Posts from life lessons

Broken Syndicates

One of the most challenging situations in startup/venture capital land is the broken syndicate. It is not a topic that is talked about much, but it is fairly common, particularly for companies that succeed in building a business but falter at achieving escape velocity.

A syndicate is a group of investors that come together to support a startup financially. They tend to be built over time. Some investors get involved with a company in its seed round. Others get involved in a company in the Series A round. And some get involved in the Series B round.

By the time a startup has raised three or four rounds of venture capital, it is likely to have built a syndicate of between three and five venture capital firms and other investors (corporate, strategic, individuals, family offices, etc).

The idea is that the syndicate supports the company financially until it no longer needs capital. That can happen via a sale of the company, an IPO, or achieving profitable operations.

And that is typically what happens in the best situations, when the company executes well and finds that happy financial chart that goes up and to the right with a steepening slope. In companies like that, the syndicate almost always sticks together and more investors clamor to get into it.

And then there is the company that never really figures out how to build a business. In those situations, everyone around the table, including the founders, figure out how to wind things down, either through a sale of the business, an acquihire, or a wind down. This happens all the time and is generally not a particularly painful process.

But there is a middle ground, where the team figures out how to build a business with customers, revenue, and lots of employees. But often the business stumbles and revenues flatten and losses pile up and more capital is needed, often a lot more than the existing syndicate is prepared for. This is when there are often management changes, founders depart, and there is a lot of drama.

And holding a syndicate together during the “stumble” is very hard. Some investors are managing huge funds and need exits that will produce hundreds of millions to their fund. When they see that a company will not do that, they often move on. Some investors have small funds and don’t have the capacity to fund a company round after round. Corporate and strategic investors can lose interest when a company stumbles and they no longer believe the business is strategic to them. 

Those are the “rational” reasons that syndicates break.

But there are other reasons. There is a fair bit of churn inside venture capital firms right now. Younger partners leave to start their own firms. Or are asked to leave because they are not producing the expected returns. When a partner who leads an investment inside a venture capital firm leaves, the investment is often “orphaned” and the other partners will pretend to support it but they really don’t want to and don’t.

Or even more upsetting is when a venture capital firm finds another company in the same sector that they like more and they lose interest in your company and stop supporting it.

All of these things happen to companies who stumble and they happen way more frequently than anyone talks about. It really doesn’t benefit anyone to go public with these situations. So they are worked out quietly.

Often broken syndicates lead to early exits, when the founder(s) and remaining investors realize that they are screwed and decide to find a home for the business before they run out of gas. Many times these exits are disappointing outcomes relative to the opportunity and they can make for fantastic acquisitions.

Another thing that happens with broken syndicates is the recapitalization. This is when the remaining investors reset the valuation in order to bring in new capital, either from their funds or ideally from fresh sources of capital. The losers in this situation are the early investors, founders, and investors who walked away. 

And sometimes what happens is the business shuts down, leaving people scratching their heads. Why did that company which had lots of customers, revenues, and employees suddenly close up shop? Well the answer is often that their syndicate broke and they could not put it back together.

At USV, we have worked through these stumbles and broken syndicates many times over the years. We often find ourselves in the position of trying to put Humpty Dumpty back together again. We have managed to do that many times. But we don’t manage to do it every time. 

It is incredibly difficult work, probably the hardest work we do in the venture capital business. And we often are asked why we bother.

We have found that we can make excellent returns when we stick to our conviction around an opportunity and work to restructure the team, the operations, and the syndicate (and the valuation). We also have found that we are rewarded reputationally in the market as investors who are supportive when times get tough. And we believe that it our job to support companies and the founders who create them.

We wish everyone in venture capital land saw things the way we do, but they do not. And that is the reality of the world we operate in. 

Founders need to understand all of this when they put their syndicates together. You should ask around about the investors who want to put money in your company. Look for companies that have stumbled and get to the people who know what happened in those situations and ask about how their investors behaved. That will tell you a lot.

The bottom line is that syndicates are fragile things. They break. And putting them back together is hard. So figure how to build one that is strong and will stay strong. The best way to do that is to under promise and over deliver on the business plan. But you can also do yourself a lot of good by finding resilient investors and getting them into your cap table. So do that too.

Jet Lag

Jet lag is such a challenge for me.

We got back from Japan four days ago and I was doing great.

I figured that I had it beat this time.

Then last night at 2am, I woke up and I was wide awake.

We’ve got a series of meetings today that I need to be coherent in.

So I took a half a pill and got back to sleep by 3am and slept until almost 8am.

The good news is I am rested.

The bad news is I don’t have this thing beat like I thought I did.

I have tried a bunch of things to manage jet lag over the years, many of them recommended by folks here at AVC in reaction to a post about this I did a few years ago.

And they have all worked, to a degree.

But, I think the truth is, at least for me, that it takes me about a week to get truly back to normal after a long trip to Asia.

And as much as I thought I could shorten that timetable, I don’t think I can.

Working Weekends

My friend Brad Feld takes a digital sabbath. No email, internet, phone for 24 hours from Friday night to Saturday night.

I’ve not been willing or able to do that but I do try to work less on the weekends.

I don’t go to the office under any circumstances on the weekends and I don’t take business meetings on the weekends either. I have told that to a few people over the years and they responded “I didn’t think I was business”. Oh well. I do not mean to offend.

I do generally spend Saturday morning in my home office catching up on personal/family work which I try not to do much of during the week. I remember my Dad doing the same when I was growing up. I did not consciously model that behavior after him but I do know where I got the idea.

The rest of the weekend is largely time off for me. I like to spend Saturday afternoons out and about with the Gotham Gal and Sunday mornings on a bike ride with my daughter, which I did today, or playing golf with friends, which I did last Sunday.

I also try like hell to get an afternoon nap in on both Saturday and Sunday.

And Sunday evenings is almost always a family meal with our kids. I look forward to that so much now that they don’t live with us anymore.

I could have titled this post “Not Working Weekends” but the truth is I do work on the weekends. I often will catch up on email on the weekends when the inbound is slower. It is the only time of the week I can seem to make a dent in my inbox.

And I will do calls on the weekends when it is necessary which is frequently.

But slowing it down for a couple days a week is a great habit and one that I’ve gotten a lot better at over the years.

I do believe that a rested body and mind is a better body and mind and the best time to make that happen is on the weekends, particularly a gorgeous fall weekend like we are having in NYC right now.

How Diversity Happens

Henry Ward, founder and CEO of our portfolio company Carta, wrote a post yesterday outlining the gender inequity on cap tables throughout the startup landscape.

It is a good post and I would recommend you click through and read it.

In it, Henry writes:

When I started Carta I didn’t focus on diversity because I was worrying about staying alive. Then we hit our growth phase and went from 20 employees to 400 in 48 months. I assumed diversity would happen on its own. Of course it didn’t. I didn’t realize how much deliberate focus it takes. I do now.

That is a pretty typical story.

A few years at our annual CEO summit, Scott Heiferman, founder and CEO of Meetup, told a room full of startup CEOs that you have to build diversity into your company from day one because if you don’t, it becomes so much harder later on. He explained that nobody wants to join a company where nobody looks like them. That really hit home and woke quite a few people up.

All companies and people suffer from back burnering things. You focus on what you must get done and everything else takes a back seat.

That doesn’t work when it comes to hiring and diversity. You have to prioritize it and make it intentional.

We have done that recently at USV and we are getting the desired results.

That is very exciting to me.

Creative Prompts

The Gotham Gal and I listened to the recent Howard Stern interview of Paul McCartney yesterday on a drive from long island to NYC.

It’s a great interview, about 1 1/2 hours long, with incredible stories and lots of music.

Howard picks out songs, plays them, and Paul talks about how each one came about.

If you are a SiriusXM subscriber, you can listen on the web or SiriusXM mobile app.

I highly recommend it.

Near the end (1 hour 17 mins into the interview), Paul tells a story about being challenged by Dustin Hoffman at a dinner party to write a song “about anything.”

Paul accepts the challenge and so Dustin and the other guests decide Pablo Picasso’s last words should be the thing to write a song about.

Those words, as Picasso was heading to bed, were “drink to me, drink to my health, you know I can’t drink anymore.”

And so Paul wrote this song to those words.

And as he was telling this story to Howard, Paul says “I kind of like it, it puts you outside your comfort zone for an hour.”

I can totally relate to that.

This blog is that way.

I wake up every morning not knowing what I am going to write and before heading off to the gym or work, or both, I have written something and posted it.

Most frequently I wake up with something on my mind that leads to the post of the day.

Which, coming back to Paul McCartney, is how many of Paul’s songs happened. He would wake up with a song in his head and then he’d get out the guitar or sit at the piano and play it.

The creative process is hard to comprehend, but working with what is on your mind, challenging yourself, and getting outside of your comfort zone are three tricks that have worked for me and apparently also Paul McCartney, arguably the greatest songwriter of our time.

Marathon Man

The New York Times has a piece up on Eliud Kipchoge, the world’s best marathon runner.

I read it with interest yesterday as I like to think of startups as marathons and I am always on the lookout for ideas and insights that can help entrepreneurs and investors.

Eliud is an impressive person and, as you might expect, he is extremely disciplined.

He says in the piece:

Only the disciplined ones in life are free. If you are undisciplined, you are a slave to your moods and your passions.

That rings so true to me.

It is true in investing, where I like to have a framework and stick to it and not let my emotions get in the way.

But it is also true in building companies.

Being focused on the long game and what you want to achieve is the best way to get there.

I see many teams looking around at what others are doing and it makes them crazy.

And I see a few teams heads down, executing their plan, and it makes them calm.

In the short run, it can often seem like nothing is getting done, and your competitors are passing you by.

But, like the marathon runner, it is never the sprinter that wins the race, it is the dogged and determined that is there at the end with the trophy in hand.

Eliud just broke the world record in Berlin today. He finished in 2 hours, 1 minute and 39 seconds.

He’s an inspiration to all of us.

Remembering 9/11

On Sunday morning, I rode my bike by the memorial in lower Manhattan where the twin towers used to stand.

They have done a wonderful job rebuilding that area and the memorial itself is inspiring in just the right way, somber and reflective and serious.

Seventeen years is a long time.

Children, like ours, who were just old enough to know what happened and why, are now adults, living their own lives, going to work every morning.

Life moves on, the wounds heal.

But the scars are still there, in our hearts, our minds, and on the ground where it happened.

I am taking some time today to remember that day and the people we lost.

This post is part of that.

Farsighted

My friend Steven Johnson has a new book out called Farsighted.

After attending a book talk he did on Thursday night, I put it on my Kindle and started reading it last night.

The book is about decision making, specifically “life-altering decisions” with long-term consequences.

In classic Steven fashion, he combines a detailed look at academic research and science on the topic with stories and real-world examples.

For example, he kicks off the book with the decision NYC made to fill the Collect Pond in 1811, which ultimately led to the creation of one of the most famous ghettos, the Five Points neighborhood.

We all make big and important decisions in our lives and in our business. So this is a topic that should be relevant to everyone.

I am already enjoying reading it and I suspect you all will too.

Retaining vs Deleting Emails

Conventional wisdom is that deleting old emails regularly is the best way to avoid issues down the road.

My experience has been different.

I’ve been involved in a few legal matters over the years where email discovery has been done.

Going back and re-reading emails you sent years ago is a pretty enlightening experience.

What I have found is if you have the right intentions and act reasonably and responsibly, old emails often show that to everyone and can be valuable.

Being able to go back over old emails is also a great way to jog a foggy memory.

So while I understand the challenges with having a lot of written and discoverable emails “on file”, I would argue they they often can be quite valuable.

Back To School

Growing up, I always enjoyed the up and down patterns of work and play.

Back to school in the fall, a solid winter break, back to school for winter and spring, and then a long summer break.

Just as you were getting burnt out on school, a break would come along.

By the end of the summer, you were ready to go back to school and there was an excitement about it.

That doesn’t exist so much in the adult work environment unless you live in parts of the world where a long summer break is part of the picture.

As The Gotham Gal and I have moved beyond our child-rearing years, and found a way to work from wherever we are, we are recreating that childhood rhythm for ourselves.

We are wrapping up our summer today and heading back to the fall season in NYC.

It’s a bit like that back to school feeling, with a new lunchbox, some new clothes, the possibility of some new friends, and an excitement about all of that.