Can a VC Think Like a Startup? That’s Part of Homebrew’s Goal in Switching to Our Own Capital.

Why Investing Our Savings Instead of Other People’s Money Let Us Rethink What Venture Capital PMF Looks Like in the Decade Ahead. [Part Two]

a group of happy bees, digital art [DALLE-E]

According to the physical rules of aviation, there is no way that a bee should be able to fly, but it doesn’t know that, so it does. The same can be said of startups and their founders, in the sense that so many things can go wrong in the building of a company to an exit, that success almost seems to be a statistical anomaly [more on how bees fly]. Homebrew has invested in well over 100 seed stage startups this past decade, in most of them working closely with the founders and early team during their first several years. In other words, we’ve seen lots of bees fly. But, and I’m really belaboring the metaphor here, we also saw the venture industry move from bespoke beekeeping where the two parties are lovingly tied to one another, to industrial scale honey production.

an entire city constructed from bee hives, digital art [DALL-E]

Confronted with this evolution we made a decision to change Homebrew. Pushing aside, for the time being, ownership targets, institutional venture models and other people’s money.

In other words, Satya and I wanted to maximize our time with the bees themselves, not the size of our beehive and support systems necessary to prioritize scale.

We announced this change publicly (aka Homebrew Forever) in February and spent all of 2022 in this mode, revisiting, and in some cases revising, our core assumptions about venture capital. In other words, we started revisiting what PMF looked like after a proactive pivot. There’s lots and lots of institutional capital out there, much participating in its own self-commoditization (a whole separate post). There’s also many wonderful angel/operators and smaller supporting funds with large portfolio strategies.

What there isn’t a whole lot of: Early stage investors with institutional lead check experience (and a small support team, large networks, etc), who are investing their own capital, in a flexible manner, and then working post-investment to provide additional ongoing support. This is Homebrew Forever.

Why aren’t there many of these? Because like the bee, it breaks knows rules. If you’re good at this job you want to get more and more AUM under management (probably even more true if you’re bad at this job! 🙂 ) . If you’re good at this job, when you stop doing it at a firm, you shift into lifestyle mode, or become a solo angel. But no one told us we couldn’t do this, so we’re doing it! Go go MF’ing flying bee!

So how is it going? Encouraging, and working at a ‘first principles’ level but to be honest, still in evolution. If you think of venture capital is an oversimplified “See” -> “Pick” -> “Win” -> “Support” model, this would be my snapshot for HB♾️ (how I lovingly abbreviate Homebrew Forever)

See: Best summarized by the following list of ‘referral sources’

Cold Inbound: Steady (which is good — we see a lot)

Cold Outbound: Slight increase (we’re trying to do more of this now but still retuning our processes)

Angels: Steady, but we need to continue creating relationships with new angels

Seed Funds that write non-lead checks: Down by ~50%. We still see a ton of collaboration with the funds we’re closest with, but others have definitely taken us off their list with our model change. Not for competitive reasons (I don’t believe) but because they are primarily trying to help a startup find a lead investor, and we used to be that for them, but now rarely lead seed rounds. So they might like us, think we’re useful to companies, etc but their ‘job to be done’ is to find a lead because that closes the round -AND- helps secure their allocation.

Previously ‘Competitive’ Seed Funds and Multistage Funds: Up by 100%. So this is the other side of the coin from above. The funds we were always friends with but where our shared ownership goals made co-leading seed rounds fairly unlikely are now much more likely to share opportunities with us (and us with them). And the larger multistage funds who would normally lead A rounds for our portfolio but where there wasn’t much collaboration with their seed practices, well, that’s switched too. What I’ll emphasize here is that we don’t seek out FIRMS, we seek our GPs. That’s to say, there are ~24 or so GPs spread across an almost equal number of firms that I just LOVE to work with on cap tables, and I’m targeting them like a thirsty multichannel marketer.

Overall I’m happy with 2022 opportunity flow but we’re not even close to the performance ceiling and have a bunch of work in 2023 to improve.

Pick: Obviously it will be many years before we know the financial outcomes of our ‘picks’ but if the goal of HB♾️ was to be 100% focused on the simplicity of ‘do we want to work with these founders,’ I’m happy with our picking. We didn’t become too cautious using our own capital, nor did we become too undisciplined. We ended up making 11 investments in 2022, which historically has been our average independent of strategy.

Win: 11 offers made, 11 offers accepted. The ‘sacrifice’ we made to achieve this win rate is of course we’re now predominantly deploying six figure checks instead of seven figure ones (we did one new investment greater than $1m and brought in some friends on that one for a seed SPV), but that’s the goal here anyway. Bespoke beekeeping instead of agribusiness, remember?

Side note: I did get ghosted by an entrepreneur on a potential personal angel deal and that stung (bee pun!) because it was someone I’ve lightly known for a while, he asked me early for help/advice, acknowledged that when he raised money I’d like to angel, then stopped returning communications once the round finalized. See, it happens to investors too, not just founders.

Support: Homebrew tries to be a force multiplier for founders, which compounds over time, improving their probability of building the best version of what their company could become. Neither Satya or I would continue doing this work if we were turned into passive investors, no matter the financial success.

As now a non-lead investor we have to simultaneously remind the founders (and lead VC) that we can be quite useful to them, while also not creating additional management overhead. In our move to HB♾️ we re-wrote our onboarding guide and process, and made other tactical changes to how we build trust and context with the founders we back. I’d call it a work-in-progress — we’re almost certainly ‘hitting above our ownership weight’ but that’s enough for us, and not yet reliably reached quickly and uniformly across the new portfolio. Another place for experiments and improvements in 2023.

so tldr, we’re happy at the day-to-day level but working on the higher level product and go-to-market with a sense of urgency to turn ‘good’ to ‘great.’ Just like many of the startups we’re fortunate to support!

2022 Was The Year We Decided To Not Raise Another Venture Capital Fund. What Happened Next..

When Homebrew Started Investing Its Own Money, The Reaction From Our Venture Capital Peers Surprised Me [Part One]

During the last several years venture firms approached fundraising like trips to an All-You-Can Eat buffet: fast, frequent, and without regards for the digestive impact. As they piled more LPs into more fund vehicles, and then deployed that capital faster than ever, it’s not a surprise that everyone involved is now dealing with the after-effects of a decade-long gorge.

a buffet of money, digital art [DALL-E]

Homebrew was born at the beginning of 2013, and grew itself modestly during the bull market that stretched into 2022. But ahead of the correction we decided to pull forward a goal we’d always dreamed of: going self-funded. That is, instead of primarily investing other people’s money into startups, invest our own. We’d still stay ‘Homebrew’ and keep the same team, but adjusted our strategy to better suit the new strategy. Instead of seeking to own 10–15% of a startup, we’d remove our ownership target and just focus on ‘do we all want to work together.’ And instead of an average check size approaching $2m, we’d scale back to mostly $100k-$500k (~20% of the time larger), in order to make it easier to fit into any round (also owing to the limitations of our bank accounts). For me and my partner Satya this was about creating a sustainable model where we can optimize for working with *any* company at *any* stage, albeit still hopefully as early as possible. So we made the decision in Fall 2021, began investing this way in January, and started talking about it publicly in March. Just as the markets collapsed! Correlation or causation? 🙂 Anyhow, the choice we made was more about to starting to experiment with new approaches to venture rather than embracing or rejecting any single playbook.

The volume of reactions from our industry peers surprised me— notes, conversations, backchannels and so on. Truly I didn’t think people would really care. I mean, we’re a small fund among lots of other firms! Homebrew became either a projection for people’s own frustrations with the venture model or a ‘true north’ for others who were considering similar evolutions but had something blocking them.

A) “Oh it must be so nice to not [x]”

Lots of comments directed our way that were really more just reflections on what the other person’s priorities rather than our own.

“Oh must be nice to not deal with LPs any longer!!!” Not at all. We have a small group of institutional LPs that we really love being in business with, maintain close ongoing relationships with via Homebrew I, II, III (plus Screendoor), and have mutually left the door open to figure out how to put their capital to work together going forward.

“Oh must be nice to retire!” Actually we’re still working the same amount (with some changes in the what and how — that’s coming in Part 2 of this post).

“Oh must be nice to be that rich!” Obviously you need to have banked some dollars, but this comment often came from people who, at least on the surface, live grander lives than I do. What we chose to give up was a bunch of future management fees, etc and then to go into pocket for a few years of investment capital (believing after that carry from earlier Homebrew funds would be recycled into our new model). What we actually might be is more risk seeking.

B) “I want to do this but…”

The most touching conversations were those with other VCs who shared some version of “I want to do this but I don’t have a Satya” [ie it’s lonely to do this by yourself] and “Me and one of my partners want to do this but if we left our firm it would break our commitment to the remaining GPs/hurt the fund.” Turns out there’s a meaningful number of folks who are conflicted about their firm’s growth and want to get back to smaller, personal investing, but are choosing to prioritize their exiting relationships (some with a firm plan to step down after next fund, others with a more noncommittal timeline).

In hindsight I guess I’m glad that people cared. Not because it reflected anything about our place in the industry but rather it showed me there are peers who also want to break out of venture’s self-commoditizing treadmill and create their own models.

In Part Two, I’ll reflect on what we got right and what we are still working on….

“Dead on arrival. I’m still waiting to see the first good Mastodon post. God help us.”

Casey Newton’s Deep Skepticism Of Twitter Replacements & Getting More Comfortable With Substack’s 10% Take Rate

My daughter knows Casey Newton as the ‘watch pro wrestling and eat chicken wings’ friend. She is not wrong. But beyond the bond of those shared pleasures, we also have a long — and mostly agreeable — relationship rooted in his coverage of the technology community and my participation in said industry. When I last interviewed Casey, back in 2017, he recognized there’s a “natural, & healthy, tension between myself & the people I write about.” So with that context, here’s another FIVE QUESTIONS with Casey Newton.

Hunter Walk: Hi Casey and welcome back. I think you’re the first person I’ve interviewed twice on this blog. The biggest personal change since our 2017 discussion is your founding of the tech newsletter Platformer (which everyone should subscribe to). Ahead of its launch we’d spoken quite a bit privately about going indie and I’m so glad you took that path. In hindsight what did you underestimate and what did you overestimate in terms of initial challenges?

Casey Newton: This is kind of a dodge, but the truth is that the launch went mostly to plan. I had the benefit of a big mailing list that I took with me, and so when I turned on payments Platformer was ramen-profitable basically from day one. It took me about six months to climb back to my old Verge salary, and right after that I launched my Discord with some other writers and that led to a big spike in revenue. Most of the discourse around independent journalism centers on how hard it is, and leaving my old perch was certainly scary, but in the end it worked out great.

I mean, there were many small annoyances along the way — finding a bookkeeper, and an accountant, and interacting with the California Franchise Tax Board, to which I always seem to owe some amount of money no matter how many times I’ve paid my bills. And I did find myself missing the feeling of being in a newsroom from time to time, though I continued to have access to The Verge’s slack as a contributor and that helped me feel less lonely.

Often when people ask me how Platformer going, there’s an edge of fear in their voice, as if they expect me to say that I’m barely holding on. But recently I hired my first employee, so I’m hoping some of that dissipates.

HW: In our previous discussion you talked about measuring journalistic success in two ways: impact and audience. Is that still how you think of your job?

CN: Those are still the two biggest ways. But increasingly I’m thinking about measuring success in terms of sustainability and expansion.

In recent weeks, we’ve seen layoffs at Gannett and the Washington Post, and Protocol shut down completely. Those journalists aren’t losing their jobs because their work isn’t valuable — it’s because they’re chained to unsustainable cost structures.

Platformer is designed to weather a lot of the storms that my previous employers got caught up in — downturns in the ad market, the rise of a buzzy new social app, or pressure from investors can’t really trip us up. (We don’t currently have ads or investors.) We just have several thousand paying customers who like what we do, and that number is up 50 percent year over year.

Our number of subscribers could stay flat or even decline precipitously and we could keep doing the journalism we’re doing indefinitely. And speaking for myself — I probably would!

Anyway, “continuing to operate” might sound like a low bar, but the longer I stay in media the prouder I am of the fact that we have.

The other measure I have now is my ability to fund more journalism through hiring. Earlier this year I brought on the great Zoe Schiffer as managing editor, and in just a couple months she has helped us break scoop after scoop.

I never want Platformer to grow bigger than a handful of people. But the fact that Platformer readers are now supporting multiple journalists in their work is a milestone I’m proud of.

HW: Substack, which you use for Platformer, says to not think of them as a newsletter company, but more broadly as part of a creator oriented shift in media. As one of their valued customers, what do you want from them in the future? Before you started Platformer we debated whether their 10% cut would force you at some point to seek cheaper alternatives. How do you think about that value prop now?

CN: I feel better about the 10 percent than I used to. In part this is because I write about platforms like Apple and Meta that insist on taking 30 percent; or YouTube, which takes 45. If nothing else Substack is cheap by comparison.

Another reason I feel better about it is because the company figured out an actual growth mechanism this year: when you subscribe to my newsletter, Substack will show you three of the other publications I recommend and invite you to subscribe to those as well.

When Substack introduced this feature on April 12, we had 57,135 free subs. As I write this eight months later, we’re about to hit 100K.

Platformer Subscriber Growth

So that’s the good news. The bad news is that these subscribers don’t really convert to paid. But still, lots of them do open the newsletter, and eventually I suspect Substack will start an ad network, split the ad revenue with us, and the 10 percent fee hurts even less.

All that said, it continues to be strange that the better you do for Substack, the more expensive it gets. There aren’t many businesses like that, and I would like to see them offer more perks to top writers over time.

HW: Let’s talk Twitter, with an old school Newsweek-style Conventional Wisdom, up down sideways

CN:

Twitter 2.0 ⬇️ This company generated $5 billion in revenue last year. Within two weeks Elon Musk was telling the new team the company might go bankrupt. Twitter has always had problems, but now it’s in crisis, and its CEO has consistently made the wrong decision after being presented with the right one.

Elon Musk ⬇️ I had basically no opinion about the guy before he took over the bird app. But then I started talking to all the people whose lives were suddenly in upheaval thanks to his various layoffs and purges, and my opinion of him lowered significantly.

Jack Dorsey ⬇️

‘Free Speech’ ⬆️ People mean a lot of different things by this, but at the very least I think we’re having a louder public conversation about the importance of free expression than we’ve had in a long while, and I do think that’s good for us in some ways.

Verification ⬆️ If you ever wondered why platforms should verify some users — and very much not verify others — boy have you gotten a great lesson in that over the past few weeks.

Mastodon/Post/Etc ⬇️ Dead on arrival. I’m still waiting to see the first good Mastodon post. God help us.

HW: One other update from the last five years is you’re part of an improv comedy troupe! Talk about that here and plug where people can see you perform.

CN: A few years back I realized that I didn’t have a good answer to the question “what’s going on outside work?” I am a giant ham, and so my roommate at the time suggested I try improv. I went to a class and never looked back.

We organize shows roughly every six weeks in San Francisco, and recently started performing with another troupe that’s scary good. (We bring in a stand-up as well, and something I’m really proud of is that we pay them for their work!) Some folks have come to see us a dozen or more times.

Before I moved to San Francisco I fell in love with the city because there was so much weird, fun, funny stuff in the city that you could just stumble across if you walked far enough. Doing these improv shows is my little way of building the San Francisco I want to live in.

The best way to find out what we’re up to is by following our Instagram!

Thanks Casey! If you’re not doing so already, please subscribe to Platformer.

Don’t Believe The Terminator Movies, Artificial Intelligence’s First Strike Against Humanity Is By Flattery, Not Force.

You’re Not As Attractive As Lensa’s Magic Avatars Suggests. And Why That’s a Problem.

Digital Plastic Surgery. Or maybe AR Beer Goggles. That’s what everyone’s Lensa Magic Avatars look like to me. If you’re VERY ONLINE™️ then you’ve certainly noticed these in your friends’ social feeds, passed them around by group chat, or perhaps even created your own. It’s the latest version of enhanced selfies, a Magic Mirror for Modern Times.

Now I haven’t made THIRST TRAP HUNTER yet (not out of privacy concerns about where my photos end up or unwillingness to pay — I just don’t have enough number of selfies on my phone they require), but I’ve seen a lot of yours. And sorry, you’re not that hot.

Why does this matter? Well, we’re kinda training AI to deceive us. A positive feedback loop where the phony best version of ourselves is what gets ‘rewarded’ in the Darwinian competition among Lensa’s training sandbox. And if over time, the biggest data set wins, what are the implications if the most explosively viral image models start with, essentially, ‘do you like this’ vs ‘is this true?’

(Hold aside the fact we’re also creating an even larger collection of beauty norms reinforcing classic aspirational definitions of attractiveness. We saw this in Second Life where big muscles and big busts are still desirable in the metaverse.)

Furthermore, it’s not crazy to think conversational AI say whatever it needs to close the sale. As I wrote in 2016, What Happens When Bots Learn to Lie:

Should a shopping bot provide positive affirmation about the clothing items I have in my virtual shopping cart? “Oh you’ll look hotter in this,” the bot coos as it pushes a $150 sweater as an alternative to the $25 sweatshirt I was considering. Is that a lie? Doesn’t a salesperson at a store do the same thing? Is it better or worse when it’s done by a computer simultaneously to 10,000 customers?

Will multivariate testing of our bot future contain ethical parameters in addition to performance measurement? Techniques like priming can be used to dramatically impact behaviors. For example, asking you if you are a “good person” and having you answer in the affirmative, before I request something of you, increases the likelihood you’ll do what I want, driven by a need to live up to the identity you created for yourself.

One of the ‘AI Destroys Humanity’ tropes is how eventually the computer programs created to protect us decide we’re so self-destructive that the only way to ‘save’ us is to kill us.

Wouldn’t it be the ultimate late stage capitalism irony if the path to a deceitful enslaver AI started not with self-awareness but with ecommerce conversion optimization?!? Turns out Al Pacino was right.

Why VCs Explaining “It Was Only 4% Of Our Fund” Is Misleading Minimization When a High Flying Startup Implodes.

When a High Flying Startup Implodes. As MultiBillion Dollar Private Companies Shrivel, What Their Investors Aren’t Saying About These Losses.

As more high-flyer private companies find their shine tarnished, investors (or adjacent VC-explainers) remind us that it’s unfortunate but actually a non-issue, so please, let’s move on and not rubberneck the pileup. Wait, what? Losing tens of millions of dollars (or more) is no big deal? Don’t people get fired for that?

The basic math suggests they’re, well, correct, at least if you’re just looking at first order impacts. In most cases, any single company represents a very small percentage of a venture fund’s total size (hold aside this is also because firms have been increasing their AUM at astonishing velocity). In fact, losing money on a meaningful percentage of startups isn’t just expected, it’s potentially evidence that you’re taking enough risk to hit some of the power law winners which will pay back your LPs many times over!

As cofounder of an early stage venture fund myself, I’m here to tell you that while these statements are accurate, they’re also misleading when trying to understand the broad impact these implosions may have upon a firm. Before you start tweeting ‘Man in the Arena’ quotations to me, my experience here isn’t limited to sideline punditry — although Homebrew has yet to be involved in any Unicorn->Zero events, I can think of two investments where we were “all in” across the seed, A and B rounds, only to see the companies ultimately return 0x, losing us almost $10m combined.

giant pink pencil eraser rubbing out a unicorn, digital art [DALL-E]

So when a venture firm tells you a previously high valued investment’s failure is NBD, here’s the checklist of implications that’s not always apparent to outsiders, ordered subjectively from least enduring to most calamitous.

Reputation Effect. Highly qualitative but a firm’s brand can be tarnished by their cheerleading and then awkward distancing from a deadicorn. Personally I believe these are great opportunities to ‘learn in public’ and distinguish oneself with how they might support impacted employees, and other bystanders. Others believe they’re moments to silently delete their Tweets.

Opportunity Cost of GP’s Time. At the average multistage fund, a GP might be making just a handful of investments per year (their ‘shots on goal’ so to speak). While across fund cycles and an entire partnership these sorts of issues normalize out, I can tell you for sure the lead partner might be wishing they had that ‘slot’ back, especially if they are early in their career.

Opportunity Cost of Follow-on Capital. Forget the initial investment being lost, and look more at whether there were subsequent follow-on checks written. Even with aggressive recycling, the average fund doesn’t have capital available to support every portfolio company through every round. That’s why some raise opportunity funds and/or stop doing their pro rata at some point. So the follow-on support that went into a later write-down came at the expense of other companies in the portfolio, some of whom would have been more accretive to the fund.

Opportunity Cost of Non-Investment in Competitors. When you pick your investment in a vertical you mostly have to steer clear of direct and adjacent competitors, especially if you were a lead check and/or a Board member. So if the failed company effectively blocked you from pursuing a startup that became a legitimate successful outcome, that’s doubly painful, again especially for the GP who is supposed to be picking winners in that sector. This is less of a problem when the entire vertical falls apart (think of the last generation of scooter startups).

Relationship Cost of SPVs/Direct Co-Investment and LP Credibility. Especially during the past decade bull run, when everything was up and to the right, venture investors loved to increase their exposure to companies by syndicating SPVs (or direct investment opportunities) to their LPs, friends and other industry luminaries. Those going to zero have some implicit (if not explicit) impact upon future enthusiasm for the VC firm.

Disappearing TVPI. “It was only 4% of the fund” could be true but you might have been carrying it at a current valuation of 100x that. You tend to make different sets of decisions when you feel like you’ve got an existing company that’s returning your fund multiple times over — maybe you don’t take money off the table in another investment, maybe you follow-on in other companies with more or less discipline, etc etc.
Going from showing your LPs quarterly reports suggesting your fund is top percentile to a new forecast is a relationship management challenge. Doubly hard if you’re in the midst of raising a new, larger fund (or recently closed one) on the back of the paper write-ups. The most impacted LPs maybe will ask questions about how much did you know or not know about the shenanigans, and why maybe it was in your best interest to be stay naive for a while? Modern version of the Upton Sinclair quote, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Look, I’m not picking on any specific company or firm, but rather this is what happens coming out of a pretty crazy few years. If a venture partnership is around for long enough they’ll end up experiencing all types of highs and lows, some self-induced and others almost nearly out of your control. It’s part of the business. But as an industry we’ve become experts at content marketing the shit out of our wins, the shiniest versions of what venture and startups can be. It’s my POV we learn much more together by sharing honestly and broadly as a community, even if the “why we invested” blog post from a few years ago sounds dumb in hindsight.

Now, Next, and At Exit: The Three Ways To Evaluate Compensation Before Accepting That New Startup Job. Salary Benchmarks Are Just a Single Piece of Data.

‘Sell calls.’ That’s what a conversation between a job candidate and a VC are called. We’re supposed to help seal the deal, get the person to sign on the line which is dotted [insert Glengarry Glen Ross gif]. Now, I LOVE these conversations with possible new team members, but take a very different approach. I don’t sell them. Instead I try to understand what they’re looking for in an opportunity and help confirm that this would be a great career move, if the match makes sense. But if it doesn’t, or they’re trying to understand the pros and cons of, say, starting their own company instead, I’ll talk to them about my POV, without trying to talk them into, or out of anything. [Now it just so happens we also have a very good close rate, but that’s because the startups in our portfolio are typically interesting, rewarding places to be and they are thoughtful in the candidates pursued].

Recently in speaking with an engineering manager candidate who had been working at later stage/public companies, we got to discussing compensation. Not the specifics of his offer — I don’t negotiate on behalf of the company, just provide advice to both sides — but more about how he should think about it vis a vis his previous employers. My framework was a sort of triangle, and here are the three sides:

a female computer scientist looking into a crystal ball, digital art [DALL-E]

Now

Use available benchmarks (public, from friends, etc) to understand whether your offer is generally ‘fair.’ Once you’ve established that, and especially if there’s an opportunity to trade off cash compensation for equity [some startups will present two offers for you to choose from, or be open to some negotiation], figure out what your floor is for near-term salary. And don’t go to the startup if they can’t get above it in some easy or creative way.

The reality is that most hires to early stage startups will be taking a near-term hit to cash compensation or at the very least, earning less than they could if they *only* prioritized salary (and not role, company, or equity upside). The ‘below market’ hit way smaller than it was 10–20 years ago for sure, but it still exists, especially at seed and Series A stage. I want candidates to earn above their stress level: they shouldn’t have to remain in a bad living situation, fall behind on student loan payments, and so on, just to join a promising startup. Because that startup needs 100% of their professional focus and distraction benefits neither party. It’s also a reminder why keeping your personal burn rate low is such a career expanding move. If your personal burn rate floor is high because you’ve been living off a Google salary and can’t imagine how you’d survive earning less, you won’t find most seed stage startup offers to be competitive in the near-term. And I’ll tell you that during our call.

Next

Most candidates aren’t thinking about ‘Next’ because it’s only conceptual, but I find it is important to discuss. Basically, do they think there’s room for promotion and ongoing recognition/retention compensation? They should have this conversation prospectively with the founder/hiring manager just to understand the startup’s emerging compensation philosophy. Sometimes a fair, but not bracket busting, initial offer grows more attractive when you realize there’s ability to get other bites at the apple as your role within the company (and the company itself) grows. Now, with very few exceptions (usually at the executive levels), these compensation reviews aren’t written into you offer letter, but if you don’t trust the company’s forward looking statements and the culture they hope to create, please don’t join in the first place!

At Exit

What do you want your equity to be worth at exit? Kind of a crazy question to ask, right? I mean, who knows, I just want it to be worth a lot! But think about it similar to the way a venture investor might. If I buy 10% of the startup at seed, with say, a $10m valuation, what do I think I’ll net if the company exits for $1b (rosy scenario!). Well, I’ll probably do my pro rata in the A, then take some dilution, so let’s figure I own 4% when it’s all said and done. Ok, I turned my $1m initial (plus let’s say another $1m in pro rata) into $40m. Nice!

As an employee you can do similar math with a little help from the company. You’re a senior engineer joining early, and get 1% (remember I believe in giving early team members meaningful upside). You don’t do pro rata per se, but you do get additional grants as you get promoted/retained, so not crazy to say you end up at exit (in the above scenario) with .4%, to use same dilution multiple. Ok, so if this company is worth $1b, then you walk away with $4m in equity (and $20m at $5b, etc). Or maybe the company is ‘only’ worth $500m at exit but raised less capital and you’re still at 1%, so $5m in equity. Whatever, it’s all ‘fake math’ until the exit occurs, but thinking in this way sort of gives you the answer to where “NOW” + “NEXT” can lead. And you can do your own scenario planning for what types of exit scenarios are interesting to you.

Compensation is a very personal situation based on your own situation, risk tolerance, and company philosophy. Some people are in a position to take on more risk than others. And some people are blindly given more or less than they deserve. Volumes have been written about these questions and I won’t address any of them here. Instead just take away this simple triangle to perhaps help you frame the compensation package from an early stage startup. And if I’m fortunate enough to be talking with you about a job at a Homebrew portfolio company, this is what I’d be telling you during our non-sell ‘sell call’ 🙂

“There is magic in the trying and learning and trying again.. but any unprocessed PTSD will come back to haunt you” Avni Patel Thompson on the Superpowers Of Second Time Founders

Sometimes you meet a founder during a startup pitch and you just know you’re going to be friends, regardless of whether they take your money or not. Avni Patel Thompson is one of those people. And I was right! So when writing about Second Time Founders, Avni came to the top of my list. We’ve talked often about this topic and a quick interview turned into the thoughts below (and you can get amazing essays on startup life from her free Substack newsletter).

I like being a second-time founder.

It’s like having your second kid. You don’t sweat the small stuff because you know what the small stuff actually is. You feel more confident in your instincts and rely on your gut more than your hyperactive mind and what other hyperactive minds around you tell you.

You have a general sense of the shape of things — the highs, the lows, the things to watch out for, the things to not stress about so desperately.

Being a second time founder is such a gift in so many ways.

But it can also be a danger. There is a unique flavor of paranoid confidence that is bestowed upon repeat founders — more confident in what’s possible and how to pursue it, but also constantly aware of all the ways you can fuck it up.

Beyond that, startup years are hard on a founder. The hours worked, the heart and soul consumed, the impossible decisions, the painful people calls. All buried deep down, in service of keeping the company alive.

All of this accumulates and unless it’s being processed by some high power therapy (which, let’s be honest, for most of us, it isn’t), it’s just pile on and piles up, a toxic carbon compressed under the highest of pressures into a deadly diamond that is what shines when others look at us.

But we know the truth. It’s dangerous if not handled correctly. Instead of the being the hardest substance that gives us superhuman strength, it can be the brittle kryptonite that crumbles with the wrong crack and leads to our downfall.

If you’ve been a founder and you’re considering getting back into the arena here’s what I would say are the 3 biggest superpowers you can count on and the 3 areas of danger to be aware of.

superwoman fighting miniature dragons, comic art [DALL-E]

The ‘upside’

You trust your gut more than any other input. This, I think is THE most important thing, and my guess for if second time founders are more successful, the reason why. That you even have a gut to trust. Over the months and years of the first company, we’ve all built up a sense of how to things and how to do it in a way that works for us. With Poppy, I would constantly be asking others how to think about hiring and giving equity; about raising money; about product sprints and growth. With Milo, I know how to do it, and how I can do it better and faster for me. Doesn’t make the doing of it any of any easier per se, but at least this time around I don’t have the weight of my newness weighing me down at each turn.

You can make bigger, bolder calls. Because you know the lay of the start-up game better, you can start being bolder on what you’re building, especially because it’s likely you’re able to raise more capital to do it with. You’re also building with all the hard fought learnings you gained from yes, your last startup, but also all the other experiences in your life. You’re able to connect more dots in more unique ways because you have more insight and instinct.

You can do more, because you can see more.

That said, this cuts both ways. Being a repeat founder carries the burden of knowing when a thing isn’t working and knowing that you have to make harsher calls, faster. You can’t claim ignorance. So you have to make the equally bigger, more brutal team and product calls.

You can out persist even your former self. This one stands to be really proven but, in my case, my first start-up was sort of accidental. I was curious more than anything and I found myself trying to do right by a product that just took off. To start Milo, I had to make the explicit call that I was going to do this again. That I was willing to devote the next decade of my life — of my girls’ lives — to this. That made me choose a problem and a space that I knew I could make my life’s work if I was lucky enough to keep it going. I started this one knowing that it was a marathon and have been pacing myself as such. It’s still at a sprint pace but one that I know how to maintain when and how I need to.

I could tell you more ways being a second time founder helps — established investor network, better hiring pool, focus on distribution vs. product — but in the end, all that matters, I think, is that it gives me the confidence to do a thing that requires endless boatloads of it, powered by my gut, which I trust above all. Even above my closest mentors and friends. That’s the ultimate superpower.

And the ‘downside’

And if those are the things you can count on as tailwinds, here’s what I think are the headwinds:

Any unprocessed PTSD will come back to haunt you. There’s a joke among founders that no matter what space you work in on the first, you vow to never do that again. Marketplace people jumping to saas software, saas people jumping to hardware, hardware people jumping to anything else. It’s one of those “if you don’t laugh, you’ll cry” kind of jokes.

Because what each of us works on is extraordinarily complex and we learn the hard way all the brick walls that exist in a category (by running head first into them, realizing it’s not one that can be bust through, and leading our battered bodies and teams around it). For Poppy, it was the relentlessness of building a marketplace — there was literally never rest. Fix one side, break the other and on and on you go, forever. That’s the game. Add on the labor law and trust and safety parts of a childcare marketplace and I vowed to myself to take a break from people and marketplaces and to go into “just” software.

That PTSD put blinders on me on how a true solution would work for what I’m building with Milo until I was willing to reconsider both people and a marketplace. Then, guess what? An unlock based on my ability to build with both.

The lesson? Rest. And then process that PTSD so you can build this next start-up without any of the bad baggage.

Your knowing too much can stay your hand and make you timid. There is power in the sheer naivety of a first-time founder. I was too clueless to know better, and in a lot of ways, it helped me keep going even in the face of stupid odds. This time around, I would get into my head before I could ever get going on a thing. The fear would roar louder, fuelled by the memory and pain and skepticism held by my body. I would hypothesize all the ways this thing wouldn’t work, or couldn’t make money or would just result in weeks wasted. Ironically, I wasted weeks because my “knowing too much” got in my own way.

In time, I had to learn to just focus on my best testable hypothesis. To use all my knowledge to craft that, and then to just get going. Knowing better can be a good thing — but let it power your gut, not cloud your mind.

It can keep you in the game too long. It almost doesn’t matter how your first startup went. The second go at it comes with higher stakes. If you knocked it out of the park, you’re being chased by the ghosts of a “one-hit-wonder”. If you failed and either ended up as an “acquihire” or a shut-down like Poppy, you’re been chased by the ghosts of “don’t actually have what it takes”. Either way, this point of ego and pride plays with your mind and how long you persist on a thing. I’ve found myself going longer on a product or a direction because “it had to work” and “I couldn’t fail” more than what actually served the company. I’ve had to honestly just get over this. To know that my worth as a founder isn’t wrapped up in the outcome of even this go at it, but rather how I go about building it. That even if this were to end again not how I wished, that I would still have a next chapter. This is really harder to do in practice than theory, especially when you have a family and bills to pay and a very real “opportunity cost”. And yet. Ironically, this can make you make the kind of bad calls that will sink you anyway. Stay in the game as long as it serves the purpose and serves you.


I love being a second time founder. But as you can see, the benefits come at a cost, as most things of value do.

Above all: I wake up with gratitude. That I’m one of the lucky few that gets to do this job. That gets to get up and try. Again and again and again. And if the cost is that I need to be as self-aware as I can, of my own limitations and fallibility, I’m okay with that.

Because breakthrough lies in the trying again and again. In the 10,000 ways that don’t work until you find the one that does.

So my hope is for the world to have countless second and third and fourth time founders, no matter the individual result.

There is magic in the trying and learning and trying again.

And I wouldn’t change that superpower, no matter all the kryptonite.

“Being a 2nd time founder is basically figuring out how to leverage all your hype without believing it”

Joe Fernandez (Klout, Joymode, NewCo) On What Changes After Your First Company

I’m currently obsessing on repeat founders, and what lessons they want to share with the startup community. Just like my earlier request of Sean Byrnes, it made sense to pub Joe Fernandez’s response in full (thanks Joe!). Joe is a good friend and someone I love working alongside (Homebrew invested in Joymode and his current unannounced company).

large dollars bills chasing a young man, digital art [DALL-E]

Yeah, this hits a bunch of different ways.

So on the funding there are a couple of interesting things. When I am pitching a new idea I don’t really want the benefit of the doubt. I want a reality check against something I am considering spending the next 10+ years of my life on. While it’s nice that people are more inclined to lean in, I often feel like I am missing the conversation I want to have. It also puts a lot of doubt in my mind of how valuable of a thought partner that investor might be down the road.

I see this happen the most with new funds. It’s not because I think these investors are any less talented at evaluating ideas but they are highly incentivized to close “hot” deals. They are unlikely to have real results when they go to raise their next fund so they want the story of x, y and z proven, successful, founders choosing to work with them.

Lots of stuff comes to mind around team. The first thing I’ve found happen is that when word gets out you’re working on something new a bunch of people will want to connect about joining. 95% of the time this isn’t the people you actually want or need at this stage. You end up with a lot of people who have no could care less about the mission but know employees at your last company cashed out so they want in. Then there is the people that are hungry to get behind a mission they care about but have a romantic idea of what the earliest days of a startup are like and are totally detached from reality. Then the biggest group (which usually overlaps with the first two) are people who just don’t have relevant skills for this stage of the company.

This ends up being a weird distraction. You have these inbound people that are from your network so it can be socially awkward to just blow them off. Then when you tell them it’s not a fit it can be painful. For example, I had a friend who wanted to get involved in Joymode. I told them no and then when they would see press about us and think we were doing well it would just dig at the wound. They felt like if I was really their friend I would have let them on the bus (no thank you for the pain I saved them in the end of course). Meanwhile, you still have to go out and recruit the actually people you need.

As a first time ceo at Klout I would often look at my board and think “these people were involved in some of the most important companies in our industry, I should probably listen to them”. I easily lost a year or two doing dumb shit my board told me was a good idea. That’s definitely not their fault. It took me too long to realize that world we are building in is dynamic and every company, market and moment in time is different. No one knows anything. It’s all just data points.

I see my team looking at me the same way I used to look at my board and it freaks me out. I tell the team I want them to push back on me, but it’s asking a lot. A debate or any conversation with the ceo is never on even terms but it’s way harder with a 2nd time founder. I just have way more experience than almost anyone I am working with at this point so the depth, pace and scope of the conversation can be overwhelming for someone not used to it. The problem with this is that I can request people to push back and then “win” debates without actually being right. It also just doesn’t make people feel good and motivate them to push back on future bad ideas.

Being a 2nd time founder is basically figuring out how to leverage all your hype without believing it

Women’s Health & Women’s Rights Are One In The Same

Satya and I signed Homebrew on to an effort called VCsForRepro alongside ~100+ other investors representing over $100b in AUM. The organizers did a great job pulling together a coalition of folks willing to say that the ability for women to make choices about their reproductive lives is pro-health, pro-business, and pro-innovation.

We may not all hold the same beliefs when it comes to this issue – I don’t even assume that my specific feelings here are shared across the other signees – but the autonomy of an individual and the rights previously granted under law are quite meaningful to me. It’s too bad more of the traditional top VCs didn’t join this effort. That’s one reason that we never wanted Homebrew to get large – you lose the ability to live your values cohesively and consistently.

Thanks as well for TechCrunch coverage to get the word out.