Tag: Venture Capital
I recently recorded two free courses with LinkedIn Learning. They are each under an hour long and broken up into a bunch of small segments.
The first one is on Raising Venture Capital and is based on content from the book Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist that I wrote with Jason Mendelson. Amy tells me that this is her favorite shirt from my current rotation of Robert Graham shirts.
The second one is on Validating Your Startup Idea which based on the book Startup Opportunities: Know When to Quit Your Day Job which I wrote with Sean Wise. Same recording studio (an Airbnb in Rancho Santa Fe) but a different shirt.
The team I worked with at LinkedIn Learning was dynamite. They reached out to me about this and I was happy to give them a day of my time to see how it worked. My goal was that in the worst case I’d give them some useful content to do something with.
There are some blog posts that every entrepreneur should read.
He covers three cases:
- Bullish aka You Are Absolutely Killing It
- Written You Off
- Too Early To Tell – Some Good Stuff, Some Challenges But A Lot To Do
The real gold in this post is in the Too Early To Tell category. Hunter has a great lead in:
“Here’s where I think founders and cap tables
shouldbe more proactive. The default is to let the firm assign another person at the fund (hopefully a GP) and then just keep working on the plan of record as if nothing changed. My experience suggests this will be neutral to negative long term,unless you end up in the “killing it” camp by next fundraise.”
Hunter’s notion that founders and the CEO should be proactive here is right on the money.
At Foundry, we periodically load balance our boards. This is a different phenomenon than the one Hunter is talking about, although we’ve learned to be clearer about what we are doing when we are doing it. I recall a personal low point when a founder/CEO who is a close friend asked to go for a walk and started the conversation with “You could have told me that you were leaving my board in a more graceful way than a one paragraph email.” Very true.
The lesson once again is things change, communicate clearly, and be proactive.
My partner Seth Levine has written several posts over the years on the
His 2019 post, titled creatively How To Get A Job In Venture Capital is excellent. Things have changed in the last decade since his 2008 post titled How to get a job in venture capital (revisited), which was an update from his 2005 post titled How to become a venture capitalist. All three posts are worth reading.
Following is a teaser for each of the key points Seth makes.
- Take the long view. Despite the relative increase in the number of venture firms, there still aren’t all that many jobs in
- Get involved in your community. Venture and entrepreneurship aren’t spectator sports and are best experienced from within.
- Get involved in companies. There are lots of great ways to help out companies directly.
- Network. Most people are terrible networkers. They treat networking transactionally and they are always looking to take from their networks vs. give to them (good networkers adhere to the #givefirst mentality)
- Engage. Lots of venture capitalists put out a lot of content and it has never been easier to engage with the venture community. Comment on
blogand Medium posts, follow VCs that you respect on Medium and Twitter, send them ideas and thoughts on what they’re writing about and investing in. Stay active and top of mind.
- Look for any way in. Your first job in venture is typically the hardest to get.
- Work for a startup or start one of your own. This was true 10 years ago and it remains true today.
- Invest if you can. With investment becoming slightly less regulated there are opportunities to put even modest amounts of money to work through platforms like AngelList and others. If you have the ability, it’s not a bad way to show an interest in investing and give you something to talk about in your networking.
- Persevere. Getting a job in
ventureis hard and can take a while. Likely it won’t happen. Keep the long game in mind, have fun while you’re going through the process and keep at it.
If you are interested in a job in venture capital, go read Seth’s posts How To Get A Job In Venture Capital (2019). And How to get a job in venture capital (revisited – 2008). And How to become a venture capitalist (2005).
I’m a recent conversation with Eric Paley, he gave me an amazingly wonderful analogy for how the career of a VC unfolds. He said:
“Being a VC is like taking a walk from Boston to San Francisco”
I’d never heard that before so I said: “tell me more.” He went on an awesome ramble, which I’ll try to capture below.
You start out on a sunny day in Boston. You put on your new, clean walking shoes. It’s just walking. It’s fun, fresh, and exciting. It’s a new experience, with lots of hopes and expectations in front of you. You get tons of support and encouragement from all of your friends. You meet plenty of new and interesting people. It’s just walking.
After a few days, you feel like you are getting into a rhythm. You feel you are good at this. It’s still easy and exciting, but now you know what to expect each day.
At some point, you find yourself in the middle of Ohio. It’s raining. Your shoes are worn out. You’ve got blisters and a sore ankle. Your backpack smells – a lot. While it’s still just walking, it’s not much fun anymore. But you grind through it, buoyed by the occasional sunny day, even though it’s now cold outside.
By the time you get to Chicago, you can’t remember why you are walking San Francisco. But you keep walking.
I’ve been doing this for 25 years. While it’s just walking, I’ve crisscrossed the country a bunch of times. And I keep walking.
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.”
I’m in Minneapolis with my partner Seth. We had a meeting at Best Buy headquarters, met with a gang from the Mayo Clinic who drove up from Rochester, spent the afternoon at the Techstars Retail Accelerator which is at Target headquarters, and had dinner with Revolar. We are at the Techstars Retail Accelerator again today, then at Leadpages for a board meeting, and wrapping up with an internal Target event and an external startup community event put on by Beta.MN.
It’s two full days of immersion in the Minneapolis startup community. As I crawled into bed last night after jamming through my email, I smiled and thought to myself that Seth and I had a good day with a bunch of people talking about the power of entrepreneurship – and how the entrepreneurs are the leaders – while getting to work with a bunch of entrepreneurs.
I woke up to Fred Wilson’s post Understanding VCs and nodded my way through it. I particularly loved how he started.
VCs are not heroes. We are just one part of the startup ecosystem. We provide the capital allocation function and are rewarded when we do it well and eventually go out of business when we don’t do it well. I know. I’ve gone out of business for not doing it well.
If there are heroes in the startup ecosystem, they are the entrepreneurs who take the biggest risks and create the products, services, and companies that we increasingly rely on as tech seeps into everything.
What Fred said.
VCs – go read his post and reflect on it.
Entrepreneurs – go read his post and take it to heart.
Fred – thanks for saying it so well in your inimitable direct style. Understanding VCs is one for the books …
If you’ve missed me, it’s because I spent a week in Australia. Ten days ago, after being there for a few days, I came down with salmonella poisoning. I’m finally starting to feel normal again although I’m still exhausted. This has easily been the sickest I’ve ever been.
While I was gone, the gang at Reboot put up the Reboot Podcast #45 – What’s Love Got to Do with It?- with Fred Wilson and Brad Feld which was a delightful conversation between me, Fred, and Jerry Colonna.
The three of us have a 20+ year history that gives me joy every time I think about it.
I first met Fred in the suburbs of Boston at Yoyodyne in 1996. It was also the first time I met Seth Godin. I had just started working with Softbank and had been commanded to go to Yoyodyne and do “due diligence” by Charley Lax. I had no idea what Softbank or Charley wanted in the way of due diligence, so I went, hung out with Fred and Seth, and wrote Charley an email after saying “Looks great – Seth is awesome” or something like that. Softbank (and Fred – via his new firm Flatiron Partners, which was partially funded by Softbank) invested.
I first met Jerry in a conference room at NetGenesis in Cambridge. I was chairman and we has three product lines at that point: NetForm (an HTML form filler that was getting its but kicked by Allaire), NetThread (which was super cool but getting its butt kicked by something – maybe again Allaire), and NetAnalysis, which was the first weblog analysis tool and became the focus of the company. We sold NetForm to a company called Virtuflex (which went on to become Channelwave, which I became an investor in) and NetThread to eShare. Jerry, again through Flatiron (he and Fred had become partners), was an investor in eShare. I joined the eShare board as an outside director. eThread was acquired by Melita International in 1999 after a crazy ride that included a midnight negotiating session on the 173rd floor of some building in midtown Manhattan to try to merge with iChat. I remember walking about at around 2am with Jerry, completely wasted and frustrated. Welcome to 1999.
Over the last 20 years, the three of us have worked on lots of things in different configurations, but I’d put the deep friendship we’ve developed ahead of all of our business deals. We’ve won and lost together, had great moments as well as deep disappointments. But throughout, we’ve stayed best friends.
I enjoyed making the podcast, I hope you enjoy listening to it.
The retrades have begun. Since the beginning of the year, I’ve experienced four retrades – two early stage, one growth, and one late stage – and I’ve heard of a number of others.
If you’ve never experienced a retrade, or don’t know what I’m talking about, it’s the situation when you have a firm deal agreed upon or a term sheet signed and are proceeding to closing a deal, when the investor (or acquirer) decides to change the terms of the deal. And, in case you were wondering, it’s always to make the terms worse, not better.
This happens regularly in M&A deals especially with buyers who are buying thinly capitalized companies or ones who don’t care about their long term reputation. It’s very prevalent with buyers who over time get the reputation as bottom feeders and is often something floated during the diligence process to test the conviction of the seller.
However, for the past six years or so, I haven’t seen retrades from VCs or angels investing in companies very often. Occasionally a deal will fall apart in diligence, some famously so, but they rarely have been retraded.
This lack of retrades, however, is not the historical norm. When I started investing in the 1990s, I experienced a lot of retrades from VCs at many different stages. While a term sheet isn’t binding, part of the reason it tended to be long and complicated was to avoid the retrade dynamic and spell out all the terms of the deal explicitly.
In the late 1990s into the mid 2000s, I viewed the risk of a retrade as continuous background noise in any deal – investment or M&A. The notion of deal certainty became important to me and I started spending more time working with investors and acquirers who I believed had a very high likelihood of following through on what they said they were going to do. In contrast, once I found myself being retraded by someone, I noted it and had a higher bar for working with them going forward, since I expected there would be a future likelihood of a retrade if I did something with them.
By the late 2000s, I had stopped being emotional about the notion of a retrade. I viewed it as a normal part of business, which impacted an investor or acquirer’s long term reputation, but was woven into the fabric of things.
And then the retrades more or less stopped. From 2010 forward, the entire VC market shifted into a mode that many describe as “founder friendly.” Investor reputation mattered at both the angel and VC level. Retrades were a huge negative mark on one’s reputation and word got around. As more and more investors showed up, valuations increased, and time to close a deal shortened, there was little tolerance for a retrade, so they disappeared.
As we are now about five months into a broad market reset, both for public and private market valuations, the retrade has reappeared in private investments. The first indicator of it is that it now takes longer for a deal to close. I expect the days of transactions closing 15 days after a term sheet is signed are probably gone for a while. While some lawyers are breathing a sigh of relief, a deal that takes more than 30 days to close often starts to have a little bit of retrade risk. And, when a deal stretches out over 60 days, there’s a lot of risk around deal certainty – both retrade as well as a full deal collapse.
Recognize that I’m talking about investments, not acquisitions. I never saw the retrade dynamic go away with certain buyers and certain type of acquisitions. However, what’s notable to me on the investment side is that the retrade is happening up and down the capital stack.
Amy and I watched The Big Short on Tuesday with my partner Jason and his wife Jenn. We were electrified as we walked out of the theater – all four of us loved it. Jason commented that it was a particularly impressive movie given the subject matter. I couldn’t stop saying “that’s the best explanation of what created the financial crisis that I’ve ever seen.”
I remember reading The Big Short in 2010 when it came out. I’m a huge Michael Lewis fan and gobbled it down in a day or two. As we walked to the parking lot, I commented that the big four actors (Gosling, Carell, Bale, and Pitt) in the movie totally nailed their roles. I particularly identified with Pitt’s character Ben Rickert (based on Ben Hockett) who lives in Boulder in the movie.
As we got into our car, Amy said, “What do you think is happening today that no one sees?” This was the underlying theme of the movie – there were some completely obvious things in hindsight going on at the time that no one saw, or wanted to see. A few did notice and made huge financial bets, in non-obvious ways – about what they saw and believed was going to happen. Their foresight and conviction paid off massively, but it scarred each of them in different ways that the movie dramatized extremely well.
I like some time to pass before I look at history. While some people are good at reflecting on the past year and looking forward to predict the next year (one of the best in the VC world is Fred Wilson – read his posts What Didn’t Happen, What Happened In 2015, and What Is Going To Happen In 2016), I’ve never been particularly good at a one year time frame. Instead, I generally like a ten year moving window to process things. So, the lens of 2005 (history) and 2025 (future) is the one I’m currently enjoying.
The Big Short is picking up major steam in 2005. The climax happens in 2008 and the denouement continues on until 2011. So, from a history window perspective, the time frame landed directly on my boundary. Subsequently, Amy and I went on a binge the past few days of other media around this, including the movie Too Big To Fail (which is really about what happened in the fall of 2008) and Inside Job (which covers a broader time range, but focused on 2005 – 2008).
As I sit here on January 2nd, 2016, I’m pondering “what is happening today that no one sees?” When I go back a decade, we were just making the decision not to raise another Mobius Venture Capital fund. My partners and I hadn’t yet created Foundry Group. Techstars didn’t exist. Venture Capital and entrepreneurship was dramatically out of favor. Early stage and seed capital was extremely difficult to find.
I remember having deep conviction that there was an enormous wave of technological innovation coming. I knew that many of the things that had been created in the Internet bubble were great ideas, but they were just – as Jerry Colonna and I like to say – a decade ahead of their time. Today, it’s pretty obvious that was correct. At the time, talking about this stuff was a conversation stopper of the sort that Michael Burry (played brilliantly by Christian Bale) seems to generate every time he talks to someone.
Unlike Mark Baum, who is based on Steve Eisman (and played even more brilliantly by Steve Carell), I’m not angry, cynical, and convinced the world is a giant, rigged, inside game. But I do believe that the vast majority of people have absolutely no idea what is really going on, especially those who are in the middle of whatever game they are playing.
While this comes out in The Big Short, it’s even more apparent when you watch (or read) Too Big To Fail. And, while watching Inside Job, you see people lying or trying to obscure the truth in almost every interview. You can’t fake reality – it always catches up with you.
In the mean time, I’m getting ready for the next season of Game of Thrones.
I don’t listen to that many podcasts, but I like ones that are a short (< 45 minute) interview format. I can listen to one of these on a run or a drive to/from my office.
Until recently, the only one I was listening to regularly was the Reboot.io podcast. Jerry Colonna, the co-founder of Reboot.io is a dear friend and his interviews are often magical.
A few months ago I noticed The Twenty Minute VC by Harry Stebbings. I can’t remember which one was the first one I listened to, but I thought his style and interview approach was great. It was fast, started with an origin story, but quickly moved on to the present and then ended with a set of short questions.
Jon Staenberg, a long-time friend from Seattle who did an interview with Harry on episode 034, dropped me the following email at the end of April:
He seems like a good guy, want to be part of his podcast?
Ever in seattle?
I told Jon I’d be game. Harry responded immediately and we did a podcast together six weeks ago. I’d been listening regularly since Jon introduced us and heard several great podcasts, including mentions of me in 055 with Jonathon Triest and 059 with Arteen Arabshahi.
Last week Harry releases two episodes 065 with me and 066 with my partner Seth Levine. I had fun doing mine but absolutely loved listening to the one with Seth, especially around his version of the Foundry Group origin story.
Harry promises to interview our other two partners – Ryan McIntyre and Jason Mendelson – so he’ll ultimately have a triangulation (or maybe a trilateration) of our origin story.
In the mean time, enjoy the interviews with me and with Seth if you are looking for a podcast to listen to.