The Quest For The Next DocuSign

The last few weeks, the same question has surfaced: “What on earth is happening in the seed market?”

My answer: “Everyone is on the hunt for the next DocuSign. And it’s a bloodbath.”

Let’s wind the clock back over two years. In the summer of 2018, I sat down with Harry Stebbings for our third interview. It’s worth a listen – we discussed why, back in 2018, many of the most-talented founders began voting with their feet and selecting to partner with multi-stage VC firms, bypassing the traditional seed market. Invariably when this happens, many industry observers would quickly point out it’s cyclical, that larger firms wade into seed territory when it’s vogue, and then retreat when they realize they have too many companies, are conflicted out of others, or that it takes too much time, etc.

What started in 2018, however, wasn’t cyclical. It’s just been the start of a new cycle. And in 2020, it’s shifted into a new gear where the seed market is in a frenzy like I’ve never seen before. There are angels, operator-angels, new funds, incumbent funds, folks with SPVs, scouts, and much more. What’s driving this behavior: Finding the next DocuSign.

I remember when DocuSign was worth a few hundred million in valuation. “It’s just a feature. Google will copy it.” Then, Mary Meeker invested, and more people noticed. But folks didn’t think it would be a billion dollar company. Then it changed CEOs. Then it began a march to IPO. “Yeah, but someone will just buy it. It’s still a feature.” Then it became a real IPO, and then eventually a $10 billion dollar company. That’s all before the pandemic and lockdown of 2020, where thousands of small to medium businesses who resisted electronic signatures had no choice but to open their wallet and pony up for DocuSign, sending the stock soaring over a $40B valuation.

Perhaps by 2040, it would seem logical, DocuSign could’ve grown to this level — but 2020 pulled forward two decades of digital adoption into two months. All of a sudden, the lock-in properties and predictive economics of software businesses became even more attractive; financial stimulus from the government helped save the economy from free fall, while zero interest rate policies provided a cushion for investors to keep on taking risks.

As a result, every technology startup investment firm, from $10M funds to $10B funds, was on the hunt for their own DocuSign. As founders in 2020 spun up new businesses, the venture capital industry was flush with dry powder to invest. And because companies that achieved product-market fit with real data became too expensive, firms which traditionally invested behind momentum had to shift their behavior to grab more exposure to the earlier stage. How else would a large fund get the ownership they need to make the model work? If you don’t invest in the seed or pre-empt the A, the opportunity cost for larger funds of not having enough exposure to new startups (especially in certain hot categories, like fintech or infrastructure) became so high, it was worth it to spend more money seeding companies and absorbing the costs than to miss out on the next Plaid, Robinhood, Chime, Snowflake, Okta, or Datadog.

I expect the early-stage seed market to be like this moving forward. It’s been this way since 2018, and this year super-charged it. Most of the top funds are taking on this strategy. Missing out on the seed or the Series A of a company effectively blocks any other investor from coming onto the cap table. It’s a fight for limited real estate, and the result is more noise, high prices, bigger rounds, and more shots on goals. It’s a bloodbath to find that next DocuSign — that company that isn’t hot, looks like a feature, is slowly built over the next decade and then turns into a monster —  and the prize is worth the fight.

Constraining The Path

(This is a post where, if it resonates with you, I’d encourage clicking on and reading the links embedded.)

In the context of entrepreneurship and the creative process, I am a big believer in constraints. I fundamentally believe that a shortage of resources, or a specific pain or trauma, or any set of conditions which are “less than ideal” can lay the groundwork for creative expression. There are too many examples from the world of music or art to list here; perhaps less romanticized, even in the creation of new companies, it can make a huge impact. I always cite the near-death experiences faced by Airbnb as a canonical example, or recounting the entrepreneurial track record of Travis Kalanick right before he started Uber.

I didn’t always think this way, however. Before the 2010 decade began, I had no concept of what constraints meant nor why they were so critical to the design and creation process. Thankfully, the world conspired to teach me anyway, and I had no choice but to listen. I won’t recount those details here, but encourage you to read this post from 2013, You Can’t Step Into The Same River Twice.

I don’t know much about constraints broadly speaking, but I do feel I know about them in the creation of a new investment fund that invests in startups. I was motivated to write this post because, even today, people will come up to me and make assumptions about the path in which I took to get here. Those assumptions assume that what is set up today was intentional and planned out. That’s not the right way to put it, actually. I kind of ended up here, more as a result of the reality I was interacting with.

This is how those conversations typically go… “How do you know so many Limited Partners?” Well, I have been meeting them for years and stayed in touch with them. They all said “no” to multiple funds, and so I was forced to spend more time with them, to interact with them, to learn their business model. This was planned, but now looking back, I have helped many of them in some ways, and many of them have helped me get to where I am without having a formal relationship or economic ties. The constraint of being told “no” by so many forced me to seek out why they said no, and to listen to their feedback, and to chart a path that would at least enable a chance for it to work out one day in the future.

Another comment I get is… “How did you build up the funds so quickly?” First, it didn’t seem quick to me! Second, the first three funds I raised were incredibly small. In the moment, I felt deflated a bit because I wanted them to be bigger. In the first four years, I was only able to raise and deploy a fraction of what new investors come out of the gate with today. At the time, I didn’t realize this constraint would give me the benefit of time, to take more shots on goal, and to keep things moving up and to the right.

Another musing I hear goes like this… “How do you set up the Venture Partner role at a larger fund? I’d like to do that.” Well, it’s not a turnkey thing. When I started, those funds were way too small to be a primary thing, so I got creative, and thankfully other VC firms I knew were open to that creativity. I began as a Venture Partner with Bullpen for a few years; then spent three solid years with GGV as a Venture Partner; and now I’m coming up on three years sitting besides the folks at Lightspeed. This wasn’t a path I intentionally carved out, but rather took on as a suitable alternative to other things. (Dialing way back, the reason the fund started is because I didn’t get the intended role within a firm that I initially wanted. Yet another constraint.)

Finally, I’ll hear about doing follow-ons… “How are you able to follow-on into companies as they scale?” This is where it all comes together, where all the constraints combine to have led me here. By being forced to be small, all you have early are the relationships with founders. Those are gold. All companies don’t work out, but a few do, and if you pick people and help them, most will stick with you because they remember you from the early days when there was nothing. And then, you can keep on investing, compounding the access, asymmetric information, and dollars into things that work. These are not moves I designed in some back room – these are all the result of initially being constrained. The funds I raised never reached their target; the LPs I met always said no but a great handful stayed in touch and mentored me; the VCs would never hire me but backed my funds, and let me sit with them as a Venture Partner; and the follow-on capital came as a result of building and evolving the model over time.

But enough about me. I’m a big music fan, and so I think about the constraints now-famous artists once had. But really when it comes to entrepreneurship, or finding someone who could build the next Airbnb, I do truly believe in constraints. It’s why I focus on investing early. It’s way I rarely invest in larger rounds or seed rounds that balloon. It’s not because I don’t think the those teams aren’t talented, but there’s something about investing into a constrained situation that makes things more real for me. Having infinite runway may feel soothing, but I don’t believe the early creation years are about comfort — to me, it’s about rapid iteration, staying small, interacting with the market, and surviving long enough until you catch fire. To take this analogy further, perhaps constraints are kindling. Hey, that’s not a bad name for a fund 😉

Totems And Rivers

To say 2020 has been an unsettling year would be an understatement. It is not lost on me how this year, the pandemic, the lockdowns, the divisions – it has wreaked havoc on our attention, on our livelihoods. The impact of 2020 has, unfortunately, been uneven and unfair. What happens to the household that runs a restaurant, or that lives on income generated by live events? I don’t have great answers, but having lived both of those lives, I can sense how the erosion of normalcy pains deep.

Before 2020, I didn’t realize how the normal rhythms of life – walking my daughter to school; seeing the same parents each morning; riding the bus into work; and seeing old friends and new faces daily created useful distractions. A household could break apart for the day and live life individually, then return in the evening to rejoin forces. Walks to schools and commutes to meetings were distractions, routines, where the subconscious could play, a time alone where the mind can process information in the background.

2020 abruptly altered that pattern. The old distractions vanished. There was nowhere to go and live life alone for the day. Everything contracted and concentrated into a defined area of square feet. One casualty: The loss of time for background processing. And for an investor, that is a costly loss. The decisions we make are, by nature, long-term oriented, intentional, irreversible. Ironically, technology rushed in to fill the void and solve problems – less commuting, more time; no offices, but more Zooms; physical logistics evaporated, connecting with a global network never been easier.

What was once a craft industry of allocating resources to creators and helping those creators along the way has been made more efficient, quicker, faster, more transactional, at arms-length, and… lightning fast. This is not to say that it will be this way forever. It likely will not. And this is not to say this is a complaint – I think there are real benefits for creators tapping financial resources to make the world a better place.

But as an early-stage investor who wants to partner with these technology creators early, the distractions of the past that created the surface area for that subconscious background processing were critical for me. Sure, many of us can work from home; we can adapt and get outside in our neighborhoods; and we can even meet folks outside, in person (when taking care).

But, I would contend that building new distractions, new pockets of time for daydreaming, for that background processing, is considerably more elusive. For someone like me, that is a considerable challenge. I tend to mull over decisions, big and small, for a while, collecting information, taking my time, talking to friends, letting my subconscious do its magic to help me arrive at an answer.

In particular, as I reflect on this, it is surprising to me how important it was for me to simply walk my kid to school in the neighborhood, every single day. Or, riding the bus or ferry home at the end of the day. It was time to transition and allow my brain to say “Hey, you may want to focus a bit more on *this*.” These patterns, and the people I’d see, were totems for me – markers that helped me orient position in my world. In work, the totems are colleagues and the human connection of meeting new people; in my personal life, the totems are people in the neighborhood, seeing kids and teachers at school. The totems were a useful distraction. Without speaking, the totems said “You belong here.”

As 2020 ends, the old totems are gone. I think many will come back, but we will be changed when we see them again. I will have to create new totems to orient myself in a new world. Distractions are features, or at least bugs. Background processing is critical for how I interact and move forward in my world. Finding these things again will take time and real work. But, as confronting as it is to say “when things get back to normal again,” we all know subconsciously that this may be actually unattainable. It reminds me of one of my favorite lines: “You can never step in the same river twice.

Stated vs Revealed Preferences

In the world of creating, building, and financing startups, people do a lot of talking. A lot. We know this all too well on the investor side, with all the blogs, tweets, and panels. Especially now, now that most of our working lives are happening online – on Zoom, via text, etc. — we all “say” a lot of things. When asked, we state our preferences. We’d like to invest in this specific company. We’d like to raise a round of financing. We are really focused on being the earliest investors and building the company alongside the founders. We are really looking for a board member to join up with us to move forward. And so on…

The lines we all say all day long, it’s almost like breathing. We may not really be thinking about what we are saying. Our friends and advisors guide us to safety or to optimize our situations. We can read countless tweets or blogs (like this one) about how to prepare and handle a situation, and we take that knowledge as ammunition into the marketplace to help guide is, to protect us from a bad trade and/or to squeeze out every bit of value toward the end of the trade. We constantly state and market our preferences to get to the solution that’s best for us. All of that is natural and fair.

A funny thing often happens along the way, though… our stated preferences end up getting tested by our revealed preferences. The market, gathering information, and the passage of time have the power to slowly shape, contort, and eventual reveal our preferences. Revealed preferences are what we reveal when our stated preferences are met with reality. That reality can be negative, constraining our choices; or, that reality can be expansive in nature, forcing us to rethink our priors, collect even better offers, and reshape our own actual preferences. Where our revealed preferences at t=0 may have been one way, after some time and market feedback, those revealed preferences could morph quite a bit.

Bringing this back to how startups are formed, built, and financed — it’s incredible how many micro-decision and micro-negotiations we encounter, so many we may not even realize how much we can fool ourselves in the process. How do founders decide how to split equity, especially in the very early days when it’s not cool to disrupt the good vibes of the creation process? How do investors decide to invest in a company, potentially over-capitalizing it to make sure to win the deal? How to fund managers say they want to keep things small and early, but end up expanding their fund size or the stages they invest? We say a lot of things we think we want, or what sounds reasonable, but often our revealed preferences surface, oozing out.

In the world of startup formation and investing — the world I know — we encounter this quite often. I view it as a key part of the game is to listen really carefully to what people say, but also what preferences they reveal along the way in the process. The revealed preferences are the highest signal information to identify. People say a lot of things, but they may in reality want something else, or be open to a new idea, and that creates an opportunity to share ideas, debate, and move quickly. And that is the fun part of this job and why it’s truly a people-flow business.

The Fight For Ownership

I am stating the obvious in this opening sentence, but I need it for the post: In each round of funding for a startup, the founders sell a portion of their equity in exchange for cash. While there’s variance, it’s accepted that founders will experience roughly 15-30% ownership “dilution” in each round of financing — 15% seems to be quite founder-friendly, with some wiggle room, while 30% would be considered high and extractive. In this exchange, the investors use language like “ownership” while founders use language such as “dilution” – in terms of equity, one side is buying ownership while the other is experiencing dilution.

Conventional wisdom in venture capital is that institutional firms of a certain size would need to buy 20% (or more) in each of its portfolio companies and use reserves to maintain that ownership over time. But along the way, a whole slew of forces came together to challenge this notion: Tremendous cultural interest in investing in technology startups (including a rich online knowledge repository), zero interest rates making money more easily available, software platforms to harness crowdfunding and SPVs, globalization and larger end markets, a growing install base of computer and mobile users, the distribution ease and lock-in power of software subscription economics, and so on… The result is that, for startups that are working and being pursued, the competition for their equity is so fierce that they can leverage these forces to minimize their dilution. And, for startups that are not working yet (or just at the napkin stage), founders can draw a line in the sand for the equity they’d like to sell in exchange for those first dollars in.

I am focused on meeting founders early, even as they’re tinkering with their ideas. And, I’ve spent the last seven years helping a bunch of those early founders raise multiple rounds of venture capital. What I’ve realized in 2020 (and I realize it can change with a market correction), is that with each new year, the new crop of founders that enter the world of startups are growing increasingly savvy, alert, and aware of the consequences of selling too much equity in each round of financing. It’s not uncommon to meet a founder at the pre-seed (sorry) stage who begins their discussion with saying that they’re looking for 10% dilution in that small, early round. The total dollars in many cases matters less — it’s the dilution they want to put ropes around. Doing this is smart because it warns the investor, especially ownership-hungry ones, “hey, that ain’t happening here.” It also gives them wiggle room in the event a good set of investors come by and express a need for some more ownership, that 10% line-in-sand founder has room to stretch a bit. As companies mature to Series A, the institutional firms would always try to get their 20% and join the board, often cutting out earliest investors (and asking founders to help them waive those rights), but today there is more competition for those Series A dollars, and many of the pre-seed firms can dip into reserves or other funds to put money to work.

The result of these colliding forces is that getting to that holy grail of 20% ownership and maintaining it is growing increasingly more difficult. It is one of the major reasons Haystack fund sizes have been intentionally and proactively constrained. We are in a position to ask for 5-12% ownership, and we hope to earn the right to maintain that across a few rounds. Our pitch is that, to a founding team of 2-3, that we will never own more than they do in the company (unless something weird happens). Having a lower ownership threshold empowers Haystack to cut a smaller check that’s still meaningful to the fund; it enables the fund to offer advice and guidance to founders where our interests are aligned, not at odds; and we can help form and/or join strong syndicates in rounds without creating drama. (It’s worth pointing out, however, that with the onslaught of rolling funds, new seed funds, syndicates, and more, the odds of picking a winner in the early rounds is also very low — which means fund sizes that aren’t probably constrained and funds where deal flow is adversely selected may find it increasingly hard to generate returns.)

It reminds me of that Bruce Lee quote, “Be like water.” Or whatever it is. Go with the flow. Once you start asking for more and more ownership, the competition set increases, founders put up their guard, and they expect a ton of platform services as a part of the bargain. Sure, there  are some GPs and even fund franchises who can demand the 20% land and hold it, and founders are happy and will continue to be happy making that trade. But, I don’t think it’s a large group who can lay claim to such market position. In fact, the number who can is getting smaller. Stretching this out over 10 or 20 years, founders could very easily have more access to vertical-specific crowdfunding, debt financing products, or even low-interest loans backed by predictable revenue streams. These financial advancements will cut at the business model of larger funds, but they won’t eat the whole pie. As a result, we will see even the largest investment firms (including hedge funds, etc.) going earlier and earlier. It’s already been underway for the last 3-5 years in venture capital. Today’s pre-seed and seed rounds are really the only consistent places to find alpha in a blind-pool portfolio model. It is possible at the growth-stage to pay high prices and hit a Zoom or Datadog, as 2020 shows, but these are part of a handful of exceptions and not the rule. So, the fight for ownership has moved into the first or second rounds of a new company’s life. If it’s working after the second round, the price will be perfect, and it won’t be as much of a deal — and certainly not 20% style. The game now is getting in early, and if and when something works, holding on to it for dear life. This is the new fight for ownership.

The Breakout Tech Startup Of 2020

I didn’t plan on writing this today, but it happened. I have to write this quickly tonight. As a little tradition on this blog, I’ve singled out companies starting in 2012 with Stripe; there was Snap back in 2013; Slack in 2014 (after prematurely saying there wasn’t one); took a break in 2015-16, as I wasn’t inspired to select one then; in 2017 it was Coinbase; in 2018, it was Airtable; and last year, in 2019, it was Superhuman.

I’ll be brief here because I’m up past my pandemic bedtime and, in this post, I may be breaking some news, which is not my M.O. generally, but here, it’s such an amazing story (and one that I missed, sadly) that if I don’t write this out now, I will just burst holding this information in.

And with that, I present to you The Breakout Tech Company Of 2020: Hopin.

Why did Hopin get the nod?

This year, the answer is plain and simple — unreal momentum and competitive deal heat.

When The Black Swan Memo came out and we all locked down, the immediate thought most investors had was: This will crash the economy. What happened was very different. The Fed propped up the economy, and the digital adoption we figured we would see over the next two decades was pulled forward to today with gale force. Companies like DocuSign and Shopify, to name a few, became extreme beneficiaries of this new world, where millions of small businesses scrambled to transform their business practices to withstand modern-day software. The biggest winner, of course, was and is Zoom.

So, in the private markets, what has experienced incredible growth as a result of the pandemic? There are lots of pandemic-fueled growth rounds happening this year, unlike any other year I’ve seen. There are amazing companies growing in digital health, Telehealth, online education, SMB software, and so much more. It’s not uncommon to see big rounds for these types of companies.

But, the trajectory Hopin is in, per what folks are chattering about, is unlike anything I’ve ever heard. Poke around Hopin’s site and you’ll see it’s a platform for hosting online events. There are other startups in the space, and I’m sure they’re doing well because this can’t be a winner take-all market. That said, I feel comfortable saying that Hopin is likely growing faster than their peers. Reports are that this company, from $0 earlier this year, is already deep into the “tens of millions” of dollars in revenue, with still one more quarter to go. In almost 10 months, it raised its Seed Round, a very expensive Series A, and is rumored to have closed its latest financing (insider controlled) at an eye-popping number: $2B pre-money. In less than 11 months, end to end. I don’t even know how to comprehend that.

Here we are. We are not traveling. Enterprise companies, SMBs, and sole proprietors need to host events for networking, lead gen, relationship maintenance, and so much more. The travel budgets for air, hotel, per diems now go to platforms like Hopin and others. And the change was so fast, and consumers’ adaptation was so swift, companies like Hopin were in the right place at the right time, indeed. (Just to be clear, I have *no* connection to this company or the investors involved — though I sure wish I did!)

Quickly Unpacking Twilio’s $3.2B Acquisition Of Segment

It’s our twin sons’ birthday this morning, and no one wants to read (or write) a very lengthy post, but before I head out to run some errands, I need to quickly unpack last night’s news that Twilio, a $45B public company (wow!!) is about to acquire 5-year old YC alum Segment for $3.2B in a mix of cash and Twilio stock. My quick takeaways on the transaction:

1/ A New Flavor Of M&A – With the stock market soaring for tech companies during the pandemic (more on that below), there has been concern that traditional buyers of startups and innovation feel priced out of potential acquisitions. These acquisitions, of course, are critical to making the startup creation and investing cycle work. Perhaps now, as newly minted public companies who are themselves technology-oriented (think: Twilio to Peloton, etc.) will have enough resources to start making these kind of offensive and strategic moves. Twilio is in such a great position, I would not imagine any early shareholders of Segment would mind to have some Twilio shares, too.

2/ Pandemic Currencies – As mentioned above, it easier for public companies to use to purchase companies using a mix of stock and cash when their stock is rising in public markets. Twilio embodies that trend, surging ~150% in enterprise value alone in 2020. Rising stock prices provide companies like Twilio with a powerful form of currency to add to their platform; as Q4 unfolds, I wonder if we will see other public tech companies who have gone to the moon in 2020 — like Zoom or Peloton — leverage this newly found currency to make some strategic purchases.

3/ Reinventing Customer Data Platforms (CDPs) – Insiders have long-recognized Segment to be a high-quality company, though many didn’t full understand how large it could eventually get. Segment’s belief was that a traditional CRM wasn’t robust enough for the enterprise to properly manage its pipe. Segment entered to provide customer data infrastructure to offer a more unified experience. Now under the Twilio umbrella, Segment can continue to build key integrations (like they have for Twilio data), which is being used globally inside Fortune 500 companies already.

4/ Minting New VC Generation – Segment board leadership was anchored by two names that most observers won’t recognize, but that many insiders certainly do. This marks a huge win for Vas Natarajan from Accel and Miles Grimshaw from Thrive (and Will Gaybrick), who invested in Segment at the Series A and B, respectively. These two VCs, relatively young compared to leaders at most firms, are widely considered to be in the very top ranking of GPs who are either 30 years old (or even younger) who are sitting on large potential returns. Miles sits on the board of Monzo, Benchling, Lattice, and has been involved in many other soon-to-be incredible exits such as Mapbox; Vas is involved with companies like InVision, Frame.io and many more coming down the road.

5/ The Calm Before The API Storm – By now, folks understand that API-driven businesses are not just viable, but tremendously efficient and value-accruing. There are by my count about 10-20 amazing API startups that don’t get a lot of press or Twitter love, and they will emerge this decade like Twilio did in the previous decade. Twilio and Segment helped pave the way, and it will all come to a head when Stripe goes public. Reporting at a revenue run rate over $1B and growing fast, Stripe’s IPO will be an event to watch, indeed.

The Alignment Summit V, It’s A Wrap

Last week, we held The Alignment Summit V online via Zoom webinar. Instead of a full-day in-real-life event that’s quite special, we made it entirely online, short, and still special, I think. For those of you know me, you know that this is a very special event and one I plan for all year. Earlier this year, we decided early to not have it in-person, which turned out to be the right call. We also decided to do something, even if it was short, to have a conversation from both GPs and LPs given all the movement in 2020. I’m glad we did that.

While the event is always off-the-record, I wanted to share some high-level reflections from this year’s installment. Before I do that, I need to thank a handful of people who made this year’s event possible — First, thank you to our GP speakers Roger Ehrenberg (IA Ventures) and Eric Paley (Founder Collective); our LP speakers Amanda Outerbridge (HarbourVest) and Mel Williams (Truebridge Capital); and my fellow co-hosts Jim Marshall (SVB) and Will Quist (Slow Ventures). I also want to thank the groups that make this event possible, our sponsors SVB, Cooley, Carta, and Haystack. Also, my Haystack colleagues Ian Hathaway and Aashay Sanghvi for supporting the event, and to Hillary Tyree and Courtney McClintock from SVB who run event “special ops.” We also had the pleasure of providing amazing live music during the two panels, with Effie Zilch And The House Band, which you should check out on Instagram! (In lieu of our event costs being only online this year, the sponsors have elected to make a donation to HBCU VC Fund this fall.)

Now on to my own reflections from the event. In our discussion on the LP perspective, we talked about how LPs do their work while most people aren’t traveling or getting together. Staying at home and the ease of Zoom means we can have more conversations, even if some of that is draining. And all investors have more time to reference people they may invest in. Before, referencing may happen in person or at events. In my own world, that’s shifted to Zoom, texting a lot, and then picking up the phone. In our GP discussion, it was a reinforcement for me to be comfortable politely pushing back or disagreeing in the heat of a pitch. Not disrespectfully, but to turn the pitch into a conversation, to bat around ideas, and use that as surface area to get to know the founders better. And in that pursuit, to think about people we as investors want to serve — that service mentality — before thinking about capital, ownership, returns. Like references, the relationships we forge early end up lasting for a really long time, and those create new opportunities down the road. Stepping back, I am immensely grateful that during this year’s (and likely next year’s) social distancing and lack of events/travel, that I spent the last decade building real relationships with a host of players, from press, to founders, to other investors, and even LPs. Carrying those discussions into the world of Zoom and home offices is not only seamless, but now more intimate, real, and leveling.

There’s a lot I miss about work during this time, but the forced adaptation to being entirely remote and distributed has reinforced to me just how important these relationships are. As this eventually reverts back to an in-person event (I hope!) that’s small, I hope more emerging fund managers and limited partners can experience it. For our normal event, we intentionally have space constraints, and now for the first time, I am not sure what shape Alignment VI will take. For the first time, I won’t start planning it immediately. Hope to see you all in person in 2021!

Finding The Track

For those who know me, they may laugh at the metaphor I’ve recently latched on to. I am not a big “outdoors” person. Sometimes I joke with people who gush about camping or ocean kayaking that “I actually like the indoors.” Yeah, I’ve gone camping (hate it!), been dragged on hikes (“walking”), and even been sailing (man, that’s real work). While I appreciate that others appreciate the outdoors, and I know that “being outside” is critical for daily and general mental health, I prefer lounging on our back deck, cooking on the grill, maybe cracking open an ice cold one. Given all this, this post will be odd because it is about a very primitive metaphor, one I’ve never experienced first-hand (or may never in the future), and one that feels way out of my grasp — both literally and figuratively.

Before I introduce that metaphor, a few disclaimers. First, credit must go to Patrick O’Shaugnessy, who interviewed this guest a few times (and where I first heard about him), my dear friend Tommy Leep, who told me countless times to listen to pay attention to this, and to Jerry Colonna who was kind enough to have me on his podcasts a few times. Second, I am not trying to lay claim to these ideas as my own. I fully realize I am hitching onto someone else’s ideas (thank you!) and that my lack of outdoors interest will make me look like a poser here. Finally, third, the rambling here will likely contain a bit of cheesiness, but for me, I think it’s the one single metaphor that’s stuck in my head, incepted my own operating system, and renews my own energy to carry on with passion.

And with that, I would encourage you to listen to this interview of Boyd Varty by Patrick on his podcast. You can read about Boyd all over the Internet. He is an intrepid marketer. It may seem over-the-top, but when you hear his story and how different it is, and how he lives it, you sort of brush off all the marketing and focus on the core idea. You should read about Boyd on your own, but I’ll briefly summarize it here. His heritage is from South Africa. His grandfather purchased hunting land two generations ago near Kruger National Park. His father then befriended a naturalist who convinced the family they needed to restore the land, which turned the land into a reserve for safaris. Boyd, who grew up in this reserve, took “restoration” to the next level by committing his life to sharing the metaphor for how he grew up on the land — “tracking” wild animals, “restoring” the land — to help others find their way, to be present, to feel alive, and much more. (I know, that line is cheesy — but I think, if you bear with me, quite profound.)

I spent the last month listening to a lot of Boyd’s interviews, over and over again. I didn’t read his book, but rather listened to 4-5 podcast episodes and maybe 3-4 different YouTube interviews. The conversations left a deep impression on me for a variety of reasons. Boyd’s upbringing is so different, so unique; mine is just suburban, with a sprinkle of international travel. Boyd grew up in nature; outside of sports, I largely avoided nature. Boyd was trained to live in his environment by “tracking,” the art of observing, collecting, and synthesizing signals from the wild around him; I plodded my way through schools, jobs, summers, academic calendars, standardized tests, and more. Boyd, to this day, doesn’t really know what the future holds for him, and in that uncertainty he feels “most alive,”; my life is pretty programmed these days, with small kids at home, a career I love, and quarantined during shelter-in-place.

But, there was an uneasy period of life, basically my 30s, where I subconsciously was a “tracker” in my own life. By that part of life, on paper I had made it – married, premium degrees in hand, some hard-earned money tucked away. Then I moved back to the Bay Area, and wham — I lost the track. In Boyd’s metaphor, it is common “to lose the track” in the wild. He’s observed expert trackers, and when they lose the track, they stop, sit still, listen for new calls, and try to find the track again. During my 30s, it was basically a continuous search for “the track.” I didn’t know that’s what it was while it was happening. In the moment, it just felt like surviving. Living month to month. Building up a great deal of debt. Not knowing what the next few months or next year would bring. In the moment, it felt terrifying. Now looking back, I think Boyd would say, that uncertainty was actually being “alive.”

This isn’t a post to finally proclaim: “I’ve found the track!” On the contrary, now in my early 40s, the terrain is uncertain again. On paper, things look peachy – lucky with a family at home, safe and healthy; a career I love and could not have dreamed of; a group of close friends both in and out of my industry that I can call anytime of day. I am not looking over my shoulder weekly anymore. But, there are new uncertainties on the horizon. It’s cliche now to even reference “2020” anymore, but it is a turducken of stresses related to public health, public safety, and public finances.

We’ve all been thrown off our track, to varying degrees. Some, more cruelly than others. It’s easy to assume we can just find the track again on the other side of this, if there is another side. But in listening to Boyd over and over in August, I have a slightly different view. I think most of us will need to work really hard to rediscover the track. It may take years, in fact. It will require a significant amount of scenario planning, letting go of beliefs once strongly-held and/or accepted as immutable truths, a survivalists’ adaptability, and the willingness to be nimble and accept new environmental signals that may force us to make decisions we couldn’t have dreamed of just a few months ago. That’s why I find Boyd’s metaphor so powerful. This year will force me to be even more alert, move alive, more aware of the signals around me. By paying close attention, there’s a possibility to find the track again. It won’t just reappear, like someone flipping the switch back. Rather, I believe it is a new track, and it has to be forged from scratch. When this comes up naturally in conversations with friends or neighbors, I don’t go into specifics but hint at it — and I can tell folks view it as a more intense, more extreme interpretation of our environment. But, I don’t think it’s too extreme. It’s what I see around me, and even though it’s stressful (3 kids at home!), uncertain (many more months to go), and at times dark (our institutions crumbling around us), I do feel more alive, and for that, I am grateful. Thank you Tommy, Jerry, Patrick, and Boyd.

“Risk-On” And Digital Antibodies

With the arrival of June 2020, it’s almost as if there is no pandemic when it comes to the early-stage investment market in the Bay Area. The early-stage tech formation world and the VCs that support them are mostly “back in business.” Some never really were out of business, to be clear — while deal pacing was slower and choppier at the beginning of Shelter-in-Place, it’s all picked back up. Deal activity is up. Competitive Series As and Bs are coming back. Rounds that should be small and pre-seed are being pursued by the biggest funds out there. It’s game on, pandemic or bust.

It was just about 3 months ago when we in California were asked to take shelter and most of the economy stopped. There was a famous “Black Swan” memo, which felt like getting a warning from the CDC. I spent most of March trying to write down a guide for founders and investors for weathering the storm — now looking at the series, it feels entirely outdated. As folks emerge from their home office Zoom caves and the economy slowly reopens, we see that the largest firms have been quite active and looking for more.

Right now, in June, it feels like February. it feels like nothing has changed in terms of deal activity, competition, and pricing. Q2 isn’t done yet, but I would not be surprised if we end the month with Q2 looking more or less like previous quarters. Again, I don’t know the data, but I am sharing what I sense and in feel by being on the ground in the market.

Why could this be happening? First, we know more about COVID-19 now. Being outdoors in very small groups seems a risk many (not all) are willing to take. Second, the Bay Area has had very few deaths attributed to COVID-19 so far. I tallied all counties a few weeks ago and it was around 500. Third, there is limited reopening happening where folks do feel more comfortable about stepping out but still taking precautions. Fourth, most venture capital dollars In the U.S. are located in the Bay Area and the biggest top funds are sitting on lots of dry powder. Fifth, VCs as companies have finally adapted to being entirely remote and also making investment decisions, including wiring money to people they’ve never met face to face. (I think people will do f2f outside in a socially-distant way to handshake on deals.)

And sixth, the very clear shift in public market comps for digitally-native companies is shining a light on the scale of the opportunity ahead for tech startups and the VCs that fund them — I call this “The DocuSign Effect.” Years ago, I recall folks being surprised when DocuSign started to grow. “It must be a feature,” they said. Then more surprise when it was valued at $1B in a private round. And more surprise as it planned to go public. And then all of a sudden it was a $10B company. Today I checked, and it’s almost near $30B. There are millions of businesses worldwide who once resisted digital signatures (tip – go chase Notarize in Boston!) and now who have no choice but to be enterprise customers.  Some founders have a new tailwind behind their sails — sectors which got a jolt from the event-driven growth triggered by the forced shutdown, and now where going back in time doesn’t make business- or common-sense — from tele-health to live video, from click and carry to an entire Shopify wave.

Yes, I know we may see a terrible resurgence of cases, second waves, and third waves. I am personally worried about it. My #1 source on COVID-19 is Don McNeil from The New York Times, and he gave a must-listen update on today’s “The Daily” podcast, here. McNeil paints a grim vision for the summer, fall, and winter,. And maybe this June snapback in the Bay Area will be short-lived. I have no idea, really. I am frankly shocked I’m even writing this piece, it is surreal compared to the darkness of March and April. But, what do I know? The assets valued today are digitally native. Tech equities are all the rage, they’re mostly immune to the pandemic and lockdown. This was hard to see a few months ago. I got it wrong and, well, here we are, back in full swing. Buckle up!

“Listening Mode”

Since 2008, I have been a very active Twitter user. Over 100,000 tweets later, Twitter is not only a product I use many times a day, it is the number one used app on my phone, week in and week out, far ahead of any other app. While it may not appear so, I do go a day or two without tweeting or even looking at the app, but when I’m in there, I’m on and very active. For the past two weeks or so, however, it’s been the first time since 2008 that I have actively decided to not tweet — and to instead, share other peoples’ voices. I mostly comment on startups, tech, VC, living in the Bay Area, food, being a dad, and what’s going on in life — but the past few weeks is the first time it has felt simply inappropriate for me to share such useless information with my avatar attached to it.

Instead, I’ve been in “Listening Mode.”

I think I will resume tweeting now and this weekend. I’m feeling ready to jump back in. For the past few weeks, I have been retweeting other peoples’ voices because it seems more appropriate to do that than amplify my own. To that end, i wanted to share “who” I’ve been listening to and what I’ve read that stood out to me while I’m in “listening mode”:

  • Naithan Jones – I met Nait a decade ago when he moved here and had his startup, AgLocal. Over the years, we’ve talked for countless hours about career stuff and family stuff, and I’m really excited for his new fund TXO.
  • Kanyi Maqubela – I met Kanyi almost a decade ago, as well, as he was working with one of my old, old friends Craig Shapiro. Everyone in the tech/VC startup community knows Kanyi and his tweets, like Nait’s, have been highly informative and impactful.
  • Shannon Sharpe – I don’t know Shannon, and I know he’s polarizing, but I love his style and the way he constructs his arguments and viewpoints. I would encourage folks to listen to these interviews that I’ve retweeted into my feed.
  • Kristy Tillman – I met Kristy a long time ago as she did some design consulting work for a project I was on. Fast-forward to today, she’s at the top of her field, amazing to watch. Kristy’s tweets are really powerful, focused, economical. I especially liked this tweetstorm she panned last week.
  • Mercedes Bent – I am just getting to know Mercedes as a rising partner at Lightspeed, where I am a venture partner. Mercedes’ tweets are worth the follow, but I’m biased!
  • Reggie James – I do not know Reggie but this was a powerful post and worth reading.
  • Dave Chappelle – He just released his newest bit, called “8:46” – a must-watch, for sure.

While these and other voices need to be heard and amplified, I am also increasingly monitoring the tone of the discussion and “friendly fire among” those with good intentions online. Perhaps the most cringeworthy example of this in our world was the online criticism Nait received for starting his new fund, that he “wasn’t doing enough.” On Twitter today, many people don’t take the time to read any background — I joke sometimes that people sometimes don’t even read the tweet they’re attacking or commenting on. And, no one is giving you credit for what you’ve done in the past. Only right here, right now, today — that’s all that matters.

What are you doing right here, right now, today? That’s all that the crowd cares about.

The venture capital industry has been through a few waves of this discussion over the past decade. Having the discussion be so open and vocal is the beginning of progress. Despite calls for it to be otherwise, the venture capital world is a people-based business, and this business does tend to get done within networks, and those networks often happen to be highly social and local in nature. I’ve written about this before years ago and recently Albert Wenger from USV did, too. Like everyone else in this new world, investors will have to find their own way and have more uncomfortable conversations. That’s a good thing.

But, venture capital is just one small piece of a larger, more complex puzzle. The last four years have been both exhausting and scary for so many folks. There are major problems, for sure, and our politics seemed due for some type of disruption. However, one of the major themes brought to the surface over the last four years has centered around identity — race, gender, and everything in between. Immigration is a hot-button issue. It’s not clear our country is perceived as a destination of choice by talent around the world. It’s not clear leadership and many citizens in this country view many of our own citizens in this way, too. It is troubling, to say the least, and why I think so many people have braved pandemic conditions to protest. The major themes of 2020 so far — our public health, our civil liberties — will carry into the fall and winter. This feels like the appetizer to the main course. And I suspect I’ll be more in “Listening Mode” than before, keeping an eye on where the conversation is moving and the little things I can do in my own way to help others around me.

Adaptation And The Shape Of A Deal

As an early-stage private market investor, one of the many things I obsess over is how to design and manage the funds we raise and deploy. Ask 100 peers how they do it, and you’ll likely get 101 answers back. The problem is, as each fund and network is unique, different strategies and different pairings of variables can both lead to prolific or disastrous results. These conundrum has been swirling around my head, and as I need to do when that happens, I open up this composite box and try to work through it. So here, I am not sure if I’ll reach a conclusion by the end of this post. I may, or I may not. And, if you’ve managed portfolios like this and have a strong opinion, I would absolutely love to hear it.

“Ownership Really Matters” – This is a line often repeated by VCs and their LPs. Why does it matter? A few reasons. One, it’s not clear in the early days which company or companies will be the key fund drivers from a results point-of-view. On top of this, most portfolios tend to follow a power law curve, where the company which drives the highest return can be greater than the sum of the returns for the remainder. Given this uncertainty and randomness in distribution, having high ownership in a number of companies affords the fund a chance to return the fund (RTF) and hopefully drive a multiple in returns. Stepping back, ownership is important in early-stage funds because of no one knows which companies will be those fund drivers until years later, and no one knows how big they could be until the time of exit. These uncertainties combine to push many investors to hold high ownership in the companies they invest in, with larger funds needing to justify higher ownership levels.

“Entry Price Is Critical” – Many, but not all, investors will talk about valuation, or entry price as being critical to early-stage portfolios. This is often rooted in understanding how the power law curves look for size of eventual outcomes. It is really hard for a company to get a small acquisition offer. Most new ventures fail, sadly. Public companies can use a mix of cash and stock to buy startups for $100M and not have to publicly disclose those transactions. Acquisitions from $100-$500M in size happen but are significantly less frequent. As we approach billion-dollar exits and higher, those are incredibly rare. And, rarest are the companies that can go public and continue to accrue value — look at Shopify, which very few private investors truly paid attention to, went public a few year ago around $1B and is now almost a $100B company. Put all this together, and the only way to drive any multiple in a fund is to either be in a huge mega-winner early (like Shopify) or to invest early enough with lower prices such that, if there is an exit, the portfolio can benefit from the event. An investor’s entry price dictates the multiple early on, and then the ability to continually invest in subsequent rounds (to a point) helps further drive returns if the investor picks the right ones to do so in.

“Company Selection Is The Most Important Thing” – Surely, if an investor isn’t selecting good opportunities, all of this is moot. Let’s assume most managers are picking good founders — that still doesn’t mean those are necessarily good investments. And, the earlier an investor selects, the less data and information they have as evidence to support the investment. At slightly later stages, company selection is a bit more filtered but still uncertain. Those funds can theoretically own more as they can write larger checks, join boards, and participate meaningfully in future rounds. For even earlier funds, where much less is known, it is nearly-impossible to select based on future potential of the company, which is why these early investors focus so much on the prior experiences and technical insights of founders starting new endeavors.

All of these elements make up “the shape” of an investment. When investing early and building a portfolio, all of these elements need to line up. It’s so obvious when you write it out and this will be obvious to many reading this — but I’m writing this for myself as a reminder and for those in the early stages of their investing careers. It has taken a long time for these concepts to gel in my head, and even longer for them to combine into this “shape” analogy. I can only speak to very early-stage investing, that’s what I know. It’s so early, and so uncertain, that it is hard to get company selection right, perhaps impossible; as a result, it can be easier to manage entry price given the risk, yet the early-stage markets are flush with cash from angels all the way up to the platform funds; and as a result, smart founders are rightfully cautious about taking on so much dilution early on — this makes getting proper ownership for a fund quite difficult. And the bigger an early-stage fund, the more of a problem finding the right “shape” becomes. Prior to this pandemic, early-stage investors were comfortable operating in an uncertain environment given how little is known at the time of investment — fast-forward to today, and the process by which we early-stage investors make these “shapes’ and adjust fund sizes and portfolio construction will become even more important. This is the adaptation many of us need to make.

Goldilocks In The Time Of Coronavirus

Ever since becoming a dad in 2013, I’ve been obsessed with obsessing how I organize and spend my time. That obsession only intensified when our twin boys arrived in 2015. Ever since, it’s been hour by hour, each unit of time accounted for with as much precision as I can muster. And now, during shelter-in-place (SIP), this obsession has been taken to a new level to adapt to the micro (toddlers running around, sequestering in my home office, trying to concentrate) but also the macro (What is important? What deserves my attention, for real?).

For most decisions, I am pretty decisive. There are bigger decisions, and for those, I like to research, talk to friends/experts, then take a bit of time, but still decide on something and move forward. This behavior is both a blessing and a curse — a blessing because it keeps me productive, pushing things forward, not dwelling too long on small matters; but, can also be a curse, as I’ll plan out meals to cook days in advance, removing any spontaneous impulses to just cook what comes to mind in the moment.

Now full swing into SIP, I’ve noticed that, in a work context, it’s given me extra time to reflect on how we want to build a portfolio at Haystack. Portfolio Construction is a topic I thought I was obsessed about pre-pandemic, but that’s now been tested and taken to a new level because the stakes now feel not just higher, but different. While we have invested in a new company (in Toronto) in someone we met via Zoom only in the past few weeks, deal pace and processes have slowed down, somewhat intentionally.

I don’t feel in any rush to make a big commitment at the moment, but am entirely capable of making that commitment. Here, what I’ve noticed is that for that commitment, everything needs to be “just right.” Being good enough, or close, isn’t good enough right now. It reminded me of the fable from the story of Goldilocks:

The Goldilocks principle is named by analogy to the children’s story “The Three Bears”, in which a little girl named Goldilocks tastes three different bowls of porridge and finds that she prefers porridge that is neither too hot nor too cold, but has just the right temperature.

In the past two months, in a work context, I’ve had to walk away from investment opportunities that I wanted to make but didn’t feel perfectly right — on one, both sides couldn’t find a compromise; in another, it was to back a founder we love but at a later stage; in another, a founder I’ve known for almost 10 years, who is amazing, but I couldn’t get over the market fragmentation; and most recently, a simple but potentially big oversight on my part in someone I’ve known for years.

In each case, something was just a degree off for me, and forced me to make the hard call of not saying “yes.” I am pretty sure at least one of those decisions will haunt me over the next 5-10 years, but the SIP has reinforced to me the long-term and irreversible nature of early-stage investment decisions. In each case, through no fault of the founder on the other side (many of whom are also friends), things didn’t “line up perfectly” and therefore didn’t happen. It’s ok, in the grand scheme — but part of early-stage investing does relate to serendipity, the art of breaking rules or prior heuristics, having time in between meetings or at lunch or on the commute to work that my mind subconsciously filters noise for me before needing to make a big decision. With that processing time compressed to being at a desk and confined to the home, The Goldilocks Rule comes into greater focus — to move forward on a decision, like ordering takeout as a treat, or making a new investment that will be the start of a new long-term relationship, everything about the deal — not just the people — needs to feel just right.

Public Frenzy And Private Caution

Love it or hate it, the stock market is the sentiment machine for the United States. It is our nation’s Fitbit, Apple Watch, mood ring, tarot card, and more for getting a pulse of our economy today and a glimpse into what shareholders believe the future could bring. In the midst of America’s struggle with the COVID-19 pandemic and the induced economic coma set through government policies of sheltering in place and social distancing, we all know what has happened — an ice cold shock to consumer demand, unemployment levels not seen in over 50 years, and concerning uncertainty in everything from government policy, kitchen table issues, and public health. Yet, week in and week out, we see the stock markets holding their own, in some weeks gaining back points, and public market investors seeing opportunity while jobless claims hit 8-figures and rising.

What is going on, and what does it mean for startups? I’ll briefly try to explain the former, and dig into the implications for the latter.

Briefly, my impression of the U.S. stock market during this pandemic is as follows: The federal government is printing more money; there is massive stimulus into the economy, as well as cheap loans to protect payroll; interest rates are cut to zero; computers and algorithms are on the hunt for beta, executing trades, shorts, puts, and more; perceived value is shifting to digital technologies, cloud, streaming, in-home entertainment, collaboration tools, and more; there are glimmers of scientific hope with a race for a vaccine, increasing knowledge of frequent comorbidities, and recent hope with a therapeutic drug; and, institutional investors are not just observing consumer behaviors in different countries when governments re-open economies, but also going state-by-state in the U.S. and modeling what economic activities could recover as soon as June or July.

Public market investors have a lot of advantages in such a calamitous time. These days, besides huge pools of investable capital, they have access to global data, they’ve been following the 10-year plus bull run fueled by a massive technology revolution alongside globalization, and they can take advantage of the government’s recent moves with respect to monetary and fiscal policy. Perhaps most powerful, they can move in and out of investment positions with the flick of a switch or the tap of their phones. Howard Lindzon pointed out that even after years of holding Disney, one of his favorite stocks, he was quite bearish on theme park revenue and sports, so moved into Peloton.

All of this, of course, brings us to private markets, and specifically the world of starting new ventures and the venture capital firms that finance them. Unlike their public counterparts, private early investors have been considerably less active. Despite what you read on Twitter about being open for business and optimism for the future, there is an abundance of investment caution across the top tier of venture capital firms. The reasons are mostly obvious to those who understand the mechanics of these vehicles, as well as the patience required to hold illiquid assets for 7-10 years, and sometimes longer.

But, the key point for observers and especially hopeful entrepreneurs to understand is this — while the stock market gyrates up and down, the market volatility combined with layers of economic, scientific, and public health uncertainty create an environment where VCs have very little incentive to buy illiquid assets at this specific moment, especially when those relationships are so long-term, when the economy is frozen, and when prices have not stabilized. Whereas a public investor can go in and out of Disney based on today or tomorrow’s consumer sentiment, a VC has no such flexibility. Pegging a valuation on an early-stage startup today only to have to re-price it a year from now is not only not fun (and hurtful to the company’s morale), it may not be good investment judgement. This is why we’re seeing investors cutting smaller checks (seed rounds) and piling into known winners (like Stripe or Figma or Airtable, etc) — the pricing on the latter is more or less aligned with their long-term bullishness on digital transformation and collaboration at work, while the former represent smaller dollars and less intense commitments.

It is this key fault line — liquid versus illiquid — that makes venture capital in private markets react wholly differently than public market investors. VCs are taking a 3-, 5-, 7-, and 10-year view on economic fundamentals. That we will be flirting with 30% unemployment. That consumers will clutch their wallets and purses tighter. That massive sectors like travel will be brutally beaten up. That our society may not simply “re-open,” but more likely go through periods of “The Hammer and The Dance,” where the hammer is government-mandated SIP and social distancing, and the dance is our flirtation back into society in controlled, slower, and more cautious ways.

In the previous decade, as VC firms scaled, they tended to cut their first check a bit later (not always) than in previous eras — this makes good sense. It is not uncommon for a VC cutting a $10M check to want to see 1-2 quarters of data before making the investment. Similarly, they may be waiting to see 1-2 quarters of public market stability in pricing before being fully back in business. To be clear, they are still looking at deals and investing — allocating capital to winners in their portfolios, making seed investments in teams they know — but it’s the in-between, that new relationship that has a bit of data, the team is raw and unknown, and the manner in which these deals were prosecuted has been upended, not to mention a looming price readjustment that’s potentially on the horizon.

Ultimately, the VC calculus right now is very different than what’s happening in the stock market. As we go in and out of The Hammer and The Dance, public market investors can follow suit, buying up and dumping stocks on an hourly basis. For VCs, each wave of The Hammer and The Dance presents increased uncertainty and shakier economic foundations for the country overall. This is the difference between east and west coast today in 2020. This is Wall Street vs The Bay Area in methodology. Warren Buffett dumps all his airline stocks, while Bill Gates sees his stake in Microsoft continue to balloon. Even for me, as a small investor working to invest very early, I have to balance staying in market (yes, we have invested in the last two months) and understanding incredible founders will start new companies no matter the conditions on the field. But, in the back of my mind, as optimistic as startup investors want to be, we all follow trends for a living, and while the future can always be bright, the near-term presents significant, fundamental, deep economic wounds that may take years to heal, if they heal at all.

Enterprise Business Models and Distribution In A Pandemic World

For the past few weeks, I’ve been talking to 2-4 close investor friends/mentors per day. Often, it’s just to go out for a walk, or we talk about a company or two we are both investors in, or we trade notes on household management tips, or inside information we are hearing about the latest science or what’s happening to NYC, where we all have so many friends, founders, and people we love. With a few of them, I have also been trying to learn from them, to tap their wisdom of previous cycles, the 2008 global financial crisis, and the dot-com boom and bust.

For this post specifically, I wanted to share what I’ve learned from friends and mentors like Bilal Zuberi (the first VC friend I ever had, back in Cambridge, when he was at General Catalyst, now at Lux Capital), Ed Sim (20 years as a VC, perhaps one of the most on-fire enterprise seed investors out there now with Boldstart — link to our discussion on this topic is right here), Ravi Mhatre (20+ years as a VC and a co-founder of Lightspeed, where I’m a Venture Partner), and others. Below is a brief summary of what I’ve learned from these folks, and others friends, in the past few days, and my hope is to pass this along to other founders and co-investors so we all prepare for what is surely going to be trying and austere times. [Of course, as I’ve been doing with each post, I am reminding readers that I know challenges facing startups and investors is not anywhere near the level of pain that NYC and other cities will experience in April and May. That said, this is the real work going on inside companies and among investor bases, and so I am sharing this in the hope that it helps someone else out there trying to figure out the future for themselves and their company.]

Cutting Burn, Extending Runway – This seems obvious given the massive recession we are barreling into. The debate ultimately rests with “how much” cutting to do. The guidance from those with many years of experience has been to make deeper cuts that what may seem comfortable today. That is some hard stuff. The biggest costs for startups are usually salaries (ie headcount), but also real-estate — I suspect many leases will be renegotiated and/or smaller teams opting to go remote for a while or perhaps forever. This is the cost side — but what about the revenue side? For startups that were counting on revenues to come in to offset expenses, there will be at least 1-2 quarters, if not more, of big holes, misses, and maybe even doughnuts. Realistic leaders here will proactively reforecast what they can expect to earn as some business naturally churns during this period. All of this is immensely harder at scale, when a startup is growing fast, burning cash.

Business Model Anti-Fragility – I hope it’s obvious, but this post is geared toward enterprise/B2B startups; I cannot begin to imagine what most consumer startups are going through right now. Here, getting to some predictable cash flow is paramount. For each kind of business model and customer, it could be smart for founders to create pricing incentives to coax the customer into a longer payment cycle. For example, a business which charges customers annually may want to experiment with deeper discounts for multiyear contracts; a startup that charges monthly may want to do the same with annual contracts; and so forth — there are multiple ways to help secure the net present value of longer-term contracts. On the flip side of the balance sheet, a startup executive team should expect some natural churn as a result of the pandemic and demand shock, so basic human touches like picking up the phone, or proactively instituting grace periods and/or free months of service are moves which may pay off over time and stem churn. Similarly for B2B marketplaces, liquidity is king, so network operators who can stomach lowering rake to keep product flowing may be rewarded in the long run.

Go-To-Market In A Bad Market – No one would’ve thought when 2020 started that we would be here today on the verge of Q2 and questioning whether we will ever have live events, user gatherings, developer conferences, big dinners, and other marketing events in person again. Of course, I think we will — but when, and how, I do not know. No one knows. As such, founders are now scrambling to see if they can market their products and services via video demos, or through a self-serve offering, or through channel partnerships, or through developer networks, or through open source or open core models.

New Values On The Other Side – It’s hard to imagine, especially as we enter the peak month across various cities in our country, that we will come out the other side, maybe next year, maybe longer, where business optimism returns. What does that new world look like, and what will be valued in that new world? There are things that are valued today — metrics like Time To Value, Engagement, Net Expansion, High Margins, etc. — that will likely be valued higher in this new world. We saw glimpses of this pre-pandemic, with public markets valuing pure software with network effects like Slack and Zoom more than moving atoms around the world. Those differences may be held in starker contrast in the new world that’s yet to form. In that new world, headless software, bits over atoms, highly efficient and quick-value business models may separate themselves from “tech” broadly — that, in and of itself, maybe the one big change to startup parlance that marks the shift from one era to the next.

Portfolio Triage In A Pandemic World

Everyone is doing their own version of “triage” right now. Let me state upfront – I recognize using medical terminology to discuss non-medical emergencies during a public health crisis is not ideal. To be clear, it is not my intention to equivocate the portfolio “triage” being done now with the medical suffering going on around the world. However, this is the language many in the startup industry uses colloquially to discuss this activity, and so it’s in that spirit I’m writing in this manner. Thank you for understanding.

Over the past few weeks for those in the startup ecosystem – founders and early employees, investors, and limited partners — everyone has been conducting their own form of portfolio triage. CEOs and executives are scanning credit card bills, renegotiating contracts, learning about “force majeure,” bracing themselves for depressed sales and, even more painfully, increased churn. The worst, of course, is planning for reductions in force — for the past few weeks, every Monday and Friday generate rumors of pink slips. Limited Partners, the entities which provide the capital source for these companies, are undergoing their own triage efforts — it could be a nonprofit which needs to loosen funding for specific portfolio initiatives and/or can no longer fundraise via traditional in-person event channels; it could be a university which has sent students home, had to fire administrative staff, and may also manage funds for the school’s hospital systems; or it could any other large pool of capital undergoing simultaneous shocks from either public markets and/or commodities markets (like crude oil). While those limited partners are often more diversified with respect to risk than a startup founder, the same muscles are being used to conduct triage.

As a bit of word-nerd, I wanted to know specifically what “triage” means – “(in medical use) the assignment of degrees of urgency to wounds or illnesses to decide the order of treatment of a large number of patients or casualties.” This is what investors are doing, too.

Investors with portfolios across different vintages are currently inundated with responding to this shock by going through each portfolio, determining the relative health of each investment, what the potential value could be (now likely with a mark down). For funds with a history, the portfolios can be large enough that it could take a few full days just to go through the lists for a first scrub. The medical illnesses investors are trying to quickly assess relates to burn rates and runway, combined with methods to reduce burn while planning for lower revenue income. This double-whammy can quickly compress runway, and the rate of compression is faster for larger, high-burn (ie high-growth) companies and/or those which boast business models that are smack dab in the middle of this demand shock.

Once investors sort their portfolios by those companies deemed highest-risk, the hard conversations begin. We began our targeted outreach at Haystack today. Prior to this, we surveyed our founders, collected standardized information related to cash on hand, current burn, target burn, potential loss of revenue, and headcount. With this data, we loosely approximated which companies were at highest-risk levels of runway compression. Haystack is not a huge fund nor typically a lead investor (though in the past year, we have been leading more deals with stronger reserves), so sadly we cannot open up older funds (which never had reserves) or bridge someone for two years. We wanted to assign a rating of Level 1-4 (with 4 being highest risk) to our portfolio and began targeted outreach today. While these are investments we’ve made, these are not our companies, we are not control-investors, and in 80% of cases, these founders have taken much larger follow-on checks from much larger funds.

There will be hard conversations around these runway tactics. I do not envy anyone facing those. Over the past year, my two young sons have been obsessed with learning about dinosaurs. So, I’ve re-learned about dinosaurs with them. I didn’t really keep up with all the new discoveries since I was 5 years old. Going down the YouTube rabbit hole, my kids are obsessed with the large asteroid which slammed into earth that caused a massive explosion, earthquakes, and disruption to the planet, where a high percentage of species met the end of life. It is so random to think about how that situation escalated for the planet and the dinosaurs. I know our planet has had other pandemics and survived, but this current pandemic sort of feels like that asteroid in some ways — very few people could have even fathomed it, and when it hit, it hit quickly and life will just feel different after the fact. In our current pandemic, sadly we will lose loved ones, brothers and sisters; we will lose a mind-boggling number of small businesses, especially those in the services sector; and we will lose a bunch of very early-stage companies that won’t have enough runway to survive, or startups which are focused on certain industries which have just stopped outright, or startups poised to IPO this year or next who are burning lots of cash and can’t course-correct fast enough. The current pandemic feels like that asteroid to a degree, appearing from the sky in a flash, smacking into our world, and changing it forever.

And, so here we are, conducting triage in hospitals, in our local communities, in our households as we are on lockdown, on our balances sheets — at work and at home — and in the world of startups, for portfolio funds and startups. It is all a shock. People are reacting in real-time. CEOs, investors, and LPs will have to make some brutal decisions, where to focus efforts, where to cut ties. There are no great answers. It won’t be fair. But it’s going to happen throughout April and May, and the only thing everyone can control is to conduct those conversations with grace and thoughtfulness given the unprecedented circumstances. And specifically as it pertains to many early-stage dreams that were just getting off the ground, there will be a shortage of ventilators — some will get them, and others won’t. We’ll have to take these harsh decisions in stride — they are not as important as our collective public health, or what is going on in NYC, or what may unfold in Florida or New Orleans. For the foreseeable future, every day is about triage. Triage is the new normal.

Investment Decisions In A Pandemic World

This is a post for startup founders to hopefully better understand how investors and VC firms are adjusting to this new world. There are lots of tweets floating around citing “business as usual” and “we are open for business” — and while those proclamations and others may be true, there is a lot going on behind the scenes that I believe founders should consider as they plot their capital planning for 2020. [At the risk of stating the obvious, during this time posts like this are not as critical as what we can be doing within our own cities and towns to help our neighbors and local businesses.] I wanted to share these thoughts briefly after spending the last three weeks talking to tons of VC colleagues, from seed to growth funds, across the Bay Area and in NYC. With that, here are the real-time adjustments underway in the investor world:

Adjusting to WFH, with Children: With California and New York City on government-mandated shelter-in-place, investors are all home. Assume most decision-makers have kids. Schools are shut down. Like everyone else, they are scrambling to figure out how to support their kids, families, spouses, and concentrate on work and key decisions. For most, it is not an easy adjustment.

Portfolio Triage: An investor’s portfolio will contain some companies that are either directly impacted by the pandemic, such as companies which focus on travel, events, and other gatherings, and many that will be indirectly impacted because of this double-sided supply and demand shock. Companies with short runways will die, and even more jarring, companies that operate in certain industries could fold because of a foundational collapse caused by these shocks. If an investor is on a board and/or representing his/her VC partnership in a company, they have to report back to the mothership on a quarterly basis, so many of them are likely preparing for collecting and sharing negative news, and scrambling for ways to help CEOs cut burn, reduce opex, consider bridge funding, venture debt, and so forth.

Partnership Meetings and Hallway Chats: The manner in which 99% of VC firms operate — “the partner meeting” — is now a big challenge. Zooms work for sharing information and aggregating that audience, but the hallway chats and interesting tangent threads are gone. It is certainly cool to complain about partner meetings on Twitter (I have done this!), but having sat in institutional VC partner meetings for over seven years now across three firms, they’re certainly not perfect but they’re a terrific way to learn and get the pulse of a group. An interesting note on fund models like Founders Fund, for instance, which doesn’t have a partner meeting, may be less impacted in this way. Other VC firms will have to adapt to this but it will take some trial and error given institutional behaviors.

In Process vs. Existing Exposure vs New Relationships: Deals that were “in-process” before the day the NBA cancelled the season (that was a seminal day, I think) are closing and getting done. Sure, some folks will retrade deals, but maybe that number will be very small. Most investors know that going back on your word, especially under a time of duress, will ruin reputations. So when you see VCs say they just signed a term sheet, consider that deal may have been on handshake in February. Investors will also look into their existing portfolio and may offer to allocate reserves to existing relationships. You can bet these offers will be at “flat” prices to the last round, given how high valuations have been. Now, the key question for founders is new relationships — what if you were hoping to raise your A or B in Q2 or Q3? How do you meet and greet for a $15M check via Zoom or FaceTime? How will a VC be able to conduct on-site due diligence when the actual site is closed? I am sure some folks will adjust here and make decisions, but we don’t know yet whether that’s a good or bad thing. This is why I feel existing relationships will increase in value — psychologically, it is much easier for a VC to gain conviction in writing a check when he/she already knows the CEO, some team members, and so forth.

Existing Relationships Will Become Even More Valuable: I’ve touched on this in the post, so will just briefly repeat it as a separate point here because I believe it’s important on its own.

Angels, Syndicates, and Micro-funds: Angel-investing will continue, but some angels and scouts may have had their entire net-worth reshuffled this month; syndicates, which raise funds per deal, may suffer given the constant coronation costs they require; and micro-funds and seed funds, actually, will continue to invest early — the supply/demand imbalance is still in the founder’s favor here, so I don’t expect as much of an impact on valuations here versus at the Series A/B stages. We will know more over the next 4-8 weeks.

New Fund Management Precautions: No matter small or large, those who manage a VC fund are thinking about how this may impact various angles of fund management. For example, should pacing slow down? If a fund was planning to raise in Q2 or Q3, should they reopen their current fund to increase their runway and push out their own fundraise? Do they need to rethink their current reserves strategy to make sure key portfolio companies have the cash to weather this storm? The list goes on and on. When these questions pop up, it can logjam decisions to send cash out the door. I don’t think this is a major issue, but like the in-person partner meetings, will take a few weeks to settle.

The Money Source Is Stressed: This is a part of the startup ecosystem 99% of founders never see or grok. Most of the large VC firms raise money from large pools of institutional capital — pensions, nonprofits, universities, and endowments. The stock market just cut off 30% of value in less than 10 days. For most of these places, VC is a small percentage of where they invest, and they will continue to invest. But, consider for a moment nonprofits, many who rely on donations and fundraisers to keep operations going — the demand shock and travel restrictions will hurt these places in the near-term. Or, consider large universities which have sent students home and/or have medical/science or hospital systems which are on the front-line now to help their local areas combat the pandemic. All of these limited partners will stay in venture, of course, but they’ll also rely on their managers — the VCs — to be stewards of their capital as this downturn begins.

Weekly Information Likely To Worsen, Valuations and Economy To Follow: If founders take one thing from this post, I hope it’s this — While VCs are open for business, the overwhelming majority of folks I’ve talked to (nearly 75 by phone over last two weeks) are by no means stopping the pitch meetings, but they are going to be, in the near-term, slower in decision-making. It’s for all the reasons I’ve listed above, but also because they all know that with each coming week, more information about the pandemic and its effects will surface. Each week, that information is likely to be worse than the week before. And as the economy gyrates as this new information comes out, over the next 4-8 weeks everyone will have a better sense of what the impact is and will be — and so much can happen during this time, such as stimulus bills, industrial collapses, having a loved one get sick — that I believe most VCs will simply let this play out a bit more before making a big decision. Private round sizes and valuations have been very high. Most investors active today haven’t experienced the pricing pressure that occurs during a downturn, myself included. It’s important to remember, these decisions are mostly irreversible — the money going to a CEO or founder can’t be taken back. The firm name sticks on the cap table. Given that permanence, founders should expect the VCs they’re pitching and targeting to be readjusting at home, among their colleagues, and to the market overall before making their next big decision.

Shockwave

in a previous era, there was political speech about a campaign of “Shock and Awe.” The idea, in those times, was to use military strength and western idealism to win “hearts and minds” of innocent citizens in the Middle East to see the valor in America’s occupation. This blog isn’t about debating whether that strategy worked or not, but certainly one can conclude for themselves.

Fast-forward to 2020, and we are all living in another moment of “Shock and Awe,” but in a very different context. The “shock” here today is largely, in my opinion, focused on the searing effect the current public health crisis will have on aggregate demand — especially consumer demand. And the “awe” is related to the unprecedented scale and scope of how wide this will be.

For anyone following the news, it’s obvious to imagine what will happen to the economy — consumers will lose income, they’ll be forced to limit their outdoor/outside activities, small and medium businesses will see a huge drop in activity, and so forth. Consider a company like Lyft being valued by public markets at around $5B this week, and they have $2B in cash on their books. Consumer demand is going to run so dry, it could literally topple a company which was otherwise on decent footing with room to grow.

The shock to consumer and business demand will also create derivative shockwaves. It’s like when you throw a big rock into a still lake — after the splash, you see the ripple effect of the concentric circles forming and, if you sit around to watch, those circles get huge. It starts with someone getting fired. Then their company fears missing payroll. Then they cut vendors. The liquidity of money moving around and multiplying as dollars are passed around stops. Perhaps nothing embodies this more than the fact that Las Vegas’ casino strip is shut down indefinitely. The federal response to date has been to use monetary policy to pump paper back into the company at large, but there are going to be millions of people who won’t make rent, may not be able to put food on the table, and may quickly face undignified choices unless they’re given direct relief by federal and state governments.

I’m writing this post because I’ve read a bunch of commentary from smart people who suggest that this could be a. “2-3 quarter thing” and things will snap back into place. I am not so sure. There is no trusted, central authority that will make consumers (and individuals in general) feel comfortable that “hey, it’s ok to take the train to the ballgame, to stand inline for a hot dog, and sit around 60,000 other fans for an afternoon.” When will that level of pubic trust ever come back? This situation has forced all of us, overnight, to adapt and change behaviors of things we’ve been accustomed to our entire lives.

The switch has been so drastic and so quick and done in a period of rampant mis- and disinformation that I am not confident it will all snap back to normalcy. Instead, I see a future now where much of the American economy (especially on the services side) is re-ordered in a brutal ways. The identity tied up in starting, owning and building a small business that surprisingly has to lay off staff, turn into a cloud kitchen, and then try to restart again will crush some folks’ spirits. Households with kids who have to keep them home and work at the same time will be skeptical of their own spending habits. If and when we get back to some level of normalcy, my strong belief is that the deep-rooted behavioral responses we are having today won’t go away — rather, the wound will cut deep, so deep it will alter consumer spending.

I can’t sit here and prove it will happen. I could grab a few articles and a paste a few fancy graphs here, but that doesn’t mean anything. I wanted to write this to share my intuition about this and share the warning for business leaders, households, parents, kids in college, and so forth. Aggregate demand will eventually come back, I’m sure, but the road to get there will take time, and the behaviors around spending will be drastically different. I sincerely hope I look back at this post years from now and declare “Wow, was I wrong!” but I believe it’s more likely this is the beginning of a new consumer paradigm we will all have to adjust to.

Semi-Lazy Sunday Afternoon Musings On Reserves Management

Each weekend, I like to write a short post about a topic I’ve been learning in fund management. The topic for this weekend was originally slated to be “reserves.” However, now the world is very different and we are all readjusting to a terrible reality. I hope this is obvious, but clearly the immediate priority is our public health, social distancing, and staying away from other people as much as possible. Beyond this, for those with means, we should be thinking about local merchants, friends who may lose jobs, and even worse — the economy is going to unravel in a way none of us have ever seen before.

And with that gloomy introduction, let’s tackle what “reserves” mean for an investment fund. I’m going to write this in a way that’s targeted to founders and CEOs who seek to raise capital, rather than my customary approach to write to fund managers on this topic. So, here goes… Say you’re the CEO/founder of a startup, and you’ve taken venture capital from an institutional venture fund, they’ve likely raised a lot of money and have institutional investors. In order to manage investments over a long period of time, the most experienced and sophisticated funds will set aside “reserves” for each investment. Some funds reserve at a 1:1 ratio, and some reserve 2:1, and so forth — a 2:1 reserve model means that if they invest $5M in your Series A and take a board seat, they’ve set aside 2s that or $10M for follow-on investments. Now, it’s easy to think that $10M is entirely for you — it is not. It is at first a mechanism to force a partnership to play a longer-game, to make decisions about investments over a longer horizon, and to pace the speed of fund deployment.

There are generally three types of reserves: (1) for offense, to plow into companies where there’s a breakout and/or high conviction; (2) supporting, to keep future rounds humming without signal risk and/or to maintain pro-rata ownership percentages; and (3) defensive, to apply in bridge rounds, or pay-to-play rounds where either the market or newer investors for investors to protect an initial investment.

The topic of Reserves Management is now, as the world has changed, a major topic of discussion among investors, especially lead investors on cap tables. There is no doubt in my mind that even great companies right now will have their business operations and bottom lines altered by the shift in the economy. We’ll make it out of this, but that will likely not be any sooner than 2021, at the earliest. And VCs who are in lead positions will have to begin to make tough decisions about where exactly to allocate the reserves they’ve been setting aside. Say a company isn’t performing and/or doesn’t have a strong relationship with their lead — hard to see how reserves get deployed here. On the other hand, say a company is lean, low burn, and showing a path to sustenance over the next 12 months — their investors may lean in to bridge the company and get rewarded with more ownership in a rough economy.

Investors will not tweet about this publicly because it is part of the sausage-making of how a venture capital fund works, but you can surely bet that they will be having these discussions. Most firms will use some quarterly or bi-annual “Monte Carlo Simulation” to both approximate winners, leaders in a portfolio, and struggling companies, and as part of that go into “Reserves Management” (make sure to read this post by Fred Wilson, please) where the individual investors will be asked to forecast which of their own portfolio companies will need what over the next year. Some will get what they want for Company X, but not for Company Y. There will be lots of internal debate about where to allocate funds. The broader public always sees the very first investment by a VC firm into a company, but they often don’t realize it’s the 2nd and 3rd check decisions that are most crucial and hostly contested internally,

If I was a startup CEO and I knew this, I would plan to approach my board about this some time in April or early May. This week may be hard. And I would have a broader discussion about capital planning for the next 12-18 months and I would try to learn about how my lead investors were thinking about reserves. Existing relationships now inherently have more value. VC firms have been built to allocate the capital of their limited partners. So for any CEO going down this path, it would be wise to get smart on reserves and have this conversation earlier rather than later. Best of luck out there and I hope everyone’s families and friends are doing OK.

A Quick Guide To Startup Fundraising In A Pandemic World

After lots of conversations this week with both founders and investors (from early to late), I wanted to quickly jot down my thoughts as they relate to what startups can expect in 2020 when raising funds. The first disclaimer here is, obviously, capital financing for new ventures, while certainly important to some people, is not as important as good public health, resources, and information. The second disclaimer here is, again I hope obviously, is that this post is geared entirely toward how a founder may consider responding to the current environment and in no way seeks to offer any health information or advice. Apparently a bunch of folks feel investors have shared dubious information online as this public health issue unfolds, and I am not qualified to opine on such matters.

So, with those disclaimers out of the way, here is a list — in no particular order — of what I think founders should be aware of when it comes to early-stage fundraising, not just in the short-term, but likely through the end of 2020:

Business Models and Go-To-Market: A big component of what gets investors excited about an investment is the potential for efficient distribution. For startups that boast business models which are dependent upon activities such as travel, or events/gatherings, or top-down sales models, or systems that require on-prem setups, or getting into the consumer wallet share, it would be wise to anticipate questions from investors around these topics. They may not say so on Twitter or in the meeting (which makes this topic subtle but important), but behind closed doors when they are evaluating models someone in the room is bound it bring it up. By contrast, API-driven, or self-serve, or upfront multiyear recurring revenue models will be seen as more valuable, where product-led growth could be a premium. Some may want to consider having a slide dedicated to this in pitch.

Early-Stage Investing is a People Business: So much of early-stage investing is dependent upon face-to-face interactions. There are lots of funding sources out there now, and more investors today are comfortable having relationships and communications entirely by video or phone. Again, this is what most people will say on Twitter or to you during the pitch process. However, so much of the very initial, raw, emotional sentiment is forged in a face-to-face meeting. What does that mean for founders who do not want to take live meetings right now? What does that mean for founders who were talking to 6 investors last week, but today, only 2 of them want to meet in person? What does that mean for founders outside the Bay Area who are either hesitant to travel here or now face a contracted audience? I don’t know the answers here but it feels tough.

Categories Matter: While so much of early-stage investing is about the people, as the checks get bigger, larger investors will certainly have opinions about category selection. Going back to business models and GTM, there are now entire new industries thrust into the limelight because of the sudden shift in work and consumer behavior. Look at the rise of Zoom’s stock price over the past few weeks. Video, for instance, may now be both pervasive enough and important enough to verticalize further, where we could see an explosion of “Zoom for ____” happen. I’m sure it already is. Other areas like work collaboration, social media tools, homeschooling networks, and more are suddenly now imagining the prospect of new opportunities. Fair or unfair, behind closed doors there will be categories that are currently out of favor, so it would be best to anticipate these objections and perhaps even address them head-on. These will ultimately get reflected in valuations for the deals that do end up getting done.

Zooming Out: Zooming out a bit (sorry), investors may begin to segregate “fragile” versus “anti-fragile” companies, models, and categories. In the Taleb framework, what is truly anti-fragile today? Should those assets be worth more? Should some value shift from newly-deemed fragile entities to anti-fragile ones? We may be seeing this in the public stock markets, with airlines suffering but Zoom rising. Safe to say it could happen in startup investing, too. In terms of countercyclicality, what could be in-favor today that wasn’t a few weeks ago? Company location and cultures will matter — will remote be seen as a competitive advantage now for recruiting and anti-fragility versus an accepted model from a few months ago?

This double-sided economic shock is going to be here for a bit. Investors will still invest. They will say nice things on Twitter and in the meetings. The ways deals that get done now go down will shift back a bit toward a more normal cadence (it has been out of control for a few years), but it will still be a great environment for good founders, absolutely. As a founder, it will be good business to anticipate what may be side behind closed doors and to fine-tune those pitches accordingly, at least for the duration of 2020.