Resilience
When asked recently if I could describe the attribute that is most important to becoming a successful entrepreneur the word that came to mind was “resilience”. I don’t hear it talked about much in the context of entrepreneurship, but I think it perfectly captures the combination of the ability to bounce back from the adversity, challenge and failure that goes hand in hand with being an entrepreneur while at the same time recognizing and learning from your mistakes. The best entrepreneurs we work with have an uncanny ability to face challenges head on, recognize where they’ve made mistakes, learn from them and move on. That last part is critical – dwelling on your prior mistakes serves no one, slows you down and makes you less likely to trust your future decisions. Great entrepreneurs learn, bounce back and then go on to the next thing. …
August 21, 2018· 1 min read
What’s a Fair 409A Discount?
Quick note: I’m not your lawyer. I’m not giving legal advice in this post. Back in the olden days of venture capital, company boards had wide discretion in pricing company options. As is true today, there was a requirement that options be priced at or above the “fair market value” of the underlying stock (otherwise there would be tax consequences to the optionee and sometimes to the company as well). However the board could determine what that fair market value was and, generally speaking, there wasn’t a practical way that these valuations could be challenged. Most boards did some level of work to determine the FMV of a company’s stock but generally options were priced between 10% and 15% of a company’s then preferred price (because common equity sits behind preferred equity there is typically a discount applied to the FMV of common stock to account for this “overhang”). It was and is imprecise science but – at least in the case of venture backed startups – there wasn’t much harm in an option being priced low. It was a benefit to employees and a slight value transfer from equity holders to option holders (generally speaking in M&A transactions the value of the aggregate option exercise ends up allocated across the rest of the cap table). In a funny way it also benefitted the IRS in terms of tax collections as employees were taxed on the spread between the option and the value of the stock on exit and since these shares were typically exercised at the time of an exit were subject to short term capital gains. Higher strike prices distributes proceeds away from short term gain tax to equity holders who more typically are paying long term gains on the value that was shifted (I’m skipping a huge amount of nuance and detail here but the above is a general representation of how things work). …
August 15, 2018· 4 min read
Different vs. More
I’ve had this conversation with a number of founders recently and thought I’d post something here about it in the hopes that others see it/resonate with it as well. In the world of startups we often talk about “more”. More funding. More sales. More efficiency. More. More. More. And, of course, there are plenty of times when “more” is appropriate. When something is working, and working efficiently, doing more of it is often the right call. …
July 31, 2018· 2 min read
How to Build a Better Network
A few notes before I jump into this. First, I realized in running through several drafts of this post that it can be hard to talk about networking without coming across as a bit cold or transactional in how one approaches relationships. I hope the note below doesn’t come off that way – my aim was to talk about something that I really care deeply about and offer some ideas for how to strengthen and deepen the working relationships in your life. Secondly, I’d like to thank Patrick (who I reference below) for his review and feedback of several drafts of this post – it was very much appreciated (and needed). …
May 1, 2018· 6 min read
Friday Fun #6 – You Had One Job
As internet memes go, You Had One Job is a fun one. There are a few versions running around but the one I pay attention to is the Twitter handle @_youhadonejob1. Full of amusing pictures of things gone a little awry… Happy Friday!
April 20, 2018· 1 min read
What’s The Optimal Portfolio Strategy for a Venture Fund?
Last year I wrote a few posts (here and here) that talked about how skewed venture returns were. The key take-away graphic from that post is below – outsized returns on venture investments are rare. Much rarer than most people realize. A key question my post didn’t consider was what the ideal venture portfolio might look like in the face of these data. Steve Crossan took a stab at modeling the answer to that question using the data from my Outcomes post. It’s an interesting read – you can see his full analysis here. Interestingly, we pondered this exact question at the very start of Foundry Group. Nassim Taleb’s book, The Black Swan had just come out and we decided to read the book and discuss its implications for the venture firm we were about to start in late 2006. I imagine many of you have read the book (if not, I’d highly recommend it) – the basic premise is that humans do a poor job of understanding the likelihood of unusual or improbable events.Black swans are rare but just because you’ve personally never seen one doesn’t mean they don’t exist. Compounding this error, humans are also poor at understanding the causes of these unlikely events after they take place (we misattribute their causes and as a result continue to make poor judgements about their likelihood of reoccurrence). …
April 16, 2018· 5 min read
You May Have Too Many VCs On Your Board
Those that have followed my blog for any period of time know that I love the data that my friends at Correlation Ventures gather and write about (for example the data behind my post Venture Outcomes are Even More Skewed Than You Think or IPO or M&A). Today they released some data on the correlation between the number of venture board members around the boardroom table and the success of venture funded businesses which I thought was pretty illuminating and which confirmed a long held suspicion of mine. …
March 13, 2018· 4 min read
Friday Fun #5 – I have your friend’s phone
One of my all time favorites.
March 2, 2018· 1 min read
The Changing Venture Market In 3 Images
Want to visualize how the venture funding market is changing? Look no further than these 3 slides (from a presentation put together by our friends at Greenspring). I don’t think much commentary is needed here. Average round size at Series A is increasing dramatically. Venture is being increasingly driven by large rounds (especially at the later stages – this is significantly skewing the overall funding numbers that are being reported). IPOs are the new Unicorns (they’re becoming more scarce than their $1BN valued cousins)
February 13, 2018· 1 min read
Friday Fun #4: Ordinals, Texas Style
Two of my partners are from Texas (Brad, which surprises many; and Lindel, which surprises no one). This article on the various ways of describing direction in Texas was hallarious. Who knew, “down”, “out”, “over” and “up” were directions…
February 12, 2018· 1 min read