Investing in the “Circular Economy”

Over the past eight years, I’ve invested in five used-goods companies — NiftyThrifty, TheRealReal, OfferUp, Revivn and Remoov.  Two have turned into BIG companies; one of which — TheRealReal — IPOd last year.  Inspired by my first investment in the category, I studied the segments I believe have most promise.  Serendipity got me started but the rest came through focus and intention.  Spray and Pray is a portfolio strategy but it is not mine.  I’m more of a “craft” investor. 😆 I focus on a segment and keep chipping away, hoping to find a diamond.  Here’s how I’m spinning it up in the Circular Economy…

In 2011, Topper — a first-time founder — pitched an online thrift-store in a cold but persuasive email. Topper had suppliers who could provide vintage t-shirts and other items for $1 a pound — about $.20 an item — that he could sell for $15+ while benefitting the environment.  Nice markup!  Mission-driven concept. We’ve all seen how much pollution and waste is produced by the apparel industry making clothing for a populace that ever more rapidly discards it.  The company was aptly named NiftyThrifty.  This pitch came before the “Circular Economy” entered our lexicon. Topper had been selling used clothes online with success and wanted to build a real business.  Because he was a first-time founder with little work- and no startup experience, part of my due diligence was lunch with his dad where I said “I’d be disappointed if he lost my money chasing this business but I’d be horrified if he took the money and ran off to a beach in Mexico.  Please tell me he wouldn’t do that.”   The answer was “no, he’s a good guy, he wouldn’t do that” so after some market diligence (p.s. thrift stores are a $10B business) I wrote a series of checks to get the company started on the basis of my research, a stack of tshirts, a powerpoint and a dream.  It’s often like that in early-stage venture.  We went on to raise several million dollars, hired a great team, launched, got to $40K in monthly revenue but couldn’t break through beyond that.  NiftyThrifty ended up in the trash heap.  It happens.  But Topper recycled the idea and is still at it with another new concept in used clothing. He is an indomitable entrepreneur. I am so thankful to have invested. It was karmic because my return on that investment was ultimately significant.

How?!  That investment led me to several promising companies, one of which IPOd last year.  Serendipity, karma and some focus on a thesis…

In 2012, another founder pitched me via cold email a local marketplace for used goods called OfferUp.  The app had recently launched in Seattle and had 3,000 listings.  After a conversation I was interested. Smartphone penetration was up to more than one-third of the population. Craigslist and Ebay were not mobile and OfferUp made it 1-2-3 easy to post an item for sale.  I had a meeting in Seattle with a potential partner (largest thrift store chain in America) for NiftyThrifty so I met with Nick, the founder of OfferUp, his team mates and a couple of his F&F investors. Great people!!! I did my homework and ultimately wrote a check.  OfferUp has become a powerhouse in local listings and recently acquired LetGo.  The combined company has a massive footprint.  Both apps are top 10 free shopping apps in the Apple’s app store — right up there with Walmart and Target.  I’m looking forward to seeing where Nick takes this important company.

While I was doing my due diligence for NiftyThrifty and OfferUp in 2012, I went to AngelList as I always do to poke around. I came across TheRealReal (authenticated luxury consignment).  The moment I saw it, lightbulbs went off in my head.  I could see this was right for so many reasons:

  • The traditional consignment experience was awful.  You drop something off and wait months and months for it to possibly sell then you have to chase the check.  Liquidity is painfully slow.
  • The market is highly fragmented, filled with mom and pops.
  • Fakes abound on sites like Ebay.
  • Luxury goods drive a high average order value.
  • Sellers could unlock value in their closets, buy more new items they could later consign and buyers could purchase luxury items at an accessible price.  Nice two-sided marketplace with a potential fly-wheel effect.

I met the founder, Julie Wainwright,  for breakfast, visited their tiny office in Marin County (north of San Francisco) chock full of merchandise, did my homework, invested and joined the board. When I joined, the company was doing $80,000 a month in GMV (sales on the platform), around the time of the IPO (June 2019) it was doing about $80,000,000 a month in GMV — a 1,000 increase!!!  I’ve written about the experience previously.  It was awesome.

I was on a roll in used goods, owning that thesis.  😂

Fast forward to 2016.  My friend Nathan (whose company I had invested in previously) introduced me to TheRealReal of corporate IT called Revivn.  They offer a white glove service where they come in, take used hardware away and repurpose it (revive it!) so it doesn’t go in the landfill.  It’s a white glove service that gives old hardware a new purpose.  The company has been easily profitable since I invested.  I’m very interested to see where Anthony takes the company.

In 2015, I was introduced to a founder also focused on used goods.  Luis was building a company called Remoov. Let’s say you do a big spring clean or you’re about to move and you have a big pile of junk that’s too much for you to sell on OfferUp or TheRealReal and you’re not really sure of the value anyway. You call Remoov to come pick it up. They take it away, evaluate it and either sell it, donate it or recycle it. If there are any proceeds, they share them with you.  35+ million people move a year in the US so it’s definitely a large addressable market.  Luis pitched me in 2015 when they had one operation in SF. I was interested but declined and asked to stay in touch. Luis continue bootstrapping, built a good business and decided to expand to Phoenix. He did a superb job keeping me updated on the business and in 2019 I (finally) invested and referred him to another investor that wrote a big check.

I’ve done high- and low-end clothing, and accessories. I’ve done computer hardware. I’ve done home goods. What’s next?

Quixotic Portfolio Returns


Early stage venture returns are definitely quixotic.  Impractical.  Idealistic even.  But thousands of us are chasing them. At the end of 2019, I reviewed the performance of my portfolio:

  • My Cash-on-Cash return is 10x in 13 years
  • My Realized+Unrealized gain is 13x in 13 years

My goal is to for Quixotic Ventures to grow value (R+UR Gains) by 1x per year.  🔥

How did I get to a 10x Cash-on-Cash return?  Twitter, various other exits and TheRealReal.  TheRealReal — the global leader in luxury consignment — went public in June 2019!  Hooray for my second IPO (Twitter was the first)!!  Wow, it takes a long time for these eggs to hatch.  At the close of the first day of trading, the company was valued at $1.6B.  I joined the board back in 2012 when the company was doing about $80,000 a month in GMV (sales on the platform).  At IPO, GMV was about $80,000,000.  Achieving 1,000x growth in 7 years was an amazing scaling experience… basically a double PhD in building a $Billion e-commerce business. The IPO was a proud and joyous moment for me, even beyond the great financial return.  I was thrilled to see a woman at the helm, over 50, join the ranks of female CEOs running public companies.  It doesn’t happen nearly enough and it was very exciting to see first-hand.  I have enormous respect for Julie Wainwright.  She is an internet giant. I was also excited to see the success of my former Linden Lab colleagues in the CMO and CTO roles at TheRealReal, and all the amazing team members that built this extraordinary company. 

Other portfolio highlights…

Offerup acquired US competitor LetGo, building a powerful combined company serving major US markets. Last time I checked the appstore, Offerup was the 7th most popular free shopping app right above Ebay and right behind Walmart, and Letgo was the 10th right above Target.  These companies, combined, have a powerhouse position in used goods.  Wow!  When I invested in Offerup in 2012, it had about 1,000 monthly active users in Seattle. Now the combination has more than 20 million monthly active users — 20,000x growth since launch.

In 2019, Refinery29 was acquired by Vice Media so now I own some Vice shares.  Vice gives me a very different perspective than my daily fare of the WSJ, NYT, WAPO and NPR. 😱 😲😀

Homelight, which raised $109M in 2019 has become a significant company using AI in residential real estate transactions to match sellers and brokers in value-adding ways.  You’ll hear more about Homelight in the future as I am super impressed with their growth.

SKTCHY made an interesting (and highly profitable) pivot.  SKTCHY picks the most popular artists from their community to create online courses for artists.  Although this offering is less than a year old, it is doing extremely well and the unit economics are fantastic.  Startups take grit, and Jordan — founder of SKTCHY — has been single-mindedly focused on profitable growth.

WherebyUs builds tools for content creators and media to grow and connect with engaged communities (and to monetize that connection).  I’m a big believer because this is the way forward for media.

Apptopia provides app publishers & developers access to app intelligence worldwide.

Blanket.ia helps companies book more demos – important in this B2B sales environment where in-person connections are rare.

Granify is nicely profitable.  Snapwire is motoring along.

I invested in three companies: 

  • Flourish offers seed-to-sale supply chain tracking for the CBD and Cannabis industries. This is my first investment in the Cannabis industry.  It fits my thesis of enabling ecommerce…in this case Cannabis-Commerce.  A big thanks to Krillion Ventures for the referral.
  • Mathison is the largest diversity recruiting network and platform, connecting diverse job seekers to organizations that value equity and inclusion.
  • Remoov picks up, sells and donates or recycles all your unwanted items. Goodbye clutter hello relief!  This is my 5th investment in the used goods space.

Fame and HYP3R closed shop — which happens in the venture world. The founders of both companies are go-getters so I expect great things from them in future endeavors.

How I Do What I Do

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My last post was about my performance over the past 11 years.  Read about it here.  This time I’m writing about how I do what I do.

I’m a bit of a misfit and always have been. When I was a kid, I was making art when everyone else was playing with swords. In my teens, I read classical literature instead of playing video games. In college, I didn’t move into student housing until my senior year (then moved out as fast as I could). I didn’t work the required 2-3 years between undergrad and business school, I jumped right in. Early in my career, I didn’t job hop to optimize salary and position, I stayed put, worked hard and (relatively quickly) moved up. I’m “different” and over the years I’ve learned to “own” it because it’s worked for me.

Similarly, when it comes to venture investing, my approach is different from many investors. Most early-stage investors go for:

  • Large Portfolio Size: Many people believe you need a massive (think 500 Startups), diversified portfolio to get hits. I believe that’s a strategy but not the only strategy. I have shown you can get outsized returns with a tight portfolio (11x in 11 years) — which takes selectivity, restraint, focus and sometimes intensive founder support. I go for selectivity and support over portfolio size.
  • Major Startup Hubs: Many people believe you need to live in one of the major markets. I live in Miami, not Menlo Park although I do spend a lot of time in NY and SF. I do deals where I find them…Seattle, Edmonton, Miami and of course the major markets. I don’t screen out companies based on their location as others do. Valley VCs didn’t want to do OfferUp’s seed because the company was in Seattle. I go wherever I find a great company (within reason).
  • Hot deals: Many people believe you have to be in the hottest, highest-profile categories chasing incendiary deals where every firm is fighting for allocation and those with the inside track win. I’m sure it works for some but it’s not the only way to win. It may be essential at the Series A and beyond stages but not so much at the Seed stage. Some of the greatest unicorns lost the “hot or not” match up at the seed stage. Just talk to those founders and they’ll tell you how hard it was to raise their first round. I don’t jump on noisy bandwagons. Sorry for the mixed metaphors. Even though I was the CEO of Second Life and learned a lot about virtual reality and virtual currency (both Second Life and the Linden Dollar were the largest virtual worlds and virtual currencies at that time), I haven’t done a VR or Cyber Currency deal although I’ve had good deal flow. I think we’re still at an early stage of development in both areas. When the right company comes at the right time I’ll jump in. Nor do I shop hot “trends” like AI. Yes, I like AI applied to a very specific business problem but I don’t get hung up on the fact that it’s AI solving that problem. I didn’t invest in Blackbird because it used AI to power amazing visual search results (their side-by-side comparisons were breathtaking.)…I liked the tremendous business benefit that the company could provide to its customers. I don’t look for hot deals, I look for great companies.
  • Major Market Visibility: I’m not above, or even in the crowd. I don’t hang with the cool kids south of Market. I didn’t work at Facebook or Google or graduate from Stanford. I’m not on a hit TV show. I don’t party with celebs. I’m not a prolific blogger, Tweeter or Quora contributor (although I am a HUGE consumer). Sure, I’d like to be famous but chasing that isn’t my thing. I avoid the accelerators and I don’t enjoy conferences (except TED — yea, yea I know it’s not a conference). But I do cultivate my network — which I’ve built assiduously over decades — so I’m blessed with great (and sometimes overwhelming) deal flow.  And I prospect actively. When I see something I like, I call on the founder (e.g., Twitter, HomeLight and TheRealReal).
  • Proprietary Deal Flow: Some investors believe you have to have proprietary deal flow to drive returns. What does that mean when everything is on Angel List or comes through an accelerator? At one time it was about proprietary flow…but now – more than ever – I believe it’s about selectivity. I believe selectivity is THE super power at the seed stage.   And that is a truly contrarian belief today. More on that in a bit…

If I had to categorize myself, I’d say that I aspire to be the “Good to Great” VC. I’m a huge fan of Jim Collins and I aspire to be humble, generous in spirit and focused on excelling at the basics.

As for my super power, I think its Selectivity. It’s not because I think I’m some kind of savant. Not at all. No, it’s Malcolm Gladwell’s 10,000-Hour Rule at play.  Except I’ve studied companies for 70,000+ hours. How the hell is that possible? Well, here’s how: I was a management consultant for 12 years, working 60+ hours a week. That’s 36,000 hours in which I evaluated industries and markets to find those most attractive, assessed companies to find their strengths and weaknesses, evaluated organizations to find gaps, dug into operations to find shortcomings to fix and core competencies to exploit, rolled up my sleeves to help companies build new businesses, optimize operations and employ technology to win in the market. It was an amazing learning experience. Then I ran a big digital agency for 8 years, helping companies leverage the internet to build new businesses, reach new markets and get and keep customers. That’s 24,000 more hours. On top of that I’ve been selecting startups for 11 years. Now, when I look at a company, I can pretty quickly understand the size, dynamics and attractiveness of the market, the uniqueness of the company’s proposition and the strengths of the team. With 70,000+ hours of experience, I’m quick and thorough. And I believe this gives me an edge.

How Am I Really Doing? 11x in 11 Years

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Every investor asks this question daily but with 7-10 years to exit, it takes a hell of a long time to get a good read on how you’re doing. I’ve been doing this 11 years and I still wonder how I’m really doing. This is a tl;dr post, so if you need a shortcut just reread the title and you’re done! Yes my return (realized and unrealized gains) is 11x in 11 years.

Earlier this year, I was invited to give a talk to a business group (YPO) about venture investing – what I do, how I do it and whether I’m any good at it.   Even though I’ve been investing for 11 years, I’ve never formally calculated my performance using typical VC measures so I haven’t benchmarked my performance against industry data. Why? My LPs (me, myself and I) don’t require it. (Yes, I do keep a running tally of Cash-on-Cash returns and I wouldn’t be doing this if it didn’t pay off handsomely) My YPO talk gave me a good excuse to do some benchmarking.

I had to poke around to find good benchmark data. Just looking at industry averages for angel investors wasn’t helpful. The data was too old and too general. With the help of a friend at a big firm, I benchmarked my performance against the top performers among <$50M and <$100M funds for vintage years 2006-2010.  No I don’t have anywhere near $100M at work but I went up to that size to get a larger data set. I started investing in 2006 and I really “heavied up” in 2010 so I decided to benchmark myself against the single best performer in that five-year range. (Choosing only one vintage year gave me a tiny dataset hence the five years and two fund size categories.)

Here is my cut at my performance compared to the top performing fund in the 2006-2010 vintages for both fund size categories:

  • Cash-on-cash returns for the top-performing firm is 3.2x in those vintage years and both fund size categories (this is not an average, it’s the single best performance of any firm in any of those years in both fund size categories). My Cash-On-Cash Return is 7.5x. The average for the peer group is .71. Yes, point-seven-one. That means, on average, the funds returned 71% of the money they invested net of fees to investors. Ouch.
  • Realized plus Unrealized Gains together for the top performer in both fund size categories is 6.2x in both vintage years.  My Realized and Unrealized Gains are 11x.   I calculate unrealized gains by looking at the valuation of the most recent funding round (waterfall approach). I don’t do anything creative or exotic like options pricing, etc. on unrealized gains.  And if I’m iffy about a company’s prospects (AKA the walking dead or wounded) then I don’t include them at all (some people would include their last valuation, or mark them down). As a result, this is a rough but hopefully reasonably conservative number. I completed this analysis in Q1 and several of my companies closed significant up rounds recently so this number will increase in the next analysis.
  • The IRR (realized gains only) for the top performing fund in both vintage categories is 34.5%.   My Internal Rate of Return is 62%. The average for the peer group is 12%.

Another measure I think about is consistency in picking winners. If your benchmark is whether the fund contains mythical creatures like Dragons (an investment that returns the fund), Unicorns (a company with a $1B+ valuation) and Sparkle Ponies (my term for companies with a $100M+ valuation), then I have a very colorful and exotic menagerie:

  • Twitter was a Dragon. Ev, Jack and Biz, thank you for having me!
  • If OfferUp exited today at its most recent valuation, it would be another Dragon for me. Nick, thank you for writing that LinkedIn message way back in 2012.
  • Fab was once a Unicorn, but sadly perished. Jason and Bradford, it was quite a ride and it was great to work with you.  At that valuation it probably would have returned all the capital I’d invested at that time.
  • TheRealReal is a Sparkle Pony that is headed toward Unicorn status. Julie you rock! Thanks for taking a breakfast meeting with me way back in 2011. Refinery29 is another Sparkle Pony well on its way to Unicorn status. Thank you to Philipe, Piera and Justin for having me.
  • I have a handful of Glitter Bunnies (my term for a company that’s growing fast and has successfully raised a Series A and beyond) such as Apptopia, HomeLight and Granify.
  • And I have some dogs (#Fails). More than a few, in fact. Fab is the most famous and you can read why here.

Another data point early stage investors look at is whether their companies raise additional funding rounds. 78% of my companies have gone on to raise later rounds. That’s probably double the industry standard ( for companies that raise a Series A. Often I help with fundraising (I love pitching!!). Through my direct referrals, I have helped my portfolio companies raise just under $100M in follow on capital. Others are seeing what I see in these companies and that’s awesome validation.

Some funds see a lot of singles or doubles in which companies are acquired relatively early and deliver a decent and immediate cash return that juices the IRR for the fund. For better or worse, I don’t see many singles or doubles. I think it’s the type of companies I invest in. Since they’re mostly consumer internet plays, they’re not enabling technologies that someone can acquire and fold into their tool kit. One exception is Blackbird.Ai – a visual search company that sold to Etsy for a tidy sum just five months after I made my investment. Blackbird is part of Etsy’s tool suite for small merchants. A quick turn-around like that certainly tickled my IRR.

So am I good or lucky or both…or is the jury still out? You decide. 11x in 11 years sounds good to me. I think detractors would say every squirrel gets a nut – particularly advocates of large portfolios given that I am super selective with a tight portfolio (just over two dozen companies). I think supporters would encourage me to keep swinging the bat.

The past eleven years have been a blast and I’m VERY THANKFUL to the founders for letting me bet on them and to the other great investors who have been willing to share that early risk with me.

My next post will be about how I do what I do.

(Note:  I did this analysis for myself by myself.  I didn’t use a third party.  Admittedly it’s imperfect. BUT, my big gains are…well…big (and easily identified and calculated) so I am confident the analysis is pretty accurate.  If at some point I use a third party to do the analysis, I will update this post)

No #FakeNews


I’m at #TED2017 this week. I’m so grateful to be here. A lot to digest. There was a great talk yesterday about Cyber Security by Laura Galante.  One thing she said (I’m paraphrasing mightily here) really hit me hard…while our cyber security efforts focused on stolen credit cards, Putin was stealing the election. The Russians hacked our election. It’s a fact. Not #FakeNews.

As an early investor in Twitter, I was utterly shocked – no, sickened — at how effectively Twitter and Facebook were used to promulgate a compelling but false narrative – a false narrative that likely influenced the election in a country the world looks to for its democratic ideals. Really, the work was darkly brilliant because it used the self-reinforcing elements of Social Media. We tend to follow people like ourselves in social media. So when something gets inserted it reverberates around and around, gaining tracking and sadly credibility, reinforcing even the most absurd beliefs. Birtherism?! Pizzagate?!

Coincidentally, I got an inbound pitch this week for an AI startup focused on eradicating #FakeNews. This, coupled with a couple of TED talks, got me thinking about the best way to attack #FakeNews. Is it an AI toolkit that finds #FakeNews? Is it a site like WikiTribune that provides crowd-curated RealNews? Or a site like that debunks #FakeNews. Or is it something else entirely? Is it a movement – enabled by social tools — that encourages people to find empathy by connecting with people who are different, people outside their narrow social graph who help add balance and perspective to the conversation?

What *it* is I don’t know yet, but I know there is a huge social (and commercial) need for this company and I am sure a lot of people are “on it.”

Please send me deals that attack this problem head-on.

Simple Tricks to Get My Attention

imagesI am blessed with good inbound deal flow.  I’d say I have great deal flow but Airbnb, Slack and Uber didn’t pitch me :/  Deals come from people I know (warm) but mostly people I don’t (cold).

If you’re writing me cold and want to maximize the likelihood that I respond, write a very clear and cogent email — who you are, what your company does and why you think I’m a good fit.  This last part is important.  If you haven’t bothered to research what I do and deals I like, then it shows me you’re not invested in me as a potential investor.  And please attach a deck.  There is some commonly held wisdom that says a founder should pitch her/his deck in person or on a videoconference or call rather than simply email it to the investor.  That’s bunk.  I tune out when a founder insists on a call before the grand reveal.  Show me the deck already!  Who has time for “cute” games?

I do try to respond to every email but sometimes email falls through the cracks.  Feel free to ping me a second time.  Make it easy by forwarding along your first email.

Keep your introductions short and sweet.  Here’s a good example:

Hi Mark,

We built the first XYZ platform for ABCs. In one click, we can _______. We’ve built XYZs for over 1,000 ABCs with 9,000 more on our wait list.

We’re raising a seed round to support and sustain our rapid growth. If you’re interested, let me know when you might be free for a meeting. I’d love to have you on board as an investor and partner in helping our company reach its full potential.

To see some examples, here are links to two XYZs we’ve built: ______ and _______.

All the best,
John Doe

What makes this good?  The first paragraph clearly explains the value proposition AND shows traction.  The second paragraph makes the “ask.”  The third paragraph shows two work examples if I want to dig deeper.  No deck attached but it came shortly afterward.

Did it work?  Yes I wrote a check.


Not All Money Is Created Equal

Screen Shot 2017-03-28 at 1.53.22 PMOK so if you’re pitching me and you’re not sure you want to take VC money, what exactly are you doing?! I’ve had a enough similar meetings with founders I think its time for a blog post on the subject.

Here’s how the conversation goes…”I made some money in my last gig/startup/whatever. I self-funded this project.” It’s going well but I’ve burned through my capital. One of my early investors is an investment banker. He says he knows other wealthy guys and we don’t have to go the VC route, give up board seats, deal with their firm’s baggage and listen to their myriad opinions.” OK that’s a bad start to a meeting with someone who is a gateway drug to more traditional venture funding. In many cases, it is also a bad way start to a tech company. Do your research and figure out what kind of money you want and need.

Funding from experienced early stage investors offers very valuable things beyond capital:

  • There is an established, milestone-based template for your development that you can follow which enables you as founder to focus on building a (profitable… well, eventually profitable) product your customers love.
  • There is a very organized — if sometimes opaque — marketplace for capital. With a little time and effort you can develop a long list of potential high-fit investors who cover your category, don’t have conflicts and have a good track record of success. And these investors are used to looking at deals, are comfortable with the lightweight due diligence possible at the seed stage and know the typical deal terms. Plus they can help you on future rounds of funding. I’ve directly introduced almost $100M in growth capital (other peoples’ money) into my portfolio companies over the years. Start on AngelList.
  • Speaking of deal terms, VC type investors know the difference between a priced round, a SAFE agreement or a straight up convertible note. They’re not going to come up with exotic funding agreements that turn off future investors. Good ones will be sure you’re set up for success in the next funding round.
  • Good seed stage investors have experience helping companies get to the next important milestone…which is product-market fit and the all important Series A. And let’s be honest, how many companies do you know that leave the seed stage so profitable with such great growth that they don’t need additional funding?!
  • And a great seed stage investor can become an excellent board member when you do your Series A. I’ve been a board member in about 25% of my deals over the years. A seed stage investor as board member has a couple of valuable attributes: they’ve grown with the founder and are a known quantity; they have different motivations and drivers than a typical multi-partner VC firm; often times they have operating experience.

I’m a contrarian in many areas but not in funding. I think companies should innovate in product, not financing. I’ve seen some big problems when founders take money from inexperienced investors:

  • “My early investor wrote a big check but has some pretty aggressive terms if I’m not successful.”
  • “My early investor introduced me to his rich real estate friends and they all want to write checks but I can’t get anyone to agree to deal terms. I don’t think I can get this thing closed and now I’m hosed.”
  • “My early investor wrote a big check but wanted a controlling interest in the company which seemed OK at the time.”
  • “My early investor was a father/son combo. The father was experienced in business but got busy doing other things and the son has no interest in helping us grow. In fact, he wants the money back for other things that he thinks are cool(er) — like a Lamborghini.”  (No joke)
  • “My early investor is pushing me for an immediate exit because he wants a return and wants to deploy the capital in other places.”

Who needs this freak show? Find good, experienced, balanced, helpful seed investors who know what they’re doing.

Investor Updates. Why Bother?!

Screen Shot 2017-03-28 at 1.43.23 PMInvestor updates – especially in the early days – are a must yet founders often neglect to do them. Why and when should founders do them?

Before the Series A, companies usually don’t have boards so there is no formal mechanism for reporting. Early investors are believers who understand the founder is super busy building her/his company. Many don’t demand regular progress updates. But it behooves the founder to build the discipline of regular reporting. I think a good discipline is to do a quick monthly update (a good, solid email is fine) for the first 12 months then move to more structured reporting quarterly. Why? It’s good practice and it’s an insurance policy.   I heard a phrase recently that I like — “Practice like you play” meaning if you’re practicing a sport or musical instrument or whatever, it’s likely you’ll play like you practice. So give practice your all. And I think building early reporting discipline will get you in good shape to do it once you raise your Series A and have specific reporting expectations. Plus – if you’re like many companies – you’ll be going back to the same early investors asking for a tweener investment before you get to your full blown Series A. And if the investor hasn’t heard from you since they wrote the first check — and the news isn’t totally rosy — they’re going to be less inclined to write another check.

Most of my portfolio companies suck at reporting. Truly. Some, however, are awesome. In the early days of Twitter, Biz Stone wrote a wonderful Sunday night note to the company about everything that happened that week and he forwarded it to the early investors. It wasn’t an investor update per se and wasn’t so much about metrics and milestones but it was a beautiful and heartfelt insight into what goes into building a great mission-driven company. It featured stories about people in the company and how users were using Twitter in mind-bending ways. Biz should turn those early notes into a book. Jason Goldberg also did terrific updates in the early days of Fab. In fact, I’d say he was radically transparent.  Among all my portfolio companies, the best at early reporting has been SellBrite. Brian, the founder, writes a regular, detailed report about the business. No hyperbole. Just fact and insight. It’s a pleasure to read, not just because the charts are all up and to the right (which they are), but because it gives a very good overview of how things are going…hits and misses…kpis…milestones…what’s keeping the team up at night…everything you need to know to understand the health of the business. At the end of the post, I’ll share an outline of what the best updates include.

I can usually gauge the health of the company from founder communications. In all cases, if a founder is good at sharing wins and keeping investors up to date in some fashion and then goes silent it’s never because the company is crushing it. One of my companies was on a great trajectory for months and months then went silent. In the back of my mind I thought hmmm something’s up. I finally got around to writing the founder and sure enough they’d hit a big speed bump. I think in those situations, the instinct is to hunker down and focus on the problem. But I think that instinct is absolutely wrong. I think the right thing to do is be open and engage your investors. There is a high likelihood one of your investors has seen this movie before and might have valuable insight.  It was the same story for another one of my companies…everything was going well…updates were terrific then…crickets. After a few months of silence, I got a panicked note that the founder needed a bridge because cash was short. Ultimately I contributed to that bridge but it took a while for me to reconnect with the company and founder and frankly it left me feeling a little squeamish. You have a bond with your early investors. Keep that bond. You might need it.

So if you’re a founder and it’s early days you know what to do. WRITE THOSE UPDATES. Once you get to a Series A or B (and other peoples money) you can be more casual with early investors. Post Series A, if I haven’t heard from a founder, I’ll do periodic check ins. “Hey, how are things going…” And I’ll often re-engage around fundraising. I have a good network and have helped founders with introductions that have produced almost $100M in checks.

Now, a few words for investors. I’ve seen investors who are absolute jerks. They write a small check and feel like they own the company. They hit “reply all” to every update email and panic at every hiccup, offering advice on every little thing. OMG shut up!  If you want to opine, make sure the topic is material and your input is worthy. The worst is when you see a note that says something like “my niece used this app and shared it with her friends. They all said they don’t get it. You need to do XYZ.” Who knows if the niece is even the target market. The founder has much better sources of insight data. So now you see why founders shy away from updates. In cases like this, I’ll usually have a quiet and polite conversation with the investor about what’s reasonable. It usually starts with “Dude you need to chill out!”

What’s in a great update:

  • KPIs (every category has it’s unique metrics, e.g., MRR for SAAS, GMV and liquidity for marketplaces)…Share the numbers and context.
  • Hits/Misses i.e., Good/Bad…here’s where you can share whats working and what’s not…and ask for help if you need it.
    • How you’re progressing on the product roadmap
    • How you’re doing on customer acquisition, CAC trends, etc.
    • What you’re doing in BizDev.  What’s working and what’s not
    • How the team is coming together, key positions you’re hiring for
  • Cash On Hand and Burn Rate
  • Help Needed From Investors (fundraising, hiring, BizDev intros, etc.)

Pitch Me Something Fanfuckingtastic


Even though I’m a seed investor, I look at a potential investment with the eyes of a Series A investor:

  1. Team: Amazing, passionate, articulate, experienced, connected founding team with strong product, tech, business and growth experience and a track record of success, united by a compelling vision, mission and purpose.
  2. Product Market Fit: Product that has product/market fit, great traction, is growing at a very nice clip, has super happy customers with a positive Net Promoter score.
  3. Model: A killer market and model. Massive potential market. A repeatable business that can scale. Network effect properties where more is more for all. A natural moat that deters competitors. A sound business model with great unit economics.

This takes a lot of imagination and creativity on my part because no seed stage deal *ever* looks like this.

Companies are messy in the early stages. Teams, products and models are most often incomplete. I’m looking for something in each of the three areas — some part of the story that is…well…Fanfuckingtastic. And there are some non-negotiables.

Team: The earlier the company, the smaller the team so getting all those boxes checked is very rare. The most important thing is that the founder’s core strength is the secret sauce of the company. Jordan was the only full-time team member at Sktchy when I invested but had a truly awesome designer and developer helping out (part time). Jordan is a terrific community builder. It’s in his blood. It’s what he talks about when he talks about Sktchy. And that’s the secret sauce of the company. The founder has to be Fanfuckingtastic. At something. Period. Non-negotiable.

Product and Product Market Fit: Here is where imagination is required. Usually the further along the product is, the higher the valuation. I need to see a product with *some* consumer feedback. When I invested in OfferUp, the app had been launched in Seattle and there were something like 3,000 listings. Did they have $1M in monthly GMV and at least 10%+ liquidity (things Series A investors might look for in a marketplace)? Uh, no…just 3,000 listings in one city. Back in 2011 when Nick and Arean launched OfferUp the only way to sell your stuff was on Craiglist or Ebay and neither had mobile apps that made it 1-2-3 easy to photograph, list and sell your used baby stroller. OfferUp did just that. It leveraged all the new tech that made smartphones powerful computing devices (camera, geolocation, etc.) to make it super easy to sell. Users loved it.  It didn’t take too much imagination to see the potential right away.

Model: If imagination is needed for product and product market fit, then clairvoyance is often needed to see the business model. In the case of OfferUp, I didn’t have to do much market analysis to see a massive market, the potential for network effects and a great business model with terrific unit economics. It was easy to imagine a scenario where the boxes could be checked by Series A. And, indeed, they were. In the case of TheRealReal, this required more imagination. Julie had a great team when I invested. She had a great product with clear product market fit. Although she had a fast-growing business already, I had to do a bit of work to convince myself that a) affluent people would actually take the time to consign their merchandise, b) there were enough of them to provide the supply required to build a $1B company. I got there in about 24 hours and very quickly TheRealReal proved points A and B to the world. In the case of Twitter, it took clairvoyance. The app had just launched. There had never been anything like it. 140 characters to communicate a thought, idea or update? Via phone? It was abundantly clear the world was going mobile. I could just imagine 1,000 ways Twitter could be used by people, brands, press. I could just see the power of the status update. So tangible. So real.  I’m glad I wrote that check.

When you pitch, you don’t have to check every box.  But you do have to show me something Fanfuckingtastic.

Talking numbers or why valuation REALLY matters

Screen Shot 2017-03-28 at 9.20.16 AMIt’s time for my semi-annual blog post haha. I want to write more frequently, I really do. But I get caught up listening to pitches and whatever I’m helping a company with and it goes by the wayside. Excuses. Excuses. I know.

Valuation has been a big topic in recent years and two years after the mythical bubble was forecast to burst I have a few thoughts to share.

I’ve passed on a larger than normal number of companies recently over valuation. And that’s odd because we’re past the crazy frothy period of 2015. I don’t nit-pick over valuations typically and I’m not one to micro-optimize terms. I’m looking for fair deals that motivate the entrepreneur and come with a nice and clean cap table and vanilla terms so we have no objections when raising money in subsequent rounds. Pretty straight-forward stuff.

That’s why I’m disappointed when founders come forward with absurd, crazy, eye-popping seed-stage valuations. Why don’t I pay up and shut up? Well, beyond the very obvious fact that high early valuations affect future returns, they also set up a very high hurdle the company has to cross before raising a follow on round at a commensurately higher valuation. They create unnecessary execution risk and can lead to Hail Mary behaviors.

Last year an interesting company came to me (pre-product, pre-revenue, interesting team but they weren’t 3x entrepreneurs with decacorn exits – just good, solid entrepreneurs). I liked the concept. I liked the space. I liked the team. All good. But the valuation was breathtaking…and we’re not talking AI or another flavor-of-the-month here. Wow. I told the founders the valuation was extraordinarily high but I’d love to hear what they thought justified it. I was prepared for some hustle and a good back-and-forth about their genius business model or the secret sauce in their brilliant algorithm or the insurmountable moat their technology ensured or how they crushed it in user tests. Instead the answer was “We’re a San Francisco company so we feel we deserve this valuation.” Pick me up off the floor. That was such a deflating answer.   No hustle. No insight. No passion or conviction. Just entitlement. Needless to say I didn’t write a check. Yikes.

I found another great company recently that ended in a #fail for a different reason. I loved the founder. Super high hustle. Smart. Scrappy. Great UX chops. All the things I like. The product is brilliant. It is. But there was no customer feedback as of yet so it’s a big bet. But I was willing to take the gamble until the conversation about valuation.   The number was big. I gulped and asked nicely why he felt it was justified. The answer I got? “Well we raised our friends and family round at a very high valuation of X and only gave away a small amount of equity. So we need the valuation to be Y because we don’t want to disappoint our early investors. Plus we have a lot of interest.” ARGH. Friends and family are not usually valuation sensitive. Many probably don’t know what’s reasonable. They’re investing because they believe in you. But don’t take advantage of that and command an absurd valuation to minimize your dilution. One of two things will happen: you’ll have to go back to them and explain you’re doing a “down round” or you’ll face the risk of not being able to raise money because you’re trying to get the valuation up.   If you are able to defy the odds and raise a nice up-round then you’ve set yourself a BIG hurdle for the next fund raise. You’re going to have to have a super duper home run to get there. And that could lead you to do ill-conceived Hail Marys. I’ve seen that movie and have never liked the ending. See above. Read Good to Great. Be sensible. Take it step-by-step. Yes, reach for the stars, but climb a ladder to get to them.

I had a third #Fail around a cap table. The founder launched his app and it took off like a rocket. Totally broke, out of desperation, he took a very small check that felt huge at the time but gave up an enormous slug of the company to get it. That’s just a terrible burden to carry forward. In a situation like that, I could get actively involved, meet with the initial investor and try to work out something that’s a #WIN for all while not polluting the cap table but that’s a big expenditure of time.

So founders, please think sensibly about initial valuations. I know this sounds self-serving but I think it serves your interests best. Oh and if you are going to go big, then have a fantastic story (product, IP, traction – SOMETHING!) to back it up.