out my story about Interliant, which, for a period of time (1999 – 2000) appeared to be hugely successful before going bankrupt in 2002. If you like to read IPO prospectuses, here’s the final S-1 filing after INIT went effective and started trading on July 8, 1999.
A few days ago, Fred Wilson wrote a post titled Capitulation? In the middle, he’s got a sentence about the theme of the post.
“Now, the crypto markets are in the eighth month of a long and painful bear market and we are starting to see some signs of capitulation, particularly in the assets that went up the most last year.”
On January 16, 2018 (almost seven months ago) I wrote a post titled It Can All Go To Zero. While I included a lesson from the Interliant experience, I highlighted the top 10 crypto prices, which had already fallen 30% – 50% from their high points a few weeks earlier.
Compare those to the prices right now.
Bitcoin is down another 50% (from 12,001 to 6,157). Ethereum is down over 75% (from 1,118 to 264). XRP, holding strong as the third most valuable cryptocurrency, is down 81% (from 1.37 to 0.26). Stellar, which rallied from #9 to #5, is only down 55% (0.49 to 0.22).
My guess is there are a lot of people who wish they sold their XRP at 1.37. Or, maybe around its all time high of 3.83 on January 4, 2018.
Capitulation in markets is one of those endless lessons that gets learned over and over and over again. My first moment with this was Black Monday in 1987. But that’s not when I learned the lesson. My foundational moment, where I really learned the lesson, happened during the collapse of the Internet bubble in 2000 and 2001.
It’ll be interesting to see if this is the crypto generation’s capitulation lesson moment.
I love today’s post from Fred Wilson titled The Valuation Obsession. It has some good hints in it about valuation vs. ownership dynamics for founders, employees, and investors. It also calls out the silliness about focusing on the wrong things.
Go read it.
I’m even a bigger fan of a statement Fred makes in the post that William Mougayar calls out in the comments.
“I like to invest in companies that smart people are joining. Capital should follow talent, not talent following capital.“
This is not just a statement on capital. It’s another hint to the importance – to a founder – of building an awesome team at every level of the journey. It matters at the beginning, as things ramp, and as a public company.
Capital should follow talent. That’s a line I know I’ll be using. I’ll try to remember to say “Fred Wilson says capital should follow talent, not the other way around, and I strongly agree.”
The past is ungraspable,
the present is ungraspable,
the future is ungraspable.
– Diamond Sutra
Now that it’s 2018, the inevitable predictions for 2018 are upon us.
I’m not a predictor. I never have been and don’t expect I ever will be. However, I do enjoy reading a few of the predictions, most notably Fred Wilson’s What Is Going To Happen In 2018.
Unlike past years, Fred led off this year with something I feel like I would have written.
“This is a post that I am struggling to write. I really have no idea what is going to happen in 2018.”
He goes on to make some predictions but leave a lot in the “I have no idea” category.
I mentioned this to Amy and she quickly said:
And that, simply put, is my goal for 2018.
As I read my daily newsfeed this morning, I came upon two other predictions that jumped out at me, which are both second-order effects of US government policies changes.
The first is “tech companies will use their huge hoards of repatriated cash to buy other companies.” There is a 40% chance Apple will acquire Netflix, according to Citi and Amazon will buy Target in 2018, influential tech analyst Gene Munster predicts. The Apple/Netflix one clearly is linked to “Apple has so much cash – they need to use it.” While the Amazon one is more about “Amazon needs a bigger offline partner than Whole Foods”, it feels like it could easily get swept in the “tons of dollars sloshing around in US tech companies – go buy things!”
The second is “get those immigrants out of the US, even if they are already here and contributing to our society.” H-1B visa rules: Trump admin considers tweak that may lead to mass deportation of Indians is the next layer down, where the Executive Branch can just modify existing rules that have potentially massive changes.
I’ve been reading The Lessons of History by Will and Ariel Durant. Various Cylons on BSG had it right when they said, “All of this has happened before. All of this will happen again.”
I’ve had an emotionally challenging morning so far. I woke up too early and was deeply agitated. I tried to get rolling, couldn’t, and went back to bed. But I wasn’t able to fall asleep and my brain kept cycling on all the political chaos and societal hatred that is going on. I’ve tried to compartmentalize it but it broke through again the last couple of days after Charlottesville.
I got up and realized the Internet was down. I decided to just go running. Two minutes in, Brooks came up lame and I walked him back home. I started again with Cooper but my left knee was a little twingey so I decided to bail and take a few rest days. The Internet was still down.
Amy and I then spent time at breakfast talking about how to reconcile the intolerable. I felt a little better and was helped by Fred Wilson’s post If You Lie Down With Dogs, You Come Up With Fleas and Mark Suster’s post Finding My Tribe — The Upside of the Downcast Year.
I’m off to grind through a massive backlog of email today. I leave you with a beautiful video of the eclipse from 2015.
Over the weekend, Mark Suster and Fred Wilson each put up awesome posts discussing the idea of profitability in startups. Mark’s is a master class about how to look at the financial characteristics of a startup and Fred’s discusses what he’s been working on with some of his more mature companies.
They are both worth reading right now. I’ll be here when you get back.
Between the spring of 2000 and the end of 2001, I had the worst, most stressful, and most painful business period of my life. While I’m sure the financial crisis of 2008 was worse for many people, for me it paled in comparison to the misery of this 21-month stretch.
A very simple thing happened that year in my world. The market shifted from rewarding (and funding) growth to rewarding (and funding) profitability. It happened over a few quarters, but with the perspective of time and age, it feels like it happened overnight. I remember the trigger point being a 3/20/2000 article in Barron’s titled Burning Up: Warning: Internet companies are running out of cash — fast. I was on the board of several companies on their list of 100 public companies that would be out of money by the end of 2000 and remember that my reaction to the article was anger, frustration with being maligned, and incredulity that Barron’s would write such an irresponsible article.
My reaction was stupid and immature. Instead, I should have paid attention to the message, thought about it, and taken appropriate action. Instead, I, like many of my colleagues (investors, board members, founders, and CEOs), operated in a state of blissful denial until everything blew up.
I learned that the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment.
I was too inexperienced in 2000 to understand this. Given the exuberance, many of my mentors, who had been through other financial cycles, chose to ignore this. The phrase “it’s different this time” echoed broadly throughout the land. I succumbed to the siren song of growth at any cost and paid the price – both literally and figuratively.
Now, I have zero prediction for when the markets will shift from rewarding growth to profitability. Instead, I operate under the assumption that this can happen at any time, and the best companies can grow quickly and either be profitable or be able to become profitable by making manageable modifications to the cost structure within whatever cash constraints they currently have.
Some version of this was on my mind when I wrote the post titled The Rule of 40% For a Healthy SaaS Company in 2015 and the post titled Is 2017 The Year Of Flat Headcount? earlier this year. While I think about this regularly, Mark and Fred’s posts prompted me to pile on to their point and write about it.
There’s a special bonus in Mark’s post, which is in the section titled Revenue is Not Revenue is Not Revenue. He does a nice job of discussing the importance of understanding gross margin and has a line that made me smile.
If you’re shaking your head and thinking, “duh” I promise you that even some of the most sophisticated people I know get off track on this issue of “gross revenue” versus “net revenue.”
I’d add that this includes getting confused about GMV and MRR when talking about revenue and amazingly occasionally confusing revenue with income. It keeps going, when one asks the question “does profitability mean being EBITDA positive, cash flow positive, or net income positive? Or something else?”
If you are a CEO of a company and any of this makes you nervous in any way, I encourage you to grab a few of your investors who have been investing in startups for at least 20 years, take them out to lunch, and talk through these issues with them to understand them better and figure out whether or not to care about this in the context of your company.