What I Don’t Invest In

Being an angel investor is never boring. I see everything from spacecraft to nude resorts.


Get the blog before anyone else…subscribe!


But I can’t invest in everything!

I focus on the areas I know best. And I want to back companies building the type of world I want to live in.

Here are some areas I don’t touch:

1) Gambling. I don’t believe in it, simple as that.

To me, gambling startups are tech at its most predatory. Many people struggled to stop gambling even when the casino was hundreds of miles away.

What happens when it’s in their pocket?

In a free society, I don’t have a problem with adults making the decision to gamble. But I don’t have to fund it.

Gambling is also a tough business. You’re offering a commodity product – the ability to take a bet.

It’s a race to the bottom and margins are razor thin.

2) Drugs. There may be incredible applications of illegal drugs like psilocybin and ketamine for conditions like depression.

But I don’t have the scientific background to evaluate these claims. What’s more, in our enthusiasm, I’m concerned we may be glossing over the risks that come along with some compounds.

3) Space. Who doesn’t love spaceships?

I look forward to a world with lightning fast satellite internet for everyone and resorts on Mars.

But I don’t have a scientific background. How would I know a good space company from a bad one?

Better leave it to Elon.

4) Biotech. I would love to invest in biotech.

I find it fascinating. And its potential to improve our lives is limitless.

But my background is in software, not medicine. How will I know if a company is good or bad, or what a fair price is?

Instead, I stick to what I know. And when I see the occasional biotech startup that gets me excited, I pass it along to investors I know who are experts in the field.

5) D2C. Selling physical goods direct to consumers online used to be a great business model.

Not anymore.

Apple stopping ad tracking has caused customer acquisition costs to triple for many companies. Supply chain issues crush margins and make filling orders difficult.

Even the biggest successes, like Peloton, have been crushed. Its stock is down 90% from the highs.

I’m better off in a pure software business without the messy “stuff”.

It’s hard to succeed if we don’t focus. And in startupland, it’s easy to lose a fortune investing in exciting things you don’t understand.

I stick to my knitting and invest in pure software companies. Most sell software to businesses (SaaS), the area I worked in before becoming an investor.

This gives me the best shot at identifying a great company, since I know what great looks like in my field. It’s also easier to add value in an industry I know well.

What areas do you invest in? What areas do you avoid?

Leave a comment at the bottom and let me know!

There will be no blog tomorrow. I have an acting gig.

See you on Wednesday!

More on tech:

Andreessen Crypto Fund Down 40%

Why Now Is the Best Time to Invest in Startups

How I Help Startups

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “sand hill road sign” by stevendamron is licensed under CC BY 2.0.

Why Now Is the Best Time to Invest in Startups

Venture capitalists and angels are running scared. Venture funding is down 53% from last year.

But let me tell you why now is the best time to invest.


Get the blog before anyone else…subscribe!


1) Lower valuations. Companies only get so big.

There are fewer than 50 private tech companies worth more than $10 billion (“decacorns”). We can treat $10 billion as the approximate ceiling for an exit.

So if you get into a startup at a $50 million valuation, you have just 1/5th the upside of someone who got in at $10 million.

Right now, I’m seeing seed round valuations cluster around $10-12 million. Last year, I routinely saw seed rounds between $20-35 million.

So, our returns from the 2022 vintage should be far better than usual!

Think of it like grocery shopping. If you love eggs, you’re going to buy more if they’re 50% off, aren’t you?

2) Less competitive rounds. It can be hard to get into the best startups, no matter how much you’re willing to pay.

But these days, I get into almost any company I want. Investors have the bargaining power in today’s market.

3) Easier recruiting. The biggest problem startups have isn’t raising money.

It’s finding awesome employees!

When Facebook was offering every Tom, Dick and Harry $400,000 a year, startups couldn’t compete. But now that most of Big Tech is doing layoffs, startups can snap up top engineers.

4) The job is easier! Many of the least viable startups have given up raising money and will probably go out of business soon.

This means fewer deals in my inbox than last year. 2021’s frenetic pace has been replaced with a more stately one.

So what’s missing? Mostly, it’s the $100 million seed rounds in crypto companies with no product or customers.

Fine by me!

5) History is on our side. Time and time again, the most iconic companies have been founded in downturns.

Uber, Airbnb, LinkedIn, the list goes on and on. Maybe it’s a coincidence.

Or maybe downturns really are a better time to build.

Either way, I like my odds in a down market.

What do you think of today’s bear market in tech?

Leave a comment at the bottom and let me know!

Have a wonderful weekend everyone! 👋

More on tech:

Andreessen Crypto Fund Down 40%

How I Help Startups

Big Problems at Divvy Homes

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “A Street Called Awesome” by moonlightbulb is licensed under CC BY 2.0.

Andreessen Crypto Fund Down 40%

It’s crypto winter, and Andreessen Horowitz is shivering. Its main crypto fund is down 40% this year.

From a new report in The Wall Street Journal:


Get the blog before anyone else…subscribe!


As cryptocurrency prices soared last year, no investor bet more on the sector than Andreessen Horowitz.

The timing wasn’t good.

Andreessen’s flagship crypto fund shed around 40% of its value in the first half of this year, according to people familiar with the matter. That decline is much larger than the 10% to 20% drops recorded by other venture funds, which have largely avoided the risky practice of purchasing volatile cryptocurrencies, according to fund investors.

Many of the firm’s largest investments have been crushed. Coinbase stock is down nearly 80% since its IPO. Solana has dropped 82%.

NFT marketplace OpenSea may be the best investment Andreessen’s new crypto funds have made so far. Its valuation soared over 100-fold in ten months to $13 billion.

But now, OpenSea trading volumes are down 99% from their peak. The platform is a ghost town, and one of Andreessen’s best investments may be a total loss.

Andreessen likely scaled its crypto funds too quickly. It went from a $515 million fund in 2020 to a $4.5 billion fund this year, the largest ever.

The benchmark for a decent return is a 3x fund. Can Andreessen make $13.5 billion in crypto?

If the firm gets a 10% position in a startup, that requires a $135 billion outcome. There isn’t a crypto company in the world worth anything close to that.

Andreessen isn’t just buying shares in crypto startups. It’s also buying their tokens, a rare and extremely risky move.

These tokens confer no ownership in a company. Their prices are very volatile.

Andreessen’s one saving grace is that it distributed Coinbase shares shortly after IPO, locking in billions in gains. That should preserve good returns in the early crypto funds.

But the picture for the new funds is bleak. Andreessen has made fewer investments since the crypto crash, and no one knows when prices will bottom.

I’ve been deploying capital faster in this weak market. Andreessen may be missing great opportunities by pulling back.

Perhaps its limited partners (LP’s), the investors in the funds, are telling the firm to stand pat.

I think Andreessen is over-committed to crypto. A $4.5 billion fund is too big for this nascent industry.

Deploying sums that large will require real products with real uses beyond speculation. Any day now…

What do you think Andreessen should do? Leave a comment at the bottom and let me know!

More on tech:

How I Help Startups

Big Problems at Divvy Homes

How I Source Deals

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Chris Dixon” by jdlasica is licensed under CC BY 2.0.

How I Help Startups

You’ve decided to back a startup and wired in your money. So you’re done, right?

Wrong!


Get the blog before anyone else…subscribe!


The best investors help their portfolio companies throughout their lives. This collaboration has helped Silicon Valley dominate the technology industry.

Investors want to help you! It’s one of the most fun parts of the job.

So be sure to update your investors monthly (or at least quarterly) and include things you need help with. If investors don’t know what you need, they can’t help you!

Here are some ways I like to help:

1) Fundraising. This is the most important way I can help.

When a founder is trying to raise a round, I put the word out to the many investors in my network. The founder gets a bunch of meetings with VC’s without having to do anything!

Many VC’s don’t respond to cold messages. So warm intros are critical.

These intros also help me. By feeding these good deals to other investors, I ensure they’ll feed me their best deals!

Everybody wins.

2) Promotion.

This blog gets significant traffic. When I invest in a company, I like to shout them out here — with the founder’s permission, of course.

This can bring in customers and employees. My site linking to theirs also builds their domain authority, which is critical for position in search engines.

3) Finding customers.

I meet new startups every day. Some of them are struggling with issues that my portfolio companies are solving!

When that happens, I like to introduce the two founders and see if they can work together.

4) Recruiting. Finding great employees is the hardest thing a startup will ever do.

With the right people, everything else falls into place!

So when a startup is hiring, I blast out the job requirements to my network. It can yield some great candidates!

5) Advice. I’m careful with this one.

I never offer advice unless the founder asks. Too many cooks in the kitchen means burnt food and a grease fire!

But when founders do ask for guidance, I’m happy to spend as much time with them as they want.

Recently, the founder of one of the top companies in my portfolio asked for help with investor updates. It’s his first venture-backed company, so he had no idea how to write one.

He showed me a beautiful document that ran on for many pages. And I had to tell him that was massive overkill!

A brief update containing mostly numbers is best. It takes less time to write and is more informative.

As an angel, it takes a long time to get a return. If you ever get one at all.

In the mean time, have fun with the job! And what could be more fun than helping a great, hardworking entrepreneur!

Investors: how do you help your portfolio companies? Founders: have your investors helped you?

Leave a comment at the bottom and let me know!

More on tech:

Big Problems at Divvy Homes

Russian Engineers Are Fleeing the Country

How I Source Deals

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Help wanted sign” by andjohan is licensed under CC BY-SA 2.0.

Europe Has…Too Much Natural Gas?

Russia has cut off Europe’s gas supplies. But despite Putin’s best efforts, it’s looking like a toasty winter on the continent.


Get the blog before anyone else…subscribe!


Ships carrying liquefied natural gas (LNG) are lined up in ports across Europe. The only problem: finding a place to put it all!

From a report out this morning in Bloomberg:

Europe suddenly has more gas than it can use.

Starved of the Russian imports on which its long relied, Europe has rushed to import liquefied natural gas from around the world to fill up storage. Now, a combination of unusually warm weather and successful bidding for cargoes means facilities are almost full before Europeans have even turned the thermostats up. Gas prices have also fallen back sharply, and are less than a third of their summer peak.

Bloomberg’s index for loaded tankers on the water for 20 days or more has risen to the highest since at least 2017. Last week, Spain’s Enagas SA warned it may need to limit numbers as it has little room to absorb excess imports.

This sudden turnabout shows how well markets work. Natural gas prices spiked in Europe, so suppliers sent their gas there.

After all, why not get the best price?

But so many sent gas, the price has plummeted. It’s now lower than when the war in Ukraine began.

Russia has lost its best bargaining chip. If it can’t freeze the continent, what other options does it have?

Russia has also damaged its economic future.

Europe will never view it as a reliable supplier again. Putin may struggle to find a buyer for his gas, given his prior treachery.

Russia should keep in mind that there’s an expiration date on that gas. Solar energy is already cheaper in many circumstances.

Governments are working to limit CO2 emissions. Renewables are scaling and getting cheaper every day.

In a few decades, there may be little demand for fossil fuels.

The future for Russia looks bleak. Meanwhile, with its energy supplies diversified, Europe will be more secure than ever.

What do you think the future holds for Russia and Europe? Leave a comment at the bottom and let me know.

More on markets:

Tiger Global Down 52% — Losses Over $18 Billion

Who Will Unfreeze the IPO Market?

SoftBank May Launch Third Vision Fund

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “#8962 LNG ship from BR189” by Nemo’s great uncle is licensed under CC BY-NC-SA 2.0.

Big Problems at Divvy Homes

Divvy Homes was supposed to help people achieve the American Dream. But some are only finding a nightmare.


Get the blog before anyone else…subscribe!


In a major investigation published this morning, Fast Company details widespread problems at the hot proptech startup.

Divvy Homes buys the house you want and rents it to you. When you’re ready, you can buy the house from Divvy.

This means Divvy is a huge landlord. And it’s struggling to service all those tenants.

Amber Gutierrez of San Antonio moved into the house of her dreams with Divvy’s help. But when problems surfaced, Divvy was nowhere to be found:

Gutierrez first reported a maintenance issue to Divvy in late January. The temperature in the home was hovering in the 50s, and her children were having trouble sleeping. She asked Divvy—legally, her landlord—to send someone to take a look at the heating system. But more than two weeks later, following an HVAC technician’s perfunctory visit, her children were still shivering through the night.

Soon, more problems appeared:

When the front porch and back deck started cracking and shifting, suggesting a foundation problem, she felt even more certain that they would have to leave, despite the prospect of having to pay a $4,400 surrender fee…

Any massive landlord is going to have times when maintenance falls short. This is especially true for a startup scaling at warp speed.

Divvy should incentivize its people to give customers great service. Customers should review their home and maintenance staff just like I review Uber drivers.

Good reviews should be a must for raises and promotions. And any employee with a pattern of bad reviews should be fired.

On the bright side, Gutierrez was able to find out about the foundation problems before buying the house. Had she bought it right away, those problems would’ve been hers to fix.

Divvy’s business model is messy. It involves a massive amount of logistics that a platform like Uber or a SaaS company like Salesforce simply doesn’t have.

Divvy also has huge reputational risks.

It rents to poorer households. This means Divvy can easily be painted as a slumlord when maintenance falls short.

Despite these issues, I think Divvy’s business model is a winner. Lots of people want to move into their dream home before they can afford it.

Divvy can buy it for them and rent it to them until they’re ready to buy. There’s a huge market for this, and the transaction size is massive.

But Divvy has to nail down its logistics. It must also make sure employees have the right incentives.

If your customers aren’t happy, nothing else matters.

Do you think Divvy helps aspiring homeowners, or hurts them? And why?

Leave a comment at the bottom and let me know!

More on tech:

Russian Engineers Are Fleeing the Country

How I Source Deals

Bridge Rounds: Yea or Nay?

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: Divvy co-founder Adena Hefets

Russian Engineers Are Fleeing the Country

Russia’s best tech talent is fleeing the country. Pushed out by a draft for the war in Ukraine, nearly a quarter of the nation’s best developers have left, according to a report in The New Scientist:


Get the blog before anyone else…subscribe!


Hundreds of Russia’s top software developers appear to have left the country during its military invasion of Ukraine. The exodus of tech talent started even before Russian president Vladimir Putin announced a partial military mobilisation in September, spurring an estimated 200,000 men to flee amid the prospect of being drafted to join the war effort, and it could spell trouble for Russia’s future.

Almost 23 per cent of Russian developers who made the most contributions to coding projects on the software development platform GitHub changed their location information or deleted their profiles between February 2021 and June 2022. That figure is nearly four times as high as that of developers from neighbouring countries who aren’t directly involved in the conflict.

These engineers are the key to dominating the industries of tomorrow. Without them, Russia will struggle to compete.

“Their permanent departure from the Russian labour pool or from the Russian economy can have detrimental effects,” says Samuel Bendett at the Center for New American Security, a national security think tank in Washington DC. “There aren’t that many IT workers in Russia to begin with.”

Tech workers who remain in Russia face an uncertain future, as they might be drafted to replenish the Russian military’s ranks.

This research agrees with what I’m seeing every day in the technology industry.

Just last night, a young VC from Russia told me most of his friends have already left the country. One abandoned a job and two apartments to start over from scratch abroad.

They don’t want to be killed or have to kill someone else. And with Putin rounding up young men to fight, even a visit home is out of the question.

These highly skilled workers have more options than anyone else. So it’s no surprise that they’re the first ones off a sinking ship.

The biggest beneficiaries so far seem to be nearby countries. Georgia, Armenia, and Turkey have attracted large numbers of talented young Russians since the invasion of Ukraine.

The United States should stop at nothing to attract these talented young men.

We have nowhere near the number of engineers our massive technology industry needs. Anyone who’s tried to recruit developers knows how hard it is.

These young Russians are top technical talent there for the taking. And the US can offer pay far beyond any company in Turkey or Georgia.

Attracting Russia’s best and brightest is also the ultimate PR coup. Look Mr. Putin, your most talented young people are leaving you and coming to us!

The White House is welcoming Russian asylum seekers. We should double down on this strategy, with a particular emphasis on finding top engineers.

There will be nothing sweeter than using Putin’s own people to beat him.

What do you think of Russia’s brain drain? Leave a comment at the bottom and let me know!

Have a great weekend everyone!

More on tech:

The Autonomous Weapons of the Future…and Present

How I Source Deals

Bridge Rounds: Yea or Nay?

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Russia trip, Apr 2008 – 57” by Ed Yourdon is licensed under CC BY-NC-SA 2.0.

How I Source Deals

Every morning, I sit down at this computer and try to find the next Google. But where is it?


Get the blog before anyone else…subscribe!


When it comes to startups, I cast a very wide net. In a typical month, I look at about 200 companies.

I choose one.

Here are some of the places where I like to fish:

1) Syndicates. I’m a member of almost 100 of these investment groups, which lets me see a ton of deals.

Syndicate leads have usually been investing a lot longer than I. Their networks are extensive.

You can plug into those networks, for a price. You pay 20% of any gains to the syndicate lead.

Especially for newer angels, syndicates are a must. They give you a network on day 1 that would take years to build.

Some angels don’t want to pay the fees syndicates charge. This is foolish unless you already have an amazing network.

80% of something is a lot better than 100% of nothing!

Look for syndicate leads who have been investing at least 5 years with at least 1 unicorn. They have the best networks.

The best syndicate I know of is Jason Calacanis’, here.

2) Venture firms. I have relationships with a number of venture capital firms from attending events and doing deals together.

I send them deals I’m investing in, and they reciprocate. I’ve found some awesome deals this way.

3) Seedscout. Seedscout is an awesome new platform where founders can request intros to investors.

Founders have to pay to use the platform, which eliminates a lot of unserious people. This leaves some really first rate startups.

And unlike a syndicate, there’s no 20% carry to pay.

4) Cold inbound. Unfortunately, I get way too many messages to reply to them all.

I know, I’m sorry!

These entrepreneurs need help. And you never know which one of them might be the next Sergey Brin.

I was able to keep up with these messages at first. But as my network grew over time, so did the time commitment.

I found myself spending hours responding to messages and taking meetings with little to show for it. So I gave myself permission to not respond unless the founder has a warm intro.

But from time to time, I’ll dip into the pool of cold messages when I see something that interests me. You never know which one might be a gem!

For angels and VC’s, looking at a huge number of deals is critical. The best deal out of 10 versus the best deal out of 200 will look very different.

Cast that net wide and you just might come up with a whale of your own!

Investors: how do you source deals? Founders: how do you find investors?

Leave a comment at the bottom and let me know!

More on tech:

‘I Heard 100 No’s a Day’: How Travis Kalanick Built Uber

Bridge Rounds: Yea or Nay?

The Startup Green Lights

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “Needle In A Haystack” by t_buchtele is licensed under CC BY-NC-ND 2.0.

Bridge Rounds: Yea or Nay?

Now that I’ve been angel investing for 18 months, some startups are coming back and asking for more. Should I double down, or stand pat?


Get the blog before anyone else…subscribe!


Zachary Ginsburg of Calm Ventures wrote a great blog post on the subject. He was kind enough to let me excerpt it here.

Zach deals with the toughest re-investment calls of all: bridge rounds. These rounds happen between big, full-fledged rounds like Seed and Series A.

They can be a great opportunity – or a way to throw good money after bad. Below, Zach explains how to tell the difference.

Enjoy!

I saw another GP post about bridge rounds and thought I’d chime in with some quick commentary as I’ve thought about this quite a bit.

There are generally 3 types of bridge rounds I see.

  • Bucket #1 Company’s performing well but not well enough to justify a larger priced round and/or at their target valuation. In this current market where multiples have compressed 50-80%, this is happening more frequently.
  • Bucket #2 Company underperformed for some semi-legitimate reason (supply chain issue, capacity issue, product bug, R&D required more time than expected, revenue lagging traction, etc.), but you build conviction that this is a temporary hitch with the original investment thesis more or less intact, though likely with some added runway risk or other risk.
  • Bucket #3 Company’s underperforming, and the round is one last ditch effort to make something happen i.e., a bridge to death.
  • I’m also adding a #4 & #5 bucket which occur though less often: #4, the company’s raising to provide sufficient runway to get them through an acquisition, and #5, the company is making a soft or hard pivot, but the investors still have conviction in the company leadership. Sometimes this occurs as a bridge, sometimes I see it as a recap.  

I’ve seen buckets #1, #2 and #3 dozens of times. #1 and #3 are generally (but definitely not always…) easy to spot – #2 is trickier.

My view is that if I can get in a bridge round that falls into the 1st bucket – the company’s performing well, but requires additional runway to hit the benchmarks required to raise a larger, priced round at a sufficient markup – I typically take it. It’s one of the few times for LPs to get significant value in a high performing company in venture, and these rounds have been some of our best performing deals. Without disclosing names, here are a few that come to mind:

  • Series A bridge for a B2B SaaS co at a ~$35M pre-money valuation that subsequently raised multiple large, priced rounds, the last taking place at an $800M+ valuation from a tier 1 venture fund. At the time, it was pretty clear this company fell into the first bucket.
  • Series A bridge for a consumer tech company at a $95M pre-money valuation; raised multiple subsequent priced rounds, the most recent one valuing the company at over $1B from a tier1 lead. The company pretty clearly fell into the first bucket.
  • Series A bridge for a consumer tech company at a $20m valuation cap; less than 12 months later, they raised at a $140M valuation from a tier1 lead. It was not clear if this company would succeed and definitely fell into the #2 bucket. In this case, COVID was the reason for underperformance, and while there was significantly more risk, we felt that if they could manage through it, they could quickly raise at a substantial (3-5x+ markup), which they did.
  • Seed bridge for an autonomous tech company at a $20M pre-money valuation. Acquired 1 year later for $250M. The Company was performing well; my general instincts at the time was that this was a bucket #1 deal.

Why would a high performing company offer investors value in a bridge? One common reason is because the company is just looking for a small amount of capital and to close quickly so that it can continue to execute. They’re less concerned with the small dilution hit, and thinking bigger picture, and will very likely more than make up for it in the next round when they actually raise a significant amount of capital.

These are just my very high level thoughts to give you a sense of how I view the bridge landscape. All bridges are not bad and as mentioned, many have been amazing performers for us. On the other side, I’ve invested in bridges that I thought fell into bucket #2, but ended up being #3 (one comes to mind, and it was extremely disappointing). It’s a judgement call; when you’re right, the upside can be substantial and if you’re wrong you can lose your own capital and LP capital fast. From an LP perspective – I’d judge the deal on its merits (is this a good deal or a bridge to death; are the reasons for the bridge versus a priced round legitimate), and I’d make sure the round provides sufficient runway (min 12 months runway; 18-24+ better) to avoid a quick death. 

I love the way Zach breaks down every possible scenario. I agree 100% that if you can invest in a company that’s growing fast at a similar price to what you paid a year ago, that’s an amazing bet.

Do you invest in bridge rounds? Why or why not?

Leave a comment at the bottom and let me know! See you tomorrow!

More on tech:

The Startup Green Lights

‘I Heard 100 No’s a Day’: How Travis Kalanick Built Uber

Why I Just Invested in ProsperStack

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order. 

Photo: “bridge” by barnyz is licensed under CC BY-NC-ND 2.0.

Latest Report: AMC Fails to Deliver Hit Over 2 Million

Fails to deliver in shares of AMC Entertainment Holdings have hit over 2 million shares, according to a new SEC report released this week.


Get the blog before anyone else…subscribe!


Failed trades peaked at 2,161,808 shares on September 28th. Fails to deliver remained elevated through the end of September, the last day covered in the report.

AMC’s new preferred shares, trading under the symbol APE, also saw large numbers of failed trades. They peaked on the same day, at 466,507 shares.

I find it suspicious that fails to deliver in both shares would peak at the exact same time. My hunch is that hedge funds launch coordinated attacks on both share classes at once.

One powerful weapon in their arsenal is naked short selling. This involves selling short shares you never borrowed.

Naked shorting is a powerful way to push down a stock’s price. If you never have to find shares to borrow or pay interest, you can short as many as you want!

Naked short sales often leave a trail of failed trades. You can’t settle a trade when the shares never existed.

Naked short selling is illegal in most circumstances. But why let that trouble you?

Another key piece of evidence is how out of line AMC’s fails to deliver are compared to much larger stocks. Here’s a snapshot from September 28th:

Alphabet (Google): 92

Amazon: 21,012

Apple: 11,083

Microsoft: 60,869

AMC: 2,161,808

APE: 466,507

These tech giants are hundreds of times the size of AMC. So why does AMC have dramatically more trades failing to clear?

Perhaps the tech giants are too big for hedge funds to attack.

Our markets rely on the confidence of investors. But it’s hard to maintain that confidence when stocks see huge numbers of failed trades and no one investigates.

What do you think of the chaotic market in AMC shares? Leave a comment at the bottom and let me know!

More on markets:

New Report: Millions of Fails to Deliver in AMC and APE Shares

Tiger Global Down 52% — Losses Over $18 Billion

Hedge Fund Manager’s Arrest Shows How Market Manipulation Works

Get the blog before anyone else…subscribe!

If you found this post interesting, please share it on Twitter/Reddit/etc. This helps more people find the blog! 

Save Money on Stuff I Use:

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

I’ve used Misfits for years, and it never disappoints! Every fruit and vegetable is organic, super fresh, and packed with flavor!

I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $15 on your first order.