VC Market Dislocation: The Fundamentalists vs The End Marketers

I shared this last month on Twitter and was delayed in posting it here o the blog. I called it “2021 Venture Capital Market Dislocation.” Credit to my friend Leo Polovets who encouraged me to write this out.

  • Adam Nash tweeted this earlier, paraphrased: The VC industry went from looking for $1 billion-dollar outcomes to $10 billion-dollar outcomes to $100 billion-dollar outcomes in less than 24 months.
  • This end-market acceleration has occurred during a time of zero-interest rates (not being touched until 2023, per Fed), high IPO liquidity, huge chip stacks at various VC funds, and making investments via Zoom.
  • Investing in technology feels like the only game in town now in a pandemic world. Public investors are now full in privates; growth investors are doing As and Bs like they’re seeds; traditional VC firms are straddling seed and Series A (tho many have multi-stage arms); and seed investors, angels, rolling funds, syndicates, accelerators are conducting massive experimentation to unearth the next great thing.
  • —> That is a massive mindset-shift for traditional/institutional firms, especially those with long cultures of pegging valuations based on public comps, exit comps, software multiples, etc. This creates a schism:
    • The Fundamentalists: This group’s DNA is hard-wired to valuing businesses based on revenue growth potential. They’re willing to pay a premium, but based on this methodology.
    • The End Marketers: These groups are either newer entrants or established players who have quickly shifted with the current market. They view “slots” for ownership at seed, Series A, or Series B as finite pieces of coveted real estate that they only have 2-3 chances to own. After that, the early land-owners (here, investors) can keep the best companies captive to themselves.
  • We don’t yet know if the “End Marketers” or the “Fundamentalists” will be right. What I personally believe is the FOMO around limited real estate for VC ownership in those earliest rounds is very real and warranted. For billion-dollar plus funds who need $10B+ outcomes to move the needle, the fear of missing the next Snowflake, Zoom, or Airbnb at Series Seed, Series A, or Series B can motivate even the most discipline Fundamentalists to break their own heuristics and pin their hopes on the promise of End Markets.

Ironclad: Transforming The Whitespace In Digital Contracting

Many years ago on this site, I wrote about The Story Behind Haystack’s Investment In Ironclad. Little did I know then what would unfold. Vertical enterprise software took off. Collaboration became the rage. The economics of software and the stickiness of well-crafted products became hard to beat. And, a friendship and partnership formed — all unlocked by one seemingly trivial decision.

Fast-forward to today — and we have Ironclad. The potential of this company can be hidden to even savvy observers. The magnitude of the problem, and therefore the opportunity, takes a bit of time to appreciate. The way I explain it to folks who inquire is – imagine all the business logic (and hence, potential for code) implicitly contained in a legal document or contract. Now, imagine if technology could help extract, load, and transform that logic into an automated workflow. To date, contracts have been nearly untouched by digital transformation because they’re so complex and interconnected. Ironclad’s vision from Day 1 was to embark on a journey to win these battles and finally bring contracts to the modern age.

For legal scholars and leaders, technologists, and contract specialists who are interested in the transformation of contracting, be sure to check out Ironclad’s State Of Digital Contracting, a quarterly online event that brings together world-class legal and technical minds to imagine what cutting-edge technologies, such as artificial intelligence, can transform how legal teams work and how contracts are formed, updated, and enforced.

I always joke with Jason that, when we originally met, I was not interested in the idea of Ironclad. That turned out to be foolish on my part. But what I did get right was identifying Jason as a unique leader. In the years that have followed, Haystack has proudly invested in every single round of the company. That is not something we normally do or frankly have had the opportunity to do. It feels great just to write that out; it is an honor to be a small part of their ride. As always, I’m reminded of a great quote from Mike Maples about what he looks for in a founder, paraphrased: “I’m looking for someone to get in trouble with.” Jason and Haystack, we got in some trouble, and am looking forward to more. Onward!

The Story Behind Our Investment in

Over the past 8-ish years, Haystack as, on occasion, been a thematic fund. Most of the time, though, the fund is more reactive. We meet lots of founders. We get to work with a few of them. And we follow them on their journey. I personally believe founders hold the secrets — certainly, I do not. Our job is to identify those with the secrets and support them on their path.

However, once a while, there are some spaces or markets that are so big, they’re too big too ignore. When Haystack began, the fund made a series of investment in on-demand networks, and that led to investments in companies like Instacart, DoorDash, Luxe Valet, and OpenDoor. And, over the past few years, the fund has invested behind the trend of live video — dating back to 2015, we made investments in companies like (originally Pluot) and Mux, as well as collaboration tools like Figma, Ironclad, and

Fast-forward to 2020, and it would be cliche to say live video and collaboration are a big deal. With the pandemic and lockdowns, live video (embodied by Zoom, and upstarts like Whereby, Hubilo,,, RunTheWorld, and Hopin, etc., not to mention products like Vimeo spinning out) have taken the universe by storm. So when an old friend and mentor like Kent told us about a founding team he was investing again (he funded their previous company) in the video collaboration space, that got my attention quickly.

Kent is someone who has demonstrated great taste in people over the years, and ultimately when we invest early, we are largely backing people — but in this particular case, yes the people were great, but also the market was obviously enormous and the product sophistication on the founding team was simply too hard to ignore. Perhaps most important, the quality of conversations we had with the founders about who they were, how they gathered the insights around, and how they operate as businesspeople made things escalate from interesting to exciting at a fever pitch. is perfectly positioned for our new world. Companies and creators are creating unbelievable amounts of video streams — what happens to them? How do you save them? How do you revert back to them? How do you leverage them to communicate remotely at scale? The explosion of video has created 101 new greenfield opportunities, from the infrastructure and API layers all the way to new applications like It’s a tidal wave, and Haystack is lucky to be along for the ride with Connor, Scott, Kent, and the entire team.

Looking Ahead To 2021 – Planning, Not Predictions

No one really likes investor predictions (unless they’re like this), and I don’t either. Sometimes in the past, like last year, I’ve written them just to farce myself to think, but after last year, it’s doesn’t seem to be the right frame. So instead, what I’m going to share now is more about my preparations for 2021, knowing that the conditions on the ground could change dramatically. As such, I wanted to briefly share what my current “planning” is for 2021, full caveats for black swans excepted:

Vaccinations, Slowly, and with Caution – My belief is, as a member of the general (not at-risk, not essential worker) population in the state of California, that I will likely get my 1st vaccine dose in June, July, or August. Whatever that date is, the second shot (depending on which vaccine — I believe J&J, if approved, would be single dosage), would be a month later. It will take a bit of time for the magic to do its work (according to experts currently), and I’m personally not worried about side effects or negative reactions. My focus at this time will be my kids restarting school in September. If we get there, then I believe I’ll begin to feel more free about doing some normal things, but with caution still, largely because we are not sure if these are annual vaccines yet (so would I need another dosage end of year to coincide with next year’s flu season?). So, I’m cautiously optimistic, and once I get the vaccine, will carefully pick my spots in terms of social interactions, restaurant dining, and travel.

Phased Re-Entry, Then 2022 – In the back half of this year, I will hopefully begin a phased re-entry into doing some normal things. If we didn’t have 3 little kids, I’d probably rush back to do some travel, but that will have to wait. So for more normal behaviors for us to resume, we are thinking more about end of 2021 and really into 2022. That’s fine for me to process; the tough part is getting through February, March, April…. luckily I love what I do, and kids can be both a frustrating yet joyous distraction, so hopefully I can hold my nose until then.

Gatherings vs Meetings – I am a very social, extroverted person. The social isolation from the lockdowns have been difficult for me to adjust to. That said, I love having meetings, especially initial meetings, via phone or Zoom. This begs the question about the pre-seed and seed markets, given the environment right now. I firmly because the pandemic and lockdowns have shifted this market almost entirely to Zoom. It is frankly better for most early stage founders. It’s hard to envision this returning to normal. As an investor, I have to meet entrepreneurs where they are — that used to be the Bay Area and NYC primarily for me — not it will be on video. Now, gatherings are different. Conferences that I like to attend — man, I cannot wait to go. Those small curated events I went to would be almost impossible to conduct online. I also host a few private events per year and I’ve decided to not do it in 2021 (and didn’t really do one in ’20).

Rideshare vs Fixed Line – One big lesson reinforced to me in 2020 was to stay small, stay nimble. I know that sounds cliche, but I always think of the difference between rideshare options like Uber and Lyft vs all the money that California has burned away trying to get high speed rail up and running. Fixed costs are a bear. Being able to tap into resources when I need them is of even greater value to me now as we hopefully approach a post-pandemic world. I’ve been trying to refactor everything I do to move away from fixed things to variable ones, and if there’s one bright spot operationally from 2020, it would be this lesson.

Of caurse, just a year ago today none of us knew what was in store. It could happen again, or something as improbable. So, the best I can do is plan for what I think will happen, pay close attention, and adjust accordingly when the situation changes. No matter what, though, I do sincerely thank you for reading and wish you and yours a very Happy New Year and warm wishes for 2021!

Looking Back On Tech, Startups, And VC In 2020

At the end of each year, I sit down and distill what happened in our industry. For 2020, it would be trite to say it was a year like no other. Everyone I know is pretty tired of these topics. So, I’m keeping this extra brief and overly simplistic by design, but still writing it for me, to remember what changes occurred this year and what the ramifications could be on our work.

The analogy I use here is making a soup or stew. Imagine a big cauldron. There are starter ingredients to get the stew going. Then, you heat and combine them, add heartier elements to the base. And as the stew stews, you throw in more things to spice it up. It’s not the most elegant analogy, but as a former amateur cook, hopefully it works.

Before the coronavirus took root in the U.S. in late February, what ingredients were already in the cauldron? Oh, where to begin. The amount of dis- and misinformation has exploded. High-tech companies and the idea of “Silicon Valley” had continually drawn the ire of many in media and elected officials. Social media feeds addicted users, fertilizing anxieties and, in turn, finding new pores for conspiracy theories to take root. A presidential impeachment was attempted (after failing to prosecute the defendant for collusion), after years of sowing confusion within government agencies, after tolerating numerous cyber attacks, and after eliminating local and state deductions from federal income taxes. The nation’s economy was soaring, with technology companies driving the bus and small-medium businesses becoming the new consumer class; however, massive racial and wealth inequalities rippled under the surface of the cauldron, with tens of millions of citizens either living month to month, or systemically disadvantaged, or both.

So, we’re making that 2020 stew. Things are heating up at the bottom, browning, caramelizing, smoking. It’s time to add to the base — and what does life bring? A global pandemic! If I think back to March and NYC, it is terrifying. All of a sudden, we shut down. We didn’t know how fatal Covid-19 would be, or how transmissive it was, or how it spreads. We ordered groceries online from Instacart, accepted them with plastic gloves, and washed bananas before peeling them. Investors conducted portfolio triage. We all read Sequoia’s Black Swan Memo with fear.

The initial reaction of most of our industry (and mine, frankly) was that we would see a major slowdown. Looking back, that was wrong. There was a brief slowdown associated with the shutdown, but government quickly reacted with multi-trillion dollar stimulus, the virus seemed to peak in certain places, and we learned much more about the virus properties — mainly that it was relatively safer to be with a mask outside with a very small group; that it didn’t seem to transmit via packages/surfaces; that children were far less likely to contract and/or spread the virus; and that closed-air indoor environments where people would congregate (bars, restaurants, churches, etc.) were responsible for super-spreader events. The government launched Operation Warp Speed to unleash innovation in the biotech sector to find a vaccine, antibody, or therapeutic for the vaccine. The portfolio approach taken here may turn out to be a sole bright spot given recent efficacy statistics.

By late May or June, the parts of the economy picked back up. And in the world of tech, startups, and VCs, this is when things shifted into a new gear. The lockdowns and need for physical distancing accelerated two decades worth of digital software adoption into the span of two months. Restaurants that weren’t on EATS or DoorDash needed to adapt to survive. Businesses that still relied on wet signatures for documents and FedEx had no choice but to turn to DocuSign and Notarize. Small merchants needed to tap into e-commerce platforms like Shopify and Faire. Many citizens turned to Airbnb as a preferred travel vendor, helping revive the company after a massive Q2 revenue drop. And of course, with business travel stunted and in-person meetings put indefinitely on hold, the world (including classrooms) turned to live video, schools turned to Brightwheel and Outschool, events were reimagined through breakouts like Hopin or Hubilo, or meetings on Zoom, Teams, or Whereby. This was all reflected in public and private startup valuations — Zoom rocketing to nearly a $150B public company at one point, and Hopin going from a $30M valuation to over $2B in value in less than 12 months time. I briefly chronicle *why* this all happened in this short post called “The Quest For The Next DocuSign.”

While the 2020 stew is almost ready, let’s throw in some garnish in the form of venture financing innovation. Throughout 2020, separate from these core ingredients, the world of venture capital witnessed its own cauldron of change. First, we saw an explosion of SPACs, with credit to Chamath for resurrecting the SPAC a few years ago. SPACs wield numerous advantages to all participants when designed thoughtfully. Second, AngelList unleashed Rolling Funds, a software innovation to abstract away the procedural and administrative complexity of raising and managing small venture capital funds, while empowering limited partners to move in and out of funds like SaaS subscriptions. An evolution on AngelList’s SPV product, Rolling Funds also empower angel/operators to not only scale up their early stage investments, but also to create a wider on-ramp for aspiring private investors to get their feet wet. Third, a new wave of “Solo Capitalists” emerged as VCs, raising and deploying at scale driven by a single figurehead. Back in 2010, this type of model would be an anomaly and likely not pass institutional committees; fast-forward to 2020, and it’s one of the most intriguing disruptions to the venture capital stack. The “who” of who gets to invest early, the funds competing for Series As and Bs now, and the new routes to go public all exploded in 2020.

The 2020 stew fortified some, and it severely harmed others. While the tech sector, startups, and the market for venture capital accelerated, certainly the same cannot be said for many other sectors of the economy. In the U.S., each state governor wielded control over their state’s Covid response, many of them in larger states abdicating some leeway to county-level authorities. This made for various responses and more conflicting public health messages to citizens, against the backdrop of having basic precautions like face masks become politicized elected leaders. The result – the virus raged through the U.S. and will end the year with over 300,000 known deaths as a result of Covid. LA will ring in 2021 as the latest pandemic epicenter. If this were not enough, we saw the George Floyd protests unleash a national movement and conversation around racial justice. Once September arrived, the west coast was engulfed in wildfires, the south and southeast battling hurricanes and storm surges, and other corners of the country — from the Dakotas to the Bayou. Those involved in the technology sector, those who saw no stoppage of work and shifted to Zoom, saw little to no change in their situation, and in many cases, were beneficiaries. Small and medium businesses, those in the services sector, hospitality, arts, and entertainment suffered greatly, and as the incoming President has signaled, all stimulus payments made to date may just be a down-payment on what’s needed in 2021 to help Main Street stand ground.

All of the above make up the bubbling cauldron that is 2020 in tech startups and VC. The hangover effect in the Bay Area became more dynamic as this year closes. Tens of thousands of households left the city of San Francisco. Many emigrated to surrounding counties, driving up real estate prices even more . The stretch of wildfires that surrounded the Bay Area in September proved to be a knockout punch for many residents — it was a really tough time. Imagine a dual-income household with small kids in school via Zoom, parents working via Zoom, and stuck inside in 100 degree weather with 8-10 days of extremely unhealthy air quality. I can’t prove it, but this tipped many people over. Once the fires subsided, major issues remained. Seeing newer companies reach scale in a remote and distributed manner (like GitLab), having the ability to buy/sell real estate online with networks like Opendoor, the impending impact of California’s and San Francisco’s looming budget crises, the impact of SALT deductions being stripped, and with much of the industry adapting quickly to a video-first environment, for the first time a considerable number of people I know who would have never left the Bay Area began to spread out — Europe, Seattle, Austin, and so many other places around the world.

And of course, there is Miami. For sure, you can bet I’ll end my “End of 2020” in tech/VC post talking about Miami. While the statistical odds of the world being put into lockdown because of a global pandemic were incredibly small, perhaps even smaller was the likelihood that a young mayor of a major U.S. city in a state without income taxes would not only woo and recruit technology founders, executives, and investors to his city on Twitter, but that he would engage in a way that triggered an ongoing dialog for weeks on end. Sure, parts of this have turned into a meme, but there is a real shift going on, not just in Miami. The new innovations brought to venture capital (listed above), combined with the conditions on the ground in California, combined with how SF as a city has been managed to date, combined with the rising antagonism toward the tech industry, combined with the rising costs of living — these have all been put under the microscope. Just like Covid seems to be most unkind to those with underlying conditions, the same could be said for regions or governments, where the underlying conditions could be budget largesse, anti-business policies, and a politics too far afield from the mainstream.

The final 2020 stew in the cauldron is a potent mix: A public health crisis, which triggered economic crisis, social crisis, and a mental health crisis, with a side of climate change crisis. On top of this, we all have friends who have now lost loved ones due to Covid, or lost income or means, or was forced to move to a new place, or has been isolated from his/her grandkids, and on and on. We have friends who experienced social and/or racial inequity and feel more comfortable to share it, and the audience is more comfortable to listen to it. We have had friends houses burn to the grounds, and friends who became climate refugees. If this weren’t enough, being at home without the daily routines of going to school or the office, commuting to decompress, going out to eat to get a break from doing dishes, and limiting social gatherings has eliminated the common distractions we used to carry ourselves through the day. Instead, we are more in-tune with all the craziness going on around us, in a year packed with crazy events. I’ll talk more about how I’m planning for 2021 as a result — not in the sense of making predictions, but how this year as informed my planning for next year. For now, I wish you all a very happy and safe new year.

Quick Reflections On Seeing DoorDash From The Early Days

I was lucky to be a *very* small part of the early group who invested in and helped DoorDash. It’s incredible to see what they’ve accomplished today. I can’t share this post without saying up front that I’m truly grateful to have been that very small part. On that note, I have to thank two people who made that possible – Saar, who took me out for a lunch in 2013 knowing I’d just had our first kid and that I started a small fund to get my track record going, and Tony, the CEO of DoorDash. Saar told me about Tony, Stanley, Evan, and Andy. He encouraged me to write a small check out of the very small fund. Little did I know what would come of that.

I got a lot of warm texts and emails this week. I didn’t know how to respond because, yeah, it is nice, but boy am I lucky. So I just replied with what I feel, which is grateful, and the praying hands emoji. A few friends encouraged me to write about, but that didn’t feel quite right, especially given the time of year, this year. Then, one friend said, “Just share the parts about Tony, and the fight to get here, more people need to read that prose.” So I thought about that, and that seemed like a good idea, so here goes. Here are the things people didn’t see about Tony:

Tony was always quietly positive. He was always calm. He was a driver and would answer customer service requests in the early days. It sounds cliche to say he was raised working in a restaurant and now he wanted to help them modernize with marketing and delivery, but that passion was genuine. DoorDash and other services which exist today aren’t perfect, they can all always improve, but imagine if we didn’t have these software and logistics networks in place in 2020. So many restaurants and small food shops aren’t going to make it this year, it is terrible. I also believe having these networks in place also helped save and boost other restaurants, as unfair the randomness of the outcome is.

Tony endured two really tricky financings. I know from being around them that no one ever talked about DoorDash being as big as it is today. During those two raises, specifically the Series C and the Softbank round later, the team took on more dilution than they anticipated. Tony was positive all the way through, learning hard lessons and admitting missteps along the way. I’m sure some doubt crept in, but he never showed any of it, though a lot of it was around him. To be clear, I’m not sitting here saying “I saw it, too.” The company is at tremendous scale now. It may look like it was an easy go, and yes, some of the rounds were easy, but the pressure was intense on the fundraising side. And, that’s just the financing part…

The market for food delivery was real hard in the last decade. I know all the CEOs who played in this space – Sprig, Munchery, Postmates, Spoonrocket, EATS, OrderAhead, Caviar. These were some of the strongest founders I’ve met here in the Bay Area. Tony was in a Mortal Kombat with all sorts of competition. I have a lot of respect for everyone who played in this game.

Tony worked at his office every Sunday. It was his church. As DoorDash scaled and we talked less, he would always reply to email on Sunday. Sometime I’d be at the GGV office on a Sunday catching up on work, and he would email back. I’m not sitting here and saying everyone needs to copy Tony. He just found a cadence that worked for him to be himself, with his work. It’s what he loved doing, and I’m sure was a piece of what carried him toward today. Tony sacrificed a lot of fun things in life to work on his company. I don’t think he went out much. Definitely was only on social media to answer customer feedback and at times retweet something about the company from the PR department. We held an on-demand event and Tony would come and speak always, but he was doing that for me and other people, not for himself or DoorDash. Seven years later from when I first met Tony, he and his team have carried their network so far. I have to just stand back in awe and watch it unfold. Congrats to Tony and everyone involved with the company.

The Story Behind Haystack’s Investment In Candu

In the early days of Haystack, we would share stories about new investments. Then, the industry exploded. So many more startups. More investors chasing them. More noise. And, so, we’ve become more muted about sharing publicly what the investments are, especially at the early stages, because the times have changed – technology companies, big and small, are packed with incredible builders, features and ideas can be copied in a week, and the competition for the prize is even more intense. So, we think, for most situations, it’s better for early-stage founders to build privately under the cover of night. Eventually, some of them crawl out of their cave, finally ready to share their work.

Today, that is the path Candu has chosen. My colleague Ian Hathaway picked up a lead from a mutual friend and said, “Hey, this is pretty interesting.” I liked Jonathan, the CEO, right away. We spent time with Jonathan and his co-founder Michele, and we all just got along, especially as we discussed and debated their product insights from their times at previous startups. Ian did a terrific job advocating for the potential of Candu, and we were lucky to invest in their pre-seed round in a previous Haystack fund. As is often the case, what we discussed in the initial days — the importance of helping users along the “happy path” within a product — has morphed and changed a bit as the team has built Candu and digested feedback from their early partners. Product iteration speed and intent customer listening is critical, and Jonathan and Michele have these attributes in spades — enough so that pre-launch they were able to bring on board both Two Sigma and CRV to lead their seed round. We are always happy when companies we work with reach these mini-milestones, and especially in this case given our long friendships with both Villi and Murat with the CRV team.

Check out Candu when you get a chance. They’re fashioning themselves today as a no-code platform for customer-facing teams to quickly build intuitive interfaces to empower their users to have easier onboarding experiences, and to make the customer journey overall more engaging. We would encourage you to give Candu a whirl here. The product is already being used by a select number of private startups, mostly in the SaaS world, who want to arm all branches of their company with these powerful tools. Also, as you try out the product, please let Jonathan and the team know what you like and where they can improve. It’s your feedback that will shape Candu into the very best experience for acquiring, onboarding, and growing your customers.

I often struggle in these posts in talking about markets or product direction. The truth is, we liked Jonathan right away. He and Michele fit the mold of the early-teams we seek to find and back. Michele was full of opinions about software, and Jonathan matched him on product. Jonathan also had collected insights from his time at LaunchDarkly, and showed an ability to engage, persuade, recruit, and build a fanbase as Candu was willed from an idea into a product. It is hard to isolate this when we meet people so early, and we often make mistakes here, but with Jonathan and Michele — I described them almost as an old couple quietly bickering — struck us as both skilled and crazy enough to change how products are built and used. That’s what makes early stage investing so fun — finding and helping these kinds of people. So, congrats to Candu and the entire team, and now the next stage of the journey begins!

Quickly Unpacking A Wild Week Of Big Exits – Gainsight, Kustomer, Slack

For usual readers of this blog, by now you’re perhaps used to seeing a new post “Quickly Unpacking” the latest technology startup acquisition, usually of the billion-dollar plus category. Throughout the history of the modern startup ecosystem, “billion dollar exits” drove the model, the returns, and the narrative of how startups go from cradle to rocketship.

However, as the last decade drew to a close, technology exits ballooned – think massive private deals, from Whatsapp to Facebook for $22B or LinkedIn, as a private company, being acquired by Microsoft for $26B, all during a time where recently-IPO’d companies like Shopify, Twilio, Docusign, and Zoom all began their new lives as public, single-digit billion-dollar plus companies.

As the technology industry has grown, and as end markets have been proven to be much bigger than most imagined, and with the next decade’s digital acceleration pulled forward to the present due to pandemic shutdowns, big deals are happening at a furious pace. Just this past week, we saw not one, but two, billion-dollar SaaS exits, and then a mega-acquisition of another public SsaS company. Let’s very briefly unpack those deals:

Facebook buys Kustomer for $1B+. My quick takeaways mostly relate to what this says about Facebook’s product intentions. Kustomer, an enterprise technology startup focused on using automation to help their users manage customer service. Facebook famously tried to shoehorn business-focused chatbots into Messenger, but that didn’t really work. Today, scores of small and medium businesses communicate with their customers via Messenger or Whatsapp — recall that Facebook will also unify all their messaging properties, including Instagram — into one channel to each individual. This year, Facebook also saw an uptick of usage for new forays such as Marketplace and Shops, where individuals and small/medium businesses can conduct commerce. A platform like Kustomer helps Facebook beef up its own internal capabilities on the B2B side, and as their @ Work platform continues to grow. On a personal note for Haystack, this marks one of the first mega-exits for 1/ our old friends at Social Leverage (congrats Howie!) and 2/ our close friends at NYC fund Boldsart — but this is just the beginning, with many more exits coming down the pipe.

Vista buys out Gainsight for $1.1B. My quick takeaways here are mostly driven by Vista and Gainsight’s leadership. Vista is one of the preeminent technology and SaaS buyout shop with a terrific track record, so their purchase of Gainsight for over $1B must lead them to believe they can help grow accounts and build more value into the franchise before either selling the company to another large technology platform and/or spinning out Gainsight to go public. Come to think of it, maybe even Vista could go public itself – who knows. Despite gritty execution, Gainsight fought within a tricky market that turned out to be not as big as some dreamed of, but also one that faced myriad startup challengers coming into customer success using machine learning, automation, data modeling, and more. On a more personal note for Haystack, Gainsight’s journey to Vista is spearheaded by Nick Mehta, an old friend who led a terrific team over many years through tricky waters, and also the first big exit for a friend who helped me start Haystack many years ago, Nakul Mandan. (Nakul led the investment for Lightspeed, where I am a venture partner.)

And, drumroll…. Salesforce announced its intention to acquire Slack for $28B. It immediately reminded me of Microsoft buying LinkedIn a few years back. This deal has extra juice in the startup world for a variety of reasons — Salesforce is on an absolute market tear, triggering whispers around a march toward a trillion-dollar valuation; the company’s leader Marc Benioff is a living legend and famously a big deal whale hunter; it combines two of the most powerful SaaS companies in the enterprise right now; and it marks the end of Slack as we know it as an independent, public company. Slack’s trajectory over the last 5-7 years has been nothing short of heroic — a pivot, lots of time to find product-market fit, and then unlocking new behaviors, distribution, and business models within the workplace. There were many pieces written on the product potential of such a tie-up, with Salesforce riding the all-time high for its stock to help purchase another great software asset.

If you’re interested in digging into the potential for this deal on the product side, would recommend you listen to the most recent episode (#14) of The All In Podcast — briefly, David Sacks, who in a previous life co-founded Yammer (an social feed for enterprise workers, which was bought by Microsoft), suggests that if one had to nitpick a terrific company and outcome, they could point to the hesitance of building out a true enterprise sales motion. If Sacks is right in pinpointing this detail, we may look back on this week and zoom out — that it’s the largest technology companies using their cash and rising stock to extend its product reach into new markets. Facebook, Salesforce, and whomever ultimately acquires Gainsight once Vista is done with it, represent the technology giants who can aggregate new cutting edge products and networks to grow and grow.

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, 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.