There have been many different approaches to ranking VC Firms over the years I’ve been an entrepreneur and a VC. Each approach I’ve seen has issues. Most are easily gamed or have statistical bias issues.
I got the following note from Roy Bahat at Bloomberg Beta a while ago about a new approach called Founder’s Choice.
We and a few other firms sponsored a “founders choice” version of the Midas List, with a legit (IMHO) rating methodology, built by two Penn students. No vitriol possible (unlike The Funded, etc.). We’ve wanted this to exist for a long time — NPS of us as a firm is too forgiving a metric, everyone scores well.
My first question was:
How are they dealing with sampling bias on this one? For example, we send to all our founders and say “please fill this out and give us high scores.” Mostly just curious on methodology.
Roy had a thoughtful answer that made me a believer after a few more questions.
You are literally the only one (and I’m relieved someone did) to ask on sampling bias. For context, the general way it works is founders auth with LinkedIn and then the product tosses away their identity (or, more accurately, only keeps a hash and disconnects it from their ratings). Then the founders get asked for pairwise comparisons of only the VC firms who have backed them (so this is about who founders like as investors, not who has sour grapes from a pitch). How this addresses, to a degree, sampling bias:
1. Dampens outliers: because it only asks for pairwise comparisons between firms (like an ELO rating in chess, if you’re familiar), one very un/happy respondent can only affect so much, and same for a sample. (As opposed to giving one firm a 10 and everyone else 2’s or something.)
2. At the same time, it forces comparisons. A firm can ask founders to rate them highly, but ultimately founders have to choose who gave them more value. Can’t rate everyone a 10.
3. This is why we’re looking for as broad participation as possible, because the sampling bias will actually probably most show up in which firms even have enough ratings to count. (Like ELO in chess, more ratings doesn’t necessarily help you — you get more “points” if a founder rates you as better than a highly-rated firm. More ratings can just as easily hurt as help.)
If you are a founder, go spend five minutes and anonymously rank your VCs on Founder’s Choice.
Registration for the Venture Deals Fall 2022 course is open.
The course is free and starts on September 20, 2022. This is the second time we are running the new version of the course (v2!) that was co-created with Techstars and Kauffman Fellows.
If interested, sign up now. I hope to see you there in one of the AMAs we will host for anyone who takes the course.
Registration is open for the 2022 Q4 Leadership Bootcamp, which is happening in Boulder, Colorado, on Nov 10-13, 2022.
Regular readers of this blog know about my long-time (back to 1996) friendship with Reboot co-founder and CEO Jerry Colonna. What you may not know is that several years ago, Jerry and his partner Ali Schultz moved exactly 0.8 miles away from me (there is one 40-acre parcel of land between us.) In the evening, when we are both in Boulder (well, Longmont), he sits under his Cottonwood Tree, I sit 0.8 miles away on my couch next to my pool, and we text and wave at each other.
I’ve been to several Reboot Leadership Bootcamps as a special guest. They are unique and powerful experiences for entrepreneurs. As a bonus, the Reboot Retreat Center is actually on my property in a building called “The Carriage House.” Amy and I don’t charge Reboot for the use of The Carriage House – it’s our gift to entrepreneurs and Reboot for this amazing experience.
If you’re looking to reboot and refresh your leadership, join Team Reboot this November 10-13, 2022, in Boulder, CO, for their fall Leadership Bootcamp.
Of all the business and technology writers out there, including bloggers, I think the best one, at this moment, is Matt Levine. He’s the only person currently writing on Planet Earth that I find myself reading every word of everything he writes.
For the last few months, he has been mostly writing about three topics:
- The Twitter Elon Musk Soap Opera
- Why (and How) Much of Crypto Is A Plain, Old, Ponzi Scheme
- Other Crazy and Fucked Up Things in Finance
For a flavor of his writing, read the following 11 chapters of Matt’s writing (listed in chronological order). Then, subscribe to his newsletter and get a magnificent medium-form article in your inbox every other day or so.
- Meme Stocks Were Too Good to Robinhood: Also Russian debt and crypto depositors.
- Don’t Cheat on the Ethics Exam: Also CoinFlex, Spirit and cheerleading for risk.
- Crypto Loves Its Shadow Banks: Also Archegos, CLOs and bond market liquidity.
- Say No to YES: Also 10b5-1 plans, crypto bailouts, Tether, MicroStrategy and ethics rules.
- Archegos Analyst Wants His Money Back: Also Russian assets, universal owners vs. labor and KYC/SOW.
- Voyager Has Some Tokens: Also vibes and Ben & Jerry’s.
- Nickel Big Shot Called the Shots: Also GameStop, SoftBank, Luna, Percent and index funds.
- Elon’s Out: Musk lost interest in pretending to buy Twitter.
- The Price of Not Buying Twitter: Also Twitter miscellanea, Celsius and Axie.
- I Was Told There’d Be a Cake Merger: Also a threatening letter, a toehold stock position, a venture-capital paper and a tweet from an undisclosed location.
- Twitter Still Wants Musk’s Money: Twitter sued Elon Musk for an outcome that no one wants.
Matt – thank you for making me snort or laugh out loud several times on the days you write.
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.
My partner Ryan shared this with me. It’s a 10-minute video showing the evolution from System 0.97 to macOS 13 Ventura. I had an original Macintosh 128K which is now enjoying its retirement at the Media Archaeology Lab. Enjoy!
The 2nd Edition of my book Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors launched today.
My co-authors, Matt Blumberg, the CEO of Bolster, and Mahendra Ramsinghani, were a joy to work with.
While the 1st Edition was a good book, I wasn’t particularly proud of it because I didn’t feel like it was my best writing. We worked hard on this edition, and I now feel like it’s equivalent in quality to my other books.
Effective boards are critical at this moment in the entrepreneurial ecosystem. While I hope this downturn is short, I think it will be long and painful. In either case, highly functioning boards can help startups navigate this moment, while dysfunctional and weak boards can accelerate the demise of startups.
If you have a board of directors, want to have a well functioning one, are a director, or want to be a director, I encourage you to grab a copy of Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors.
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:
- Multiple liquidation preferences (you’ll start seeing lots of 2x and 3x on new money)
- Participating preferred on new money
- Weird ratchets (other than the typical weighted average), including full ratchets, on next round financings
- Annual preferred return, including PIK and cash pay on new money
- Blocks on all kinds of things that a new investor should not have blocking rights on
… 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.
About a year ago, I decided to take a summer vacation from blogging. I didn’t feel like blogging when summer ended, so I extended my blogging vacation indefinitely. I figured I’d wake up one day and feel like blogging again or not. That summer vacation (from blogging) lasted a year.
Initially, I was working on a new book that I got bored of midway through the summer. I put it on the shelf with several other partially completed books. Google Docs now has a surprising number of my started but unfinished books.
Sometime in the fall, Matt Blumberg (Bolster CEO) approached me about doing a 2nd Edition of Startup Boards. Matt and I were on the board together of Return Path, his previous company, for almost 20 years. So when Mahendra Ramsinghani came out with the 1st Edition of Startup Boards in 2013, Matt gave me plenty of feedback on the book. Then, in fall 2021, he correctly suggested that the book needed a significant refresh.
While I always felt the 1st Edition was an important book, I never loved it. Mahendra and I worked hard on it, but I felt like I forced a lot of my writing at some point. Long-time readers of this blog know I had an extended depressive episode in the first half of 2013, and this book was one of the chores that I felt like I just had to get done in that period. Mahendra was kind and patient with me, but I’m sure there were moments when he wanted to scream something like, “Brad, will you just do the writing you said you’d do so we can get this book finished?”
So, we decided to do a 2nd Edition which is now finished and shipping on 6/15. I’m psyched about it. Matt contributed a lot of new content, and I had a chance to rework and refactor the entire book. I had plenty of energy for it, and, given that I’ve written a few more books and thousands of blog posts since 2013, my writing has continued to improve.
Early in the refactoring, we got feedback from several women that the 1st Edition wasn’t very accessible to them because all the sidebars and quotes were from men. So I made a Google Sheet of all the sidebars and quotes, and my brain broke for long enough that I had to go for a walk. So even though I thought I was self-aware and engaged in gender equity in tech in 2013, my actions, at least concerning this book, didn’t match my words.
Subsequently, we replaced about 50% of the sidebars and quotes with new ones from women and people of color. We also changed the pronoun dynamics to use the Singular They, which I am trying to do in all my writing (if you are interested in this topic, Khan Academy has an awesome video.)
Startup Boards: A Field Guide to Building and Leading an Effective Board of Directors 2nd edition launch day is 6/15. If you are interested, pre-order it now.