Seeing Through The Hangover “Fog” From 2014-2015

Earlier this week (on Monday the 11th), I wrote the following note to every CEO/founder I’ve invested in. I didn’t intend to write to write for it public consumption, but a bunch of them said it should be made public. So, I cleaned it up a bit and, well, here you go.


I’ve been thinking about writing the following note below to a handful of folks in the Haystack portfolio, and as I was writing it, it occurred to me that more should read it. It is not an easy note to write, and I want to strike the right tone. I am hoping this is taken in the spirit of sharing a point of view.

As some of you know, on Mondays for the past three (3) years, I sit on Sand Hill Road and see all the deal flow as it emerges from Seed to Series A, B, C, and growth — recaps, acquisitions, wind downs, and everything in between across different firms, partners, and networks. I also work really closely with startups I’ve invested in across three funds over almost five years through their Series A fundings (and sometimes even at the Series B). This work spans across nearly every big VC firm you can name, spare a few. I write this from that vantage point.

Just as it was relatively easy for me personally to raise and deploy small funds, so too has it been easy for companies raising seed capital. But, after 2015, the shape of what institutional VCs want has shifted quite dramatically, and I seem to enter into the same conversation with founders on a monthly basis about this. It’s hard because those founders are living it and by nature feel they’re the exception — I see this across hundreds of companies.

I only see Series As and Series Bs happening when one or more of the following conditions are met: (a) An elite executive team (bonus if they know the VC already). “the team test“; (b) Highly demonstrable month-over-month or even quarter-by-quarter growth in key metrics. “the metrics test“; and/or (c) A well-reasoned, detailed roadmap and vision for taking the company from Point A to Point B. “the communications test” — Most seed-stage companies don’t have these (yet). I advise anyone serious about raising Institutional VC to ponder these conditions.

That being said, one doesn’t “have to” raise Institutional VC — there is no rule or convention around it. There are other ways to finance a business. Companies can elect to prioritize their own profitability. They can explore a strategic sale of the business. They can pivot. I realize these are all difficult choices, but the main reason I wanted to write this difficult email is to underscore a key point about maintaining a high level of intellectual honesty — while the seed rounds were relatively easy, the next rounds of funding are (as some of you already know) pretty brutal. So, if for whatever reason, you really want to score that big VC round, put all of your energy into one or more of those bullets above, at whatever cost you’re willing to live with.

My only tactical recommendation is to get into the habit of briefly updating your investors by email and simply focus on A, B, and C in those updates. At minimum, your investors will be able to track the story, jump in to help, and perhaps save you some time, heartache, heartburn, or all of the above.

I would not recommend anyone assume the next round is going to materialize, even from insiders. Many big VCs won’t say this publicly, but behind closed doors, they view the majority of the seed-stage as little league. Yes, they pay attention to what certain seed-stage companies and a few investors do — but on the whole, they’re highly skeptical of current market conditions and expect seeded startups with a few million and time runway to have already positioned their company to shine in terms of (a), (b), and (c). And, they will happily wait a year or two until they find that company before deploying $5M+ checks.

I felt compelled to write this to everyone because it has been weighing on my mind as there is more and more VC money in the market, as the stock market is rising, and as everyone seems to be “doing great!” I also want you to succeed individually and for your co-founders, colleagues, and staff to do well and have a great experience in the end.