14 for 14. Homebrew’s first fund (2013-2015) has 20 core investments of which 14 went market for a Series A. All 14 successfully completed this fundraise. The six who didn’t go out for a Series A either (a) shutdown/acquihired prior to this milestone [founder disagreement; lack of product traction], (b) exited due to an early M&A opportunity or (c) in one case, is currently an ongoing concern that hasn’t needed to raise additional capital.
I was thinking about this stat last month while preparing a slide deck for our annual LP meeting. As an industry we often say a startup “failed to raise” when a funding round doesn’t come together and while it’s factually correct, in some ways it strikes me as a downstream implication of a core issue: they didn’t fail to raise, they failed to execute. The company most likely did not accomplish the milestones required to move their business forward. The lack of a funding event was merely the endcap, not the cause.
Why do I raise this distinction? Because as an early stage lead investor one of our responsibilities is to help a company think through its strategy and provide feedback on the pace and quality of execution. If you’re executing well against the right strategy, funding will follow. Yes there’s a funding process and helping founders navigate that successfully is a key part of a venture investor’s value, but a CEO shouldn’t rely on “failing to execute but successfully raising” (even though this happens too).
So it makes me happy to look back and see so many Fund I companies who successfully executed in their early years. On the flip side, we had one team which “successfully executed but failed to raise” during a post-Series A fundraise. I still think about this one a lot because they did their job and the market just turned on them in ways they couldn’t fully control. While their execution wasn’t flawless it felt more than sufficient to get a round done. They “failed to raise” but we’d back that CEO again and again and again.
If you’re worried about fundraising, first worry about executing – and feedback on whether you’re executing on the right things. For the most part that’s under your control and it’s, in my experience, rare for a company that’s executing well to fail to raise a Series A.
I’ve lived in San Francisco long enough to consider myself a Local, if not a Native. But no number of elapsed years or distance can dull my strong attachment to New York City, my birth city. A combination of family and work obligations pull me back at least a half-dozen times annually. That frequency, plus some serendipity, has allowed me to inhabit my hometown during some interesting 21st century moments despite lacking residency. I was walking Manhattan’s streets a few days post-9/11 and the homemade “missing” flyers taped to any surface to which an adhesive would stick, still stands out vividly in my brain. Election nights where the streets were filled with celebration or with quiet resignation. Spontaneous celebrations following sports championships. The memories span all emotions.
In autumn I’m an especially frequent visitor – it’s my birth season, my favorite climate-wise, and the chance to get some last meetings done before the holiday months. So in September 2011 the pull of weather, family and work gave me enough reason to jump on a plane but those were all excuses. What I really wanted to see was Occupy Wall Street.
II. Occupy Wall Street
There hasn’t been much sustained IRL protest movement in America recently. Marches that last a few hours, sure – we’ve attended several since the Trump inauguration. Important displays of anger and resistance in the face of police brutality (St Louis, Baltimore, others). But these are episodic and then everyone returns to their normal day-to-day, often with very little having changed. Occupy Wall Street gripped me for a few reasons – its location was familiar to me, the grievances were varied (at first a feature, then a bug) and the tent city seemed to create actual consternation among public officials on how to proceed.
To refresh/remind folks about the Occupy movement:
Occupy Wall Street protest began on September 17, 2011, in Zuccotti Park, New York City.
The sentiment of uprising that led to the Occupy Wall Street movement in the US has sometimes been attributed to the Tahrir Square revolution that happened in Egypt earlier in 2011.
So about my visit…. while I was suspect that this coalition of randoms – it started to attract anyone who had a progressive-leaning cause – could make a policy impact, I was impressed by the resourcefulness and dedication of those who disrupted their lives to tent up Wall Street. And started me wondering what type of outrage or frustration could catalyze an ongoing Occupy community, one that might even be 10x larger or more durable.
III. Occupy White House
I’m not a fan of the guy at 1600 right now. I’ve written more checks and spent more time on political issues since 2016 but it has all stayed within a box of “nights and weekends.” Funded out of appreciating assets rather than dollars which would impact my daily routine. But I carry a fear that one day I’ll wake up wishing I’d done more to push back against the destructive behavior this administration perpetrates on our institutions, norms and vulnerable peoples.
There are other citizens who share my alarm – some I know personally, some are just talking heads on TV and in the newspapers, some are Twitter accounts that might be real. Or not. But yet no real physical protest of durability has resulted. Day long marches, sure. But no Occupy White House. And certainly nothing at the scale we’ve seen recently in South Korea, where millions of people continued protesting corruption until they saw results.
I don’t have an answer for why there isn’t any meaningful Occupy White House movement that has the potential to minimally display ongoing resistance to this administration and, more hopefully, snowball into a call to action, at least by those who believe impeachment is the right answer. But I’ve ended up with three potential explanations – one Optimistic, one Realistic, one Pessimistic. Note, I’m not advocating for any of these or assuming a POV. Just trying to conceive of why something I’d expect to happen isn’t happening.
Optimistic – the ballot box works and the system isn’t broken (hold aside gerrymandering, voter suppression, $$$ influence and so on)! While the majority of Americans polled disapprove of Trump, the population as a whole haven’t lost trust in democracy, and will express this at the polls in 2020. This explanation gives a lot of importance to the 2018 midterms, when decisive victories by the Democratic party sent a message. Respect the wisdom of the crowd, and the crowd says we’re going to get through this.
Realistic – the average person’s life hasn’t been impacted that much. It is absolutely horrific that there are vulnerable populations put in harms way by this administration. But there’s always some degree of suffering and unfortunately unless it impacts you personally, we’re all just focused on our lives. All politics is local and Trump creates a lot of sound and fury, but it’s superficial and our lives stay the same.
Pessimistic – No one is willing disrupt their own lives to create change any longer. Consumerism, social media and complacency have turned us into apathetic complainers who are willing to tweet but not to cancel our brunch plans, let alone stop showing up for work or SoulCycle to camp outside the White House. And even if we were, what good would it do? Nothing changes anyway. The frog is being boiled because no one has created a red line for themselves to say NO MORE.
Will we see a more enduring movement before the 2020 elections? Something which isn’t *just* about mobilizing people to town halls and the election booths but a growing group of citizens who are willing to disrupt their lives to send a signal? What should I reading, following or listening to, to understand why there seems to be a more decentralized (and virtual) protest movement right now?
I froze my credit file across all three bureaus. I’ve been comped various identity theft and monitoring services which seem to pepper me with really uninteresting updates about their “dark web scans” and erratic increases or decreases to my card limits. And I have Google Alerts set up for my social security number and other personal information that may one day make their way to the public web. These minor frictions aren’t all attributable to the 2017 Equifax breach but that’s the incident which sticks in my mind to this day. Because what do you do about a company like Equifax?
Moody’s just downgraded their outlook, which has real implications for their financial wellbeing (borrowing interest rates, etc). Is the market the ultimate regulator? Businesses and consumers decide that a hacked institution is no longer someone they trust, and Equifax experiences more difficulty hiring, partnering, and so on? Or does government have a bigger role to play in ensuring those companies entrusted with our most valuable personal data be held responsible for its care?
I *want* to say ‘yes, regulators do something punitive!’ but to be honest, I don’t know exactly what happens in situations where there perhaps wasn’t a single individual criminally negligent or culpable, but just a bunch of underspending or underperformance by those put in charge. Slap on the wrist fines not only don’t move the needle but actually do harm, because they erode public faith that their public institutions give a shit about the average person: trivial penalties which prove regulators and CEOs act out punishment theater in public and then hang at the same country clubs on the weekends.
But the other side of the spectrum is also problematic. If you shut down the company or deliver such a set of damages that you are effectively eliminating its ability to compete, who are you really impacting? Most likely the 99% of employees who had nothing to do with the issue at hand. They’re the ones with retirement plans in company stock, pensions at risk. If you want to kill the company, what about the collateral damage?
None of this is even close to my area of expertise but I remain unsatisfied with the answers to questions like “In wake of the Equifax breach, how do we prevent this from happening again and repeatedly?” Because it does all the time.
My obsessive focus on parsing the language of introductions previously resulted in a discussion of “the vouch,” but tbh that’s 101 level stuff. Let’s go deeper….
Introductions 201: The Favor
Another type of email frequently in my inbox is a light request or inquiry from an acquaintance to do something which is basically of unidirectional value for a friend of theirs. Usually around career advice, startup feedback or similar. If it can be fulfilled very quickly my general disposition is to try and help, especially if the FOAF is an URM. But often the ask actually has some effort associated with it – let’s say 15-30m worth (a chat, reviewing a deck and sending comments, trying to find the right person for them within an org I know, etc). I love helping, but that’s time which gets removed from Homebrew or my family, both of which are higher priorities for me. So what to do?
Often, rather than declining outright I’ll ask the requester “is this a favor for you? If so, of course I’m happy to help. But if not, I rather pass at this time.” My hope is two-fold. First, they’ll make sure the requester is going to make good use of my time and reflect well on them. Second, I’m reminding them there’s the potential of reciprocity later. That I might need help back at some point and I would expect they treat that request with an appropriate prioritization.
Now, I don’t mean this in the Godfather way, and I don’t keep a ledger of favors (which totally sounds like the title to an Iron Maiden album!). I just want everyone to remember that time is a valuable resource and we should protect our own and be thoughtful in asking for it from others. A reasonable percentage of responses back do say ‘yeah, it’s a favor for me’ (in which case I jump right on it), while the rest end up not being that important. I really should do more follow-up with those who withdraw the request to make sure they don’t feel judged or sour from the interaction (maybe I’ll just send them this post), but I think I’m directionally correct on this one, if not perfect.
“Ugh, he’s such an asshole,” a friend sighed to me about a mutual acquaintance. I shrugged, and proceeded to explain my complicated relationship with some folks who I know are assholes, or selfish, or blowhards, or any other combination of qualities that can be disqualifying. “Yeah, but he’s consistently an asshole,” I replied, “so you know what you’re getting and he knows he’s an asshole.”
I’ve historically had a bit of tolerance for people who might not display all the character traits that I’d look for in a friend or colleague, but who are self-aware of how they act and predictable in their behavior (can you be a “dependable asshole?). While I might not invite these folks deeply into my life, I probably excommunicate them less frequently than I should. I’ve got an unspoken working agreement with the mild assholes in my life for when our paths do inevitably cross. Note that this is definitely more about transactional relationships with assholes than having them on my teams, etc.
But you know what two types of people I really struggle with? Weathervanes and Grin Fuckers. The former are people who change with the wind – the proclaim themselves champions of whatever idea is trendy at the time, or fall in line behind consensus. The latter are those who smile to your face passive aggressively and then trash you behind your back.
If I were to self-analyze, I think these two are triggering for me because they’re both forms of unpredictability and disingenuousness, which I can’t stand. And I rely on the people in my life to give honest feedback, tell me where they stand and not avoid productive conflict. So I struggle with those who are less able or less willing to default to that type of raw discussion and principles. And when I believe the lack of doing so (productive conflict based on principles) is malevolent, it’s rage-inducing.
Oh and by the way, if you think this post is about you, it’s probably not. But if it is, I’d tell you 🙂
Blog posts, for me, are like kidney stones. Or at least how I imagine kidney stones to be, since I’ve never had them personally. They usually begin with a question or idea, and then tumble around in my head, until crystallizing in a way which compels me to write, for to *not* do so would almost be painful. Hours, days, months can elapse before this moment occurs. Or sometimes it never does — either the topic loses my interest, or even better, someone else covers the same ground and I can just point to theirs. (I say “even better” in these cases but there’s probably a 10% “damn, I wanted to write that myself,” if I was truly being honest).
“Apple and AI and Cameras” was in my list since last autumn. And I’d been saving pictures to accompany the post – of realtor signs, pieces of art, store windows. All examples of pictures where richer data links could be automatically inserted into the metadata or literally overlaid on the photo itself. The static image of the photo roll turned into something where captured phone numbers can be clicked-to-call, prices and ordering information for identifiable items, operating hours and other business info automatically displayed, artist bios and other works inserted as stackable images behind the museum work I snapped.
If cameras are a platform – and I believe they are – I’m surprised how little innovation has occurred in our camera roles. Not auto-organizing and facial recognition but using an understanding of the image contents to supplement with information and applicable actions. Enough utility would even change what we photograph and why (for example, a whole wall of books at a bookstore and then tell me which five I’d like most).
But the post just never came out of me. So I was excited (at least 90% excited that is) when my friend M.G. penned something similar in his newsletter. The Camera as the App Layer says “What I really want in a mobile OS is the ability to fire up the camera, take a picture, and launch apps and/or services from there based on that picture.” Exactly.
I like my coffee. And recently set out to improve my portable consumption experience by finding a better travel mug. My two primary motivations are (a) moving away from disposable cups and (b) preserving/improving the drinking experience versus paper. Secondary considerations -> aesthetics, ease to clean and price.
Non-goals: insulation (I don’t need my coffee to stay hot for hours) and durability (in the sense that I’m not looking for something that will survive a 10 ft drop, or needs to go into a backpack while biking). I also have a bias towards glass or ceramic, believing plastic or metal muddles the taste.
Here’s the three I’m currently enjoying. If you’ve ones you love, tweet them to me please!
The largest of my three and also the heaviest. Base barely fits into car cupholder – which is a negative – but it’s very comfortable in the hand and top feels secure + easy to remove/insert. Dishwasher safe.
Love the design (they also come with just a solid band). Glass doesn’t get too hot. So far I’ve got mixed feelings about the top – it’s easy to put on/off, but doesn’t necessarily feel secure (although I haven’t had any spills). There’s also a slight silicone aroma first few uses, but perhaps will go away. Dishwasher safe.
Expanding a brief quip into a blog post might go against every law of internet nature, which suggests most content is improved by brevity. But something I suggested over the weekend raised enough follow-up that I committed to sharing more. And since my tweets are on a rolling 30-day delete, the below will last longer than the 280 character version.
A handful of replies asked questions or provided feedback. Here are my responses, starting with the skepticism, and ending up with the personal stuff.
@hunterwalk, Stop Pushing HustlePr0n About Stress: My tweet wasn’t anything about how hard you should work, or the cost of effort.
@hunterwalk, You Are Wrong In Some Way: I don’t know what to tell you. It works for me. Your mileage may vary.
@hunterwalk, What Causes You Stress vs What Causes You Frustration? Ok, for me Stress has to do with a deep desire for something to be successful, degree of difficulty in executing, an urgency around the window of opportunity to do so and even skepticism from those around you. Most of the work I’ve opted into historically involves stress.
Frustration – again, for me – has to do with an inability to create change in my situation due to others’ process or incentive roadblocks, having to represent an idea that I disagree with as the product of my team, organizational politics, relying upon colleagues or partners who don’t always share my values.
Ultimately I’m a Work-In-Progress so I want to get better as a person. Maybe some of the things which frustrate me I’ll eventually learn to handle more productively. That would be great! But I also rather minimize or route around them, especially when i believe the downside is higher than the upside.
@hunterwalk, What Happened in 2011 That Helped You Separate These Two? My midlife crisis. After 4+ years, I was removed from running the Product Team at YouTube for a variety of reasons – some of which I probably could have prevented, and others that I couldn’t have (or didn’t want to). It turned out fine but threw me for a bit of a loop, one which took the summer, and much of fall, for me to truly recover from. Here’s a blog post about learning to separate my identity and self-worth from my job, which was part of the tumble.
It wasn’t really until early 2012 when I became a dad that stuff started to fall into place for me from a “go forward” plan. A large portion of that clarity came from (a) deciding I needed to live an authentic life in order to be the type of father I aspired to become and (b) I realized that perhaps I could design more of my time around what gives me energy vs saps it.
@hunterwalk, You Basically Seem to Suggest that Frustration Comes From Lack of Control, But You’re Now in Venture? Yeah, investing in other people’s companies for minority stakes does seem to cede control doesn’t it? But here’s how I live it:
Satya and I co-designed Homebrew very explicitly to optimize for the things we love doing – spending time with founders (especially post-investment) and each other. We’ve stayed small and focused which means no need to invest in a team that we don’t think we’re the right partner for. And we make decisions by consensus.
Once we invest (again, a decision we make by consensus), I’ve signed up to help the company become the best version of what it can be. It’s the founders/team’s startup. I don’t sit on the org chart. I care passionately about their outcome – even independent of the economics involved, but obviously because of that too. And we work closely with the founders to support them, even when or after we disagree.
Ok, I think that was most of the questions from Twitter. Thanks for caring and prompting me to think a bit deeper about my answers.
Everything is setting up perfectly – you’ve got a great relationship with your lead VC – he’s even saying “we” and painting pictures of being on the podium with you for the NASDAQ opening eight years from now. Then he tells you he likes being an investor but *really* misses being an operator, and is joining another one of his other portfolio companies as COO. You grit out a smile and weak ‘congrats’ while thinking ‘“fuuuuuuck.”
Across town a different CEO is having a breakfast with her Series A Board partner. It’s off-schedule – the two usually meet every other week – but she’s an awesome VC, much better than the older dudes at her mediocre shop, so any time you have is appreciated. You almost spit out your coffee when she lets you know that she’s leaving for a Tier 1 firm but that her partners John, John Jr or Robert will be great stewards of your startup until she has the pull at her new gig to lead your next round.
Hunter’s draft script for SVU: Silicon Valley
There’s lots of movement in the venture world these days. Former operators return to operating; GPs trading up (or being managed out); wealth-effect retirements; whole firms dramatically changing strategy. All the disruption can be pretty jarring to an entrepreneur, especially in situations where the exiting partner represents the top line on your cap table. Observing this both inside and outside of our portfolio I’m sure of two things: a) there’s not a whole lot of public discussion on the topic and b) most founders (and their other investors) should be more aggressive addressing the implications of these changes. I’m going to try and make my contributions to both of these here.
First though a few high-level points:
Needless to say, every situation is different. Below I’m really talking about startups between Seed – Series B. After that, there’s often enough people around the table to manage the loss/transition of a GP/Board Member (even if it sucks).
Founders (and the other investors) should focus on derisking the downside in these scenarios, not pushing for their own self-interests. It’s the COMPANY that’s being put at risk.
It really helps if you are able to remain in contact with the former Partner or have another trusted backchannel at their fund, even if that backchannel is a more junior professional.
You’ll often need the support – both structurally and symbolically – of some other investors on the cap table to make the case for some of the ideas below to work. Such as Homebrew 🙂
Okay, time for some game theory. A lot of what happens next is tied to the firm’s perspective on whether you’re going to be a meaningful investment or not (and how much their reputation is tied into your company). Basically they’re either Bullish, Written It Down/Off or Too Early To Tell.
BULLISH aka YOU ARE ABSOLUTELY KILLING IT: You’ll get the sense because the rest of the firm immediately is overly attentive to your needs, wanting to make sure there’s a ton of goodwill. In these cases you can usually negotiate who you want as a Board member from their partnership and if for some reason there isn’t a GP you feel comfortable with, even discuss a Board Partner scenario, where a mutually agreed industry exec/CEO from their network takes their seat on their behalf (but this is higher degree of difficulty). If the reason for your partner leaving was some sort of change in firm strategy or scandal and you just don’t want to be associated with the entity, you can sometimes get the firm to sell into the next financing to the point where they’re not the largest shareholder any longer, etc (but again, degree of difficulty here is expert-level).
WRITTEN YOU OFF: In these cases you’re gonna have almost no hope of getting a new, engaged GP on to your Board. Most likely either a junior representative or a GP that’s assigned to “clean up/wind down,” whether they’ve communicated that to you proactively or not. In these cases you are still basically looking at the options listed below under “Too Early To Tell” but with a very high degree of difficulty. Given that reality, the CEO probably needs to be very direct – challenge the firm to let you know under what circumstance they’d consider additional funding, and if the answer is “never,” try to negotiate them off the Board.
TOO EARLY TO TELL- SOME GOOD STUFF, SOME CHALLENGES BUT A LOT TO DO: Here’s where I think founders and cap tables can should be 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. Instead here are some potential shorter-term actions to take:
Re-Pitch The Whole Partnership – Some firms are really good at keeping one another up to date on portfolio progress, others are lone wolf models. Either way it’s been a while since you presented to the whole partnership and you probably never really got the story from your original pitch. Yeah, they did the deal, but it probably wasn’t consensus and those Nays are still sitting there, just without your previous GP pounding the table. It’s time to go back in and win the room over. Note – this is also a reason to make sure you’ve got some redundant relationships – ie proactively bond with some other partners at each of your VCs.
Propose a Top-Off of the Last Round – Again, every VC is different – and god bless those who behave as a true partnership (you know who you are!) – but this business is ultimately about who believes enough to put capital behind a company. Your new GP/Board member didn’t personally sign the check last time – get him or her to do so, sooner rather than later. Even at the cost of a little more dilution. I’m a believer in the psychology of sunk costs. Ask them to take X% of their pro rata reserves for you and do it now as a note or extension of the last round. And the rest of the cap table can come along or not with their pro rata. (A variation on this is getting the new GP to expend a bunch of social capital and increasingly tie their reputation to your company. You can do this through a variety of means.)
Assume You’re Going to Need To Raise the Next Round on Your Own – Goal is to get a new investor on to the cap table who is just beginning their journey with you. Again, I think it’s worth taking a little more dilution than you planned if needed to get this round done as soon as you’re ready. And if the exiting GP can still serve as a reference for you, that helps a ton too.
Ask to Keep Exiting GP on Your Board – If the exiting VC is retiring or returning to operating (vs moving to a different fund), you might be able to retain them until the next fundraise. They are still representing the firm but everyone agrees that due to relationship continuity and capacity for other GPs to absorb Board seats, that things should just remain ‘As Is’ for now. Years ago when my Homebrew partner Satya left Battery Ventures to run Product at Twitter, he kept all his Board seats and incrementally transferred them to his partners over time.
Put Your Investors on the Spot – Make sure you have clarity from your investors whether you are on track to their continued support. If you don’t have Board-level milestones/targets agreed upon, the Board isn’t doing its job anyway. Make sure that your execution will result in support and ask these questions upfront.
As suggested earlier in the post, this is totally a Your Mileage May Vary. My POV is simply that when a company underestimates the impact of a change in their VC relationship, it has potential to be damaging down the road in ways that the founder can no long control, so they should address any elephants in the room ASAP.
If you have different opinions – or even better, experience! – let me know and I’ll append any supplemental thinkings.