Coming Storms: Three Reasons That VC Firms May Start Overlooking “We’re Conflicted” and Make Competing Investments

There was a time when far less written about – or by – venture capitalists. But I seem to recall “we won’t invest in two competing companies” was an oft-stated principle even in these more opaque days. To me, it seemed sensible, even from just a strategic framework, let alone ethical. Part of being an insider meant you needed to be trusted by entrepreneurs with early looks at their businesses. And if your reputation’s present value was the sum total of all future startups brought to you, well, putting that dealflow at risk was an expensive proposition.

While these “sorry, we’re conflicted out” decisions often didn’t get headlines – who writes about the deals they didn’t do? – there was a great 2012 blog post by a16z’s Ben Horowitz providing inside baseball on why they didn’t double down on Instagram after making an early investment in the now hugely successful app. At its root was they didn’t want to violate a commitment they’d made to another CEO in the portfolio. I didn’t know Ben at the time – and we’ve really only met casually a few times since – but it was one of those moments of operational clarity that gave him evergreen cred in my mind. Maybe for some VCs the “competitive conflict” issue was more about virtue signaling than actual virtue, but I knew if I ever went into the profession, I wanted to honor my founder relationships the same way.

And seven years into Homebrew I believe we have. We invest at the seed stage so companies are still very embryonic. Especially over their first 12-24 months prior to a Series A, Satya and I will often opt-out of investing even in adjacencies, because we want to give Homebrew-backed founders a wide berth to find themselves. There’s definitely been some short-term pain associated with these decisions – I can think of at least two times that we explicitly passed on companies related to current investments (despite there not necessarily being objections from the CEOs) and in both cases, the startup we passed on has outperformed the portfolio company!

But this post isn’t about us, it’s about anticipating that we’re at the start of a pretty significant change and challenge to these assumptions – that is, MORE venture firms are going to be investing in competing companies, sometimes to the dismay of the initial portfolio CEO. For three structural reasons:

  1. The “But It’s In a Different Fund” Explanation: The majority of venture firms traditionally had a single fund they would invest out of. Now almost every one also has a “growth/opportunity” fund and some others are separating their seed investments into still another. I’m hearing – but haven’t directly observed – that for purposes of competitive conflict, many firms believe that there can be a “firewall” between these funds, even if they’re all under the same firm umbrella and overlap in deployment timeframes. Funds have also gotten larger in general which mean you need more ownership and more outsized winners.
  2. Downstream Impact of Firms Investing Earlier: For a variety of reasons, the billion dollar venture firms are increasingly making their initial investments seed and A rounds, vs traditionally waiting for the A or B. One downside to this strategy is they are committing to a company before its reached breakout velocity -and- at the same time, giving it enough capital to operate for several years. I’m very interested to see what happens 12-36 months down the road when firms realize that one of their GPs has essentially blocked them out of a category with a seed bet. Can they afford to miss out on the winners in a vertical just because they made a smaller, earlier investment in a related company? The pressure for the earlier founders to sell, or wind down their company, or not make a stink about the firm investing in one of their competitors will be real.
  3. Companies Staying Private Longer: It’s just math – more companies in the portfolio for longer periods of time results in more potential for conflicts (although to be fair, at some point CEOs need to be comfortable with a firm making investments in the next generation of innovation).

Now it’s not just about VCs. Founders don’t get to speculate about products their startup *might* build 10 years down the road and block their current investors from entering those areas. Founders also should understand that if they choose to pivot into ideas totally different than the path they were going down when the investment was made, they might not automatically get “exclusive” ownership of that industry within a backer’s portfolio. But I do strongly believe startups CEOs deserve clarity on what principles and practices a VC firm employs when it comes to evaluating potentially conflicting investments. While their answer might be frustratingly subjective (if you’re a prized portfolio company you will always have more influence than if your startup is struggling) it’s one of things you might want to ask when evaluating competing term sheets.

Forget Returning The Fund. What Investment Can Return The Firm?

There’s an expression in venture capital called “returning the fund.” It simply means that an outcome in the fund (out of say 20-30 investments in that specific fund) makes enough money to return 100% of the principal. For example, in a $100 million fund, an investment which makes you back $100m “returns the fund.” $200m would be “2x the fund.” And so on. Of course the assumption in calling this a positive outcome is that you invest much less capital to achieve this return – putting $100m into a single company and getting that amount back wouldn’t be a good investment. That’s why you’ll hear something more like “yeah, we made 50x on that investment and it returned 2x the fund.”

Historical industry data suggests it’s very difficult to meet performance targets for this asset class without having at least one 20x+ investment per fund. And often that one will also be a “fund returner” (or better). This is what is also drives discussions of power law outcomes and getting more capital into your winners.

But the other day I was doing some math for fun – what would a Homebrew investment need to pay out in order to not just return the fund it was in, but return the firm? By that I mean earn back every dollar our LPs have committed to us across our multiple funds ($210 million). And wondering how many firms have experienced a “firm returner” and what’s the latest in a firm’s lifecycle this has occurred (obviously it gets more difficult as you have more AUM. A multi-decade firm would need to likely make billions in a single investment to “return the firm.”)

As I thought about it more I realized it was likely more common than I’d originally speculated since we all know firms that have had a 5-9x fund within their first few several raised. So likely more of a vanity metric and one that’s already associated with high performing firms rather than a “once in a lifetime” occurrence.

Still though, it sounds pretty rad \m/ \m/

Maybe Founders Should Background Check Their Investors (Instead Of The Other Way Around)

One of the interesting things about getting into venture via your own fund versus coming up through a larger firm is that when “this is always the way it’s been done” comes up as a rationale, you get to shrug and say “not any more.”

Like, for example, the practice of VC funds charging their legal fees back to the startup. We don’t do this because, well, we want the money we give you to go for hiring, marketing, operations.

Another area we try to neutralize are aspects of the founder <> investor relationship which utilize asymmetrical power to make it difficult for a founder to build their values into their company. The Jeffrey Epstein horror of his money being tied into so many institutions that hid their eyes brought to mind the background checks that our LPs performed on us as part of making their investments. And how venture funds will often perform similar ones on founders as a condition of investment. The basic ones are only really about surfacing adult criminal convictions, verifying employment history and so on.

But when I recently asked a few venture GPs whether a founder ever requested to background check *them* as a condition of investment and joining their company board, it had never been asked (although also none objected to the idea). Did it not occur to any founders? Did they assume their VC was vetted by their partners already for these issues? Or is the request something that’s perceived as a friction to getting the deal done, one which might offend the venture investor?

Even more complex, what do you do with the information? What if you discover a potential investor has a criminal conviction. Maybe it can be explained in a way which doesn’t cause the founders to question the ethics and morality of the investor — there are certainly types of criminal convictions that wouldn’t phase me. Or what if the background check does turn up something notable and disturbing – do you have a responsibility to share this information with other founders? Not easy right?

BUT I feel like current practices don’t even give founders that right because while it’s standard for VCs to ask founders for this permission, it doesn’t seem to be exercised equally in reverse. So that’s why I’m writing this blog post — to pierce the “is it appropriate” membrane and see what happens.

Here’s our promise – founders, if we offer you a termsheet to invest in your company and you want to review the recent background checks that our LPs have performed on us, we have copies and will walk you through them. They’re pretty boring.

And if you’re working with another investor, maybe it’s not crazy to ask them to reciprocate (although if there’s someone who tingles your “spidey sense” from a behavior standpoint, a background check might not be sufficient). And hey, if they object, you can always send them this post 🙂

Finally! The URL I Can Send To My Parents To Explain What I Do For A Living.

God bless GenĂ© Teare for now I have something which explains what I do all day in a format my parents can grok. As part of Seed Series for Crunchbase News, GenĂ© wrote up an extended interview with me and Satya. She told us we were the first time in the series that two partners were interviewed together. That’s really emblematic of what Homebrew is – not one of us plus the other, but the combination of us both – and hopefully in a “sum greater than its parts” type of way.

IMO, VC firms should have a reason for existing beyond their capital. I think our POV comes through in this discussion and hopefully it helps any founders decide if we’re the type of seed fund they’d enjoy working with.

Some of my favorites from the post:

So much capital is coming into the seed stage. There’s no capital gap structurally at the seed stage. Maybe there was 15 years ago. That doesn’t mean that fundraising is equitable or easy. That’s a whole other discussion. But there’s lots of capital.

– Me!

All companies at this stage really have to do three things well. They have to build a product, distribute that product, and build a team. So that’s where we spent a lot of time.

– Satya

We always co-invest. We’re big believers that syndicates of real value at the seed stage to get various skills, experiences, and relationships.

– Satya

I hope when we turn off the lights, years and years from now, one of the things we can say is we were the best version of who we wanted to be. We don’t want to be a junior version of Andreessen Horowitz, we don’t want to be First Round 2.0. We don’t want to be an incubator, accelerator, crypto, or whatever flavor of the month is.

– Me!

How To Interpret VC Twitter Reactions To Portfolio Company Acquisitions

In my 6+ years of Homebrew, I’ve become a student of VC social media. For the first time, I pull back the cover and share this with you, putting myself at risk by breaking the venture omerta.

Here’s How to Interpret VC Reactions To a Portfolio Company Acquisition

Tweets congratulatory blog post, pics from closing dinner w open wine bottles, seven year old photo of VC w the founder = RETURNED THE FUND!!!

Thumbs Up Emoji & “can’t wait to work together again” tweets = made some money but not a home run, and founders only have a short’ish lockup

“Glad the team found a great home to continue their mission! Congrats!,” then unfollows the startup’s Twitter account = cents on the dollar, mostly an acquihire

I Love My Coffee (Gear & Beans Edition)

Coffee brings me joy. I’m not overly precious about it – if Starbucks is the best available choice so be it – but living in a great coffee city like San Francisco, I don’t see much need to consume just an average cup, whether at home, Homebrew HQ, or working from a cafe. Accordingly here’s my 2019 State of Caffeine


I generally prefer lighter and medium roasts. And will err towards exploration of smaller roasters versus sticking to a single brand/region. That said, here are two recs:

TRADE COFFEE: a startup offering both subscription and a la carte selection of beans. You can complete a simple set of questions to get recommendations or just search/browse. A lot of wonderful regional roasters and some smaller brands I’d never heard of before. Working my way through a bunch of bags. In particular give Onyx (Arkansas) and Passenger (Lancaster, PA). New customers can apparently get a discount via this link.

Trade Coffee

YESPLZ Coffee: Another coffee startup but one with a long heritage of commitment to beans. Cofounder Tony Konecny (aka Tonx) worked at some of the earliest third wave roasters before starting a subscription coffee site that exited to Blue Bottle. Once that noncompete expired, he went back at it, and with YESPLZ is focused on high quality affordable blends. It’s definitely coffee with love, and a cool zine is included in each order celebrating things unrelated to coffee. I’m on the monthly subscription plan which gives me a chance to include YESPLZ frequently in our office rotation.


At the office we use the Oxo Brew Nine Cup machine. It’s top-rated on Wirecutter and I find combines ease of use with a good, consistent brew that you don’t need to babysit.

At home, I have one of the Oxo’s for carafe brewing and for single cup, the Technivorm Moccamaster.

Here’s a full post on my favorite travels cups!

And my Baratza Encore Conical Burr Coffee Grinder

Also, I’m sorry but every time I talk about grinding I need to…

What gear have I left off that you love?

Nerdy & Proud! Eye of The Beholder Is a Fun Documentary About D&D Art

I LOVED D&D as a kid and occasionally get excited about the idea of casually picking it back up in some form. A few weeks back I streamed Eye of the Beholder, a lovingly interview-driven nerdy documentary about the art of Dungeons and Dragons. Lots of fun and definitely sent me down some Google and Reddit rabbit holes to learn more about the original pieces. Apparently the Players Handbook cover is like the Mona Lisa – universal adoration.

How Does LinkedIn Manage News: Five Questions With Their Managing Editor Katie Carroll

The New York Times’ John Herrman recently asked “Is there anything the rest of the internet can learn from LinkedIn?,” in relation to how people there are relatively civil there compared to purely social media platforms. Well, I’ve had similar questions and to get some insight, reached out to Katie Carroll, LI’s Managing Editor for UK and Daily News, Americas.

Hunter Walk: Wait, I thought LinkedIn was a resume and recruiting site. What does a Daily News Managing Editor do there?

Katie Carroll: LinkedIn is definitely a destination to find a job, but it’s also the world’s largest professional network — and that means we have a lot of people talking to each other about their industries, careers and more. We’ve been building up our editorial team to support and grow those conversations, and now we have more than sixty editors across the globe.

One of the main things we focus on is daily news, whether that’s through the Daily Rundown — a digest of news for professionals, which now has 13 editions in eight languages — or our trending topics, which are editorially curated conversations from members. One of the biggest facets of my role is overseeing that news coverage for the UK and North America.

HW: So does the definition of what’s News skew specifically towards career, business and the like? How do you think about politically charged topics or business-related stories that are really provoking potentially polarizing societal questions?

KC: Absolutely, we focus on stories that affect the professional world. Even with political or potentially polarizing topics, our lens is always how the news impacts business. Brexit is a great example: We don’t focus on the party politics, but we will talk about what it means for the economy, jobs or various industries. And when we write about these stories, we stay neutral — but our goal with the curated trending topics is to showcase different perspectives around a certain issue. Earlier this year, for example, we put together a collection of posts from furloughed workers during the government shutdown.

HW: Do people pitch you company PR that’s dressed up as news? How do you decide what to promote and what happens to that content once you feature it? Where does it appear?

KC: We do get pitched stories, and we consider those pitches the same way any team of journalists would — namely, is there news value? What does this mean for the wider industry or professional landscape? If we think there is news value, we’ll cover it in one of our trending topics or the Daily Rundown. But the nice thing about LinkedIn is that people and companies can post directly on the platform themselves; it doesn’t need to reach an editor to take off, if the content is insightful and sparking great discussions.

HW: What are some examples of stories that “went viral” on LinkedIn above and beyond the mainstream coverage? ie Does LinkedIn have its version of “The Dress?”

KC: One recent example was a post about companies “infantilizing” the workplace — that people feel they need to explain why they can’t be accessible 24/7. It went blew up both on and off the platform and generated some amazing conversations about the state of our connected world and what that means for workers today.

HW: You’ve spent a lot of time in SF but are now based out of London. How do attitudes about technology company and startups compare across the two regions?

KC: I spent the formative years of my career in the Bay Area, so one of the things I’ve found most fascinating about being in London is observing a different tech scene. On one hand, there’s nothing like the education you get (often through osmosis) about startups and tech when you’re in San Francisco. You’re surrounded by it, which has its pros and cons.

On the other hand, London has a diversity — of background, thinking, industry — that gives it a different atmosphere as a tech hub. I think we’ve entered a phase in which, as the Center for American Entrepreneurship says, “the rise of the rest is global” — which means we’re going to get different kinds of products and ideas than we would if the resources and talent were still solely concentrated in California. And as much as I love the Bay Area, I think it’s valuable for anyone in that tech space to spend some time outside of it; it’s eye-opening and inspiring to be exposed to fresh perspectives.

Thanks Katie!

Do It In Real Time: Practicing Your Startup Pitch

“And this slide is where I’ll talk about Go To Market, and….” “STOP” I say. “We’re going to do this in real time.”

Photo by Veri Ivanova on Unsplash

When pitch practicing there’s value in taking it s..l..o..w.. and going through it all in the same style you’re going to use when talking with new investors. Yeah the casual flip through the slides feels like an efficient use of time – and should be used as a way to test overall flow – but founders shouldn’t be shy about asking their investors, advisors, friends for the time to do a full practice pitch.

Somewhere around the fifth rehearsal you’ll start to find your stride. Have your test audience vary their interaction: hold questions for the end; interrupt mid-slide; expert pushing on assumptions; less informed observer who needs background on the industry. Goal is to get to the point where you’re consistently able to deliver the important key messages, while reading the room and creating + using the organic energy. Don’t try to be someone else, just the most awesome version of yourself. But if the first time you’re doing a realtime runthrough of your deck is in a live pitch, it’s unlikely to be your best.

“I wanted to do the deal but i couldn’t convince my partners” isn’t an Explanation, it’s an Excuse

While this hasn’t happened to any of our portfolio CEOs in a while, there’s one reason for a VC passing on a funding round that just sets me off: “I wanted to do the deal but couldn’t convince my partners.” This isn’t an explanation, it’s an excuse.

Photo by Andre Guerra on Unsplash

If you are a check-writing partner at a venture fund and you offer up this sentence to a startup CEO it means one of three things:

a) You blew the process by not enrolling your partnership

b) You didn’t want to put your neck on the line in the face of some resistance

c) You never believed in the first place, and are blaming your partners versus just passing

When I’m on the cap table I can help a founder navigate this to try and avoid going the distance with a potential investor. And if you’re a GP with tough firm dynamics, I can maybe help you navigate those. But if you put founding team through a full diligence and take them to a partner meeting, only to come back with this, RIP. [note: based on some feedback, I wanted to emphasize that I’m NOT saying all deals that go to a partner meeting should get approved. I’m saying that if it goes to a partner meeting and gets rejected, the sponsoring GP should own that rejection and give specific feedback to the CEO why they’re not going to do the deal. Not just apologize and pin it on the partnership.]

On the flip side, I do think it’s is fine for a VC to honestly say things like “we’ve got a lot of institutional scarring around your vertical so I’m going to need a little more time and help to get my partners comfortable.” Or, “I’m not going to be able to move as quickly as you need because of some firm dynamics, so unless you can stretch your timeline a bit, it might not make sense for us to take this forward.”

That’s all part of building trust and visibility for a CEO into the way you operate. And a founder working in an industry that has some hair on it, or is otherwise less understood by the generalist investor, is of course going to need to help their sponsor and her partners. Maybe I’ll write a separate post at some point about the process with investors who have a “prepared mind” for your startup versus those who are still developing their own thesis.