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”?"

Paying Your Dues

I was watching last night’s game between the Celtics and the Cavs and I was thinking about the fantastic young players the Celtics have on that team, Jayson Tatum, Jaylen Brown, Marcus Smart, and Terry Rozier. As good as those players are, it felt like the enormity of what they have accomplished this year and the stage they are now on caught up to them a bit in Cleveland.

I’m rooting for the Celtics in this series so I hope they turn it around in the next three games and earn their way to the finals.

But it would not surprise me if they don’t.

As their coach Brad Stevens said last night after the game:

“I mean, everything is tough. In this deal, it’s a blast to have to grit your teeth, get up off the mat and go after it again. That’s part of it.”

What Coach

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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"

When Should Entrepreneurs Write Their Business Plans?

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It pays to plan. Entrepreneurs who write business plans are more likely to succeed, according to our research, described in an earlier piece for Harvard Business Review. But while this might tempt some entrepreneurs to make writing a plan their very first task, our subsequent study shows that writing a plan first is a really bad idea. It is much better to wait, not to devote too much time to writing the plan, and, crucially, to synchronize the plan with other key startup activities.

A startup business plan seems a good idea at the very start because it answers basic questions like “Where are we now?”, “Where do we want to get to?”, and “How are we going to get there?”. By detailing out how to orchestrate complex interdependencies such as customers, competitors, operations, logistics, marketing, and sales, writing a plan first

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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 Entrepreneurs Should Ask Themselves When an Economic Crisis Hits

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After the stock market’s rocky ride in recent months, some analysts are wondering whether a new economic crisis might be around the corner. Judging by the economy’s overall performance, there is no need for immediate concern. But for entrepreneurs who prefer to be safe than sorry, the question remains: what should you do when the next crisis hits?

The answer is different for entrepreneurs and start-up employees than for investors. For most investors, the options are straightforward: sell shares to limit financial losses, hold shares and hope everything will blow over, or buy shares if there’s a belief the market has bottomed out. Either way, the gains and losses are mostly financial, and while the right choice may be hard to determine, the options are clear.

For entrepreneurs and employees, however, it’s not that simple. Imagine having put not only your money into a project, but also your sweat,

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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.


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"

Why Entrepreneurship Programs for Engineers Fail

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Entrepreneurs are known for their creativity and risk tolerance; engineers, mathematicians, and health care workers typically aren’t. Consider, for example, the ideal attributes of a civil engineer building an interstate bridge near your home. Do you picture a risk-tolerant engineer who is highly comfortable with uncertainty, or one who tends to prefer mathematical certainly?

Many people say the latter, but entrepreneurship — as well as the creativity and risk-taking associated with it — is an increasingly core component of commercial work, and one for which students in highly technical fields are ill-prepared. Blended entrepreneurial programs (BEPs) are attempting to answer this need by merging university-level entrepreneurial education with discipline-focused degrees in STEAM fields. It hasn’t been easy. Administrators of these programs say they are underwhelmed by graduates’ intentions to exploit commercial opportunities as entrepreneurs or to act as intrapreneurs after entering the workforce.

In our research examining how to

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Alex Iskold Startup Hacks

I’ve been friends with Alex Iskold for over a dozen years (I was an angel investor in GetGlue, which USV funded.)

Alex has been the Managing Director of Techstars NY for a number of years and I think he’s now run seven programs and built an impressive portfolio of around 80 companies.

I’m a huge Alex fan and love his writing. Recently, he put together a bunch of great blog posts on his site under a heading Startup Hacks. He has divided them into the following topics: Fundraising, Managing Investors, VC and Business Intros, Metrics and KPIs, Product and Marketing, Productivity, Founding Team, and Accelerator.

I’ve read them all. Some of my favorites include:

How to Keep Networking from Draining You

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Whether it’s attending startup events, social gatherings, or happy hours, networking is a necessary part of every entrepreneur’s life. Seventy-eight percent of entrepreneurs agree that networking is crucial to startup success, which is why there are a myriad of articles online about how to master and love the art of networking.

But networking can be extremely draining. Imagine the countless hours entrepreneurs spend talking, traveling, and socializing with contacts and potential investors. Excessive social interaction can be physically and mentally exhausting for anyone — even extroverts. In fact, many of the founders I coach describe networking as draining, saying it sometimes robs them of the energy they need to work on actual business operations.

As an entrepreneur, you can’t avoid networking. But there are techniques you can use to prevent and cope with networking-induced exhaustion:

Determine your optimum level of social interaction. Being with others can be

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