A Bit Of Reprieve

Congress started to roll back some of the Dodd-Frank law last week.  This is good news.  The reason I started blogging way back when was because of the debate over Dodd-Frank.  You could see the freight train coming.

Sarbanes-Oxley was another act that was done in haste to combat one or two companies wrongdoing.  Again, the end result was that companies were staying private longer. A lot of that has been fixed but why did we do it in the first place?  Spite.  Populism.

Government regulation is keeping the middle class and poor from growing their wealth.  They are locked out of many types of investments because of the overlords fear.  It’s wrong.  One of my hopes with cryptocurrency is that this can be remedied.

Dodd-Frank was and is a terrible law.

The legislation gave the government the power to intrude deep into our lives.  The headline stuff on Continue reading "A Bit Of Reprieve"

My Happy Place

My wife and I left a day early for Memorial Day weekend.  Last summer, we rehabbed an old family owned cabin in Grand Marais, MN.  This was our first year opening up post rehab.  If I ever retire, this is where I will spend four months of the year.

Needless to say we were excited to get here.

I can understand how my grandfather, who built his cabin in 1974 next door to mine, must have felt each year.  The drive up.  A stop at Betty’s Pies in Two Harbors and if you are really early World’s Best in Grand Marais. We stop at a supermarket in Silver Bay called Zup’s where you can get awesome sausages and bacon.   Get on the dirt road (assess condition of road and hope no trees are down).  Then you pull into the parking lot and hope.

The cabin is smack dab in Continue reading "My Happy Place"

Life Changes

One of the fun, and sometimes sad things, for me about being a VC is the life changes that people in companies we are fortunate to be a part of go through.  Babies get born.  People get married.  Kids get sick.  People get sick.  Sometimes people pass away.

I think people get hung up on the numbers in VC.  What’s your cash on cash return?  What’s your IRR?  How much money did you make?  What was the pre-money when you invested?

They forget that this whole VC thing is a people business.  When I was on the trading floor it was the exact same thing.   If you are a good VC, you form a personal relationship with the people that let you invest in them.  After all, even though you can write a Harvard Business School case about every deal, it’s the blood and guts that matters, not what’s Continue reading "Life Changes"

Perpetrating a Fraud

I noticed Elon Musk wasn’t too happy with the press he has been getting.  First the wild melt down on the analysts call and now the tweeting.  Holman Jenkins of the WSJ wrote an article yesterday about it.

There have been other frauds out of the startup world.  The idea seems so magical and the person behind it is so good at selling it along with other tailwinds propelling it we want it to be true.  Theranos, UBeam, and others have proven to be snake oil.

I was involved in a deal in Chicago where a guy took a photo of himself, gave a fake Fed wire and wired a rubber check to an entrepreneur.  People are not always what they seem.

I think Musk is a tremendous entrepreneur.  I don’t think Tesla is a fraud.  It just doesn’t make money.

In startups, really stupid ideas that are cool if Continue reading "Perpetrating a Fraud"

Do They Have “It”?

One of the best parts of Ben Horowitz book “The Hard Thing About Hard Things” is his section on hiring and firing.  In it, he talks about hiring a guy to head up sales for one of his companies. The guy didn’t have a textbook resume.

He wasn’t from a name school.  I recall he was a college grad from Southern Utah.  That sounds like a salsa commercial in the making.  He didn’t have the right background.  But there was something about him that Ben liked and connected with and he hired him.

The guy crushed it.

I think that is one of the toughest things in hiring and firing is figuring out if the person has the right stuff to do the job they are being hired to do.

When people are analyzing other people, they often use heuristics.  They look to de-risk the decision and often they are Continue reading "Do They Have “It”?"

And That’s Entrepreneurship

This was a pretty good video. I don’t know if you ever heard Frank Zappa or not. He was popular when I was in high school and college. He was an avant garde artist. Not your typical rock and roller. He was pretty smart and an intellectual. He would be what I would call a classical liberal.

Zappa’s music wasn’t played on the radio a lot. He wasn’t a Top 40 kind of guy. He died way too young of cancer. I would love to see his take at the way the music world, and the world in general has evolved today. “I knew you’d be surprised.” Zappa aficionados will know which song that line comes from.

His words ring true when I think about venture funds. You hear a lot of crap these days. Lots of important sounding stuff. Lots of buzz words. Broken promises. Some of the Continue reading "And That’s Entrepreneurship"

If You Raise ICO Money

Yesterday Fred Wilson wrote about two failure modes in startups.  He’s right.  I want to riff off the comments and talk about ICOs.

ICO money is weird.   It is non-dilutive to the equity capitalization table. When it comes in, the accounting is more like an insurance company than anything else.  In an M+A transaction, it most certainly would be counted in the valuation of the company as cash, but I am not sure the tokens that sit on a balance sheet would be worth anything.

Let’s say I am a startup and I have $100K per month in top line revenue.  I’d be at Series A or on the edge of Series A.  Instead, the company does an ICO and raises $20MM in ICO money for a token.  Assume $1 per token and there are 100 million tokens with 20 million issued.  The token can be commoditized or securitized, Continue reading "If You Raise ICO Money"

Perspective on Tech: There Will Still Be Jobs

Our first daughter was born right about the time this ad ran. Pretty amazing how things changed 16 years later.  As this article pointed out, almost everything on this piece of paper now fits in your pocket and costs you a lot less.  This is especially true if you compare 1991 dollars to 2018 dollars. $1 then is worth $1.84 today.  The cumulative inflation rate is 84%.  The calculator that now is swag that you get for free was around $30 when I was in high school.  It also didn’t have a solar battery.  You can see the effect of new technology on the price of it.  It’s advertised for 39% off at $4.88 (on the way to please just take it).

Bitcoin enthusiasts will focus on the 84% inflation rate but they will be wrong.  Bitcoin can divided.  Gold hasn’t appreciated in value since Continue reading "Perspective on Tech: There Will Still Be Jobs"

Getting It Ready to Scale

Entrepreneurs are a fun bunch.  They look at the world differently.  Or, as my friend Tom aptly describes them, “They are doers”.  I love that description.  They come across problems, then they try and solve them.  Sometimes when you are around them it can be uncomfortable because they ooze intensity.

However, solving a problem and building a business are very different things.  Just because you built a better mousetrap doesn’t mean you are going to get wealthy selling it.  This is the huge trick in entrepreneurship.  How do you find product/market fit?  How do you get your business ready to scale?

In the B2C world, the path is pretty well beaten.  Get a bunch of users using a freemium model.  It might be an ad play.  It might be a lead gen play.  You have to tap into a big enough user base that you can generate the money on Continue reading "Getting It Ready to Scale"

What’s It Mean to Fire Fast

Yesterday I was at the Foley and Lardner Tech event in Chicago.  The first panel had some successful entrepreneurs on it talking a bit about their journeys.  One of the questions was on getting rid of people that were not propelling your company forward.

I want to make sure that everyone understands we are talking about employees here, not founders or co-founders.  That’s a different issue entirely.

One entrepreneur said, “Imagine yourself sitting behind your desk and having a person come into your office and tell you they were leaving the company.”

If you are happy they are leaving, it’s probably the right decision.

We have trouble firing people for a lot of reasons.  One is our own admission of failure.  It was probably the entrepreneur that hired the person in the first place.  It’s sometimes hard to admit that it’s not going well because you feel like you Continue reading "What’s It Mean to Fire Fast"

The Drag Along Right

Enough has been written about drag along rights that I don’t want to write specifically about them.  Here is what it looks like in a term sheet:

Drag-Along Agreement: The [holders of the Common Stock] or [Founders] and Series A Preferred shall enter into a drag-along agreement whereby if a majority of the holders of Series A Preferred agree to a sale or liquidation of the Company, the holders of the remaining Series A Preferred and Common Stock shall consent to and raise no objections to such sale.”

Brad Feld does a fantastic job describing what they are here (2005)

I have done enough deals to recognize when a lawyer doesn’t really understand venture.  Because of the explosion in various startup communities across the US and world wide, along with the explosion of crypto, I think it’s worthwhile to revisit the term and really understand Continue reading "The Drag Along Right"

What’s The Upside And Downside?

Coinbase is opening up a Chicago office.  Smart move by them.  Chicago is the best place in the entire world to find human capital talent for Fin Tech.  It’s not happenstance that Max Levchin grew up here, went to the University of Illinois and created PayPal.

If you are operating a B2B Fin Tech company and trying to do it outside of Chicago, you are operating with one hand tied behind your back.

Two nearby universities churn out all kinds of fin tech talent.  Chicago Booth is respected across the world for it’s graduates who get MBAs concentrated in finance.  There is also the legendary economics department at the University of Chicago.  The University of Illinois Gies College of Business has more CFOs of the Fortune 500 companies than any other school.

The largest exchange in the world is in Chicago, CME.  The largest options market in the world is Continue reading "What’s The Upside And Downside?"

Why You Can Be Bullish Crypto, Even If The Price Goes Down

One of the things you hear about crypto is that it is a fraud.  There is no doubt that some crypto will be a fraud.  They created an idea and some rudimentary tech and took the money and ran.  There is no doubt there will be future frauds in crypto.

Where there is money to be had, there is always fraud.  There is a Bernie Madoff just around the corner somewhere.  Remember, he was “respectable”.

A lot of people think that speculators entering the market is a sign of a more tangible fraud.  That’s not the case either.  Traders making wild predictions on price don’t help though.  The answer is “nobody knows”.

Nope, the true promise of cryptocurrency lies in something even deeper.  It’s ingrained into the human soul. Humans are hard wired to seek out gains from trade.  Division of labor is a part of that.  Allocation of resources Continue reading "Why You Can Be Bullish Crypto, Even If The Price Goes Down"

Sometimes It Doesn’t Work Out

One of the things that people hear about when it comes to startups companies is the rate of failure.  The failure rate is 50% or more depending on how you measure it.  If you are an investor with eyes wide open, you know that this is part of the game going in.  The path to exit is not linear and the path to failure is often not linear either.

The venture business is a home run game.  Other VCs have posted about how they swing for the fences.  Some have posted about how it’s the middling part of their portfolio that takes a lot of their time but if they can get it from 2x to 3x it sure makes a big difference in return.

Companies weave their way through this process. Abrupt failure is rare.  Usually it’s death by a thousand cuts and companies just seep blood until they Continue reading "Sometimes It Doesn’t Work Out"

Ycharts +TD Ameritrade

The news came out last week but it is worth highlighting. Ycharts integrates with TDAmeritrade now on their Veo One platform.  Ycharts is a B2B Fin Tech company I invested in back in 2009.  Their target market is RIA’s, wealth managers, hedge funds and other firms like that in the investor universe.

Ycharts is like a Swiss army knife for investors.

I have used it successfully to pick strike prices for options trades.  It is the best research terminal on the web.  It’s not for moment to moment trading. It’s an example of the quiet things going on behind the wall that you might not notice because it’s not on your phone.  But, they add a lot of value.

 

Some Interesting Fundraising Data

Here is something sort of weird that I found out yesterday. If you are an emerging manager raising a first time venture fund you are likely to raise it faster with a generalist strategy than with a focused strategy.  Totally flies in the face of what I thought.

I figured if you had domain experience and were raising a fund to go after opportunities in that domain you’d have an easier time of it.  Despite what you read, raising a fund is extremely hard.

Other data I show is consistent with past data.  First time fund managers do better.  Smaller funds do better and return more capital than super large funds.  The interesting thing right now in the market is that many funds are rushing to raise humongous amounts of capital to compete with the likes of Softbank.

It reminds me of trading.  When you were a small trader, it Continue reading "Some Interesting Fundraising Data"

The Bond Gods

When we were changing CME there were factions of people that said, “open outcry will not die”.  I remember doing some research about things that happened behind the wall.  Open outcry and the pit was the front, the main course.  I was interested in what was happening in the back of the restaurant.

What we found was that most of the brokerage in US Treasuries and other big credit markets was all done by “voice brokers” on a squawk box.   It was a telephone market.  Even in the Eurex Bund options.  That was interesting because the Eurex was this monolith that had wrested the German debt market from the LIFFE and was supposedly going to electrify everything and put us all out of business.

Yet, their option market wasn’t really an electric market at all even though it appeared to be.

In the Financial Times-no link because the paywall Continue reading "The Bond Gods"

Do You Trello?

My wife and I bought a place last year that is in need of a rehab.  She has been working on designing the rehab for almost a year.  It’s an older building so the place can be tricky. Besides that, it’s small and we want to use every last inch.  Nothing can be wasted.

She started using the app Trello.   Have you used it?  She’s used Basecamp before, but for this project really prefers Trello.

I was familiar with Trello because I knew a person on the marketing team, Stella Garber.  I met her because I was invested in FeeFighters and she was a part of that team.   She has been a positive force in the Chicago tech ecosystem.

I haven’t used apps like Basecamp, Slack or Trello a lot in my life but that is starting to change.  Which collaboration apps do you like the best and Continue reading "Do You Trello?"

Fitty Six

Hard to imagine it’s been 56 years since I was born but it is. Hard to imagine all the change in the world.  A lot of people are not optimistic.  They are angry.  I still get mad about some things but only the ones I can control.

I am actually more optimistic these days than I have ever been.

If you read this blog, thank you.  I started it because I was mad about Dodd-Frank and now it is what it is.  I have met many people through this blog and for that I am thankful. You add a lot to my life and that means a lot to me.  One of the nice things about having friends in Asia is you get wished a Happy Birthday before you go to bed and wake up when it’s your birthday on this side of the world.

There is a lot to

Continue reading "Fitty Six"