“You have to fight the urge to do everything the same way you did it the first time:” Pros and Cons of Being a Repeat Founder. Some guidance from an understudied segment of the startup ecosystem.

Our industry talks about ‘repeat founders’ with a lot of reverence and for good reason given the commitment required to build a startup. We also sometimes think of it as a single cohort, but there’s a probably more nuance. The ‘first startup failed but she learned on someone else’s dime and now is a killer CEO’ experience might be different than the ‘first one was a big success and now the question is whether she can top that’ in terms of what’s being built, how she’s building it, and the pressure she feels.

a very tired panda looking in the mirror, digital art [DALL-E]

I’m also guessing (does anyone have data?) that the number of repeat founders is increasing non-linearly as more and more entrepreneurs start earlier in their careers, so understanding patterns among this group has never been more relevant. With this in mind I asked a few ‘repeaters’ about their own experiences, largely to use as background to inform my own opinions. One person was my friend Sean Byrnes is a multiple time founder and writes about his experiences + advice for CEOs/founders in a free weekly newsletter called Breaking Point. His response to my question about pros and cons of ‘the second time’ was so good that I’m going to share it in full.

You’ve hit on a topic I could talk about for hours! Feel free to attribute any of the following to me, but I’m not sure if they fit exactly what you’re looking for:

Pros of being a 2nd time founder:

1. You can enjoy the ride a lot more. It’s like riding a roller coaster: the first time you ride a new coaster you are scared the entire time because you don’t know what to expect at every turn. The second time you can enjoy the ride, but when you know it’s time to be scared you are MORE scared than you were the first time.

2. Because of #1 it’s a lot easier to listen to everyone around you. Since you’re listening more, everyone around you feels heard and as a result they appreciate your leadership more. It creates a virtuous cycle of you as the “experienced founder” mostly because you’re calm and confident while listening to them.

3. You know how your decisions today are likely to play out over the coming years so you can have more confidence in them. You can also coach your team to think longer term for the same reason, leading to better decisions everywhere. That foresight again reinforces the idea of the “experienced founder” since it sounds like you have a crystal ball.

Cons of being a 2nd time founder:

1. You have to fight the urge to do everything the same way you did it the first time. Not only is the world a lot different than your first trip, it’s not entirely clear if what you did the first time was a cause of success or just noise. However, everyone around you WANTS you to do it the same way you did it the first time because that’s your experience. As a result, you’re fighting a lot of forces to do things in new ways and not be a prisoner of your history.

2. You have more to lose. As a first time founder you have nothing but upside, regardless of what happens with your company, since it’s a resume and experience builder. A 2nd time founder (especially one who has seen success) risks tarnishing their resume/reputation with a failure. That means you can be less ambitious and not as willing to take risks. It’s a daily struggle.

3. Expectations are higher. Even if it’s not true, people feel that second-time founders should be more successful. As a result, the people around you are less forgiving of massive mistakes, big pivots and other course corrections that are necessary on the startup path. Everyone starts out believing in this image of a second time founder as having “the formula” and everything that cracks that image wears away at their confidence.

You can, of course, overcome most of those Cons through transparency and honesty which is easier because of the Pros. Oddly, I don’t see many second time founders take that route as they enjoy the feeling of being seen as having the answers. It’s an addictive cocktail to have an easier time raising money and hiring your team, especially if you struggled in your first company.

I’m still digesting some of the other responses and trying to get their permission to share like I did Sean’s. Hopefully more to come!

Two Questions To Ask During Hiring Reference Checks Instead Of “Where Can They Improve?” Be Specific About Situations & Create a Permission Structure for Honesty

I LOVE doing reference checks — on founders we are hoping to support and key hires into their teams. On-sheet (provided by the individual) and back-channel are both valuable in their own ways. Don’t incorrectly write off the ‘candidate supplied references’ thinking that it’s worthless to speak with people who have been prepped or likely to be positive. Sometimes you just need to ask better questions. Here are two that I’ve found to be expecially useful.

businessman on a phone call writing notes on a pad, digital art [DALL-E]
  1. “If a colleague of [name] didn’t want to work with them again, what reasons could you imagine them giving for this decision?”

Rather than just ask generally about “strengths and opportunities” or “when are they at their best vs when do they struggle,” you want to always try and ground the reference in someone’s actual lived experiences. Additionally, creating a permission structure to talk about how *others* have reacted to the candidate gives the reference a chance to provide observations without having to own the opinions themselves.

You can use the answer to this question in two ways. First to identify behaviors and styles that might be situational and to consider whether the hiring org and new role are well-suited given these past experiences. Second, to test self-awareness by asking the candidate this same question and comparing the results. Are they aligned with what their on-sheet reference told you? If not, guide the discussion over to the specific feedback and gauge openness to hearing it, potential defensiveness and so on. In my mind a great reference call will not just assist in the hire/no hire decision, but aid you in making that person successful once they start by getting a sense of where and how they might need coaching.

2. “One of my responsibilities is to help [name] be a great CEO. Where do you think they might need some guidance or support? How do they like to receive feedback?”

Many of the founders we back are first-time CEOs, and some of these folks are stepping into that title as first-time managers. That doesn’t give us pause — we love ambitious people who take the responsibility of leadership seriously. Where they’ll need to develop to be successful — and how their natural instincts/previous work prepared them for this next step — is really valuable context for our relationship with them.

The tendency when probing on this area is to ask a version of “Do you think [name] will be a good CEO and why?” That’s fine, you’re likely to get a list of strengths that this individual has displayed in previous jobs. But again, similar to the example in #1, I believe in a more specific framing: where is this person going to need help and how can we provide this support in a way that’s effective for them? Armed with this information we’re going to be in this founder’s corner from Day One, trying to build trust, keeping an eye open for their blind spots, and getting them feedback in the manner they appreciate (the whole ‘effective communication is not about speaking but about being heard’).

Framing the question in this positive way also establishes advocacy and a growth mindset, not judgment and fixed notion of what the CEO may, or may not, be capable of. And it’s consistent with Homebrew’s mission/brand promise.

“As a Senator, the first project I’d tackle would be immigration.” Me! in Conversation with Sar Haribhakti

I love doing quick Five Question Interviews to learn more about people in my community. Sar Haribhakti took it a bit further — I think he does closer to 15 questions 🤣 — but enjoyed being on the other side of the table for this Q&A (“Coffee brew, political takes, and shop talk with Hunter Walk of Homebrew

Paid Subscriptions Aren’t Enough. Why Substack Should Build An App Store

Helping Writers Monetize Their Free Readers More Effectively By Opening The Platform Up (and Taking a Cut)

Consider me a fan of Substack. Yes, I disagree with aspects of their content policies (and occasionally wince at the arguments they make to defend said choices), but the company founders fundamentally want to see writers do their best work and make a great living in the process. Getting creatives paid is a mission I’ll always support.

a happy writer, sitting on a pile of money, digital art (DALL-E)

Beyond the aforementioned community standards questions they inspire a lot of public debate for something which is basically a CMS, email list management tool and Stripe integration. One way to understand the coverage is via Aaron Zamost’s important narrative clock metaphor. The fact Substack raised large amounts of capital during a particularly bullish time in our industry (and the people they raised it from) made them a particularly delicious topic.

A company’s narrative moves like a clock: it starts at midnight, ticking off the hours. The tone and sentiment about how a business is doing move from positive (sunrise, midday) to negative (dusk, darkness). And often the story returns to midnight, rebirth and a new day.”

But this isn’t a post about any of that. At least not directly. Instead consider it a companion to my “Why a Paid Newsletter Won’t Be Enough Money for Most Writers.

So long as Substack offers a great publishing platform (and helps grow audiences) they will have enough writers. Yes, Author Development will still be a staffed function and various incentives (such as the well-covered Pro guarantees) may exist, but I’m actually not worried about the ‘supply side’ of their business, at least at the top of the funnel.

What does give me pause is how many of those publications will (i) want to monetize at all [you can just use Substack as a free newsletter publishing tool if you want], (ii) how much revenue those writers will be able to make directly from a subscription fee [sidenote — one ‘risk’ of the Substack Recommendations product is it yields primarily low paid conversion rate new subscribers, which means monetizing free readers becomes more important] and (iii) a belief that Substack’s 10% take rate isn’t sufficient margin for them to grow a scaled robust business. Hence, and now we get to the title of this post, Substack Needs an App Store.

What do I mean by ‘app store’ in this case? Substack should partner with a broad set of 3rd party products to enable deep integrations inside of their newsletters. Kinda like Heroku, Shopify, Salesforce style app store more so than Apple. You’d need a basic developer platform and some APIs that to the best of my knowledge don’t publicly exist yet.

What “deep integration” benefits does a partner get for working through Substack: ability to make use of the data about the publication, its subscribers in aggregate, and even the individual reader in order to maximize the performance of the specific ‘app.’ In return, Substack should take a percentage of the revenue produced by that app (from the app provider side, not the author’s cut, even though yes, I realize that it’s kinda semantics if you’re talking about one pool).

Examples of ‘apps’ that I see working today in Substack newsletters:

  • Job boards like Pallet (some writers are making an incremental six figures a year from these links — or at least they were in the go go hiring market of 2021)
  • Branded creator merchandise
  • Event tickets
  • Books, music, and other content downloads
  • Maybe even one day… sponsorships (which I see as different than programmatic advertising, which the company has been opposed to)

and so on….

I’m not suggesting that Substack create a walled garden — any author should continue to be able to embed or link to any service that complies the platform’s general Terms of Service. But Substack should offer to ‘enhance’ strategic partners in a way which grows the pie (while taking their share).

And also they’d need to cross the rubicon on data and targeting: how much granular data do they want to make available to these partner apps and under what terms. We’ve already seen with Facebook and others what can happen when a developer platform is too promiscuous or encounters bad actors.

But there’s real value — to all sides of the transaction — with better personalization. For example, customize the Pallet job links more specifically to me as opposed to just the general subscriber base. Pitch me coffee mug merch (since you can tell I like that) while showing a different reader t-shirts (since they seem to have bought those in the past from other Substack authors). And so on. Interest, geo, demographic and other dynamic customization which improves the performance of these ‘apps.’ Incentives like this will also inspire new types of units to be built for Substack by 3rd parties which might otherwise not take the risk.

My stake in the ground is that Substack needs to figure out how to make more money per reader without directly increasing their subscription take rate. And this is the best solution I have for that problem: the Substack App Store.

Like Bourbon and Whiskey? A New Auction Site Is Making It Easy to Buy (Too Easy According to My Credit Card Statement!)

Five Questions With Unicorn Auctions Cofounder Cody Modeer

My hobbies are largely consumptive: coffee and whiskey (the former to excess and the latter more modestly). Whiskey, specifically bourbon, scratches a bunch of itches for me: a love of American history, a community of people to share the enjoyment, and a deep rabbit hole of bottles to sample. During the initial lockdown, a lot of this enthusiasm moved from bars and IRL meetups to the best available option: socially distanced together, whether it be zoom happy hours and online groups. Around the same time a new Chicago-based business opened, Unicorn Auctions, which quickly started growing from a few hundred bottles up for grabs once a month, to thousands with sometimes bimonthly sales.

Unicorn has taken liquor/spirits auctions, previously more niche and collectible here in the states, and made it mainstream. There’s no registration fee, you can pay for your lots with a credit card, and they can facilitate shipping your wins to you locally. In terms of what gets listed — well, it’s everything from daily drinkers to a rare pre-prohibition dusty. I wanted to learn a bit more about this website capturing my time and dollars, so asked cofounder Cody Modeer to answer a few questions for me.

Hunter Walk: Give me a little backstory on the founding of Unicorn Auctions. Something you’d been thinking about for a while or more of a ‘let’s just try this and see what happens’ side project?

Cody Modeer: Prior to launching Unicorn, I’d been working in the hospitality industry for about a decade. I opened a cocktail bar (Ward Eight) in 2012, and it was pretty successful. My co-founder AJ also had been in the business for years, so when we’d get together we’d end up talking about business ideas and the gaps in the industry that we noticed, just from working in it day in and day out. We started focusing on the auction industry, it seemed like we could bring a new take to that by focusing on spirits. It just felt like the time was right for Unicorn.

HW: Whiskey has really been growing in popularity over the last decade but the pandemic seemed to take it to a whole new level. Mix of bars/restaurants being closed, people drinking at home, and maybe even the general spike in prices of collectibles, crypto, stimmy checks and so on. Have you been surprised by the secondary market price trends?

CM: Definitely. Happily surprised. In February of 2020 we officially launched our first auction with bottles from our own personal collections, and in March we had to close my bar down for COVID safety, and the place AJ worked also closed down. So suddenly we had a lot more time to dedicate to Unicorn. And yes, we saw dramatic price increases as that first year went on. People were stuck in their houses with nothing to do and they had some extra cash from not going out or traveling. The timing just kind of worked out. One door closed and another one opened.

Dusty listed in the upcoming October auction

HW: Tell me more about the supply side of this business for you. Is it about getting a few big whales to list through Unicorn or is there a long tail of sellers that bring a handful of bottles to you all? Does the really rare stuff come from collectors or someone who had an old decanter their grandpa gave them and before Unicorn, limited legal options of how to sell it?

CM: We always wanted Unicorn to be more inclusive than the traditional auction houses. If someone gets a bottle for $50 and can sell it for $80, that profit can be meaningful to them. Traditional auction houses usually have minimums and focus more on curation, but that can exclude a lot of people from participating. There’s good reasons why the industry is the way that it is, but AJ and I both thought that if we could figure out a way to scale participation using technology as well as provide a little hospitality, a personal touch, we’d be in a good spot. And it’s not just on the sell side, there’s plenty of frustrated buyers out there that are tired of playing all the retail games and driving around for hours trying to find a particular bottle only to come up empty-handed.

But, to answer your question, we get all kinds, from 1 bottle to 3,000+ bottle collectors. Some are long term collectors looking to retire, some need cash to finish a remodel on their house, and some just need a little extra income to pay the bills. A lot are what you might call dabblers, people who buy and sell a few bottles here and there. We welcome all kinds.

HW: You’ll occasionally hear about counterfeits — you know, buying an empty Pappy bottle, refilling it. It’s pretty rare and I think the community is good about policing itself, but do you also have a hand in authenticating what’s sold on the site?

CM: Unicorn Auctions is a trust platform. We handle every bottle that comes through our auctions. We know the product and we stand by every bottle. By state law we’re required to take possession of every bottle that we auction, and our team does a great job of inspecting and flagging anything that may look off or damaged or unsellable for any reason. This is our only business, and we take the question of authenticity and provenance very seriously.

In the case of very rare and higher-end bottles, we work alongside other auction houses as well as other experts in the field to help us verify and make sure of what we have. If we don’t feel confident for any reason about a particular bottle, we’ll send it back.

HW: So it’s probably stupid of me to try and bring more folks to the auctions — I mean, I’m just creating more competition for the stuff I’m trying to win 🙂 — but if someone reading this is going to jump into the upcoming October auction, what are a few tips you’d give them?

CM: My approach is to go through an auction lot-by-lot and click the star to “watch” any lot I’m interested in. With bigger auctions, I’ll use the search to look for keywords like “Stitzel-Weller” or “Wild Turkey” to narrow it down. Then, I’ll track my watched lots over the course of the auction and ignore the stuff I’m not interested in. If an opportunity comes up to buy one of my starred lots at a good price, I’ll jump on it. There’s a little of the thrill of the chase in the whole process. But the best advice I could give to anyone just starting out in auctions is to buy what you like and have fun.

Thanks Cody! I’ve enjoyed buying on Unicorn, from releases that aren’t available locally in Bay Area, to older bottles that predate my getting into the hobby. If you’re a whiskey aficionado, or just bourbon-curious, I’d recommend giving them a try. During this exchange Cody offered to send me some stuff he liked, which was very generous, but didn’t impact the questions I asked him or any other quid pro quo.

My dream Unicorn bottle

Job Applicant Turned Down Your Offer? How To Ask Them To Refer a New Candidate for the Role.

The Art of Asking “If Not You, Who Should I Talk To?”

I failed. You see, there was a really talented Consumer Product Manager at Google that I was trying to get over to YouTube. He’d decided to leave Mountain View and work on a new startup, but I thought there was an opening. Maybe he was running away from the increasingly process-driven and bureaucratic nature of the PM role? Maybe if I could convince him that here, in San Bruno, the speed was different and the team more nimble, he’d stay? Give me a good year or two before taking on the challenges of entrepreneurship….

He turned me down. For the right reasons at least. In a moment of proverbial desperation I blocked the door as he exited the office we’d grabbed. “Give me a name,” I said. “If not you, who should I hire for this role?” He thought for a second and answered. That person joined our product team just a few weeks later.

Sometimes the best candidate referrals can come from the people who just turned down your job offer. Why?

  1. They know your company and the role SUPER-WELL
  2. They know you’re serious about filling the role and have a good sense of what compensation could look like
  3. They’re sometimes a little guilty for saying ‘no’

Of course this doesn’t work all the time and should be constructive and polite, not exploitive and demanding. Often the reason they declined the opportunity was a personal decision about their circumstances, preferred working style, and so on, not an absolute critique of you as a company (those folks drop out earlier in the process). But I am surprised at how often I encounter really smart hiring managers who don’t take advantage of this channel.

What are some ‘best practices’ in asking for a lead in this fashion?

  •             Don’t Be Pushy: They’ll either take you up on it or not. You don’t need to drip campaign them reminders.
  •             Treat Their Referrals Well: Regardless of whether the referral is a perfect fit or not, give them the VIP treatment. Don’t just throw them into the ATS.
  •             Be Strategic About Who Makes The Ask: Sometimes it can be the CEO, if the candidate was senior enough (or the startup is small enough) where there was some direct interaction. Otherwise the most senior person they met with isn’t always the best person to make the ask. It should be the individual who they had the most sincere connection with and where the ask is authentic, not just a hiring hack. For example, let’s say there was an IC engineer on their interview slate and the two really hit it off. Let her reach back out and say, “hey, I’m sorry to hear you won’t be joining us. I was really excited by the idea of working together. Now that you know us well, if there’s anyone you would recommend let us know and we’ll talk to them ASAP.”
  •             Tell Them They Can Make The Referral Anonymously: So you need to also say, hey, if it’s someone we should connect with but you don’t feel 100% comfortable making the intro, just provide us whatever information you do feel comfortable sharing and we’ll take it from there. This isn’t fishing for phone numbers, etc but rather addresses the “there’s some great people at my previous/current company looking for new jobs and I don’t want to get in trouble for telling you about them but I want to tell you about them.” To me, helping the person avoid the potential conflict is totally ethical — you’re not paying them to give up a company directory or anything.

Have you done this successfully too? Anything I’m missing in terms of playbook? Or questions you have?

The Most Important Concept of 2022’s Startup Downturn is Not Just Surviving, But Staying “Default Investable”

VC David Sacks Was Right When He Said “Default Alive” Is a Trap

In New York City, altitude is attitude and the view from $100b+ fund’s office tower was certainly the equivalent of walking tall, shoulders back. I was visiting during a summer trip and catching up with a fellow investor, a few months into this market downturn. Especially having them involved with a handful of our portfolio companies I wanted to know, how would they be looking at follow-on opportunities — both offensively and defensively. He replied succinctly that they were very much still open for business but with a clear delineation: “we’re ok running an ICU but we’re not running a hospice.” To translate, an otherwise healthy startup who urgently needs care and is likely to be fine on the other side of the procedure will get their attention. But in a bridge to nowhere, the company shouldn’t expect to be sustained until its natural end of life. This seemed, well, perfectly reasonable.

Over the last few months I’ve come back to that discussion in my head when thinking through what advice I’m providing to the CEOs in our portfolio. And the equally impactful statement from about a month earlier that that ICU conversation still holds very very true. In fact, I think David Sacks’ framing in the tweet below might be the single most important near ‘universal truth’ I’ve seen about how to manage through a downturn.

When I say ‘universal truth,’ it’s not suggesting it applies to all businesses. There are lots of quality SMB/SMEs and startups which don’t take venture capital. There are also venture backed startups who just don’t have a path forward and would be better winding down, finding a home, or trying to get off the venture capital curve via a restructuring. But if you are planning on continuing to try and fulfill the founding ambition of the company, and qualify for future venture funding, you can’t stop thinking about growth.

You can manage the cost of it. You can alter the slope of the curve for a period of retrenchment. You can take a step backwards to continue experimenting, go after a different set of customers, rethink whether you truly have PMF, but you need to emerge on the other side of it with a startup that’s investable. Reducing burn and ‘months until cash out’ is only helpful to the extent that you are giving yourself time. Using your capital to relieve pressure of execution by saying “we now have 24, 36, 48,♾️ months of runway” isn’t the goal. In fact, switching to this mentality blindly and solely almost assures you won’t be in a position to raise when the capital runs out.

“Default alive” is nice for knowing how long you can pay your rent but “default investable” means you know when and how you’re going to get more capital into the company. As a CEO, that’s where you start.

Succeeding in Venture Capital is Mostly About Knowing What to Buy. But When To Sell Matters Also.

Primary Thoughts About Secondary Transactions

As my man Kenny Rogers sang

You’ve got to know when to hold ‘em
Know when to fold ‘em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done

Starting a venture capital blog post with 1970s country music lyrics is pretty uncommon, but so is writing about when and why an investor might choose to sell equity before the company exits. Below I’ll share some of the principles we use at Homebrew, knowing that there’s not really a single ‘right’ answer for a fund manager. Most of this discussion is about ‘playing offense’ — working towards being a good steward of LP capital and the risk/reward associated with VC. I’m not going to cover reasons to sell that I’d consider ‘playing defense’ — mostly exogenous factors which involve LP pressure for liquidity on non-optimal timelines, dissolution of funds due to partnership issues, and so on. These are all rare, but real, and fortunately not anything we’ve dealt with in our firm.

So for the most part a venture investor holds their equity until the company exits via an acquisition, IPO, or some sort of other liquidity event (management buyout, whatever). But especially over the last decade, the opportunities to sell ahead of an outcome for the company multiplied dramatically. As more growth and crossover investors came into the startup ecosystem they were often eager to put capital to work and happy to consolidate their positions with common or preferred shares from early employees, founders and previous investors. The surplus of capital also meant that new funding rounds often presented opportunity to sell portions of equity to current investors who otherwise were seeing their pro rata allocations cut back. And finally, a more robust (but still somewhat opaque) secondary market emerged for transacting equity among parties.

As an early stage fund, often buying 10–15% of a company during its seed financing, this meant we were often being asked if we wanted to sell portions of our stakes to other approved investors (let alone the random pings from market-makers unaffiliated with the company). As former product managers Satya and I lean towards having frameworks for these sorts of decisions, for both consistency and speed in internal operations. We started by asking our LPs (a relatively small number of institutional investors) and other experienced VCs what they’ve seen play out and how, if applicable, they decide what to do with their own holdings. Then we combined this with observed data from the behavior by coinvestors in our own portfolio.

Not surprisingly there was no specific consensus. There were examples of great investors who said “never sell early — you ride your winners as long as you can” and others who had *very* specific formulas for when they sell (when it hits X valuation, take Y percent off the table each subsequent round; always sell until you hit a certain return multiple for the fund, then hold after; and so on). This was helpful because it let us know that (a) there wasn’t a universal best practice and (b) peers could have the same goals but take different paths to get there. And so next we codified our own ruleset. It sounds basically like this:

  • Every time a portfolio raises a new round we should be ‘buyers’ or ‘sellers’ — that’s not to say that we buy or sell into every round, but objectively we should want to be on one side of the table or the other. We should have an opinion, although one that’s informed by our own fund strategy. That is, we should be buyers or sellers as a concentrated early stage fund, not trying to say “well, if we were a growth fund what would be do.”
  • We should strive to execute decisions that are both in the best interest of the company -AND- in the best interest of Homebrew. I’ll caveat this below but we want to be protective of the longterm interests of the company, the CEO, and the coinvestors. You don’t try to reprice the company on your own. You don’t bring investors on to the cap table via a secondary transaction that are going to be problematic. And so on.
  • Pigs get fat but hogs get slaughtered. Even if we believe a company has tremendous longterm upside, it’s not inappropriate to take some money off the table in order to manage that risk. As we’re recently reminded, markets go down, not just up. Just be aware of the incentives, emotions, and other factors at play. It’s ok to behave one way before you hit your DPI target and another way after, but understand how those factors produce better or worse possible outcomes. This is also true with regards to recycling. If we can sell partially out of a position and put those proceeds into one that we believe has more incremental upside, that’s accretive to our results.
  • We’re aligned with the founders and the rest of the cap table until we aren’t. All the preferred stock is pari passu and behaving honorably in the best interest of the company? Great. The founders are taking some money off the table in secondary but still very much locked in on building and making funding decisions that are consistent with that? Great. In these cases there’s very little additional complication. But if this breaks, we need to reconsider how we think of our own positions. Not in darkness, but expressing concerns first and then doing the best version of what we can to treat the company fairly but also do our fiduciary interests for our LPs. What’s an example of a situation that might start fracturing the cap table? Imagine the CEO is sitting with two funding offers. One is a clean termsheet, no structure. The other has a ton of structure (preferences for the new investor) but also offers an equity refresh to the exec team, or has a handshake with the CEO that they’ll buy $30 million of equity from them after close. You might think, “Hunter! This doesn’t happen — a Board would stop it” (or whatever). And I’d say, it does even if it sucks for other investors and the employee common shareholders. Again rarely but if you do venture long enough you see at least one of everything. At moments like this, if they occur (and I can say we haven’t experienced anything this grievous to the best of my knowledge), all of a sudden we’re not rowing in the same direction.

Much of success in venture is knowing what (and when) to buy. If you do that well it’s very difficult to mess it up. Conversely, if you’re not a good picker, it’s difficult to overcome that, even if you had perfect timing on secondary sales. But sometimes the difference between B+ and A- (or between A and A++++) can be a well-timed decision to turn unrealized gains into partially realized.

Why Figma is Worth $20B And Other Observations From The Adobe Acquisition

Hint: The Answer Doesn’t Involve a Spreadsheet


I’m not an investor in Figma. I don’t know Figma CEO Dylan Field. And I’m not a designer. So this means I’m either perfectly positioned to give you my objective comments on Adobe’s $20 billion purchase of the startup, or totally unqualified to ask for your time on this matter. With that out of the way, here are three statements about this acquisition.

  1.  Is Figma really worth $20 billion? I mean that’s 50x ARR!

Any spreadsheet that Adobe’s corp finance function used to justify the multiple, or the bankers presented to suggest what valuation it would take to get this deal done, is basically CYA math. There’s one single method for Adobe’s calculation:

Figma had crossed the ‘this matters to Adobe’s future’ rubicon. They hit $400m ARR and were continuing to double. Figma revenue, independent of margin, was increasingly displacing revenue that might have gone to Adobe, or more specifically, creating pricing pressure on Adobe. It was a product designed natively to be collaborative, to be easier to use than Adobe’s professional tools, and without the baggage of features and nomenclature leftover from years of software releases, platform shifts, and business model changes.

When the autonomous car company Cruise got quickly snapped up by GM in 2016 jaws dropped at the $1b+ reported price (we were small investors in Cruise). The answer there was the same: if autonomy is the potential future of your industry and you’re not yet strong in that area, what’s percent of your market cap is it worth to bring those cards into your hand. In that case it was roughly ~2.5% if I’m remembering correctly. In Adobe’s case it was a larger percentage because Figma is way further along as a business and the certainty the future of design at least looks like Figma is high. There you go.

Once the acquiring company CEO and Board is framing the transaction this way the startup has won. It’s gonna be a huge payout. And in venture, one thing is true about huge exits….

2. This transaction is not about Adobe’s failures, but actually about their success.

It’s easy to beat up on Adobe. Dumb big company couldn’t build Figma themselves so ends up having to pay an eye popping amount. But I’m going to suggest that you actually should give Adobe credit in this case for being in the position to make this offer.

It wasn’t too long ago that Adobe sold shrinkwrapped package software for a one time payment. Then the big innovation was they could decrease the physical COGS by making this upgrade downloadable. But they lacked the ongoing reoccurring revenue stream of a SaaS company. And that revenue model is so much more attractive, and given a much higher multiple by investors.

So they bit hard and moved to a largely subscription Creative Cloud model. And it, well, worked.

Over the last five years Adobe dramatically outperformed the NASDAQ index. That gap shrunk meaningfully the last few days as investors questioned the Figma transaction, but that Wall Street reaction is short-term not what matters. What you should realize is that Adobe was only able to make this acquisition because they escaped the old business model and were rewarded with a market cap that hit $200b+ over the last 12–24 months (it’s $140b as I write this post-transaction announcement). If Adobe had failed this transition they would likely be well under $100b marketcap and pretty much unable to swallow Figma (let alone a much less attractive place for the Figma team to exit to).

Leading a big public company is really hard which is why I’m inclined to say, good job Adobe! While also celebrating Figma going right after them to start.

3. Hands off this one Lina Khan.

I’m not making a legal argument here about the FTC and how you define antitrust, monopoly, etc with regards to M&A. I’m just saying I think it’s stupid and short-sighted to block a transaction like this. Adobe is giving their pound of flesh. Figma is being incredibly well-rewarded for innovation. And if you remove the potential for acquisitions by the market leader from the startup playbook you’ll actually get fewer startups going after the market leaders. And that has worse ramifications for the economy and for consumers than incremental consolidation like this. Especially since there are plenty of other tools available to accomplish one or more of the same functions Figma does.

When a VC Passes, And Is Wrong: Real Talk Between Me and Ethena’s CEO Roxanne Petraeus

The Four (!!!) Checks I’ve Written The Company Since Saying “No,” Never Bought Me As Much As Saying “YES!” Would Have In The First Place. An Investor and a Founder Postmortem a Mistake

The common VC passes are pretty cliche. “It’s a bit too early for us but we’ll be rooting for you from the sidelines,” “We were intrigued and impressed but just can’t get there at this time,” or just plain ghosting you without any feedback. I’m writing this knowing that despite trying to do better, I’m not absolutely innocent either. Which is why it was refreshing to be asked by Ethena’s CEO to do something publicly that investors normally aren’t interested in rehashing: discuss why we passed on leading the seed round for her startup.

Now, the situation here that enabled such a frank discussion is a bit atypical. Ethena is a SaaS startup building modern compliance training. Their customers include Netflix, Figma, Carta, Zendesk, Notion and lots (and lots) of other enterprises who want something that’s more than a checkbox CYA experience. Something which builds healthier, safer, lower risk workplaces in an enjoyable and effective format. They are now quite successful, having raised a significant Series B earlier this year and continuing fast growth (it’s nice to be selling something that all companies are required to do). And while I passed on leading their seed, I did contribute a smaller amount into the financing, along with three subsequent pro rata/super pro rata investments.

Even more importantly, and independent of whether we were a ‘lead investor’ or not, I’ve had the chance to spend meaningful time with the cofounders over the past few years and consider them to be wonderful friends, in addition to leaders I admire. But the initial pass was, in investment terms, a huge mistake and something I regret. As is the case with startups like Ethena, that first opportunity would have given us a larger ownership stake than all subsequent checks combined. Facepalm.

Their CEO Roxanne Petraeus suggested that talking about this together publicly would be helpful because she’s learned a lot about how she pitches Ethena, and unpacking the conversations we had could be helpful to other founders who are raising. I agreed and we subsequently did a TechCrunch Live discussion together with a follow-up blog post in her newsletter.

The TC discussion was about building, and investing, in undiscovered markets — areas which at first glance might be misunderstood or perceived as ‘too small’ but which are actually quite fertile for venture sized outcomes. Compliance training is an example.

My takeaway from the chat is that Roxanne’s disposition initially was to ‘sell the business, not the vision’ and that reinforced some of the concerns we had about market size and ability to scale sales. Whoops.

We go into more detail in her newsletter which I’ll link here. We get pretty raw in it — I basically admit that my concerns rested about her abilities to lead Go-To-Market and she responds that it’s a little hard to hear she was the ‘weak link.’

People ask me what do I think makes a successful founder and investor relationship and I always respond: trust and context. The ability for an investor to earn the trust of a founder and maintain that over time. And the understanding for the context (industry, culture, founders’ personalities, etc) that surrounds this company so that you’re giving them specific, relevant advice and counsel, not just startup platitudes.

Thank you Roxanne (and Anne) for the mutual trust and context. Despite my mistake, it has made working with you both an absolute joy and I’ll continue asking you to take my capital every time there’s an opportunity to do so!

Oh and by the way, Ethena is HIRING