Bothsides of the Table

Last night I wrote a post about how the fall in the stock market over a 3-day period may affect the venture capital markets. If you’re an entrepreneur or VC who wants somebody else’s view on that you should read it. This morning the US stock markets are rallying. So now what?


Let me give you the quick summary of what I said yesterday:

Public markets affect venture funding. Full stop. When they’re bullish venture valuations go up, LPs put more money into VCs, more angels want to get involved, new entrants (hedge funds, mutual funds) feel they’re missing out and the overall venture market goes us.
In a period of “uncertainty” about the future venture capital rounds take longer – particularly later-stage deals. Mostly because VCs want to wait to see if a “new reality” has set in.
If markets pick back up venture funding will return as it was before the 3-day, 10% correction but if the VIX goes up (a measure of expected volatility in the stock market) then expect rounds to take longer. If the markets continue to go down expect less funding.

Equally importantly

Long before the markets corrected my smartest professional trader friends and limited partners were telling me that many people in the market were telling me that all eyes were glued on Sept 16-17 when the FOMC meets to discuss interest rates. It’s a sign of the Fed’s views on our economy. If they’re seeing good signs they should raise raised 0.25-0.5%. If they’re concerned or neutral they may leave rates alone.
People said “buy, buy, buy” yesterday on Twitter. They said stocks were a bargain. I said “I’m not so sure. Let’s wait and see. I urge caution.” People didn’t like that. Pragmatism doesn’t sell.

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If you didn’t notice that the stock markets in the US dropped nearly 4% today (after falling last Thursday and Friday) then you were probably completely off-the-grid and on vacation.

It was a nerve racking morning.

My favorite Tweet of the morning came from Hunter Walk

You thought media twitter was bad… You thought tech twitter was bad….

— Hunter Walk (@hunterwalk) August 24, 2015

And by this I assume he meant that “market prognosticator twitter” was vomitous. And if that’s what he meant he was right. I saw a few friends politely suggesting that “now was a great stock buying opportunity” meaning that given the stock market is off by 10% it was a great chance to buy and lock in presumably low prices before the market rises again.

I’m not so sure.

And I said so publicly. I said nothing more than I thought people should be cautious because it times like these it’s hard to know how much market panic could ensue, what the knock-on effects would be and whether the market could fall further.

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VC funding.

Our perspectives on the topic wax and wane with market cycles. We love capital efficiency until we love land grabs until we abhor “over funding” until we get huge distribution & ring the bell for more funding until we attract every non-VC on the planet to invest in startups until it crashes and we start the cycle all over again none the wiser. Amnesia sets in and we get back on the merry-go-round for the next cycle.

I saw this great image on Twitter courtesy of Simon Wardley, CC3.0 by SA. (blog here). It’s kind of a truism for life and certainly our industry. I see it in many newer VCs. They enter the industry knowing that they know nothing. Same as I felt. If one entered between 2009-2015 he or she is no doubt in the “hazard” phase where one need to be careful about thinking he know more about the industry than perhaps he do.

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This summer I had the extreme pleasure of watching one of the funniest, funnest and most insightful documentaries in a long time: Supermensch. If I had one wish for all startup employees it would be that you watch this film. It’s not for everybody: it condones sex, drugs and rock & roll. But please read on before deciding.

Supermensch (I won’t give anything away here other than high-level, obvious storyline of film) is about the life of Shep Gordon, one of the most revered talent managers who managed the likes of Alice Cooper, Blondie, Teddy Pendergrass and even Groucho Marx in his older age. He also created the celebrity chef industry.

I watched with headphones on with my wife in the room and I cackled so loudly and so often I think she wondered what I was up to. I laughed. I got verklempt. I was inspired. And I even drafted notes to some portfolio companies afterward.

A few take aways for me that parallel startups

1. Shep launched his career managing a no-name artist called Alice Cooper. It was the music industry and terribly hard to break out from the crowd.

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There is much discussion about this weekend’s article in the NY Times regarding Amazon’s work practices. People seem polarized between, “that’s what it takes to succeed” to “I can’t believe what a heartless, intolerant and misogynistic company culture they’ve built.” I’ve heard the gamut from reading opinions online and even hearing the debate in circles of my close friends and family.

For anybody who has never worked in a hard-charging environment I can see how this article portrays a unidimensional view of Amazon but it isn’t one I believe tells the complete story. The basic premise of the article is that Amazon breeds a culture where it’s work hard, sacrifice personal life, succeed and climb ahead or be tossed aside. It’s best encapsulated in a famous Jeff Bezos quote,

“You can work long, hard or smart, but at you can’t choose two out of three,”

The truth is that if you examines the most successful organizations and people in the world you’ll find similar cultures to those outlines in the article.

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