Why Starting Your Investor Updates With “Cash on Hand” Information is a Major Red Flag Right Now. It’s Maybe the Only Thing Worse Than Not Sending Updates at All.

What’s the most important goal for the money a startup spends? If I asked this question to a bunch of different founders and investors I bet the answers would vary. Some would shout one word like “revenue,” “customers,” “team” or even “profitability.” Others might give me formulas like, “LTV:CAC ratio” or “burn multiple of 1.0 or better.” That’s not what I’m hoping to hear. My point of view isn’t that any of these are wrong per se, and certainly there’s nuance based on type of company, stage of growth and so on, but we often forget one very specific outcome that umbrellas some of these other responses: to increase enterprise value. Startups spend a $1 to ultimately try and create more than $1 of company. If you do that repeatedly and efficiently we will all make money together. If you fail to do this reliably then any positive outcomes are more about luck and timing than durability.

Once the markets started crashing in 2022 there was a swift swerve towards “just stay alive” and having enough capital on hand to make it through a downturn. Cutting burn, topping off funding rounds, optimizing pricing — there were many levers to pull. Now a year later, still in a lull but I believe with more evidence that macro economy has stabilized (although there’s the lagging indicator of startup closures), there’s less generalized advice and more company-specific work to be done. Picture an armada of ships that went through a storm and evaluating which need repairs, which should be scuttled, and which have gained momentum, versus making broad statements about the condition of the entire fleet.

A year ago I emphasized that David Sacks was correct about ‘default alive’ being a terrible true north to maintain. Now, in 2023, I’m coming for startups where that is still the overarching strategy; ones who have more capital than hope. What’s a major indication that a company is still operating with simply a ‘default alive’ mindset? Their investor updates lead with cash on hand and months until cash out as the top line KPI.

If you interpret that last sentence as “Hunter doesn’t care about burn rate” or “VC thinks founders should be spending whatever they need to grow” you’re incorrect. I care very much about both. But what I ultimately care about is that you are playing out a specific strategic bet right now. In the best case one which confidently gets you to a next funding milestone or profitability. In the next best case, one which we all agree is an intermediary set of goals which at the very least increases your optionality and likely enterprise value. I’ve got several companies in that camp right now. We don’t know yet whether the plan of record will get them fully to a next round *but* we do collectively believe that spending a portion of the cash on hand over the coming quarters can get them to customer and revenue milestones that result in increased enterprise value. That reaching, say 100+ customers and $5m+ ARR, make them a more attractive acquisition target than they would be today if we transacted the startup. And so spending $3m of the cash on hand to see if they can get there is a worthwhile goal for common and preferred shareholders.

In the other category, if you’re a company that has more cash than strategy; has more capital than momentum. Boy, let me tell you, your investors are likely either already talking with you about landing the plane or will be having that conversation shortly. There is no good reason for a company to just keep existing in the hope that something magical will happen in the future. It’s not worth the time of your team, your executive leadership, or your investors. My job is to redeploy that capital elsewhere it can get a return. Maybe even in your next company when you’re ready.

There are most certainly ways to resolve these types of situations which are fair, respectful, and balanced. That deserves a separate blog post. For now though, the quicker you can make sure your team and your investors are all aligned behind a “spend X to generate something greater than X” strategy, the more likely you are to produce an outcome which rewards your time and hard work as a founder. Which should always be our collective goal. And if there’s not agreement about where the capital is going, don’t assume it will necessarily remain in your bank account.


Lightspeed VC Michael Mignano on Why Apple’s Threats Influenced His Decision to Sell Anchor to Spotify, Why No FOMO in Venture is Good (AI Aside), & What NYC Founders Need to Realize

Investing in someone is primarily a business relationship. It doesn’t mean you don’t develop a personal affinity – it’s best when you do! – but creating an enduring bond transcends the question of founder:VC dynamics and is often not even directly correlated with economic outcome. Our participation in Anchor (later acquired by Spotify) generated both a return and a friendship between us and the founders. Specifically I’ve had the chance to spend meaningful time over the years with Michael Mignano as he went from startup CEO to Executive/Angel Investor and now VC Partner at Lightspeed. Our conversations are always enjoyable, spanning tech, parenting and culture, so I decided to ask him Five Questions here.

I can vouch for his genuine optimism

Hunter Walk: You got to work with a number of different VCs on your cap table for Anchor. Who was the best one and why was it Homebrew? Seriously though, were there things you saw as a founder – or an angel investor in other people’s companies – that informed your own approach to venture now?

Michael Mignano: Throughout my time building Anchor, I met and pitched many, many VCs. And I think if you were to look at all of those interactions and score them on quality of the “user experience”, the majority (but not all) would probably qualify as poor UX. I don’t think this will surprise anyone. On the flipside, there were absolutely a number of investors I met with, including the ones with whom we ended up working very closely, which were phenomenal!

Ironically (or perhaps not), I believe the qualities of those investors overlap quite a bit with the qualities of great founders: speed, conviction, authenticity, respect and directness in communication, clarity of thought, human connection, empathy. And so those are the investors I’ve tried to emulate. Of course, I don’t always get it right, but I’m trying. I’ve basically tried to take my “founder brain” and just flip the goal to investing and helping, not building a company. 

Again, I get it wrong sometimes and now, being on the other side, I see how high volume this job can be at times. And so I do have a bit of empathy for the investors whom I considered “bad UX” back then. At the same time, like most things in life, if you put in a little effort and you stick to your principles, I think it’s totally possible to make sure that when founders walk away from their interactions with you – whether you lean in or pass – that they have a good feeling about how they were treated. So that’s what I’m trying to do.

HW: As your start date was approaching you asked me whether I thought it was a positive or negative to begin a venture career during a downturn. Do you remember what I told you? Was I right? [note, for a variety of reasons I told Mike that I thought it was a positive for him]

MM: I was very excited by your advice on this topic. As a startup founder, you get into this default mode of moving really fast all the time and making quick decisions. And that was definitely who I was during the Anchor days. But then, after spending a few years at Spotify, I grew to appreciate the more thoughtful, strategic approach embedded into the culture of that company. 

My boss, Gustav Soderstrom (Spotify’s President and CPO) always used to say, “talk is cheap, so we should talk a lot.” What he meant was that it was far more expensive to move too fast, make a mistake, and spend months building the wrong thing. So instead, we should spend the time to think, talk, and align as a team before kicking off something critically important for the company. I was hoping your advice would be right because it would mean that my partners and I would get to think strategically and not just be in “react mode” at all times. 

To answer your question: you were mostly right. I was angel investing a lot during the FOMO era and it was just insane; it doesn’t feel like that anymore. However, I think neither of us had any idea that a few months later, AI would explode in the way it has.

HW: So I have this theory about one contributing factor to why you sold Anchor to Spotify when you did. To be clear, I understand and believe it was a great decision – you got to continue the mission at an industry leader with very good deal terms relative to what could have happened given the market in general and podcasting economics specifically. At the same time I do tend to think people potentially overestimate the challenges of things they haven’t done before while feeling perfectly confident playing to their strengths.

Pre-revenue when Anchor was “just” a product company you were all brilliant iterators and relentless explorers. When Anchor needed to become a business was when you sold. And my armchair psychology was because you and Nir had not previously built an ad/sponsorship/commerce business at scale the risk in getting it right seemed very high. Whereas if say one of you came from AdSense at Google, you might have been like, yeah this is tough but I’ve done it once already, let’s role. Am I directionally right or am I projecting my own issues?

MM: The risk of getting the ad platform right was not our chief concern; we were concerned about other risks, one in particular which I’ll touch on below. However, in addition to the risks, there were also just so many positives about teaming up with Spotify. That combination made it a no-brainer for us. Here were the main contributing factors:

1. No one was poised to invest in (and win) podcasting like Spotify. Apple had made it clear to us through many prior conversations that they were never going to take the medium that seriously (beyond yearly incremental updates to the Apple Podcasts app). And other platforms’ strategies seemed directionally pointed at exclusive content, not building platforms. Spotify’s plan was much bigger than that. It was more along the lines of “win podcasting by any means necessary, including both content *and* platform strategies.” Anchor’s mission was to democratize audio. We felt that to do that, we needed to both enable everyone on the planet to make a podcast while also innovating on the actual consumption format. There was no question that Spotify was our best chance to do that, even more than staying independent. We had all the creators, they had all the listeners. It was a match made in podcast heaven. 

2. While there was a minor concern about the ads risk (per your question), we felt there was more meaningful platform risk to the future of the Anchor product offering. More specifically: while we believed Spotify to have greater upside, Apple Podcasts was the clear dominant listening platform at the time, and we relied on distributing to both platforms to deliver value to our creators. However, Apple had repeatedly threatened to cut off our distribution (despite our many attempts to partner with them), and their threats had grown more immediate and credible. We felt that if Apple cut off our distribution to Apple Podcasts, the value of the Anchor offering would be greatly diminished. This was a much bigger risk to the business than landing the ad platform, and it was very much top of mind for us when we sold.

3. Let’s face it: a bird in the hand is worth a lot. When we considered the offer by Spotify, it was clear that it would absolutely be a big win for our users, the entire Anchor team, our investors, my cofounder, and me.

Looking back: while podcasts as a category continued to accelerate after we sold (likely a result of Spotify and their aggressive investments) and at times I questioned if we sold too early, I’m now confident that the decision to sell was the right one. There were few podcast acquisitions after that eclipsed the value of ours, and those that did were only incrementally more valuable. And it now seems the podcast startup market has peaked, with a very uncertain future moving forward. As a result of all the acquisitions, companies like Spotify accomplished their goal. Could Anchor have surpassed the entire podcast industry if we had stayed independent? Who knows, but I have no regrets about where things landed.

HW: As a former CEO, when you back founders, how do you navigate an impulse to imagine how *you* would build the company versus understanding what and how they want to build? When the two don’t match up – different visions – is that something you just keep quiet on?

MM: Right when I started at Lightspeed, a very smart and well known investor correctly warned me of this impulse. I didn’t really understand it at first. But a little while later, I found myself working on a deal and quickly talking myself into why the company would make a great bet because the path forward for the company was so obvious to me. But when I really zoomed out and dug in with the company, I realized they had a completely different vision for the path ahead. The investor’s advice came ringing back. Since then, I’ve worked very hard to make sure that when I’m speaking to prospective companies, the conversation (and decision) is focused on how they want to build the company, not how I or anyone else thinks it could or should be done. I have found that this both leads to 1) better decisions and 2) better working relationships with founders and teams.

HW: As one of the faces for the NYC tech scene – exited founder, then angel, now VC – where do folks outside of the local network underestimate the city’s startup potential and what’s one piece of ‘tough love’ you’d give founders in NYC about how the community needs to continue developing to make even bigger impacts?

MM: When we were building Anchor, we had a few VCs ask us if we would move the company to Silicon Valley in connection with their commitment to invest. While we never actually considered doing it, I learned to understand why they were asking, and believed that it actually had merit: the concentration of engineering talent in SV is unlike anywhere else in the world, making it much, much easier to hire for PDE roles, especially engineering. It’s a true competitive advantage, especially against companies elsewhere in the world. But throughout the Anchor journey, I came to believe that NYC is also a very special place to build a company. 

What it lacks in terms of volume of top tier engineers, it makes up for in diversity of thinking, lived experience, and concentration of other professions. If you’re building a fintech startup, you’re near the financial epicenter of the world. If you’re building a media company, you’re near television, news, music, and film. There are so many other examples. And also, there’s a fierce camaraderie baked into the DNA of the city. NYC is an awesome place to live and work, but it’s also a tough place; as a result, people band together and want to help each other. I’ve noticed this time and time again and I believe it to be a true advantage to building a company in NYC.

As for tough love: like other cities, those of us who are in and around NYC have gotten very comfortable with working remotely, myself included. And while I’m a big fan of distributed work, I also think it’s time for startups to get back to working together IRL. There’s nothing like the energy you feel when building a startup with everyone in the same room. But also, there’s nothing like going through the most formative years of your career in the city that never sleeps. Beyond the culture that gets built on your team during lunches, happy hours, and meetups, the people you can meet and bond with in this city never ceases to amaze me. It truly feels as though anyone can accomplish anything in New York City. But if you’re not actually spending time with people face to face, you’re missing out on arguably the biggest benefit the city has to offer.

Thanks Mike! You can follow his writing and everything else here.


I Like You But You’re Not Yet My Friend. What Do We Call Each Other? A Struggle to Replace “Acquaintance” With Something Better.

As an east coat Jew, there are always going to be a few issues for me which veer into neurosis. The existence of blueberry bagels. People who eat pizza with a knife and fork. Slow walkers. But outside of these there’s one yet unsolved question that I struggle with more than others: what’s a better word than friend to describe someone with whom you’re familiar (and positively disposed towards), but haven’t spent enough time together or gotten to know deeply enough to truly call them “friend?”

Most people tell me I should just call them “friend” but this isn’t right for me. A friend is someone I feel like I know. Where the relationship is of similar bidirectional intensity and commitment. A friendship is a vouch.

By saying everyone is a friend you lose the intimacy (and expectations) for what a friendship actually entails. The simplest fallback is acquaintance. Here’s how that normally goes, most often in a professional context:

“Hey Hunter, [other person] says you’re friends?”

“Well I’d call them an acquaintance. But if I spent more time with them I bet we’d be friends.”

To me that feels acceptable, but there’s a weird asymmetry where most of the time the person I’m calling an acquaintance is calling me a friend and then it gets weird.

So here’s my question/request for you:

What do you call someone who you’ve had some amount of interaction with, perhaps even share some interest group/social circles/built some familiarity with one another, but aren’t yet “friendship” level close?

My requirements are:

  • Genderless term
  • Can work in a business/professional setting
  • Common enough to be understood by 95%+ of people
  • Has no baggage that makes it seem like I’m critiquing the other person who thinks we’re friends

You have my gratitude!



US VCs Need to Lobby For High Skilled Immigration Reform (and Sacrifice Preferential Tax Treatment If Needed)

Although my mother calls me “always curious” there are actually lots of things I’m ok not completely understanding. Most of the time these fall into categories of objects or activities that “just work reliably” or when there’s someone I trust who both shares my interests and has expertise in the area where I might maintain some ignorance. However, even when I don’t fully dedicate myself to studying something, a status quo appearing to be illogical drives me nuts. And such is the case with the United States not playing offense on high skilled immigration despite it generally polling as a bipartisan. What could be more American than the idea of ‘stealing’ the smartest people from around the world and turning them into tax paying, job creating citizens? America First indeed.

Now I can speculate why we’ve not seen enough movement on this segment of immigration reform. Democrats wooing the progressive left might be morally compromised in appearing to favor ‘high skill’ populations while ignoring other pressing immigration needs. Or be listening to the unions (who are largely wrong on this issue). Or be wary of any pro-immigration legislature becoming ‘soft on borders, browning of America’ rhetoric for their conservative voters in competitive districts. And many Republicans seem to be frightened of their own base on immigration or have also fallen victim to some form of incumbent regulatory capture. Or they just hate people who don’t look like them more than they care about our country’s future. These are Bad Reasons.

Writer Noah Smith has been an strong advocate for skills-based immigration reform and his essays on this topic have personally resonated. He took on the ‘wage competition‘ issue last December and more recently even the “is it detrimental to ‘poach’ other country’s skilled labor?” (Answer is No, in fact more often mutually beneficial). I belong to an industry (tech) and in a role (investor) which benefit immensely and directly from the entrepreneurism of technical founders, often first generation Americans or newly arrived. So my incentive here goes beyond some notion of ‘it’s the right thing to do for America’ generally (or symbolically) and right in the bullseye of “if we want the US tech industry to continue to lead the world it’s essential that we return to being a magnet – in work, in education, and in quality of life.”

Our industry association (the NVCA) also believes in immigration reform but seemingly as a priority second to taxes (at least if the Public Policy menu is ordered in importance). Taxes are a real issue for sure – much of their work is on the company-formation side (how stock options are treated, etc) and that matters to founders and teams. But quite simply we’ve reached the point where priorities deserve to be flipped.

False tradeoff you say? I can have my immigration reform and my carried interest designation? Great, I’ll take it I guess. But I’m a believer in priorities and so when it comes down to lobbying, coalition building, and calls to action, let me be amongst those who stand up and suggest the rest of this decade should be about putting our collective weight behind the future of our industry: importing brains.


Why We’re Heading Into the “Perfect Storm” of Startup Closures.

How many cliched comparisons can I bundle into a single blog post? We’re about to find out…

WSJ’s Berber Jin asked me for some comments around startups closing their doors, as part of a trend story trying to assess the health of the market. Failure is always part of our business – one might go so far as to say it’s the ‘natural state’ of a startup – they are likely to fail until they prove they can succeed. Jin’s resulting article “Startups Are Dying, and Venture Investors Aren’t Saving Them” includes a portion of what I shared with him (Cliched Comparison #1: Perfect Storm):

Hunter Walk, an early investor in Toolchain, said that as the market changed, investors wanted to see evidence of dollars over user traction, making it difficult for the company to raise money. The investing mania that ended early last year has added to the pile of startups that are now shutting down as fundraising prospects dwindle, he said. 
“What we have right now is a perfect storm resulting in more than usual shutdowns,” he said.

Let’s unpack this a bit because there are three distinct cohorts of shutdowns occurring, which is some ways remind me of the ghosts from A Christmas Carol (Cliched Comparison #2). Yes, it’s the ghosts of Startups Past, Startups Present and Startups Future, all visiting us during a tortured night’s sleep.

Startups Past: the boom of the last decade kicked forward and delayed a bunch of closures. These seed companies raised enough capital to persist longer than normal and/or weaker companies in hot verticals received follow-on financings that wouldn’t normally be granted to them in a tougher environment. Now as the market turns there’s no more checks coming for them, no matter how much dry powder is on the sidelines. So think of it this way, we’ve got startups shutting down in 2022-24 that shouldn’t necessarily have made it this far – they’re 2017-2021’s normal failures clustered into current times.

Startups Current: Companies funded during the last few years that didn’t accomplish their necessary milestones for incremental capital, exacerbated by a challenging environment that decreases the chances of a bridge round, leaves some of their current investors without new funds to deploy, and (most annoyingly to founders) moving goalposts on what they’re supposed to achieve.

Startups Future: These companies have capital left but not necessarily a clear path forward, or enough team/executive/investor momentum to continue together. Founders and VCs are working together to help these startups find the right solution – usually some combination of returning capital; pivoting into new corporate entities to explore fully different directions; selling off portions of the startup; leaving the IP with the founders and eliminating the preference stack through a buyout; and so on. The impact is we’re pulling forward 2024-2025 “cash out” dates into the current day because the opportunity cost of people’s time and investors’ capital is sufficient to resolve many of the situations today.

Startups can be amazing, wonderful, inspiring opportunities and participating in one can often be the right decision, even if the outcome doesn’t go the way you had hoped. So let’s finish up with a hopeful (?) reminder: while the magnitude and reasons behind the spike in company closures is certainly disruptive and painful, it’s part of the regenerative cycle in our community, like how a forest fire allows for new growth to emerge (Cliche #3). Keep making good decisions (smart teams, important problems) and you will have good outcomes.

And if needed, many Homebrew portfolio companies are hiring!


Sold at the Peak: Congrats to Founders of Honey, Mirror, Frame.io and Others. You Timed It Perfectly.

“Sold too early” is historically a derisive term thrown at founders who exited startups still on an upward trajectory, and it’s true that almost every successful company went through periods of interest from potential acquirers, even if it was just casual inquiry. But after a decade in venture capital, alongside my immense respect for the founders who just keep building, I’ve also come to appreciate that knowing when to get out matters as much. And so looking backwards over the last few years of ZIRP Boom, we can now honor those folks who got the bag for their companies by taking the right offer at the right time.

Here’s what I’m purposefully excluding: SPACs, crypto, founder/investor secondary that didn’t include the team, potential fraud, soft-landings dressed up as acquisitions, never compensated their teams with equity, etc. This is about actually interesting companies that probably had to make hard decisions about raising more capital or selling. Although I wasn’t involved in the situations I’m naming below (and so can’t 100% vouch on the details), they’re ones which never had any backchannel stink on them and all seemed to be successful enough before M&A (stage-specific – ie the more mature companies had proven more than the younger ones did). I’m also sure there’s a bunch that I’m forgetting – feel free to disagree or expand the list in your own post.

Frame.io by Adobe: Natural landing spot for a fast-growing SaaS video creation company at reportedly $1.275B in cash. I’m sure the company could have stayed independent and continued building but they exited during a period where multiples were high, antitrust wasn’t an issue, and to a company that can carry the product forward.

Honey by PayPal: $4B in cash for this incredibly mainstream product – maybe one of the last great non-gaming consumer product acquisitions on the books? I assume next phase of the business would have required more and more negotiated merchant/CPG deals, build out the ad network aspects, and always face some privacy/consumer data regulations? What a win!

Locker Room by Spotify: Remember when everyone needed their Clubhouse clone? Spotify gave Betty Labs an estimated $67m for the Locker Room app that became Spotify Greenroom. I believe they’d only raised a seed round so founders/company still had majority of equity (hopefully!). Right place, right time, right decision.

Mirror by Lululemon: There was some snickering about why would Mirror cash out while Peloton, Tonal, and other connected fitness devices were the future. No one is snickering now. Mirror built an impressive product and then took the $500m buyout, not having to worry about customer retention, hardware supply chain, and post-COVID inflation chill.

I’d toast to all these founders but as a result of these outcomes they probably have better champagne than I do! 🍾🍾🍾🍾🍾🍾🍾

(When I asked some friends for their nominations others which came up were Afterpay, BentoBox, Slack +++)


VC Optimism Returning But More Pain Ahead In Their Portfolios

Ok, this is the “For VCs, There’s More Pain Coming” post that I promised earlier (while also suggesting it’s actually a GREAT time to start a company). Obvious caveats to my POV here, most specifically: exposure is limited to largely the US/SiliconValley ecosystem, driven by our own portfolio, my friends and co-investors, the funds I’m a LP in, and our institutional LP relationships. But since this is vibes > data anyway, I’ll start with a story from Homebrew’s 2023 Annual Meeting.

Satya and I were having lunch (yummy Chinese food) with our LPAC and the conversation turned to generally “how much more did venture portfolios have to fall before they found their true current value?” That is, for the class of funds institutional LPs tend to back, on average, where was bottom? Each underlying firm has its own ‘valuation policy’ and we can have a separate conversation about the quality of those estimations, but you can generally assume that (a) there’s no real incentive for established VCs to be out of line with their view of reality (this stuff gets approved by accountants) and (b) LPs see this across a variety of managers and are sophisticated enough to apply their own modifiers to the numbers they are provided.

At the time, this is last quarter and the stock market has trended upwards nicely since then (a potential leading indicator of private tech valuations), we all agreed venture portfolios were probably still 25-40% overvalued. That’s a big number, one which if accurate moves many funds to at/below their target return goals for at least the moment! Our estimates were not out of line with new data from top firms like USV who, according to reports, “marked down the value of seven of its funds by nearly 26%.”

What are my major assumptions for why there’s more markdowns to come in the aggregate for the last decade of venture portfolios?

  • Valuations. The number of startups who raised money beyond the ‘Unicorn’ benchmark grew so dramatically before the 2022 reset that there is just simply farther to fall when many of these fail to grow into their targets, or disappear completely. The capital piled into them also transformed them, asking them to grow faster, spend more, and so on. These mutant unicorns may not recover without dramatic changes to culture and strategy, not just spend.
  • Fund Sizes Got Too Big. Firms raised too much money. I’m not crying for them – it’s their fault and they’re getting paid hefty management fees even if they’re mediocre investors – but greed and/or competitive pressure (plus an influx of new LPs) caused many VCs to have fund sizes which outpaced their capacity to deploy prudently and their existing strategies.
  • Restructures, Down Rounds, and Pay to Plays. Whatever gets reported is just the tip of the iceberg. The reality is lots of companies – many of them quite promising – have already undergone, or will be facing, next financings which “clean up” old cap tables. Often not all insiders have the dry powder to protect their positions, or feel the juice isn’t worth the squeeze. Sometimes these are led by outside investors and old ones will just take the impact and walk away. Regardless, even in rounds with no punitive structure, the quickest way to underperformance as a fund is by increasing your ‘dilution before exit’ portfolio model assumptions by 1000-5000 basis points. And that’s what’s happening here.
  • Soft Acquisition Market. Chilling effect of FTC action on major tech M&A combined with public company shareholders wanting their companies to maintain/grow profitability versus spend on what could be still overpriced assets. As The Information proclaims, “Unicorn Fire Sales Ahead.” At the lower end of the market, acquihires aren’t returning much to the cap tables and others are carving themselves into pieces to find buyers (and cash).
  • Many VCs Owned Too Little of Their Portfolio Companies to Begin With. When markets were at their peak the discipline around ownership felt antiquated to some, or at least challenged by the competitive realities. So when great exits again return to the $1b, $3b levels instead of everything being $5b-$50b on paper, it causes a lot of pain. As I wrote about last year, this is a huge (but not unexpected) change to models. Quite simply, on a $10b outcome everyone eats, but on a $1b outcome only concentrated investors see enough back to move the needle and/or those investors who got in early and keep their fund sizes reasonable. The growth in fund sizes plus the decrease is outcome size coupled with ownership challenges is a disaster. When the company exits you’ll get all the ‘congrats’ but you’ll know the DPI doesn’t match up. Let me tell you *every* credible VC fundraise deck I’ve seen this year talks about the importance of ownership concentration.
  • More Than Average (ALLEGED) Fraud. If not in number of companies, then seemingly in the amount of capital they were able to raise before getting exposed.
  • Overweighted in Speculative Crypto and Weren’t [Slimy or Smart depending on your POV] Enough To Get Out Before The Shitcoin Collapse.

So yeah, it’s gonna be a tough vintage of returns for many but hopefully healthy for our industry. Lower performing VCs will disappear faster and new entrants will differentiate themselves. Funds will get rightsized, which helps better align investors and founders in what defines a successful outcome. And fascinating new advances (and needs) in AI, climate, biology, etc are driving tech-IP driven startups.

The folks I feel for here are teams, who are going to continue to see layoffs and company wind downs, and the majority of founders who did nothing but responsibly play the hand they were dealt.


“Winners Take None:” Coworking, Self Storage, Scooters Have Burned Billions of Investor Dollars and Maybe Were Never ‘Tech Companies’

The historical dynamic for software markets was one of ‘winner take all/most.’ Economies of scale, network effects, soft monopolies/bundling, patent moats: there are many reasons why. Putting your money into one of these leading companies could produce incredible returns over time for venture, institutional, and retail investors. In some twisted way then, the opposite of these companies (Oracle, Google, Meta, Microsoft, Apple, Salesforce for example) would be ‘winner take none’ outcomes. Verticals where an incredible amount of investor capital was committed and even the ‘best/surviving’ companies ended up consuming a tremendous amount of dollars.

a first place winner trophy that is dented and dirty, digital art

Sometimes a winner take none market can emerge when a technology breakthrough just didn’t pan out, or there’s a dramatic change in customer needs/expectations. But other times, and through the most recent cycle, it seems like some of the most dramatic ones were just blitzscaling aimed the wrong target. Narratives and spreadsheets which somehow would take low margin, high fixed cost businesses and transform them into technology companies.

Self-storage on Demand. Winner take none.

Micromobility Scooters. Winner take none.

Coworking. Winner take none.

As a venture investor these are especially painful because they fail slow, burning a lot of capital and time and hope along the way. Early in Homebrew’s existence we had a mini Winner Take None in the consumer/SMB shipping space, so I’ve got some familiarity with these situations and don’t mean to just throw stones at others.

What drove these mistakes? Besides ZIRP, there’s often the application of a business model from one success to a market that’s not as well suited. The “Uber for X” and “Airbnb for X” largely lacked positive attributes that transportation and travel possessed and accordingly found infrequent usage, low margins, complex processes and so forth. Winner take none.


Link Blog: Run Away When a VC Wants to ‘Preempt Your Next Round,’ How Barbie Got Made, Air Jordan Fraud, and More

Ok, I’ll get back to my procession of Startup Land Heat Checks shortly, but in the meantime, here’s a bunch of smart stuff I’ve enjoyed reading over the last few weeks:

a person reading a magazine while stuck in a spider web, anime

It’s Not Your Fault, But It’s Your Problem [Charles Hudson, Precursor] – I vigorously agree with so much of what Charles writes, and so glad he’s getting posts out more frequently these days. This paen is a reminder that lots of the time you’ll encounter real roadblocks caused by issues outside of your control, but where you still need to navigate them to move forward.

Right now, we are in a moment where many founders find themselves confronting problems they didn’t create but must tackle. This is not the time to complain or lament your fate – it’s your opportunity to rise to the occasion and push through despite the challenges.

What makes this worth reading is that Charles has empathy for founders (he’s been one), and will continue to show up as one of their investors in a supportive manner. So it’s not “rah rah go do the work and make me my money” bs content marketing. It’s words (and advice) he’s been given and had to take himself.

Preempting the Round [Jared Hecht, Founder – GroupMe, Fundera] – The first time a founder hears an investor suggest they might want to ‘preempt their next round’ they 🍾. The second time a founder hears this they 🙄. Jared takes you through why. It happens often enough that I’ll write a post later about what to do once you get this advance from an investor, but even that one will be largely based on the wisdom and battle scars shared here.

I’ve been burned by entertaining preemptive rounds on multiple occasions. It’s like touching the hot stove repeatedly.

The Air Jordan Drop So Hot It Blew Up an Alleged $85 Million Ponzi Scheme [Misyrlena Egkolfopoulou and Kim Bhasin/Bloomberg] – My goodness ZIRP and COVID was a perfect storm for a ton of fraud. I wonder how much of the growth in the sneaker exchanges was driven by pure speculation, venture dollars, and unsustainable economics. I” know it’s a huge industry overall and sneaker heads are a real community but just read this article before flaming me.

“But there was no secret shoe pipeline. In fact, Malekzadeh would simply wait until the shoes he’d presold were released, then purchase them on the open market from retailers such as StockX, according to people familiar with his operation who asked to remain anonymous because the matter is sensitive. Delivery delays could persist as long as a year, but he managed to fulfill most orders—until one day he couldn’t.”

Mixtape Sites Like DatPiff Propelled Rap. Can They Be Preserved? [Brian Josephs/New York Times] – Save the culture! I wish we could at least freeze these in some format that recognized their important role in hip hop.

“That freedom unlocked an era of unfettered creativity for a generation of artists and built a critical digital-first audience that would later lead to rap’s dominance in streaming. It also led to the current dilemma: How do you preserve a part of hip-hop history that isn’t necessarily legal?”

After “Barbie,” Mattel Is Raiding Its Entire Toybox [Alex Barasch/NewYorker] – Came out before the movie opened, so the insider account of how the IP negotiations occurred is even more astounding as box office approaches $1B. I interned at Mattel in the summer of 1999 so have some light first-person stories about how this company works.

At the start of the “Barbie” process, Gerwig decided to write the screenplay with her partner, the writer-director Noah Baumbach. Mattel and Warner Bros. insisted on seeing a preview of the script’s contents. The couple balked—they needed the freedom to experiment. Jeremy Barber, an agent at U.T.A. who represents Gerwig and Baumbach, is close with Brenner, so he could be blunt. “Are you crazy?” he told her. “You should’ve come into this office and thanked me when Greta and Noah showed up to write a fucking Barbie movie!”


Great Time to Start a Company, Tough Time to Be Running One

Hi! I took a month or so off from writing, largely because so much was in motion, that I needed to get some work done and process a bit before committing thoughts to, err, paper? We hit 18 months on the Homebrew Forever model (and just closed our 20th investment using personal capital) so lots to share on that front soon’ish. And Screendoor, our fund of funds backing emerging managers from underrepresented populations, continues to amaze me in ways I didn’t anticipate (more on that soon’ish as well). But first, stretching the blogging muscles with some general ‘state of the nation’ posts.


Great Time to Start

  • Founders with 3-10 years of startup tenure, having gone through hypergrowth (the good and the bad), often with prior experience working together, and a strong POV on a problem to be solved. I don’t think I’ve seen as many combos like this since we started over a decade ago.
  • Less market pressure to spend ahead of PMF, fewer overfunded competitors doing the same thing, etc
  • Macroeconomic concerns and softness in tech markets mean that legacy companies have underinvested in their own non-core initiatives (creating holes for startups) and tight headcount/budgets mean they’ll buy vs build pieces they need.
  • Talent on the market being shed by larger companies and last generation of zombie startups.
  • Beginning of thaw in the venture markets, especially at seed.

Tough Time to Be Running a Startup

  • We are absolutely not through the worst of the pain from the market reset. Lots more wind downs, restructures and soft landings coming [this is important enough to be its own post shortly].
  • Customer budgets are still tight, especially in tech.
  • Layoffs and lack of hiring at customers means many SaaS/per seat/usage B2B companies are fighting ACV contraction where you need to add new logos just to show marginal growth, let alone 2x+ YoY.
  • Many companies haven’t fully optimized for what it means to be hybrid/back in office.
  • It’s just been a stressful few years!

Ok, my goal is to follow-up quickly with:

  1. For VCs There’s Still a Lot of Pain Coming
  2. Soft Landings Are Really Soft Right Now
  3. Why Shutting Down Correctly Matters
  4. “Cash on Hand” Is The Most Polarizing KPI in Startups