Financial Infrastructure For Small Venture Funds

I’m on a plane today headed to NYC for the week. I’ve refrained from tweeting too much directly about the implosion of Silicon Valley Bank (SVB) and the threat to other regional banks. This is in part because it’s a complicated topic where there are 1,000 experts who understand it better than I do, but it’s also because I probably wouldn’t be able to be on this plane, in this job, and have this career if it weren’t for SVB. I’ll get to more about that at the end of this post.

While I’m not expert on HTM securities and loan-to-deposit duration mismatches (two new terms I’ve just learned about), I do think I’m expert in something that could be helpful to other small venture funds. Like was the case for me, most small venture funds are not sophisticated in the world of finance. Part of what makes AngelList so appealing, in addition to all the of software automation, is that it abstracts away the complexities of running a small fund, cross-fund investing, and cash management. It’s very easy to write a check into a new company, but it’s much more complicated to get the money out, or to distribute shares, and have an overall cash management plan. These managers, like me, are spending all their time with founders, making connections, hearing pitches, and the like — finance only seems to matter if you catch something big.

A number of investor friend and limited partners (LPs) reached out to me over the past few days to get a lay of the land. Most were surprised to hear that despite having many fund-related entities with both SVB and First Republic Bank (who’ve both been terrific partners to us), that we didn’t have much cash in those accounts. Why is that? The main reason is that VC firms actually don’t “hold” lots of cash, because that would mess with the IRR over time. Instead, we “call” capital from the LPs when we need it, and then we immediately wire it out to handle internal operations like payroll or to make investments.

These callers were also surprised to hear that we had accounts across these two banks plus other banks — how did that happen, they asked. It wasn’t a grand strategy on our part, it was simply the result of building Haystack as a bumpy ride. I had to spend years overcoming a backlog of Excel sheets and paperwork that felt like an administrative tidal wave. We created different bank accounts at different firms to build more relationships across the Bay Area but also NYC, and we brought on a real CFO back in 2019 to get ahead of what I viewed were financial operation hurdles on the horizon. So, we ended up with a real CFO, spread out bank accounts, and sophisticated cash management because we were small, unsophisticated, respectful of the complexity venture finance brings, and ultimately we were aware of our limitations in this realm.

This made me think about all the other small funds in the VC market. When they go back to institutional LPs (like endowments, foundations, and other sophisticated pools of capital), they may get more of these questions on financial operations – What is your cash management plan? Do you have a CFO sitting in between your back office and legal firms? If you’re lucky enough to get shares in public companies, who will broker those for you at a small scale? I’ve lived through this pre-pandemic, and let me tell you it is not easy to grok.

There will be more to reflect upon regarding this debacle as time moves on. For now, I am grateful that Haystack’s early days were both successful to be involved in some epic companies, but also that we were naive enough to not try to handle the financial operations ourselves once we began managing institutional capital about 5-6 years ago. We didn’t have a plan, but we knew this wasn’t our sweet spot, and we invested in our team operations to fill this gap. That turned out to be a very good decision, as we were able to shift our focus to being present for our founders versus scrambling internally. I’d like to thank our CFO, our back office, and our legal team for the years of loyalty and service to us. The past few days could’ve been wildly different without them.

I’m also thinking about SVB. I have many close friends who are current or ex-employees. One of my first friends I made in the Valley was a SVB employee. We’ve funded another alum in his new company. Haystack was able to bank a sub scale $1m debut fund with SVB back in 2013, and they helped me set up wires and all the little things in those early days. Haystack started and operates one of the most preeminent private events bringing together early-stage GPs and LPs (this year will be our 7th annual event), and that happened on Day 1 because a friend at SVB said “let’s do it” before I even finished brainstorming the idea with him. I feel incredibly for many friends and alums there. I know very few will find sympathy in stressful times, and that is understandable, but because were fortunate to not have the same stresses over the past few days, I wanted to take a minute and state for the record that it was many people at SVB who quietly enabled Haystack to happen, and that’s not something I want to forget.

The Power Law Of Attention (Looking Back On 2022, Ahead To 2023)

As an unofficial tradition, I attempt to “look back” on the previous year in technology startups and tease out the big themes. Looking back on 2022, I’ll admit I found it harder to step back from the noise of work and family life, to zoom out and take stock of what happened, and to put it into a few words.

I will remember 2022 as the year where “The Power Law Of Attention” dominated our reality in the tech startup world.

In venture capital, early-stage private portfolios lucky enough to generate a return often see the distribution of outcomes form what is popularly-referred to as “The Power Law.” You can read about it elsewhere, but in a nutshell, the rule says the biggest return will be so big it will cover all losses. Put another way, early-stage investors build portfolios with the hope that one (or more) company will be that elusive Power Law winner, driving returns and profits for the fund’s investors.

But this isn’t the only Power Law in our world. Another version of this law that’s been on my mind is what can be called “The Power Law of Attention.” I started thinking about “The Attention Economy” after many years of reading Albert Wenger’s outstanding blog. Albert predicted years ago (in 2015, my lord) that the global economy would transition with a severe dislocation. He writes in 2015:

There have been two fundamental scarcities in human history and we are now moving on to the third attention). Each time the scarcity shifted, due to a new technology, we had a massive dislocation. So yes, this time is the same, scarcity is shifting again and with it we are experiencing another such massive dislocation.

If you haven’t yet, you should subscribe to Albert’s blog. But back to this post… in 2022, it felt like for the first time, the attention economy ruled what tech startup events became the talk of the town. As I reviewed all the major events in this ecosystem in 2022, there were a few that felt like supernovas, true outlier events that were either so big, so consequential, or both, that other notable events or advances in technology and networks didn’t bubble up to our collective consciousness — more on this at the end.

Those of us in the startup tech world, we know what the big stories were — The macro economy went through a drastic regime change (see: Druckenmiller, Howard Marks, etc.). Elon overpaid for Twitter, where the startup tech world convenes, but then went on to lose $200B in net worth in one calendar year. Artificial intelligence was unleashed into the world by a 7yr old startup, right to our fingertips, and it felt like that time 15 years ago when a company in Cupertino put technology at our fingertips. There was another multibillion dollar tech startup acquisition in the face of a falling market. In the less consequential world of venture capital, we saw hedge and crossover funds largely leave the market, we saw unprecedented fraud in what felt like (and hopefully still is) a promising new technology, and we saw an exciting change in leadership at the world’s most successful startup accelerator.

There are countless other big stories from 2022, no doubt. There were too many for me to review, read, and list here. And, there are bright spots, and spots for hope. As someone who naturally defaults to overly analytical thinking, which is prone to pessimism, I’ve spent the past few months building a thematic framework in my head for what the next decade could be like, and to transform the analytical approach into one of opportunity-seeking. The first steps in that process are for me to write about those more, which I now have the energy to do. And my ultimate goal is that in the sharing of those thoughts, they will be further refined and, if I’m lucky, will land on the doorstep of someone out there who shares a similar worldview.

It is not just startup founders who have to look back on 2022 and adapt. Everyone in the tech startup ecosystem needs to adapt. Everyone needs to re-examine their swing. I am trying to rebuild my swing and forgot most of what I’ve learned the past decade. Trying to re-learn. As torrential rains return to the Bay Area, more and more friends are moving back to the Bay Area, despite the region’s clear troubles. More and more layoffs will occur, upending lives but also forcing those to create new opportunities. Somewhere out there is the next Mike Arrington and MG Siegler, hosting meet-ups and writing up a blog or tweetstorm about a cool demo he or she saw. Somewhere out there is a recently laid off tech employee who finally had the inadvertent push to focus on his or her side project, which starts to take off. Somewhere out there are his or her ex-colleagues who will give that person startup capital. Despite its myriad (worsening), the Bay Area does remain the one place I know of where the generational historical culture has been to reinvest proceeds back into the ground in the form of startup investing.

Luckily for our country, that is now happening in other places, too. In the hurricane of change that will unfold in 2023, this is what I’m most excited by. A decade ago, sitting here, I hadn’t made my first investment yet. No one would give me a chance to write a check. I wasn’t a parent yet. The world was finite and time was infinite. A decade later, now things have flipped — time is now finite, but the world is infinite. The flow of interesting people starting companies is going to be incredible to watch, and I am ultimately grateful for the last decade (including 2022), I am grateful for getting to meet folks who will take on a risk and do things that I could never do, and I’m grateful for the chance to have a front-row seat to what a friend describes as “The Greatest Show on Earth.”

The market may have dried up trillions of dollars of capital, but the last decade of social media, lockdowns, and other forces have sapped our attention. There is still lots of money for new ventures out there, but there is much less attention. In this new world of Power Law forces, I will look back at 2022 as a fundamental reset of everything, I’ll discard 80% of what I have learned, and I’ll lean into that feeling 10 years ago, when the future was unwritten, and I got the chance to meet and work with some of the most creative people in the world — new people who are building the next things that will sprout after the rains wash away. That prospect gives me great excitement and great hope.

The Breakout Tech Company Of 2022

Each year, when the summer ends, I begin to think about what I’ll write in this annual “breakout company” post, which has turned into a mini-annual tradition for me here on this blog. Until a few days ago, I kept thinking – just like in 2015-16, I don’t think I’ll be able to declaratively write, “this company is breaking out.” Over the last 15-year bull run, entrepreneurs and VCs all but harvested the consumer spending wallet share, with travel/transport, food/delivery, and nearly everything else imaginable. As a result, the technology sector has, for the past few years, been eagerly awaiting the arrival of the next great platform only to be somewhat disappointed.

That changed this week with a new product release. Each year at this time (well, all year), I text voraciously with my old friend Josh, where we debate this post (and he should get some extra credit here for that). For this year’s pick, Josh summed it up nicely in text: This year’s pick “gives us the most exciting glimpse into the future.”

So with no further ado, The Breakout Tech Company of 2022 is: OpenAI.

Now, is OpenAI technically a tech startup? Isn’t it a foundation, or a capped profit company? Didn’t they raise hundreds of millions of dollars? Frankly, I don’t know how to classify it. It is not a conventional pick (before you send me a text about that), but 2022 wasn’t a conventional year, either. Before we get into it, I wanted to note that honorable mentions are warranted this year, companies such as BeReal (a super fun product), Handshake (quietly becoming next the LinkedIn), Replit (a fascinating vision for the future), Hugging Face or Stability.ai (insane early growth), for instance, were on my mind as candidates, but the spirit of this post is to isolate the newest company that is putting technology into peoples’ hands at the fastest rate – this year, I couldn’t find anything that held up to OpenAI. I don’t want to get into technicalities here this year on this dimension, given there wasn’t a clear, traditional choice, and also the overwhelmingly positive and potentially-game-changing implications to OpenAI’s signature releases this year.

OpenAI was originally formed a few years ago with the intention of investing in engineering and design talent, learning models, compute, and anything else that could help accelerate and usher in a new era of responsible use of artificial intelligence. We won’t get into the debate on the merits or dangers of AI, as that’s for another post — though I’m wholly unqualified to opine on things like TayTweets. (The leader of OpenAI, Sam Altman, needs 1-2 sentences of credit here – after hyper-scaling Y Combinator in a controversial yet, ultimately, directionally-correct move, he jumped to OpenAI in 2019 and has helped lead the organization to this point. That’s an impressive resume.)

Since then, OpenAI has been shipping. Major releases by OpenAI include GPT-3 in June 2020, a machine learning toolset that demonstrated the first glimpse of what learning models could do to generate text. In 2021, OpenAI released Codex, an AI platform that turns natural language into code, a huge advancement of making software development faster and more accessible. Fast-forward to this past fall, OpenAI released Dall-E 2 to incredible fanfare, a deep learning model that generates digital images from natural language descriptions. Dall-E 2 imagines took over social media for days, along with other tools such as Midjourney. During these releases, OpenAI led an investment in Descript, teasing a possible future of audio generated by AI, and ultimately all sorts of media. Then earlier this week, OpenAI released ChatGPT, a dialogue-based AI chat interface for its GPT-3 family of large language models. This release again took over social media in tech circles and harkened back to the craze around bots 5-7 years ago – and frankly prompted Josh and I to finally text me back with “yeah, OpenAI is the breakout.”

The spirit of this tradition is not to identify what will be the next great company. The fact is, we don’t know what happens moving forward. It’s not clear if closed-sourced or open-sourced models win the day. It’s not clear if audiences will ultimately want machine-generated communications, or if regulators will step in. It’s not clear if moats will exist as the compute costs of building and managing these models will stay high or drop. It’s not yet clear if AI-native companies can disrupt and leapfront tech incumbents, as Elad Gil artfully argues; but, it’s also not year clear if incumbents, such as Notion, can more easily “layer in” AI-driven user experiences into its established platform.

In this post, I am trying to isolate one company that placed the most new technologies and/or products in peoples’ hands. The tech/startup sector has been dreaming about the arrival of AI for decades, with the chorus growing louder over the past few years. Like many technological advances, it feels like it’s happening very slowly, and then all of a sudden, it’s here. That’s what OpenAI and others have done to the field of artificial intelligence in 2022. Most players in the startup ecosystem have been eagerly awaiting the arrival of the next great platform, only to be left waiting or running out of funds. In contrast, OpenAI has demonstrated the ability to show what these kind of platforms can do. The use cases are infinite, while the trajectory forward and business models remain wholly uncertain.

It wouldn’t be 2022 without a sober note of warning. It’s now been 10 years that this blog has picked a “breakout.” Let’s look over the past ones – OpenSea from 2021 is today facing major crypto headwinds; Hopin from 2020 is today struggling to stay relevant as the public now mostly rejects online events post-pandemic; Superhuman from 2019 is today likely flat with respect to growth; Airtable from 2018 is today still growing but perhaps will face a big valuation adjustment given public comps; Coinbase from 2017 is today taking a beating in public markets given the icy crypto winter we’re in; there were none in 2015 & 2016 (at the time, in my opinion); Slack from 2014 has since been subsumed by Salesforce though I’d speculate is still growing modestly; Snap from 2013 is today battered in terms of its market cap despite having strong user engagement and revenues; and Stripe from 2012 remains the most dynamic private tech company at scale, but missed its IPO window given the downturn, and could be valued closer to Snowflake upon going public – which is still huge.

The meta point here isn’t to talk about the market troubles here, but rather to point out that while the startups selected annually for this post have broken out, breaking out in and of itself does not ensure longevity and endurance. Technology is moving faster than ever, and while OpenAI is moving really, really fast right now, something else that’s fledgling today with promise may break out to disrupt one or more of these companies next year.

From Easy Money To Hard Conversations

As an early-stage startup investor, this year, 2022, has been marked by one thing: Hard Conversations.

Lots of them. Each conversation is different, but depending on the situation, they fall into one a few buckets. The hardest are with founders who are already in your portfolio. As an investor, you’ve already made a commitment to them beyond just investment dollars. Following this are new investments and relationships, as most early-stage investors seek to maintain their pace through both good and rough times. And finally, hard conversations with other investor friends in the ecosystem about what to expect.

I wanted to briefly lay out the high-level messages in these conversations. None of this will be new or revelatory for those in the startup world, but perhaps the way it’s framed here can help some folks who are sorting it all out.

First, founders and existing investors should by now realize that any additional financings, no matter how large, will need to clear a proper checkpoint — the larger the financing, the more checkpoints to clear. Founders will need to demonstrate clear enterprise value inflection points, and even if they’re achieved, investors may wait until well after those milestones are hit. In the past, founders would get credit for the belief they would hit the milestones — that speculation is no longer rampant.

Second, early-stage founders who do have capital and some runway ahead of them, they need to really preserve that capital. A mentor of mine and experienced VC/operator put it this way: A early-stage startup CEO should at least go through the thought-exercise based on the prompt, “What if we can never raise money again?’ What would one do in that scenario? How would things change? It’s rhetorical, but also now, unfortunately, a fair question to ask.

Third, founders would be wise dual-track an exit path to keep their options open. This should happen much earlier than folks are comfortable with. Potential customers, designer partners, industry collaborators, large companies — any outfit where the founders and startup have a relationship with a larger entity, those are all relationships to cultivate carefully on the off chance they could lead to a deeper partnership or acquisition. For a company reading this today that has runway into 2023/24, starting this in January with a goal of having something happen by end of year is not unreasonable. It’s very very hard, but not impossible.

For an early-stage founder, it can feel like the walls are closing in. And, they are. In previous downturns, startups could still be acquired for modest o great sums; today, these types of transactions feel frozen, and larger-cap acquisitions face regulatory, shareholder, and balance sheet scrutiny. While everyone is anchored on rising interest rates to dampen inflation, it does feel that inflation will be here to stay as a long-term phenomenon given the disruption to and rebuilding of the global supply chain. Profitable companies generating less than $100M of revenue with high margins are less likely to be able to go public, stuck in no-man’s land. Perhaps most daunting, many of the emerging platforms folks have been excited by — crypto, AR/VR or the met averse — feel very far away or, worse, unattainable. A rare bright spot is AI (more on that soon), but it is the early-innings there and the jury’s out on how those technologies monetize given the open source pressure.

I’ve been investing 10 years now. During this time, I will admit it has been hard to often feel “heard” as an investor at the table with many founders. I’ve tried to share what I’ve written above with various founders, and it is not easy for this to land properly oftentimes inside a founders’ head, which is 24/7 consumed by product, customers, colleagues, not to mention stresses that can accumulate on the personal and household side of things. It is understandable, as entrepreneurs likely should not be obsessed with the market as investors are. As investors, the tools we have at our disposal represent a sort of soft power in the best case, to persuade and guide, and to hope the messages eventually sink in with reason and empathy. That’s my sincere hope with this post.

The Story Behind Haystack’s Investment In Okteto

In the summer of 2020, an odd time for sure, my friend and Lightspeed colleague Guru told me about a team he loved but felt was way too early. We took the intro from Guru, and wow am I glad I did. Guru, we owe you some nice wine. That introduction led to the beginning of Haystack’s relationship with the Okteto team, and today they proudly announced their Series A led by another friend, Villi from Two Sigma. You can read all about Okteto on their site and on today’s feature in TechCrunch.

This isn’t a product or tech blog, though. This is the space where I like to reflect on how people come in and our of work lives. The work with Okteto has been a dream scenario, simply put. It starts with the CEO. Ramiro is simply one of the most authentically compassionate tech founders I’ve had the pleasure of working with. And in the battlefield of work, Ramiro has a quiet yet steely resolve to quarterback his team. Co-founders Pablo and Ramon round out what is an incredible technical team tackling some of the thorniest problems in application architecture. Okteto formed based on the founders’ belief that the development process itself needed cloud-native tools to move faster and more efficiently.

Okteto was an investment opportunity that was a bit slower to grow on us. My colleague Aashay also spent time with the team and as we dug in, we both gained confidence in the initial adoption. We struck a deal with Ramiro to lead his round, and we cut back our position slightly to bring in folks like Salil and Lee, good friends with a wealth of experience (and options!) in these types of early companies. That proved to be a great decision, with all of us helping Okteto a little bit get to this stage, and laying the groundwork for Villi to get excited about partnering. it all came together nicely.

There is a lot of work to do for Okteto and the team. It’s still very early on the journey. That said, it is a moment to reflect a bit on how Haystack was able to “get lucky” to see this opportunity — years of relationships and trust, Guru trusting us that we would take care of the opportunity, Aashay digging in and evangelizing it when it wasn’t obvious, Salil and Lee joining efforts and their invaluable guidance, and Ramiro becoming an unofficial team member of Haystack, all leading to another friend, Villi, gaining comfort to join the ride. If only every investment lined up like this.

The Story Behind Haystack’s Investment In Schoolytics

In the summer of 2021, and old friend Eric Ries introduced us to Aaron and Courtney from Schoolytics. I was initially skeptical of the idea — to build a data and metrics platform for all sorts of schools — but in the very first meeting with Aaron, the CEO, my interest was piqued. I’m glad we pulled on the initial thread, because that eventually led to us investing in Schoolytics, which just announced their seed funding this week.

I will admit that initially I was a bit hesitant to go into this market. Most of the education-based startups that have broken out (and believe me, we missed two big ones — Quizlet and Outschool — though we have Cambly which is still going strong) go for a direct-learning model, using technology and platforms to go directly to students and learners. That makes sense and is an exiting category. But what about distributing software to schools, public or private? What about universities, major or community schools? As an investor, those are not the most attractive or exciting buyers to persuade. In order to penetrate these markets like Edmodo or Google has, one needs a rock-solid platform that’s initially free and delivers value immediately — quite a tall order.

Enter Aaron, Courtney, and the Schoolytics team. Aaron and Courtney met while at Chegg, another ed-tech startup that made it to IPO. In our DD, we learned that Courtney recruited and initially managed Aaron, and that she was impressed immediately any Aaron’s product leadership. That was evident in the first pitch with Aaron, no doubt, and what initially gave us belief in making this investment. Then, as we dug further, we realized Courtney herself had secretly collected a PhD in Economics (!!!) before Chegg, and while being a working mom (!!!), is incredibly active in her kids’ schools PTAs. She never mentioned this in her bio or pitch.

Haystack is excited to also co-lead this investment with a long-term friend, Nakul Mandan and his team at Audacious Ventures. Nakul is one of two friends who literally helped will Haystack into existence nine years ago; now as Nakul starts his debut fund, we have been helping him, we hope. We ended up lining up on this investment given the quality of the team (Aaron and Courtney, wow!) and also the momentum in the business, which you can read about here. If you have kids in school (should be many of you!). please do forward this to your schools so that more schools, administrators, and parents can capture better analytics on what is happening inside these important places.

If you’ve been a reader of this blog over the years, hopefully by now you know the pattern here — these investments are in companies, products, and networks, but those are built by people, and we are blessed to get to meet lots of people every day (thank you, Eric, for this one). We select some well, and others don’t work out. We miss a lot. But when things line up with co-investors who are long-term friends and product leaders (and community leaders) who live and practice their craft, it’s simply a pleasure to get a front-row seat when teams like this embark on such meaningful work.

The Story Behind Haystack’s Investment In Databook

In the fall of 2019, as we were opening a new fund (Haystack V), and old friend/mentor of mine Josh Stein pinged me about a deal he was leading in a company called Databook. He and his colleague did a lot of work on the sales intelligence space and asked us to considering joining. We rearranged schedules and brought the team down to Palo Alto for coffee to meet Anand Shah (no relation!), the CEO, in person.

Knowing that we didn’t have a lot of time, we pressed Anand to get to know him, learn about his business, and all the other things we wanted to know. We promised him a decision in 48 hours. This was a more full seed round, as Databook had a product in market with customers and revenue. Anand fit the pattern of the type of founder we like to back — a product-oriented founder who uncovered a secret in their previous role (for Anand, in management consulting) through deep analysis. We offered to take the rest of the round, and that proved to be a good decision.

In the last two years, Anand and the Databook team have carried the product and team to new heights. The team raised a strong Series A during the pandemic, led by Microsoft, which is a feat in and of itself. They’ve added to the core team, executive ranks, and started nabbing some big logos. This all came to a head early in 2022 with Databook receiving a significant amount of investment interest, even in the face of volatile capital markets. The result is today, Databook announces their Series B round led by Bessemer, with DFJ Growth participating. We’d like to congratulate the entire team on this mini-milestone, especially attracting high quality partners in the face of wonky markets.

One of lessons learned in venture is that selling software into the sales department of technology companies is a good lane to explore because the sales orgs do drive revenue and the old line “the VP Sales has a credit card.” The other lesson is that long-term relationships like the one I have with Josh really drive the engine of the Bay Area deal flow. I met Josh over a decade ago. He was a board member at a company I worked for, Swell. I consulted for DFJ for a bit, too. It was always very easy to share opportunities with Josh because he treated founders well and brought a wealth of SaaS experience to those discussions. In this case, Josh shared something back to us, and we are grateful he did.

 

The Market Is The Greatest Critic

Maybe over 10 years ago, I remember a Twitter thread with @cdixon. He was defending startups against critique, citing that journalists and other startup ecosystem players shouldn’t publicly criticize startups because startups are really hard, most of them fail, and it’s the market that delivers the harshest critique. When this thread originally unfolded, I recall disagreeing with Chris, but a decade later, after pouring my heart into some failed startup experiences, it turns out Chris was right.

But, he was talking about private early-stage startups being hammered on social media.

When companies list on public stock exchanges, have thousands of employees, and hefty annual revenues, they are of course no longer early-stage startups. They are also subject to the whims of public market investors, ranging from institutional pools of capital, talking heads on TV and Twitter, sophisticated crossover funds, to celebrity hedge fund magnates. Unlike private investors who have their funds locked up for almost a decade and can only cheer from the sidelines through thick and thin, public companies can attract activist investors one day and lose long-term investors one random morning, sending their stock prices into oscillation or free fall.

I have only been an investor through a bull market. I wrote my first check in 2013. I lived through the GFC in 2008, of course, and felt the pain of that in the job market just finishing graduate School. I moved to SF for the first time right as the dot com bubble burst, but I wasn’t in tech or investing, but I do remember getting most of my furniture and a desk from a dying startup in the Mission, where I lived.

The crash from Nov ’21 to Jan ’22 (and maybe more?) is the first crash I’ve experienced as an investor. Yes, it is a crash, for those who may not want to hear such language. The percentage share of value destroyed, primarily in “tech,” rivals that of the dot com crash over two decades ago. While I’m not an experienced market prognosticator, the current crash we are living through feels like more of a massive re-rating of pricing and valuations, given that these companies do actually have network scale business models and wide user adoption and engagement, across consumer and enterprise. Like many private investors, I spent a good part of the last week just talking with friends, learning from them, and listening. Here’s what stuck out to me:

Public market investors pulled money out for a variety of reasons. End of the year drawdown. Fear of inflation. Anticipation of interest rate increases. The beginning of the end of the “Covid Trade.” Stocks that once seem to define a new world changed by a virus — Zoom and Peloton — came crashing back to earth. There are other victims, too many to list here. Just look at Robinhood, or Toast, or any other high flying tech company, save for Facebook, Microsoft, Google, and Apple.

For me, when the dust settles, and the market comes back — and it will come back, no doubt — here’s my the big takeaway in my mind: Companies big and small will be examined through the lens of growth narratives driven by product diversity. It’s no longer good enough to just handle online storage, or to just facilitate online meetings, or to just empower consumers to freely trade securities. Public investors and quantum computers who can vote with their feet every millisecond are likely going to reallocate their money into companies that demonstrate the vision and execution to not only acquire assets like Instagram and WhatsApp, but also key infrastructure like Parse and Onavo; or assets like Slack and Tableau; or assets like Minecraft, LinkedIn, and Activision. The public markets will likely reward those companies who can diversify their product lines into messaging, analytics, gaming, and more — those special companies and business leaders who continue to bundle value into their platforms.

Lo and behold, I am not a public investor. Well, I did buy a bunch of tech names on my list this past week, but those are for long-term holds and a feeble attempt to correct misses I suffered in the private markets. So I have to digest this take-away and see what it means for me as a very early-stage private investor. When I invest, it’s often just a few people, tinkering. There’s no way to know what will happen. Those kids have to get the product right. Their timing needs to be right. They have to stay together and fight just to have a chance. For the nine years I’ve been investing, the money has been easy. Follow-on investors have bought the growth story, have given entrepreneurs the benefit of the doubt. I still think they will, but the best Series A/B and growth investors will look for more than just top-line momentum. They will be affected by this crash, too. They will likely have some version of the same conclusion I’ve arrived at. A point-solution is great and can work. You can go public on it. But to suffer the slings and arrows and be durable, the markets — the ultimate critic — will ask for more. 

Reflecting on Haystack’s Investment In Cognito

Nearly 8 years ago, when I was on the verge of finishing Haystack Fund I, I was introduced to a tall, lanky kid who was dropping out of Stanford. I was living in downtown Palo Alto at the time, so took him out to Fraiche for frozen yogurt. He was a very active participant in the Stanford Bitcoin Club, and I had a few friends in that group.

He and his classmate Alain were working on a ID verification system for KYC for companies who were experimenting with digital currencies, mainly Bitcoin at the time. In that initial fund, Haystack had some familiarity with Bitcoin. I invested in friend Vinny Lingham’s company, Gyft, which had a clever hack around providing a way for users internationally to diversify their digital assets. While not a “web3” company then, Gyft may have been one of the first legit “crypto exits” as it sold to First Data. Back then, one BTC was about $450.

These founders, John and Alain, were working on what was then called Blockscore. They raised a small amount, then went to YC, raised a bit more – never more than around $2M in the life of the company. They were really quiet, earnest kids running a small company and found lanes for revenue quickly. The team worked out of a small office behind some condos in Menlo Park. They never cared about hitting the fundraising trail, or getting any press or coverage. Some key employees left, and then came back. They received some acquisition interest over the years, but never anything that made them stray from the course.

Fast-forward to the end of 2021. BlockScore had changed their name earlier to Cognito, and were doing very well. Profitable. Still quiet. And larger companies began to take notice. Earlier this week, it was announced Plaid would acquire Cognito and the team for over $250M. Remember, these kids only raised about $2M. They didn’t get caught up in all the noise around them. LPs ask me about how long does it take for seed funds to return. I typically guide them to brace themselves for 7-10 years. Blockscore took 8 years, right in that range. I missed out on the chance to invest in Plaid’s Series B back in 2015, so we are now blessed with a return *and* stock in Plaid. Over the years, it’s been a pleasure to be a small river guide to John and Alain, and I know they cared deeply about their colleagues, their investors, and doing the right thing. Congrats to you all and the team, and best of luck on the next stage of the journey!

The Story Behind Haystack’s Investment In Envoy’s Series C

Back when Haystack just started out, we were fortunate to make a small investment in a friend, Larry. We documented that here years ago. Well, a lot has happened since then. Larry and the team at Envoy have experienced growth, survived through Covid, where their product was about checking into the workplace and managing conference rooms, packages, NDAs, and many other things — and they’ve come out stronger. It’s a testament to the team, for sure, but also to the resilience of software. Envoy has always been a product-led company, and that comes straight from Larry’s DNA.

Envoy has been very efficient with its capital raises. Today, the team announces their Series C financing, valuing the company over a billion dollars. But that’s just the numbers. To think about Envoy as a fast-growing company pre-pandemic which anchored around the corporate workplace, Covid and lockdowns presented, to put it lightly, a significant challenge. How did the company survive that? How did employees continue to believe and stay through that tough time? I really don’t know, but it’s amazing and a testament to Larry, the leadership team, and everyone there. To me, this speaks volumes on a resume. Everyone there gets to say “I am someone who sticks with things.” That feels rare today.

For those of us who know and love Larry, well – he is a truly unique individual. He never gives up. He never loses his cool. He never settles. Is he always a walk in the park? Nope. But he is consistent, and his deep conviction has been rewarded. I know he feels deep gratitude to everyone involved. I’ve heard it on the phone. I’m confident he survived this test and came out even stronger. And as we all go back to some kind of work, be it in the office, in co-working spaces, on retreats, and everything in between, I am excited to see what the Envoy team builds to meet the new world we are living and working in.

Predictions Are Useless, But Planning Is Indispensable

For those who know me, I am a planner. I truly enjoy it. And while I’m happy to be flexible when things don’t fall the way I’d like, I oftentimes build concurrent plans as options along the way, just in case those things happen. At the end of the year in years past, I fell into a trap of trying to predict what could happen in tech and startups and VC next year. 2020 proved that exercise to be worthless, so I didn’t do it this year and probably won’t ever do that again.

Perhaps instead, I thought, I should just share how I’m planning for things given the bumpy start to the year, where I was supposed to visit a good friend in Montana for the week to kick off the year – and was cancelled. Two other events in January – had to unwind them. Not a major complaint, but unfortunate in that I would’ve had long meals with great friends. Hopefully soon.

First, plans for me always start with the kids and family. What do they want to do over their breaks? How can I slowly ween them off their old toys toward new books or board games? Could one of them go away to camp this year — NO!!!! And how do I make sure each day from 5-8pm I’m in their zone, as much as I can be? What do we, as parents, need and want for the year? Honestly, I don’t know the answer yet.

Second, we have work. I feel lucky, my work doesn’t feel like work. Some small parts do, but very manageable. Instead, the question is around finding focus to have a chance to find signal amid the noise. I am lucky that I get to see lots of cool things early. I miss a lot in those early meetings. It’s part of the game. We are investing out of a brand new fund, and starting a new vintage is always a superstitious moment for me, intensified right now by all the randomness in the air. We are fortunate we have plenty of capital, a brand new fund, and we still focus on one thing – meeting people early, building relationships with them, and going along on a ride with them.

Third…. well, truth is I have some resolutions (mostly personal) and some big hairy work goals (stay tuned), but I need to add something here. Cooking is sort of a release, but it’s also in my home. Travel would be welcomed, but most of ’22 trips to start have been reversed back to the credit card. I’m a very social person, so am hoping the “hammer” part of Omicron passes quickly so the “dance” can be restored. Until then, it’s cooking, Star Wars, board games, and losing myself in the Zoom metaverse, a land that now feels like familiar territory.

Like I mentioned, predictions are useless, and so are plans — but planning, as Eisenhower said, is indispensable.

Looking Back On Tech, Startups, And VC In 2021

As a mini-tradition here on this blog, at the end of each year, I attempt to briefly summarize and contextualize the big events that happened in the world of tech and VC. It’s impossible to touch on everything, so for reflecting on 2021, I’ve tried to distill the points down to the most brief, digestible nuggets. While you likely don’t have the time or energy right now to read a longer-form narrative, I also don’t have that time or energy to reflect too much beyond this right now.

And with that, here we go: When I look back at tech and VC in 2021, I will view it through the lens of it being “The Tipping Point” year. Below, I will briefly attempt to tie this together, so here goes!

First, our nation’s scientific sector, mainly Big Pharma and Biotech, “tipped over” toward being perceived as a hyper-critical component of our nation’s backbone. Contrast this with years of negative press, price discrimination, political attacks, lawsuits, etc. – now, I’m not saying they’re all saints (see: Sacklers), but looking at the ledger, 2021 brought us a cocktail of new weapons (mRNA, mAB, forthcoming antiviral pills) with which to attack and manage Covid-19 and its onslaught of variants.

Second, and related to the first, is that the effects of the end of globalization tipped over into real issues our nation experienced. It’s one thing to have supply chain issues for consumables, but it’s not the end of the world. On a longer arc, I am very excited about the trend toward repatriation of production onshore, which will likely accelerate our shift toward automation (like a wholly automated coffee shop) and other production technologies (ex: 3-D printing etc.). But for now, we are stuck. It’s hard for find new/used vehicles. Shipping takes longer, after many have been addicted to on-demand. And most acute, right now, we haven’t been able to 1/ produce cheap Covid testing (despite other countries figuring this out) and 2/ ramp up production for antivirals. Sadly, these are connected – while the efficacy of these antivirals are amazing, they need to be given early on in contracting Covid, but with testing being hard, and manufacturing the pills behind in production, the overall impact of these are yet to be seen.

Third, the retail investor tipped the scales against the experts and incumbents. This tipping over came in various forms, mostly notably in the Gamestop saga fueled by Wall Street Bets on Reddit (and almost in the ConstitutionDAO saga). It’s a bit of a stretch, but I could make the case the mainstreaming of crypto fits into this, as well, fueling more widespread digital wealth accumulation through stalwart instruments (such as Bitcoin, Ethereum), hot new tokens (such as Solana), and the explosion of NFTs.

Fourth, our economy tipped over into a more permanent inflationary environment. Looking back, this should’ve been obvious after years of QE and tons of Covid-stimulus money. Thankfully, planned rate increases for 2022 are in the works, it’s unlikely we will see any more stimulus for a long time. In the background here, the advent of remote work via Zoom combined with more mobility to move within the country is a welcomed option for many who need to stretch the value of their dollars. A year ago, folks in the Bay Area would privately mock the “flight to Miami” – a year later, many folks I know have either moved there or visited multiple times for events. Orthogonally, much of this paragraph can likely be attributable to the groundswell for crypto and “web3” in 2021, as developers and creators are not only hoping to rebel against technology data aggregators, but also arming themselves financially as a hedge against this potentially toxic mix of fiscal and monetary policies.

Fifth and final, the “technology sector” tipped over as *the place to be* for investments. There are so many examples of tech tipping the scales in 2021. In crypto, Coinbase went IPO, OpenSea was my pick for breakout startup of the year, crypto funds booked unbelievable returns, and the absolute flurry of venture dollars rushing into new web3 projects on a scale never seen before. Tech firms went IPO at a torrid pace in 2021, breaking traditional mental models of “how big” something can be in terms of market cap and returns. All of this motivated many of the leading venture firms to begin restructuring their own firms to be prepared for 2022 and beyond. Specifically, major VC firms have been restructuring to 1/ handle crypto tokens, 2/ extend their reach into bio/pharma, 3/ to strengthen their position to hold valuable stock beyond IPO, and 4/ to scale assets to compete with the big cross-over funds who have more capital and data. And on an individual level, parts of the “Great Resignation” have infiltrated this sector – I believe we can expect more folks to look for something new, even in tech and VC.

When I reflect back on 2021 later in life, I will remember it as a “tipping point” year, a year in which the drastic changes of our times hardened into a new reality that will likely persist for many years ahead. Time to plan accordingly.

The Breakout Tech Startup Of 2021: OpenSea

It is that time of year on my blog. This year-end tradition has lasted happily longer than I would’ve predicted. Each year, as a “committee of one,” I declare the breakout startup of the year. Let’s briefly revisit the past: In 2012 it was Stripe; then Snap in 2013; Slack emerged big in 2014; we took a break in 2015-16; in 2017 all the rage was about Coinbase; in 2018, we had Airtable; in 2019, we had Superhuman; and last year in 2020, Hopin exploded on the scene.

This is going to be a short post for a few reasons out of my control. I’m not “full time crypto” and as a disclaimer don’t want this to come off as a definitive statement on crypto. And I know some folks will say, “Solana!” That’s valid. For this particular designation, I try to pick a startup where the end-user base is growing. Not perfect, but what it is. While I don’t write or tweet about crypto often, I have invested in the space in various ways that I will likely discuss at a later date. Putting this aside for now, here we go…. drumroll please….

Here, I present to you The Breakout Tech Company Of 2020: OpenSea

Why did OpenSea get the nod?

I try to use a simple framework, like I did for Stripe above – “the right person/people, the right product, the right place, and the right time.” OpenSea nailed all of them in the strange year of 2021.

1/ The Right People – The founders hail from Pinterest (built around collections) and other Bay Area software companies. Founded in 2017 by Devin Finzer and Alex Atallah, the early team had experience with marketplace dynamics, driving commerce online, and managing visual assets. Today, the company has quickly scaled to likely over well over 50 employees, likely at or approaching half a billion users, holding lord-knows how many collections and even more NFTs with GMV in the billions and growing, all powered by its breadth of assets and filtering systems, skills likely honed after years at software teams at places such as Palantir and Pinterest.

2/ The Right Product – OpenSea is able to ride the early parts of this large technology wave with a tried and true native internet business model: the marketplace. Coinbase, which went public earlier this year and is approximately valued at $75B+/- at the time of writing this, also had a similar model of source, which laid the foundation for multiple business lines. Like eBay at the beginning of the modern Internet, perhaps one way to think of OpenSea as this new web’s eBay, and upon that foundation, who knows the various other business opportunities that could emerge. As 2021 comes to an end, OpenSea boasts extremely high market share in its category. It’s also worth noting that this is all happening at a time when those who hold valuable tokens worldwide have learned to smartly diversify their digital holdings to preserve their wealth for the long-term. NFTs and other tokens provide a new financial frontier to explore as magnates diversify.

3/ The Right Place, The Right Venue – In tech, “crypto” is *the* place to be. OpenSea emerged at the right time. Crypto was a groundswell during the pandemic and lockdowns. Coinbase went IPO in 2021. It feels like a long time ago as I write this, but it’s still so early. Not even 12 months ago. During Covid, the lockdowns, crypto seemed to become the consensus next technology wave, colloquially codified as “web3.” Since Coinbase went through Y Combinator in 2012 (OpenSea also a YC alum), the past 10 years since then have seen the slow and steady rise of crypto networks and applications — case in point, no one really talked about Solana much a year ago. There are many examples like this today. As a response to the opportunity, a whole new crop of investment firms (with very different models) emerge. During this time, the largest venture capital brands (in size and AUM), such as a16z, Lightspeed, Sequoia, Union Square, and others have molded their brand position toward this new future — to be clear here, this is not an exhaustive list and a16z and USV in particular have been making investments  in this category dating back to 2011. New powerhouse firms have emerged, as well, such as 1confirmation, a16z Crypto, Dragonfly, Multicoin,  Paradigm, Placeholder, Variant, and many others.

4/ The Right Time – As different types of NFTs caught fire and exploded in aggregate size, OpenSea’s marketplace model and filtering systems emerged at the right time to capture the wave early. Other marketplaces have spawned up with a similar thesis, and I’m sure some will carve out their own niches (just like happened with eBay), but right now, OpenSea had a 3-4 head start which may be hard to beat in this particular model.

5/ The Right Deal – Like Hopin the year before, OpenSea rode its success into multiple competitive financing rounds in 2021. This is the part where I have to admit that I met Devin 3-4 times across different stages of OpenSea way before the pandemic, and despite the declarations from his early investor Nick Tomaino, who kept introducing me to Devin, I didn’t invest. Each time. That is a big mistake on my part. It was right under my nose, but at the time, I didn’t fully appreciate why it caught fire with game artists and managing their assets in a marketplace. Folks like Tomaino, who founded 1confirmation, a16z Crypto, and a host of other early investors (after YC) saw the possibilities, and smartly leaned in. Today, OpenSea has raised over $125M across funding rounds, the latest valuing the startup well over $7B. Like Hopin, the acceleration in private value are at levels rarely seen. So, I’ve met Devin a bunch of times, and he can probably tell you, I was a nice guy but I didn’t see it. I owe Devin and Alex a public “congrats” – it’s amazing to see what has unfolded!

Catching Lightning In A Bottle

This has been an interesting week. Yesterday, HashiCorp listed on the NASDAQ under the ticker $HCP, for HashiCorp Cloud Platform. Over nine years ago, a close friend introduced me to one of his star colleagues, Mitchell Hashimoto, who wanted to get some advice on how to better publicize his side project at the time, “Vagrant.” I vividly remember meeting him – 21, graph paper notebook, left-handed writer with clean penmanship. I was not 21 at the time, and he stood out. Months passed and that holiday season, I decided to “start a small fund” and when he ended up putting a seed round together, I asked to invest a small amount.

This proved to be an important introduction and important decision.

When I reflect back on the journey of HashiCorp. it is something larger than I could’ve imagined. As a very early investor, the reality is that I end up remember helping Mitchell when he was by himself in those early days. I wasn’t working “on a company.” I was becoming a friend to Mitchell. Despite our age difference, he was great to interact with. I could barely believe someone just out of college and over a decade younger than me could be so organized, clear-minded, and precise.

When I look back at the ledger, Haystack helped HashiCorp – or rather, helped Mitchell gain the space, with Armon, to create what is now Hashicorp. But, HashiCorp helped Haystack even more. By investing in HashiCorp so early, within a few years Haystack held a crown jewel, “N of 1” shares of stock in a company that was impossible to copy. I meet lots of new fund managers and try to help them – many ask questions about arcane topics of fund management when they’re starting, when in reality all that matters is DGD = “do good deals.” Once you do a few good deals, you can worry about the rest. But if you don’t DGD, there’s no point. As an early investor just starting out, you have to catch lightning in a bottle, and for me and Haystack, HashiCorp was that bolt of lightning.

When folks ask me to recite what makes HashiCorp special, there’s the tech angle, sure. You can read all about that online from people smarter than I am. To me, what was special is that, when we funded HashiCorp, there was just Vagrant. Then over time, Mitchell’s close college classmate Armon Dadgar became a co-founder, and that was a special addition. I’m a big music fan, and the way I explain this period to those who inquire, is that Mitchell and Armon were like a pair of musicians who cut seminal rock albums during a two-year period – a flurry of open source projects, such as Packer, Serf, Consul, Terraform, and Vault, and others. These all folded underneath the umbrella of HashiCorp. Today we marvel at companies like Google transforming into conglomerates like Alphabet, or Facebook into Meta… HashiCorp is somewhat akin, a patchwork of businesses that are so large and strategic, many of them could stand on their own.

But, as always, HashiCorp as the umbrella is greater than the sum of its parts.

Ultimately, as I’m writing this on a Friday night with a quiet household, my wife away for the night, my kids tucked into bed early — after a week of many warm messages, I feel incredibly grateful for the chain of events over the past decade which led me to write a post like this. I’m grateful my friend Courtney introduced me to Mitchell; I’m grateful Mitchell was willing to accept my help and guidance, and that he made room for me when I was starting out; I’m grateful for mentors like Glenn and Puneet who carried me along for the ride as I was learning to be an investor; and I’m grateful I had the opportunity to catch lightning in a bottle.

It’s hard to really look back. When I transport back to that time, in early 2013 when I could barely muster the funds to make a commitment to my own fund, I somehow had the opportunity to follow my instincts with Mitchell. At that time, I didn’t have a career at all, I was just flailing. We just had our first kid that April. We weren’t sure if we could stay in the Bay Area long-term. We didn’t know what the future held, but life was moving fast and out of our control. Fast-forward to this week, that resolve was rewarded. Over the years, I’ve learned a lot more about how much luck can drive outcomes in this part of the world. I’ve learned just how hard it is to commit everything to a goal, and the cost of that commitment. I know I could never do what Mitchell, Armon, Dave, or their colleagues do — but I am lucky that I get to be close to greatness so early, to see that greatness up close, if even for a fleeting moment in the long arc of life.

Haystack Announcements: New Fund, Same Model

I’m pleased to announce that Haystack is about to begin investing out of a brand new fund – Fund VI, raised in May 2021 – in January 2022. Our new fund is $50M, just like the previous Fund V. Haystack has shown a deep commitment to disciplined fund sizes, time diversification in portfolios, highly-curated co-investor syndicates, and selecting founders, creators, and CEOs we can build relationships with. So far, this formula has worked well.

A new fund simply wouldn’t be possible w/o three groups of people: The founders we are lucky to work with and back; the countless seed & VC partners who continue to vouch for Haystack; and the LPs who had our back during the pandemic. Thank you.

Now, some personnel news.

First, a big “thanks” to Ian Hathaway, who logged ~4yrs with us at Haystack. Ian quietly made tremendous contributions to Haystack, helped the platform become more professionalized, drove internal systems, evangelized documentation, thought deeply about being hospitable, and much more. Thank you, Ian!

Second, please welcome Divya Dhulipala to Haystack, where she joins as a Senior Associate. We met Divya nearly two years ago through a close mutual friend who gave her an outstanding recommendation. Once I saw her work ethic for myself, I tried recruiting her for nearly two years since then, and now she is here. Yes!

Third, Haystack is proud to promote Aashay Sanghvi to Principal. Aashay has demonstrated both a high-powered work ethic combined with an innate sense of judgment around people, opportunities, risks, and planning. Please join me in congratulating Aashay on this well-deserved recognition.

Well, that’s really all we have to say for now. As a franchise, Haystack finally reached a point where we raise funds ahead of schedule, so we will rest up a bit this year-end holiday season, clear our minds, and reset our focus for a new journey ahead. Onward!

Reflecting On Haystack’s Investment In BentoBox

Almost seven years ago, mutual friends introduced me to Krystle Mobayeni. She lived in NYC but was visiting the Bay Area to raise money for her startup. I recall meeting her a few times in/around Palo Alto, in particular the new Blue Bottle as it opened up downtown. With her quiet voice and unassuming frame, I will admit it took me a few meetings to see what was going on with her new idea to empower local bars, restaurants, and food trucks — and then wham! — it hit me: Krystle was not just a product designer, but a product design genius.

Once I finally realized that (thanks, Krystle, for being patient with me), that became stage 1 of a long-term friendship and partnership with her. Haystack is proud to have not just invested in BentoBox since the very beginning, but in every subsequent round thereafter. More on this toward the end. For a fund as small as Haystack’s was back then (a modest $3.2M fund), we backed up our mini-truck (haha) to back Krystle. And I’m glad we did.

Krystle’s original insight was that while WordPress and Squarespace were workable for these SMBs, bars, restaurants, etc. needed a more focused version. The first time I walked through her product, it clicked — it almost worked like Slack. From there, she demonstrated an incredible ability to build a team, to delegate, to attract highly relevant investment groups with experience in food and hospitality, and to raise capital smartly. Again, more on this below.

We’d like to congratulate the entire BentoBox team on their hard work, dedication, and for plowing ahead through Covid. We all remember (maybe?) those initial months were brutal for SMBs and bars/restaurants, etc. Krystle and her team navigated shutdowns and continued to supply their customers with new product offerings to battle through. Speaking of battles, it should be noted that Krystle, while not vocal herself, raised capital from some of the best investors in the world (our friends at Bullpen, Threshold, and Goldman Sachs) — in particular, raising her last growth round during a pandemic while 8-9 months pregnant with her first child. (Read that line again.)

BentoBox was just acquired by Fiserv (public company) for an undisclosed sum. Krystle is not the type to seek any press around this, and if you Google this online, you won’t find much. That’s her style. And while it’s not my story to tell, what I can share is that Fund II was fortunate to make a meaningful holiday distribution to our Fund II LPs yesterday, entirely driven by Krystle and her team. For this, we are eternally grateful.

The Story Behind Haystack’s Investment In Scribe

When Noah Jessop joined Founder Collective a few years ago, we met in person just to meet each other. I’ve luckily been friends with the folks at Founder Collective for a while. To give you a sense of how thoughtful they are, they spent the time introducing me, brick by brick, to some of their LPs. They didn’t have to do that. But they did. And now Noah was part of that group, so we became fast friends quickly.

Noah went on to follow his passion for building and crypto into a new venture. And along the way, he said, “you should also meet Jennifer (his partner). I’m biased, but she’s kind of a big deal.” He was right. I met Jennifer Smith last summer during lockdowns and almost invested in her company, back then called Cursive. Immediately it was apparent, Jennifer is simply super impressive. Looking back, it was another case of me trying to do a bit too much due diligence. I should’ve just invested in her, but I didn’t. By the grace of some higher power, she reached out to me again last fall, and she had made a lot of progress. A lot. After a few days, I said to her: “I’m in and I’ll help you raise every single round from here.”

There are no free lunches with Jennifer. She put me to work. In that seed round, she locked arms with Amplify Partners — one of the premier enterprise technology seed funds. My old friend Mike Dauber won the right to lead the round. He called me about her and said he nearly jumped out of his chair to lead the deal. To Mike’s credit, Jennifer informed me that Mike just starting making customer intros even before she officially shook hands. That’s what it takes to win competitive deals in compelling founders.

Since that seed round, Jennifer and the team have been on a tear. The company — now called Scribe (check out their website) — has been winning over customers at an incredible clip. You can read more about the specific offerings Scribe packages up, but what’s perhaps most exciting as an early stage investor is to see the pace at which the team is attracting and recruiting senior executives to its ranks. Stepping back for a moment, the category Scribe operates in — the rapidly-changing landscape of RPA — is drawing Scribe and others into the market with great speed. Jennifer as a CEO has been ready for this moment, and the moment is now here.

Folks who are curious can read about the company’s fresh new Series A financing today led by Evan Feinberg of Tiger Global. It’s super exciting for the team and for me to watch Jennifer make this transition. When Evan was conducting his due diligence, he asked me if all the glowing interactions with Jennifer for real. Yes, indeed, they are for real. Noah was right, and smart. Congrats to Jennifer, Aaron, and entire (growing) team at Scribe!

The Story Behind My Investment In Jetstream

I met Tommy Leep over a decade ago now. He was working for Floodgate back then. We immediately became friends. Since then, he’s been on a journey – some ups, some downs. He made incredible contributions to Haystack as a friend and consultant for many years, and truth be told, I tried for long time to rope him into Haystack, but Tommy is smart on another level from most folks I know. He quickly identified that he needed to pick the people he wanted to back as founders outright, and that insight has catapulted Tommy to leverage AngelList to start his own dedicated micro fund: Jetstream. I am personally investing in Jetstream simply because I have always wanted to invest in Tommy and work even closer with him.

Tommy finally found his passion and calling in life. With Jetstream, he will be investing in the earliest rounds of climate-focused startups. It can sound cliche to highlight an investor who is now 100% focused on this sector, but knowing Tommy for as long as I have and as closely as we’ve worked together, I can assure others this is his calling. He is a Bay Area Native, someone who is most at ease outdoors, and someone who never really felt quite right in the traditional world of venture capital — and I cite this as a good thing. After 2020’s wildfires, something clicked for Tommy — he wanted to pick the founders he worked with, he wanted to focus on this problem as motivation for working toward something bigger, and he wanted to hang up his own shingle to do so.

There are plenty of rational reasons for me to invest in Jetstream. I know Tommy very, very well. Haystack likely won’t “focus on climate” as a sector, and so this is a great way for me to learn more about the emerging sector through Tommy’s experiences. Like many others, I feel more comfortable with participating in this challenge through these means — helping new companies get started that could lead to awesome solutions we can’t dream of today — versus other avenues of participation.

But there are deeply personal reasons for me to back Jetstream, to back Tommy. He is sort like family. My kids know him. He comes over monthly on his bike rides and hangs out in our backyard. Sometimes my kids will randomly ask, “Is Uncle Tommy coming by?” In my 10 years in the Bay Area in this world, I would be hard-pressed to find someone with the level of EQ power Tommy wields. There’s no doubt in my mind that when he commits to something like this, committing to finding and supporting founders in the climate space, that those founders will want Tommy along for the ride. it’s a big time of change for Tommy – he’s going to be a dad soon, he’s starting a new fund, and emerging from post-pandemic life into a new world he will make into his own.

An Unpredictable Reopening In Venture Capital

In the inconsequential world of venture capital, the past few weeks have been illuminating and unpredictable, with a particular focus on the human dimension.

Folks reading this likely are in-tune with the realities of today’s markets — we all know technology and startups are attracting more capital, we all know there is more capital entering the sector, we all know the sector itself is expanding globally, and we all know that the past two years of public offerings and market expansion has created wealth for those holding tech stocks, including venture investors and their limited partners.

More specific to early-stage tech investing, that market has moved to Zoom/video, combined with an influx of angels, syndicates, new funds, and others providing capital to creators. To many VCs, this new mode can feel great, more efficient, a wider aperture — it can also feel faster, more transactional, and as a result, potentially less rewarding. Put another way, wallets can grow inversely with personal fulfillment.

It’s easy to cast recent news as typical turnover in a dynamic industry. That would be too easy and miss deeper seismic shifts under our feet. It’s the fall of 2021. We are supposed to be fully open and over the pandemic, but the pandemic is still here. Parts of the country are fully open, other parts are sort of open. Even the most dysfunctional public school districts are back in class with kids (thank heavens!), but we are just weeks away from district-by-district debates about vaccine mandates for students. While we are re-opening to a new world, we are all realizing that, over the past 18 months, some of our best friends, neighbors, teachers, or favorite stores have moved — some voluntarily, many non-voluntarily. During that time, a mixture of West Coast soot and/or Gulf Coast rains invaded our air supply, adding to other aerosols floating around like disinformation or deadly mutations. If this wasn’t enough, the next Presidential Election will begin earlier than previous campaigns, setup to be an epic clash with big bumps along the way.

Now, let’s briefly dive into VC-specific challenges in 2021. Let me state upfront, no one is going to cry for VC, that is not the point. The reality most may not appreciate is that partnership structures can really exert a personal tax on participants — the weekly meetings, debates or fights, not to mention travel, events, dinners and missing tucking in their kids at night. Some have hit it so big there’s no reason to continue. Some don’t love it and shut downs helped shine a light on that reality. The battery of meetings lined up every week, though entirely self-inflicted, can clog arteries.

These folks have all been blessed in their own way. I always remind myself, I have the best job in the world. It is amazing and I can never take it for granted. I know many friends I work with feel this deeply. At the same time, these folks face human challenges that are independent of luck or fortune, all amplified during the darkness of shutdowns. And they take their commitments seriously. Committing to a new fund is like saying “sign me up for another 10 years.” That’s a daunting amount of time when cast against the past 18 months of being cooped up, examining every bit of our lives under the most intense microscope. There are countless blessings, but no one can escape the curses that come their way.

Stepping back from venture, we all have likely discovered cracks during the introspection of Covid. Now that we are on a path to re-opening and getting a lay of the new land ahead of us, we will have to face these new realities and assess “How do I want to deal with this?” Some of these are tactical; many of these are deeply personal. Where do I want to live? Who do I want to spend more time with? What I have sacrificed on this path that I need to repair? What is important to me that I have to protect? What is ephemeral or everlasting? No one has experience with “How do you reemerge after a pandemic?”

I’ve been extremely lucky to have spent time sitting next to and working with folks who are very successful at this role in our ecosystem. One trait shared among many of these folks, they are quietly insanely diligent and thorough in planning for their loved ones, friends, and fellow collaborators. They also realize time cannot be earned back, and so they’re making bolder moves to take care of items they want to focus on, mistakes they want to fix, things that need to be repaired. We will see much more of this over the next 12 months. And it’s not as simple as a “generational transfer” — its roots run deeper into relationships with spouses and kids, how our economy is bifurcating, how our neighborhoods are changing composition, how fragmented the American experience can vary by state, how unsettling a life in the Zoom metaverse can be, and so on. In the early stage of a post-pandemic world, we are realizing the last 18 months affected everyone, sometimes in unpredictable ways, and those who have the luxury to remake decisions are taking out the cocktail napkin, dreaming up new dreams, and looking for new adventures in a new world that will unfold in ways we can barely imagine today.

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.