From The Investor's Perspective
I’m still not feeling great. So I’m taking the day off and posting a video from Disrupt featuring my partner Andy, Josh Kopelman (one of my favorite VCs), and one of Josh’s limited partners Chris Douvos. They discuss the challenges of operating in an environment with rising valuations and decreasing liquidity.
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Hope you feel better, and the lockdown continues. One trick my wife uses is, if someone asks her to chair an event, for example – She doesn’t just say “No”…that leads to begging, pleading and cajoling.A good “Oh, God… No!” usually puts an end to the ask. Trust me, this works on me, when I ask for something at home, too.
Noting also that in trying to fend off salesman (or really anyone who wants something from you) the advice I typically give is to offer an irrefutable reason. Because if you give a refutable reason often people will just find a solution to the problem that you have presented and come back again.An example of an irrefutable reason (in sales) is “my partner doesn’t want to buy this machine”  or “I have already bought it from someone else”. Not something to do with the physical attributes, the price, the delivery, the features etc. which a good salesman should be able to handle as objections and cure. Sales is about solving problems and getting over objections.So I guess to me “oh, God…No!” just says “find out why and try to fix it”. Probably not the best example of irrefutable reasons however if you don’t have access to the decision maker (as a salesman) you will have a hard time making the sales since you can’t sense the true objections that you need to fix.
In1999 I was in the process of selling my first companies, launching a new company, and then was asked to be the campaign chair for the local United Way. I talked to my dad – how could I possibly take on such a big challenge? He said that “your reasoning was sound, now go say yes… But the good news is, you’ll never have to say yes to a fundraising gig again.”Sometimes a “yes” today gives you the excuse to say “Oh god No!” in the future!
Interesting. Sounds similar to when people are collecting money for a charity and you say “I gave at the office”.
What causes the startup companies that could exit to begin exiting? I agree, being public is a good thing. Being able to ring the cash register is key for both VCs and LPs.We know some things we can blame, but cannot control. Sarbox, 0% interest rates,How can the tableau change so those things don’t come into play? I honestly think it is much better for the financial health of the country to have innovative firms go public sooner (Pre-$100M in valuation) Then people that are not eligible to put money in startups because of IRS regulations can (and grow their wealth)What would have happened if you invested $2100 in Microsoft? If you had the good fortune to have bought 100 shares at the $21 offering price that day and sat on the investment for 25 years, it would have mushroomed into 28,800 shares over the course of nine stock splits and be worth about three quarters of a million dollars today.
Yeah its jamming everyone up, including employees, who have no idea if they will ever see liquidity before they burn out.
I feel for the founders and the employees. Especially the employees
I can’t say that I feel for the employees. Life is about taking risks nothing is guaranteed. Someone who takes a job like that should fully understand that the deck isn’t in their favor. If they don’t they haven’t done their research and they are just following the pack. They could have taken a job at a company that was more secure but didn’t give them the chance to win big. But they (in theory) passed on that job. Ditto for the founders. In business nothing is guaranteed and nobody should think any different. I have seen several people who comment on this blog do startups that look like they have failed. They took a risk and it didn’t pay off. They have lost more than those employees have is my guess.This is quite different of course then the black swan (I will call it) that happened in the business that you were in (as you have told the story). In that I can feel sorry for what happened to traders. Solid business for multiple years and all of the sudden something that is not easily predicted comes along and disrupts. Or even tax driver medallion holders. If you bought a medallion prior to uber it was as secure as you could reasonable expect.But startups and equity? Everybody knows at this point what the story is with that (or at least they should).
Meh, disagree. You take risk working for a startup. Often, you put your heart and soul into it. It affects your family life. I want to see founders get paid, and good founders (and investors) want their employees to get paid for taking the risk too.Why aren’t they getting paid today?Government regulations. Government also sets the cost of capital, and today that price is close to 0%. 0% interest rate policies have hurt startup employees, old people and young people who can’t take advantage. Only people that can take full advantage is very wealthy people
The only issue with this is everybody now thinks they need to be the one doing the startup with no experience. Hey, that’s cool, but its caused issues.
Most people avoid risk and don’t think that far ahead
The news is that we messed up the economy, totally shot it in the gut. The good news is that Bernanke said, IIRC, “I’m not going to be the Chairman of the Fed that presided over the Second Great Depression”. So, good Ben “increased the balance sheet of the Fed”, that is, bought bonds when nearly no one else would, that is, provided a lot of monetary stimulus.But, the 2008 crash did a lot of very serious damage, and it’s not all healed yet. Now it’s been 8 years since that crash, and 8 is 2/3rds of 12, that is, from 1930 to 1942 when we were in the Great Depression. When people started shooting at us on 12/7/1941, we got serious and got out of the Great Depression in 90 days flat.IMHO, a huge issue now is the money supply and, of course, the velocity of money, maybe banking reserve ratios, etc., e.g., Sarbox. So, we are short on the money supply from the multiplier effect of fractional reserve banking. So, it appears that we are trying to back up to a cash economy, that is, without a banking multiplier effect. Maybe that would be more stable, but it looks awful for growth.But the need for the stability is not as strong as the banking regulators fear: Instead, we know what the heck caused the crash of 2008: We did it to ourselves.E.g., fromRichard Kovacevich Chair, Wells Fargo (2001-09)isThis is toxic waste. We’re building a bubble. We’re not going to like the outcome. I’m very concerned. athttp://www.pbs.org/wgbh/pag…The main cause was the social science that (A) people in single family, detached houses are in the middle class so (B) if put poor people in single family, detached houses then they, too, will be in the middle class and no longer poor. Yup, semi-terrific social science. So, to do that, let mortgage companies write home mortgages on used toilet paper and let Fanny Mae back them. Presto. Bingo. Success for social science! Great social engineering! The War on Poverty won! And let me tell you about the great opportunity of that bridge across the East River!Then Wall Street made CDOs out of the used toilet paper; people figured out the scam; there was a big crash; people with high leverage on the CDOs went bust; and much of the financial system went bust.So, we had a crash that wiped out the financial system. Then, of course, soon the Main Street economy got really sick. Same song, second verse of 1929. We knew what caused the bubble of 1929 and passed laws and regulations to keep it from happening again. But for the social engineering and used toilet paper of 2008, that was different. We knew what we were doing but just hoped.So, now we have gone after the wrong cause: The bankers have been locked down, kept from recycling used toilet paper. But there’s no risk now that they would, and they are also kept from letting the economy function. The lie goes, “Evil Wall Street bankers caused the crash of 2008 and, therefore, need tight regulation, in straightjackets.” No, the social engineers caused the 2008 crash by creating used toilet paper, and Wall Street just recycled the used toilet paper.The first solution: Stop the [email protected]#$%^&*()_ wacko social science/engineering. If want to win the War on Poverty, then, okay, try, but do it on a small scale with well designed, well monitored, repeatable trial programs. Otherwise, stop the used toilet paper stuff and let the financial system get back to work. And stop using the White House and high positions in the Executive Branch as targets of Affirmative Action in the War on Poverty, racial equality, gender equality, the war on males of Western European descent, retribution from old transgressions, etc. Instead, from the White House, we need good government.For more, yes, more is needed. But that takes us into the current election season, and Fred doesn’t want to hear about any of that!It’s biggie stuff, folks — the economy is darned sick, and a very significant fraction of everything good about our country is being seriously hurt, destroyed, or killed. No joke. We gotta stop this wack-o stuff, and stop looking like we’ve been taking stupid pills and smoking funny stuff. We’ve done it to ourselves and gotta quit doing it and dig our way out’a this sewer.
Remember the great days of H&Q and Alex Brown???
I can do all the trading floor hand signals for Manny Hanny, Northern Futures, Refco, Gelderman, First Chicago, Drexel Burnham Lambert, Gerald, Dellsher, Solomon Bros?Plaza, Merrill Lynch, Lehman, EF Hutton, BJ Lind, Discount and other firms that are no longer in existence. For some I can do their CME clearing numbers. (230, 625, 275, 630, 263, 084, 188, 735, 560, 222) Missed a couple….been a lotta years.
Yes, sometimes it is good to reminisce. I always go to my college graduation. This year it was almost 30.
Your transparent approach to “taking personal time” is exactly what more leaders should be doing. Too often, they fade into unexplained behaviours or inexplicably become disengaged at wrong time. My favourite (likely best/strongest) boss thanked me for supporting her when she took stress leave. We had been struggling as an organization and all of us needed to know that it is perfectly OK (in fact – to be congratulated) when someone appropriately chooses self care. You would want your child, spouse, employees to do the same – right?
Take care of yourself.
what is “moolah in the… coolah”?
I have no idea
Money in the bank. Ring the cash register. Cha-Ching
This one is a fun conspiracy theory to go deep into :). Moolah is commonly used as a slang for money in India (at least when i was growing up) – in hindi the actual word translates to “the means by which”. The deep conspiracy theory folks (check with the kid on this one) 🙂 even trace it all the way back to the pagan god Moloch. Fun times!
That expression comes from a movie. I don’t remember which one but I have been using it for years.
Here is the movie, Breathless (1983) staring Richard Gere and Valarie Kaprisky:http://www.imdb.com/title/t…http://www.script-o-rama.co…
Saw your tweet yesterday on Josh’s quote about paying major league prices for minor league players. Loved that. Best sound bite from this video.Feel better. Rest up.
Hope you feel better soon and thanks for sharing video. This guy on Loch Lomond, CA may have his life-work balance in good shape.I’ve been going on hikes at the weekend whilst in SF. Weekdays can be pretty intense for founders (doing 15+ roles during day, learning at technical talks during evenings, interacting with techies 24-7).So hiking and appreciating nature is very centering.Re ‘Putting Moolah in the Coolah’, Chris Douvos quoting Wu-Tang Clan !!! Fab.
Feel better Fred. Thanks for posting,always a pleasure to listen to great minds express their views.
Leave it alone, work / blog. I had a mild stroke & when in hospital you will not think about work only how to use the bedpan with one hand
it’s tough love time for Fred.http://avc.com/2016/05/smal…Fred Wilson: “why do people do things that don’t make sense? shoot heroin in their veins, vote for donald trump, drive a motorcycle on a rain slick highway at 100mph, play the lottery? i don’t know.”- why do people work so hard that they disregard their health and damage their well being? you need to find out why, because it doesn’t make sense.
Is life span the objective?
Because it’s rewarding enough to become an addiction, that’s why.
yes, i agree, but taken too far…
Nothing exists unless I maintain it (by my interest, or my potential interest). This is an ultimate, mostly subliminal anxiety. Hence, I must remain always, both in principle + actively, interested in everything. Taking all of knowledge as my province. (Susan Sontag)
Fascinating manipulative extortion dynamic. Say not to a fund once and you are persona non grata going forward.
OK re: if valuations are correcting, that’s good. But if both private & public markets correct together (which seems to be the case), then the gap (which is the issue) will remain.
“The Struggle” – Ben Horowitz
Fred, take it easy pards.Remember, Father Time and Mother Nature are undefeated, lifetime.
Good call…on several counts. Thanks.
I laughed at Chris Douvos’ “we are like the sunlight” remark, he laughed too. LPs hold and place stashed money in expectance of a return. Where value creation occurs, where dreams, capital and potential energy realizes into value or loss is at the enterprise, at the time of execution of every transaction and negotiation. So in my view, startups are the suns.. or black holes, where the magic occurs.
Thinking of you, take care.
Exits are more likely and probable for earlier stage companies that have not raised as much money, but have found product market fit and are operating in white spaces of large tech companies.For companies that have raised a lot of money and whose valuations are at odds with their financial performance and current investor appetite, they will need to go through a period of pain first. They have enough money to not run out of cash, there are many conflicting interests and potential buyers will wait longer for valuations to drop even further.The companies that can actually go IPO where investors don’t need to take a big haircut will be very very few with high growth and strong perceived upside.Irrational exuberance leads to excesses, that leads to pain and restructuring. It seems to be in the grain of our nature.
Pretty damn good panel of hair and wisdom there. Chris passed on our fund 2 … So let’s hope history repeats and he’s definitely off my speed dial 🙂
Get well Fred – eat / sleep / exercise (outdoors if possible) / family time – then do all the other stuff.
Rest and take care, Fred!
Clueless about public markets and how retail and institutional price equities. Absolutely clueless…