I looked up the definition of the word commencement and it includes starting something and also the conferring of diplomas. Those seem like two different things. The start of something and the completion of something.

But maybe they are the same thing.

Today, our family will sit through several hours of speeches waiting for our son, the youngest of our three children, to walk across the stage and collect his diploma.

This is not our first rodeo in this regard and likely will not be our last as we already have one daughter in graduate school and hopefully there will also be another generation after this one.

But it is a milestone for us, as The Gotham Gal wrote about in the victory lap she took on Friday.

I have given several commencement speeches and my mindset with them has always been to look forward not backward. After all commencement means the start of something.

For our son Josh, it is the dawn of that exhilarating, confusing, and rewarding experience we called adulthood. I am excited for him.

For us, it is the end of the era of having our kids living with us, at least part of the time, and the start of what’s next.

I like starting things. I like looking forward. And I like commencements. They are hopeful, optimistic, and serious days. I am looking forward to enjoying this one today.

Non Fungible Tokens (or NFTs) are one of the most interesting things to emerge in the blockchain sector in the last year. Dieter Shirley came up with the ERC721 spec and the name and I talked to him about both and a lot more on stage at Token Summit last week.

If it seems like I am shouting every time I talk into the mic, I was. It was very loud in the room and I wanted to make sure people heard us. The video is about 30mins long and we covered a number of interesting topics.

I like 3D printing and I like ceramics.

So when I saw this project on Kickstarter this morning, I backed it instantly.

As we all know from the flood of emails coming into our inboxes explaining that privacy policies have changed and more, the dawn of the GDPR era is upon us.

Technically companies have until tomorrow, May 25th, to get into compliance with GDPR.

USV portfolio companies have been working on getting compliant for more than a year and we have been active in helping them do so and advising them on best practices.

I blogged about GDPR here at AVC last September in hopes that all of you would also start working on getting compliant.

If you have customers or users in Europe, you must comply with GDPR. But many companies are taking the approach that they will be GDPR compliant with all of their customers, regardless of geography.

For this reason, GDPR is the biggest user data privacy regulation to hit the Internet, at least in the last decade, and possibly forever.

There are some good things in GDPR. The basic notions that users have the right to control how their data is used and to opt-out of that usage seems right to me.

But like all regulations, the implementation and compliance details are painful in parts and there certainly could have been a lighter weight way to get to the same place.

My hope is that the US and other countries copy some of the better parts of GDPR but go without the overwrought elements.

The other thing to note about GDPR is that we should expect revenue headwinds from it for the next few quarters. Less emails will be going out. Less engagement will be going on. And less revenue will be generated.

I am OK with that. It’s a price to be paid for a step forward for user’s rights. No pain, no gain.

I have been recommending our portfolio company Code Climate‘s relatively new Velocity product in most of my recent Board meetings.

I hear from management teams again and again that they want to understand their engineering utilization and velocity and benchmark it.

Everyone feels like they are not getting enough production out of engineering but have no way of knowing if that is just how they feel or the reality of the situation.

Velocity is a great tool to figure all of that out.

Becuase you can’t manage what you can’t measure.

If you feel like you need more visibility into your engineer team’s production, check out Velocity.

I was watching last night’s game between the Celtics and the Cavs and I was thinking about the fantastic young players the Celtics have on that team, Jayson Tatum, Jaylen Brown, Marcus Smart, and Terry Rozier. As good as those players are, it felt like the enormity of what they have accomplished this year and the stage they are now on caught up to them a bit in Cleveland.

I’m rooting for the Celtics in this series so I hope they turn it around in the next three games and earn their way to the finals.

But it would not surprise me if they don’t.

As their coach Brad Stevens said last night after the game:

“I mean, everything is tough. In this deal, it’s a blast to have to grit your teeth, get up off the mat and go after it again. That’s part of it.”

What Coach Stevens understands is that you have to pay your dues in life. It takes time to learn to win at that level.

I watched LeBron James’ interview after the game and his experience playing on the big stage was just oozing out of him.

But LeBron had to go through the trial by fire too.

I’m thinking about the last two years in his first stay in Cleveland. Those were bitter pills for him to swallow.

But swallow he did, and learn he did, and now he is arguably the greatest player to play the game

The other greatest player to play the game, Michael Jordan, also had some tough losses in his rise, notably to the three consecutive losses to the Pistons in 87-90.

Michael also learned from those bitter pills and went on to be the greatest clutch player in the game.

Of course, what is true in the NBA is also true in startup land.

There are no shortage of ridiculously talented young founders out there. We have a number of them in our portfolio.

But they too will find it challenging to step onto the big stage and deliver in crunch time. And their missteps will hurt too.

But as Brad Stevens said last night “everything is tough” and you can grit your way through it and come out the other side, battle-tested, and with rings on your fingers.

But there are no shortcuts in life for most of us.

Last week, I was asked this question on Twitter:

Crypto Twitter

— Fred Wilson (@fredwilson) May 14, 2018

But if you want to read CryptoTwitter, what is the best way to do that?

I have curated a bunch of people to follow in my timeline over the last seven years so CryptoTwitter is part of my personal Twitter.

But for those where that is not the case, what is the best way to get CryptoTwitter?

Twitter Lists are a great way to do that.

I believe Twitter Lists are still organized in reverse chronological order and are not filtered in any way. So that is a good thing in and of itself.

I like this Twitter List, called Crypto Thought Leaders, made by richardx.

If there are other CryptoTwitter lists that people in the AVC community like to use, please recommend them in the comments.

There are two major failure modes in startups.

The first common failure mode is the thing you make doesn’t get adopted. That’s called not finding product market fit in startup lingo.

The second common failure mode is “getting too far out over your skis” and it happens to companies that do find product market fit but mess things up by building an inappropriate cost structure (and capital base) and it all comes crashing down on them when they either can’t continue to raise money at ever increasing valuations and/or when they can’t grow into their cost structure quickly enough.

The first failure mode comes with the territory. The world of startups is all about experimentation. Most experiments fail. If this happens to you, it sucks, but that is what you signed up for.

The second failure mode is entirely avoidable and way more common than you might think.

The capital markets are efficient over the very long run but highly inefficient in the moment. So just because investors are willing to throw gobs of money at you and your company, it doesn’t mean that it is smart to take it. And, as I have written numerous times here before, having lots of capital does not derisk your business plan. In many cases, it amplifies the risk of your business plan.

So how do you stay in balance and avoid getting too far out over your skis?

I like this framework that I call “Finance To Value” which means you finance your business to regular valuation targets that are driven by fundamental value analysis.

The first thing you need to know is how your business will be valued by a buyer or the public markets when it is a scaled business. I like to use EBITDA and Revenue multiples for this work. And the best place to get them is from bankers who work in your sector and/or investors who are active in your sector. The key point is these multiples are what you are going to be valued at upon exit or IPO, not currently.

Revenue multiples work better for this than EBITDA because very few companies have positive EBITDA during their growth phases.

Here are some examples. Please don’t use these multiples without verifying them with someone who knows your industry and your business. These are simply examples:

E-commerce business – 1 to 2 times revenues

SAAS business – 6 to 8 times revenues

Marketplace business – 4 to 6 times revenues (which can be less than 1x GMV depending on your take rate)

Once you know this number for your business (and don’t be aspirational or agressive in determining it as that will just lead to problems), you can apply the Finance To Value framework.

There are two Finance To Value rules:

Don’t raise more money in a given financing round than you can create in incremental value during that capital window.

Don’t let the post-money value of your round get higher than you can grow into during the capital window.

So let’s apply it to a fictional company.

Let’s say you have a SAAS software company that is doing $10mm of annual recurring revenue and you want to raise money to fund the business for the next 18 months. Let’s say that your business is growing at 40% per year and that your annual recurring revenue will be $18mm in 18 months. And let’s say that the post money value of the your last round was $60mm.

So using a revenue multiple of 6x revenues says that you should not raise more than 8×6 or $48mm. But that means you won’t create any incremental value. If you want to create incremental value then you should raise some fraction of that, maybe half of that.

Also, you should not let your post-money value get beyond $108mm (6×18). So if you raised the entire $48mm, it would be a flat round with your last one.

This is a bit of art vs science, but what those two calculations tell me is that the right raise for this company would be something like $20mm at $70mm pre/$90mm post, leaving some cushion to miss plan and still be able to raise an up round.

The challenge for founders and CEOs operating in startup land is that investors are often willing to throw more money at an opportunity at a higher price than you should accept. Who wouldn’t want more capital and less dilution?

But that is how you get out of balance. Don’t be tempted by the money and the valuation. Stay in balance and always make sure you can get the next round done on fundamentals.

If you stick to that practice, you can significantly reduce the possibility of getting too far out over your skis.

I got to spend a fair bit of time with my friend Steven Johnson this past week, in preparation for our crypto talk on Thursday night and before and after that talk.

Steven has this wonderful quality of being able to observe both history and the present and make connections between the two and also to weave those observations into narratives that make for great stories.

A persistent theme in his work is the role of play in the advancement of society. He argued in Everything Bad Is Good For You that playing video games and watching TV are actually educational and productive uses of our time. And in Wonderland, he argued that play led to many important societal advances.

This talk at RSA, delivered in the wake of Wonderland, is a great articulation of the value of having fun to moving society forward.

I enjoyed it very much and I hope you do too.