May 26, 2022 Suraj Gupta via Forbes Business Council : Diversity: The Holy Grail Of Venture Capital

No matter how you slice it, diverse teams outperform homogenous teams, and the numbers back this up. Teams that are diverse by gender and ethnicity generate 30% higher MOIC (multiples on invested capital) compared to homogenous teams. Companies with at least one female or one ethnically diverse founder generate over 60%+ in business value. Ethnically diverse founders enjoy an average exit multiple that is 30% higher than those of solely white founding teams (3.26x vs. 2.5x). This gap becomes even more pronounced when we consider diversity in the C-suite. Ethnically diverse C-level teams have an average exit multiple that is 64% higher than their solely white counterparts (3.31x vs 2.02x). (read more…)

CATEGORY: leadership, resilience, VC

November 16, 2021 Oaktree Capital : Global Opportunity Knocks: The Evolution of Distressed Investing

The evolution of this investment style has been a gradual process. In the late 1980s, investors like Oaktree’s principals, who focused on distressed assets, were primarily targeting U.S. high yield bonds. The opportunity set eventually expanded to include bank debt, mortgages and opportunities in growing non-U.S. markets. In the 1990s, distressed opportunities investors increasingly began exploring situations that were complex but not classically distressed, especially those in illiquid markets or niche industries in which companies’ access to capital was limited.

In the decade following the GFC of 2008-09, investors began finding opportunities in an ever wider array of areas, such as direct lending, portfolios of non-performing bank loans, real-estate-related debt, specialty-finance platforms and  structured credit, among others. Experienced investors found that private credit and other complex opportunities could – like traditional distressed debt – provide the combination of significant upside potential and strong downside protection.

CATEGORY: debt, downturn, leadership

May 26, 2021 Sammy Abdullah via Medium : Autopsy of a dead venture backed company

Build a product for one market. Build a real product, focus on one market and use case, and don’t move to a new market until you’ve successfully established your company in that original market. Watch your sales cycle and customer set up. Although we signed contracts with big names like Facebook and Yahoo, it was always a custom project which took up team resources and had a very long sales cycle. Cash is king. If the revenue to burn ratio is too high and growth rate too low, if you’re lucky you’ll end up with a down round. If you’re unlucky, you’ll die. Know your limitations. At the early stages of any business, the founder will do most of the selling, but professionalize this function as soon as you can afford it by bringing on real sales talent. Know when it’s time to exit. Knowing when it’s time to walk away is valuable. Don’t drink too much of the Kool-Aid. Believing in your product and potential is wonderful, but don’t let it blind you. Stay heads down. Basically spend more time building the business and less time on everything else.

CATEGORY: leadership, product-market fit

May 6, 2021 Aaron Dinin via Medium : I Sacrificed a $50 Million Company to Chase a Billion Dollar Business, and It Didn’t End Well

I didn’t know it at the time, but, once I took venture capital, it meant I had to start operating like a venture-style company regardless of whether it was appropriate for the type of company I needed to build. That meant operating at a loss. That meant pumping tons of money into growth at the expense of creating a stable and maintainable infrastructure. That meant hiring lots of people. That meant scaling as fast as possible. That meant getting on the VC merry-go-round and never being able to get off.

There was a consequence to those decisions. As the VCs who rejected me recognized, the market I was chasing couldn’t support the type of venture-backed, billion dollar company I needed to build. As a result, the company that should have been a successful $50 million dollar company that I would have been thrilled to own never materialized. Instead, I had a company that failed to become a billion dollar company.

While not ideal for my investors, the outcome certainly wasn’t devastating. They expect most of their investments to fail, and, when one does, they get to focus their attention on other investments. But it was a much worse outcome for me. I only had one company, and, when it failed, I didn’t have anything else.

CATEGORY: growth, leadership, resilience

April 21, 2021 European Straits : Bill Janeway on Who Should Be in Control

It’s about how you address what Hyman Minsky always referred to as the “survival constraint”, that is, when you have obligations that you have to meet in cash: you can pay those obligations out of operating revenues, out of the sale of assets, or out of the issuance of new securities. And when you run out of those three alternatives, that’s when you call in the lawyers! And so this is my concern with the entrenchment of founders: in my experience, unless they have previously been through a failed startup or at least the near-death experience of an established business (that is, flirted with bankruptcy), they are insensitive to those stressors. And that’s the problem in the current environment: there’s no need for them to be sensitive! But I find it extraordinarily unlikely that the current environment will last indefinitely. (read more…)

CATEGORY: leadership, resilience, risk

February 3, 2021 Courtney Rubin via Medium : The Shocking Meltdown of Ample Hills — Brooklyn’s Hottest Ice Cream Company

As Smith tells Marker, having Disney behind them fueled much of the co-founders’ overconfidence, encouraging them to think they could become the next Ben & Jerry’s. Disney’s interest also helped the company attract investors, he says, which created “a runaway train of raising and raising and growth and growth.”  By chasing rapid expansion without paying enough attention to how much they were actually spending, the co-founders ended up making big bets that cost the company millions — and mistakes that left thousands of gallons of ice cream literally swirling down the drain. “It was a fairy tale,” says Greg O’Connell, one of Ample Hills’ biggest investors. “They were kind of living in a dream world because their marketing was so great.” [...] Meanwhile, Smith and Cuscuna still hoped they could fundraise their way out of the problem. (read more…)

CATEGORY: leadership, resilience

December 21, 2020 Tech Crunch : Silicon Valley should reward zebras, not unicorns

Unicorns thrive so long as they remain in the enchanted forest of endless venture rounds; zebras tough it out in the savannas of the free market. A zebra company won’t become the next behemoth like Facebook or Amazon, but neither will it become the next Quibi or WeWork. One-way extraction of value is replaced with a circular flow of value. Exponential growth is neither the best nor the only way for businesses to operate. (read more…)

CATEGORY: bootstrap, leadership, resilience

November 23, 2020 Charles Duhigg via the New Yorker : How Venture Capitalists Are Deforming Capitalism

Whereas venture capitalists like Tom Perkins once prided themselves on installing good governance and closely monitoring companies, V.C.s today are more likely to encourage entrepreneurs’ undisciplined eccentricities. Masayoshi Son, the SoftBank venture capitalist who promised WeWork $4.4 billion after less than twenty minutes, embodies this approach. In 2016, he began raising a hundred-billion-dollar Vision Fund, the largest pool of money ever devoted to venture-capital investment. “Masa decided to deliberately inject cocaine into the bloodstream of these young companies,” a former SoftBank senior executive said. “You approach an entrepreneur and say, ‘Hey, either take a billion dollars from me right now, or I’ll give it to your competitor and you’ll go out of business.’ ” This strategy might sound reckless, but it has paid off handsomely for Son. (read more…)

CATEGORY: leadership, risk, VC

September 21, 2020 Andrew Lee via Medium : How To Tell If You’re Running A Zombie Startup And How to Revive It From The Dead

What’s the potential solution to the problems you’ve identified? Don’t dismiss the solution if it initially seems small, trivial, or hacked together. Most great startups start small and build toward a grander solution. The best ideas or solutions aim to be uniquely obvious as opposed to being obviously unique. In hindsight, people should be saying how stupidly obvious your solution was. The elegance of simplicity is hard to capture here so, you’ll need to do the work to find inspiration. (read more…)

CATEGORY: leadership, product-market fit

September 17, 2020 Alex Danco : Are Founders Allowed to Lie?

Founders use this soft power to their advantage. When blessed by their VCs, they are uniquely permitted to “pre-tell” the truth in a way that no one else is allowed to do, so long as they observe all of the unwritten rules in doing so. You can’t push it too much; you can only push it in certain ways and not others; and most importantly, you must genuinely do so in an effort to bootstrap the future into existence. You’re not misleading investors; your investors get it: they’re optimizing for authenticity over ‘fact-fulness’. It’s not fraud. It’s just jump starting a battery, that’s all. You’ve all seen this. It doesn’t look like much; the overly optimistic promises, the “our tech is scaling nicely” head fakes, the logo pages of enterprise customers (whose actual contract status might be somewhat questionable), maybe some slightly fudged licenses to sell insurance in the state of California. It’s not so different from Gates and Allen starting Microsoft with a bit of misdirection. It comes true in time; by the next round, for sure. (read more…)

CATEGORY: leadership, VC