Tag: Venture Capital

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Emotional Work Startups

Day 153 and Startup Families

I’ve worked my entire career in startups. I love it. But the work barely compares to being a member of a startup family. My entire life has been lived, literally from the day I was born, in the ecosystem of families that make startups come to life.

I was “in it” from conception and all my success and traumas are in some way tied back to that luck. And I became a startup founder and eventually a startup wife. This post is about what it’s like to live in perpetual uncertainty of creation with the occasional bout of life changing money.

For everyone that has a payday that changed their lives forever, chances are they have spent decades in the shadow of that system of building, scaling, and selling companies. The paydays are sporadic, completely dependent on luck and often extremely unfair. Most of the time the early team sees nothing. I’ve personally had an exit where I got nothing. I’ve had an exit where I couldn’t afford to exercise my options so when the company that bought mine exited I didn’t see a dime. So I know how fundamentally random startup life can be. How unfair it can feel. Because today it is our turn to be the beneficiary of the unwarranted success.

My husband Alex’s long time home Stack Overflow, sold for 1.8B dollars today. And yes we are one of the 61 families that will see more than a million dollars from it. But it’s not all joyful excitement in our house. Because it’s not about not just about money. It never has been. In my family it’s always been about belief. And it’s really hard to reconcile the many competing emotions that come with a liquidity event. It’s the culmination of much work and time from everyone.

My father proudly reminds me that when I was born, he didn’t have a job as he was pitching an education startup. What a blessing to have the energy of one’s life be aligned with risk from the start. And also what a curse. My family had incredible boom years where money wasn’t a concern coupled with devastating financial and emotional ruin as companies went to zero and markets crashed. My father sacrificed so much for his dreams. He saw the value of software and took his wife and children to the promised land of Silicon Valley. And oh it was glorious. And oh how it hurt.

I have fond memories of Comdex, elaborate company cruises and board meetings during “take your daughter to work day.” I also remember my father not being there for birthdays, for dinner, for milestones because he was busy building the future. I don’t remember my parents getting divorced, because I suppressed the memories. Family trauma can be like that. The good and the bad exist at the same time. When my father went bankrupt in the Web 1 crash, I was so angry at him for not being more careful, I didn’t speak to him for years. And then I made the choice to become a founder myself. Despite my fury and sadness and hurt I too decided to live my father’s path. And then I married a man who walks it too. I guess the Bojack Horseman joke got it right.

You inherit your parents’ trauma but will never fully understand it. Haha the cop is a cat.

The day you get news you made life changing money is bittersweet because all the trauma of being a startup family member catch’s you to you. You remember the sacrifice of your whole family going back years. The long nights and missed time together. The choices to prioritize the company over your family. In our case 10 years but of course for me it’s been my entire life.

The entirety of my marriage with Alex and my entire relationship with him before was spent at Stack Overflow. I’ve seen the hard work and the pride. I’ve also seen the exhaustion and the agony when something went badly wrong. The hurt when teammates left and the fear of leaving yourself eventually. People grow up together at startups. Other more practical logistics show that not everyone wins. The hard decisions you make when it’s time to leave and you cannot afford to exercise your options are a unique pain. We just three weeks ago sold something in secondaries to afford the taxes to exercise ours. That’s timing and dumb luck. Almost absurdly so. We could easily not be in the position we are. Exits are the end goal and yet not everyone gets to make it despite equal sacrifices. It’s all random and no one deserves any of it. But it changes your life if it does happen.

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Finance Startups

Day 152 and Running The Play

I’m going to put $5,000 into liquidity mining and yield farming to fuck around and, hopefully, find out.

If the last year has been about laying out the primitives of decentralized finance, this summer is going to be the Layer 2 land grab and I need to learn how to stake some claims. I don’t have a clue if it is going to work but I need to start learning how to play the game by tossing the ball around. I doubt I’m going to be whatever the equivalent of a professional player but I want to learn some muscle memory. You can’t very well buy an NFL team without having ever handled a football can you? Yes I am torturing a metaphor.

On a personal psychological note, I wanted to start with a $1,000 but then I realized the difference between losing $1,000 and $5,000 isn’t material to me (which blows my mind but such is the compounded benefit of my various privileges). However, the difference between 10xing $1,000 to $10,000 and 10xing $5,000 to $50,000 is extremely material to me. $50,000 is a a material seed stage check for a company that I may want to place a long bet on.

That is roughly the cost of my medical care for an entire year (not including drugs which roughly doubles it). That is a down payment on a parcel of land to develop over the coming decades. This is a moment to learn and leverage for the benefit of my future self and family if shit goes well. And if it doesn’t no big deal. The real money is better managed than me deciding I want to toss around a ball

My Chaos thesis says it’s time to run the play on the future more generally. It’s hard to argue that I can make good puts on a chaotic future without fully experiencing some of it myself in visceral fashion. I fully expect to lose all of it trying to liquidity mine and yield farm on my own but if I don’t well then I’ve proved something to myself about the future of capital.

I need to remind myself that this isn’t representative of how I allocate capital in a diversified portfolio to preserve my future security nor is it how I’d allocate capital even in a seed stage private venture stage portfolio. But it is a worthwhile amount to put on a 100% risk basis to learn how the fuck the future of capital allocation might work.

Honestly $5,000 is a pretty cheap tuition for a fancy credentialed college class so this seems like a good deal. I will write my way through the learnings and call it an independent study.

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Finance Internet Culture Startups

Day 151 and The New Capital Networks

A lack of network has generally meant capital constraints if you were an entrepreneur. Being hooked up with capital allocators was crucial to being a good operator. Access tended to compound over time like interest. Which is why we make “funny because it’s true” jokes about how successful founders usually had a head start in a few areas. I’m not saying that is going away, but decentralized finance is fucking with some of the consensus knowledge around how capital gets raised and deployed.

And what convinced me we are moving towards an inflection point, over the next decade, where capital allocators and operators decouple, wasn’t my tony Silicon Valley network. No, I’ve had access to the minds of those players for years. What clicked my mind into a position to take action? I spent an hour and a half getting a tutorial from one of my anon reply crypto friends on yield farming and liquidity mining. I don’t want to blow up their spot but Alpha Ketchum dropped a lot of knowledge on me today. And it shifted my energy from belief into understanding. From there action will be seen in my investments.

I’m still chewing through a lot of the details but I’m going to make a bet that scaling DeFi is going to require significant institutional capital and the support of experienced operators to realize its full potential. Thats why I’m invested in folks like Cambrian and Martin Green and would love to get my dollars into Arca and David Nage. That’s why, of my four thesis areas I’m pursuing in my own fund Chaotic Capital, two are explicitly dedicated to both organizational and systemic flexibility and how it plays out across new business opportunities.

We’ve seen capital decoupling from traditional centralized authority systems and trust based networks. The perpetual fundraising machine of tokens, coins and market making techniques like yield farming, are funding everything from esoteric art projects and to the next generation of insurance. Thing about that, the innovative companies that drive growth won’t have their capital needs met just on Wall Street or Sand Hill Road. If you don’t believe me look at what has already been built

Exchanges → SushiSwap, Uniswap, Bancor, 

Insurance → NexusMutual, Cover

Derivatives → Perp Protocol, Opyn,

Credit Markets → Aave, Compound, Maker

Middleware → Chainlink, Grt, 

Asset Management → Enzyme, Yearn Finance

Aggregators → 1inch and Matcha 

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Finance Startups

Day 149 and Optimizing for Outcome

I came across a thread today by Sahil Bloom on human goal setting and the mental models we manipulate. He introduced me to Goodhart’s Law

When a measure becomes a target, it ceases to be a good measure. If a measure of performance becomes a stated goal, humans tend to optimize for it, regardless of any associated consequences. The measure loses its value as a measure! Goodhart’s Law is states “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” But the concept was popularized by anthropologist Marilyn Strathern. She generalized the thinking and called it Goodhart’s Law. “When a measure becomes a target, it ceases to be a good measure.”

I am fascinated by this tendency humans have of fixating on the things we think symbolize progress instead of the actual outcome. Sahil names a number of instances in which this has led to bad business outcomes. CEOs managing to short-term stock goals has been one that has long frustrated me.

Startup land is immune from this tendency either. I’ve seen product teams fixate on OKRs such that they never miss a single metric but fail to launch their product on time. Or a venture capitalist will toss out something like an ARR goal for a Series A only to have a founder chase that number for a year and still not get funded when they hit it. We think these goals are the goals in and of themselves. But really launching the product on time and closing the series A are the only thing that matters. As long as we hit our goals who cares what metrics we used?

This is of course set against the classic “what gets measured get managed” which is an apocryphal quote from business theorist Peter Drucker. It may in fact be total bullshit. It may be that measurement actually hinders management. Said rather well by Simon Caulkin

Measures set up incentives that drive people’s behaviour. And woe to the organisation when that behaviour is at odds with its purpose.

Lest you worry this is just a business problem when I was single in my twenties I made a spreadsheet of the various gentlemen I was dating. I felt like I needed a way to make the process more efficient so I starting weighting categories of characteristics that was most important to me. I like intelligent men so I started listing their college degrees. I liked men who were into quantitative thinking so I started noting if they worked in banking or academics. And well you can imagine how this took a turn for the worst. Instead of meeting smart men that likes to look at the world through numbers I met a lot of bankers that went to Harvard. I was optimizing for the wrong outcome.

Next time someone tells you that some metrics or goal is the only thing that matters stop and question if it makes sense for the long term objectives. I’m not saying bankers from Harvard aren’t smart but I’m also not saying that all smart men are bankers from Harvard. And that turns out to be a pretty crucial difference.

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Categories
Finance Startups

Day 146 and Gossip

Gossip drive the world. The stories we tell about other people reflect a lot. Even if we claim we don’t care what others think what others think moves the world around us. And I would posit that this actually isn’t a bad thing. It can drive closer bonds and increased connection.

There is a concept in evolutionary psychology called indirect reciprocity. Natural selection favors strategies that base the decision to help on the reputation of the recipient. Social interactions in which one actor helps another and is then benefited by a third party are key to cooperative reputations.

This isn’t just a systemic population level issue either. People who are more helpful are more likely to receive help. It’s uneven obviously and people can obscure their reputation. Depending on if you are up or downstream of helping or being helped, you make different calculations. Some people help more but they feel it’s worth the cost. They are downstream. Others accept more help because they are upstream. We are all making trades based on our position and arguably they are fair market trades.

How we decide to cooperate and with whom is driven considerably by reputations and shared value beliefs. Relaying reputation signals to bolster your capacity to connect to others is actually a key part of empathy. We need to establish psychological safety to partner with each other. Gossip helps us find suitable relationships. This is especially true in disciplines which require creativity. Quoting myself on the topic of psychological safety in venture capital.

If entrepreneurs are solving entirely new problems with high chances of failure feeling like they can trust their financial partners should be a top priority. Yet the atmosphere of distrust is pervasive. Venture capitalist and entrepreneur are constantly managing the information flow between each other.

Managing the information flow is a key component of gossip. Showing you understand their context, their fears and their reputations concerns helps you. An act we denigrate in popular culture actually helps you to deepen the relationships as each signifier breaks down space between two people and builds trust. So don’t knock gossip. It has evolutionary, societal and individual benefit. Just remember the ultimate outcome is about bringing people closer.

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Startups

Day 144 and Scars

I have significant e-commerce, direct to consumer and retail business experience. I’ve managed multi-million dollar P&Ls, worked on iconic billion dollar brands and started my own direct to consumer cosmetics line. You’d think with that experience I would be deeply bullish on my ability to pick up and coming startups in the space. But I don’t particularly want to invest in digital brands or online retail. And I think it’s scar tissue.

I’m not saying flat out“no” I won’t ever invest in a DTC business or an e-commerce startup (I have and I will again) but a little bit of knowledge can make it hard to preserve creativity and imagination. Many founders can come out of a space where they have dedicated years of their lives and simply want space away from their expertise. They know too much. They’ve seen things. The scar tissue that forms to keep you working during the long dark soul of startup pain is still tender.

When I mentioned this lingering pain others pointed me to other areas they struggled to hear pitches or invest because of experience. Rental businesses and neobanks from Maia Bittner, certain e-commerce verticals from Lee Edwards, fitness from Jason Jacobs. It’s a common phenomenon among founders.

I’ve got lots of opinions why certain kinds of businesses won’t thrive or have business models that won’t make the kind of return my own personal investing thesis demands. But the truth is that I now have enough expertise to simply know more than is good for me. Ironically this means I should spend more time as an advisor or consultant on certain kinds of businesses but it takes a special founder to coax it out of me. Because I do have valuable insights and I want to share them.

But the last thing I want to do is pass on the trauma of my own experiences. Founders deserve to have their psychological safety preserved so they can build the company of their dreams. Some painful insights from a founder that came before them might help them avoid some pitfalls, but if they take our traumas too seriously they may never find their own path. And that kind of backward looking “it will never work” or “trust me kid I’ve been around the block” attitude can really bring creativity down. So I will always share my honest experience with anyone who asks but I’m hesitant to ever let anyone take my lessons to close to heart. You very well may be the one that breaks through where no one has before.

So when someone pitches me their new retail startup or DTC brand or cosmetics concept I try to be honest that I may nit be the best fit. I’ve got scar tissue. And if a founder insists that I can help I will try. But remember not all skepticism, fear, distrust or dislike is about you. Sometimes it’s all about the trauma of having lived it before. Asking someone to live it again is the ultimate act of trust. And maybe just maybe we get to firm new scar tissue together.

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Startups

Day 125 and Working With Startups

One of the most frustrating aspects of startup life is the vendor startup relationship. There are so many pitfalls and disasters that can befall each side. That naturally leads to a lot of dysfunctions as each optimizes for their own needs, a process that unwittingly leads to the disasters we sought to avoid in the first place by trying to prevent issues.

From a startup’s perspective there are two key issues. Established businesses tend to be slow moving. They are slow moving as they have process and documentation. Nothing is more frustrating to a startup than needing a nimble partner that can throw shit at the wall only to get a meticulous vendor that documents all the shit that didn’t work in exacting detail. This isn’t to say that one shouldn’t report (in a remote first culture documentation is even more crucial) but 40 page decks on what happened will send a founder running.

From a vendor perspective startups are frustrating because they never have any of the assets, documentation or processes in place that make your job possible. Anyone who has become embroiled in a mess of half functional SaaS operation software knows what I mean. How are you supposed to deliver on a contract when all the basics you need from a startup are impossible to locate and occasionally contradictory?

The tension between the two workflows is clear. Especially because startups eventually become more process driven and operationalized over time and vendors are always looking for ways to become more nimble and cost efficient. So you’ve got two parties who want to become more like the other, but as they do that risks upsetting the partner that chose them for the opposite virtues. If this were a romantic relationship it would be heading for a breakup. “You’ve changed man!”

My best advice to vendors is to be as flexible as possible with startup clients. The faster you provide an output the more likely it is that the founder will come to rely on you. Most successful startup vendors simply roll up their sleeves and start producing. They don’t scope in too much detail or negotiate contracts that lock them in, no, successful startup vendors know they give themselves security and contract stability simply by giving a founder what they need every day. As you find more needs you act on it. You stay flexible till suddenly you’ve become the crucial partner that gets budget every quarter. As a startup grows becoming the indispensable partner means that you grow along with it. Your goal should be to have your client succeed at the same pace that you are succeeding.

My best advice to founders is to allow your vendors best traits to rub off on you. Paying attention to their competencies allows you to build up teams that support that. That then enables your vendors to perform even better for you as the fluency on expertise develops. Great marketing teams don’t just produce great marketing in-house but rather they allow it to flourish in the entire ecosystem. There is a reason why CMOs have winning agencies and winning agencies have great brands. The truth is that you will always get the most out of your vendors if you respect what they excel at and spend your time and money prioritizing that support.

The danger if you don’t make productive vendor startup relationships is two fold. One startups will waste valuable capital with a partner that was never a good fit. Two vendors will waste billable hours and employee energy on accounts that have a high probability of imploding. It’s a waste of money for both sides. But when it works well lol it’s absolutely money.

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Startups

Day 112 and Unknowability

Human minds seem to prefer predictably. The back brain craves knowing what is coming even as our flighty consciousness seeks novelty. Talk about a tension that sucks. We’ve all seem just now much this is a recipe for misery when you live in a world with no predictability but easy access to low stakes novelty during the pandemic. We are twitchy, bitchy and miserable as we have no idea what our world will be like but we can dopamine drip our pleasure seekers with social media, food and substances for an enjoyable now.

I’ve written at length in this experiment about my frustrations with unreliability especially when it comes to my own body. It’s one of the hardest aspects of managing a recovery from an autoimmune disease. I need to be mentally strong enough to not let bad days shake my routines so I keep building towards the wider goal. I can’t be distracted by one data point. It’s about movement towards the goal. Ironically this is a skill I learned from startup life.

While the entire planet is getting a crash course in unpredictable futures now, startups are defined by their desire to solve problems that don’t yet have defined solutions. No one in a startup knows if the predictions will be right. If they are working on something that will have the intended outcomes is unclear. You work on faith. You trust that over a longer time frame the daily tasks and routines you push (sometimes we give them dumb names like OKRs to fake a sense of control) will actually get you where your mind’s horizon sees.

I sometimes wonder if those with religious faith would do better on average in startup life. We have some degree of comfort with the inscrutable. Mysteries are sources of joy rather than fear. We trust that there are things beyond our knowing and our control and yet we must live on despite that.

The obsession with data and trend lines and the potential for prediction, surety or knowing amuses me. Sure sometimes you can plan a lot. You should plan. You have some inputs that consistently deliver the predicted outputs. Your best guess are better than other people’s facts (thanks Spock!) But if it were all so neatly defined there would be nothing new to create. We wouldn’t be able to build value. It’s the undiscovered country that we seek.

In faith, in life, and in startups you must manage your squishy human mind that is constantly tortured by its own biology. We want to know and we want it to be predictable. But we also love the tickle of a new experience against our dopamine seeking biology. The spike of pleasure we find pleasure in the newness. That’s why we do it. And it’s on us to balance the tension between our need to predictably build and our addiction to novelty. Manage that and you may get far in your journey. Or it’s a miserable sine-wave that makes you nauseous as you go up and down trying desperately to bring the future forward between impulse and planning. It’s usually both if I’m honest. So if you don’t enjoy roller coasters I wouldn’t get on this ride. But if you do well you just might see God.

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Startups

Day 98 and Rejection

The other night I got suckered into the infamous Slate Star Codex comment about feminists and nerdy men. If you are already familiar with the general contours of this debate, you can skip the introductory paragraphs and go straight to my theory on the sexual dynamics of rejection in investing. I’ll caveat a lot before that. I read the above piece because I was high and while I would normally not spend an hour on angsty shit, I get tunnel vision with THC sometimes.

I’m an occasional reader of the rationalist community and often enjoy and respect their whole thing. To be honest I hadn’t ever bothered to read the feminist dunking controversies as, frankly, I took Scott Alexander at his word that this post wasn’t really representative of his work, so why would I bother? But again, weed tunnel vision. And boy golly do I regret reading it as I’m writing about it now.

I don’t want to minimize what was clearly a heartfelt and traumatic episode for everyone involved but the TLDR on the piece is basically certain kinds of women do not recognize the trauma of nerdy socially awkward men. Feminists in particular wield a cudgel over nerdy men, who it is argued in this article are victimized. There is some long winded arguments about whether this is a systemic issue. I kinda don’t care and you can judge for yourself. I myself read it as the personal trauma of one man that is being projected out as some kind of theory of power hierarchies. I’m not in the business of scratching up traffic with moralizing on woke politics. If I am, I’ll start charging for the blog.

What I did think was interesting is that we don’t like to talk about how women get rejected and how often we are in the power position to say yes or no. I do believe women to be systemically oppressed by patriarchy. I also think men are oppressed by it. And yes, women cope with sexual violence. That’s not a yes or no situation. Women in patriarchy are granted the upper hand in certain power structures. We don’t really admit this in polite discourse.

Women are the ones that get to say no. It’s a weird fucking system but somehow we have this power. I’d give it back if I could quite frankly. I don’t think it’s biological but I do think it’s true-ish. I fucking hate being the one that says yes or no to advances. I like to pursue but it’s not always an option. I don’t like that women have the power to be desired more than men do. No one talks about the female gaze because lol. Women gain power by saying no. Men gain power by saying yes. How we got here is for smarter people than me.

But I do have a theory that women generally being the ones to grant permission is honestly why pitching capital is such a bitch for women founders and male investors. Women are generally the ones who create desire and say no. Men saying no to women feels weird for both sides. I’ve maybe had one dude say no to me for sex and literally hundreds turn me down for money. It’s a head trip. It’s a personal experience, yes, but it’s also just how pitching works. People say no. Men get turned down a lot and apparently it’s traumatic as fuck for them.

Women aren’t used to it and men like to say yes to women but money can’t say yes to every company as that’s not how investing works. And yes, professionalism exists and, no, it’s never appropriate to wield power over someone’s future with sexual advances. I don’t know why that’s so hard for everyone. Like we shouldn’t be in positions where work feels like sex but maybe we should admit that women aren’t as used to being rejected and men don’t like doing the rejecting. So sometimes this gets grossly out of hand and investors say no to investing money as it’s their jobs (and it’s not personal) but still want to find a way to say yes, so inappropriate shit happens.

I think rejection is just a weird dynamic that’s lopsided with heterosexual cisgendered systems. I’d love to get rid of it. It sounds like plenty of men would too. I’ve always been under the impression that this was the goal of feminism. Clearly we aren’t there yet.

Also don’t read Scott Alexander’s blog comments when high or you too may end up writing about rejection and gender in public too.

Categories
Finance Startups

Day 96 and Founders Who Don’t Want to Be CEO

My Twitter has been going viral with reply guy friendly topics like taxing high earners and public vaccine demand so I needed to get some niche startup content in today to clear my palette of the reply guys. So I’m going to think about founders, professional management teams and venture’s role in supporting founders. You know, a topic that won’t have strong feelings.

A non zero number of my founder. friends would probably pay to be extracted from certain stages of startup growth, especially later stage scaling, but somehow being founder friendly has come to mean keeping these founders in charge all the way through. Many excellent zero to one founders have to actively change their entire style, skill set and value proposition once they get a company past about employee 25. Obviously there are many inflection points in startup growth and many founders relish the opportunity for constant skill growth. But plenty of early stage founders hate stuff like Human Resources and operations. Shit a good chunk hate sales and marketing too.

Early stage work is a speciality. It’s a professional niche and hard to train folks for as it’s part personality and part dysfunction. I think we should value early stage founding for its disproportionate impact on value creation instead of forcing these early stage specialists to train to become generalists, great managers or scaling operators. Of course it’s more likely they will fail once you take them away from the stage where they are genius.

Recently a friend of mine who works in venture said of another investor “oh that VC is old school” and clarified it meant they like to bring in executive teams for their B rounds companies. Which honestly sounds like a dream to me. There has to be a middle ground between firing visionary but scattered founders once they’ve raised and trying to coach a mediocre manager into great growth CEO.

I think we should normalize founders being churned in on new ideas rapidly and churned out on scaling quickly. Let them get back to founding. Let them create more faster. Great scaling venture funds can provide more value by bringing in a scaling leadership team and easing the founder out to areas where they can focus on vision and direction. I say let the professionals run your team.

Obviously some founders dream of going from idea all the way to IPO but I don’t know if it’s the dominant path they desire. It could just be one of many. I have very little interest personally in shit like operations, process and scaling. I literally married a COO rather get good at it (insert joke about literally anything to avoid therapy). However it shakes out the “founder friendly” venture firm will remain. What it means to be founder friendly may need to be rethought.