Tremendous

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Down Rounds Everywhere

April 24, 2023

“It’s an absolute bloodbath.”
Cameron Lester, Jefferies.

Down rounds in unicorn startups are everywhere in today’s funding crunch. Should we be worried?

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From a report out this morning in Bloomberg:

Toward the end of 2022, down rounds hit near five-year highs, according to research firm Prequin. And early data for the first quarter shows roughly 7.5% of all venture funding rounds in US were down rounds, according to PitchBook — a number it expects will climb. High-profile companies like financial giant Stripe Inc., Swedish payments startup Klarna Bank AB and security firm Snyk have already taken valuation cuts, and others like Blockchain.com are said to be in talks to do the same.

Down rounds feel rotten.

You’re no longer uppy and to the righty. Founders and employees could lose millions in paper gains. Investors’ performance takes a hit.

Sounds scary right? Well, it’s about to get worse:

“We expect down rounds, especially toward the second half of this year, to really pick up,” said PitchBook analyst Kyle Stanford.

Many advise companies that a down round is better than no round, and they should take the money at whatever terms available.

I disagree.

Big, late-stage startups could reach profitability. Then, they have no need to raise. If they choose to do so, it will be on their own terms.

But that’s hard!

Sure it is. No one enjoys layoffs.

Okay, maybe Mark Zuckerberg.

But if a billion dollar business cannot stop losing money, is it a viable business? How could a company supposedly be worth so much but completely unable to turn a profit, even of $1?

Reaching profitability is a great exercise for any business. If your gross margins are negative, you’ll find out in a hurry.

Finding out your business isn’t viable is hard. But at least you know.

Then, you have a chance to retool it before it’s too late.

You also have a chance to grow into an enduring, highly profitable public company. That’s our goal — right?

Perhaps not.

For too many startups during the bull market, fundraising became an end in itself. They forgot about building a viable business because they didn’t need to!

After all, there was always another round coming.

Those days are over. And good riddance.

But we investors can’t blame founders. We enabled them, every step of the way.

The past is the past. What matters today is to build and fund viable businesses that become major, enduring companies.

Anything else is noise.

How do you view down rounds? Leave a comment and let us know!

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From Seed to $10M ARR

I See Negative Gross Margin Businesses

VC Whiners

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Fasting for a 53 Pound Weight Loss

April 21, 2023

Did anyone not get fat during COVID?

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I know I did. With snacking one of the few activities still permissible by law, I ballooned up to 219 pounds by the summer of 2021.

Little things show you it’s gone too far.

Bending over to tie my shoes was no picnic. Ahh….picnics….

I knew I had to make a change. And while moderation can be a tough balance, you know what’s pretty simple?

Eating nothing.

I experimented with various fasting schedules until I found one that resulted in weight loss, week after week.

Here’s how I did it:

Schedule

Sunday: Skip breakfast and eat dinner only. (I’m not really into lunch.)

Monday: Fast all day.

Tuesday: Eat a normal, moderate diet.

Wednesday: Same.

Thursday: Fast all day.

Friday: Cheat day!

I eat as much as I want all day, including my favorite foods. Cookies, ice cream, chips, you name it.

But those foods are off limits the rest of the week.

Consuming a lot of calories one day per week can keep your metabolism high. It tells your body not to go into “starvation mode” and expend as little energy as possible to survive.

After all, the feast is coming!

I find including a cheat day makes it much easier for me to eat healthy the rest of the week.

It’s not that I can never have cookies. Just not until Friday.

Saturday: Eat a normal, moderate diet.

Workouts

I also work out five times a week. I generally do 4 cardio sessions of 30 minutes each and a strength session of about 30 minutes.

I try to put as many workouts as I can on fast days. Fasting and cardio together may improve longevity.

Electrolyte Supplementation

The key to fasting is keeping electrolyte levels in a healthy range. When your electrolytes get low, your life sucks.

You’re tired, your muscles ache, and your heart can race. Just trust me, it’s not pleasant.

So I never fast without electrolyte supplementation. I like to consume 4-6 eight ounce glasses of electrolyte replacement drink per day.

I usually buy a powdered electrolyte mix from Dollar General, which works great. I’ve also had good results with Liquid IV and Pedialyte.

Isn’t Fasting Dangerous?

Actually, fasting has a ton of health benefits.

In addition to weight loss, you can improve insulin resistance and immune response. You may even live longer too!

But of course, everyone’s body is different. Discussing it with your doctor is always a good idea.

Wrap-Up

If you’re getting chubby, you probably have a hard time with portion sizes. I do too!

That’s the magical thing about fasting. Portion sizes are easy.

Zero!

You also have a ton of free time to work, enjoy the outdoors, and pursue hobbies. It’s amazing how time consuming cooking, eating, and clean-up can be.

If you give it a shot, let me know how it goes! And when your fast is over, get one of these. 🙂

Have you tried fasting? Why or why not?

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From Seed to $10M ARR

April 20, 2023

I hadn’t heard from one of my companies in over a year. I was starting to get worried. Turns out, they were busy.

When one of your seed investments is hitting $10M ARR, man…🤯
— Francis Santora 🐷 (@FrancisPSantora) April 19, 2023

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When I heard from the founder yesterday, I was stunned. The little seed stage SaaS company I backed in the summer of 2021 was now doing $10 million a year in revenue.

Wow!

When you see one of your companies go from a fledgling startup to a significant business, it’s an incredible feeling. Here are a few things I learned along the way:

Have a Clear Value Prop

I can’t get into specifics on what the company does. But its value proposition to customers was very clear.

Customer after customer dramatically increased revenue with their software. It pays for itself many times over.

When you have a clear value proposition, sales gets a lot easier. And as that sales team cranks, your company grows fast.

Metrics Matter

On any conceivable SaaS metric, these guys were crushing it when I invested. Revenue was growing 25% month over month, LTV was 50 times CAC, and the company was already at breakeven.

The companies that were most successful before you invested continue to be the most successful afterward.

Don’t let anyone tell you the numbers don’t matter. They matter a lot.

Did I Help?

Honestly, I’ve probably added less value to this company than practically any other in my portfolio.

Why? Because they never need any help!

I introduced them to a few engineers early on. But by and large, I’ve just sat tight.

My most successful companies usually have few if any asks for investors. That said, I’m there for them if things ever turn tough.

No Distractions

I’ve never seen this founder on Twitter. He has yet to turn up at a networking event.

Sometimes the most vocal people aren’t the ones who are really crushing it.

The team also never got distracted.

They built a relatively simple but very useful product. Then they relentlessly scaled it.

They didn’t have a metaverse strategy. They never released an NFT.

They just stuck to their knitting and signed up more customers.

This is Repeatable

What struck me more than anything is how repeatable this investment is. I wish I could tell you I had a “Eureka!” moment and saw the future clearly.

I just reviewed the product, looked at the traction, and met with the founder. The product seemed very useful, traction was great, and the founder impressed me.

So I gave them some money. Simple as that.

I don’t see any reason why I or another investor couldn’t find 3 more of these. In fact, I intend to!

What have you seen in highly successful startups? Leave a comment and let us know!

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VC Whiners

Bear Market Hits Climate Tech

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VC Whiners

April 19, 2023

Turns out having coffee meetings can be awfully stressful. Or so say some VC’s complaining of “burnout.”

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From an article out today in Sifted:

Thirteen investors that Sifted spoke to described seeking intensive professional help, taking months off work and having friends and loved ones cut ties with them due to the stresses of the job. They described having to be on call for partners at all hours, losing huge chunks of their free time to attend the “right” events and facing pressure to be constantly accessible through social media.

Gee, were the canapés not up to snuff?

Much of this stress is the result of intense pressure from a fund’s investors — limited partners — to produce good returns.

Let’s stop and ponder the absurdity of that statement. Producing good returns with LP money is precisely what the VC said they would do!

https://twitter.com/rod_mallo/status/1648581719350472704

If I own a shoe store, and you come in and ask me for a pair, should I complain of the pressure to bring you some Nikes?

We VC’s and angel investors must remember we are in an enormously privileged position.

When I was little, my mother worked as a home health aide for minimum wage. She hurt her back and had her achilles tendon run over by a heavy, motorized wheelchair.

And I never heard her complain 1/10th as much as these millionaires.

Being a VC is an unusual job. No one has to do it.

So if you don’t want to do the job, I suggest you get out.

Can being an investor wear you out a little bit sometimes? Sure.

That’s when you shut down the laptop for the day and put on Better Call Saul.

Do you get to the point where every pitch starts to sound the same? Yes, after a while.

Then take a little vacation! If Twitter is any indication, VC’s spend plenty of time on the slopes already.

We investors are lucky. We get to help decide what the future will be.

Founders rely on us. They need capital, introductions, and advice.

And their needs don’t always come during normal business hours.

Jobs and livelihoods are at stake. We can either take it seriously, or we can start looking for another job.

And let’s never forget that our work is dramatically easier than the founders’. They bust their butts on our behalf, day and night.

We owe it to them to keep our complaints to ourselves. And if you ever hear me sounding like these folks in Sifted, please, give me a kick in the pants.

What do you think of life as an investor? Leave a comment and let us know!

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Bear Market Hits Climate Tech

To Riyadh, Hat in Hand

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Beef Tartare and More at Locanda Verde

April 18, 2023

As I slid through the boisterous crowd, my mind was completely focused. Only one thing mattered: beef tartare.

This is Locanda Verde, an Italian restaurant in Tribeca, New York City.

Locanda verde means “green inn” in Italian. The name is apt — there’s an inviting rear garden.

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“Have you been here before?” I asked the lady next to me.

“Never.”

“Try the beef tartare.”

“I see.”

Okay, I guess she wasn’t as excited as I was. More for your old buddy Francis.

Soon, the mythical dish hit our table. There was only one question — if I grab for it instantly, will I seem gauche?

Caution to the wind!

I gobbled one of the little beef toasts, delighting in the savory flesh dressed with fine olive oil. The bread is an airy sourdough, a perfect complement.

Eyes akimbo. Will anyone notice if I grab a second?

It seems not. Perhaps my dinner companions were a bit put off by raw meat.

Oh, there were other dishes. And they were superb.

I particularly loved the pillowy ricotta, surely one of the house’s most popular plates.

Nor is the mushroom pasta to be missed. The chef uses a mix of mushrooms, always the best way to show these fungi at their finest.

And never forget cake!

I contemplated a second piece of the chocolate tart, but even I couldn’t do it. I’ve failed you, I know.

The tart is rich and permeated by the flavors of cocoa and espresso. There’s even a slight crust of powdered sugar, carmelized by torch.

Locanda Verde takes the small things seriously.

Why serve a tart when you can serve a bruleed tart? Why use one kind of mushroom when you can use three, each with a distinct flavor?

It’s those little details that add up to a fine meal. My hat is off to Locanda Verde for doing honor to this food I love so much.

What’s your favorite Italian spot? Leave a comment and let us know!

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BBQ Stingray at Urban Hawker

April 17, 2023

“We should try the barbecue stingray,” she exclaimed.

“Are you serious?”

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Oh, she was. So on a recent New York evening, my friend and I found ourselves digging into something we never knew existed.

This is Mr. Fried Rice at Urban Hawker. Urban Hawker is an outstanding Singaporean food hall in midtown Manhattan that was one of Anthony Bourdain’s last projects.

Hawker centers are a tradition in Singapore, as well as Hong Kong and Malaysia. They serve simple, delicious food to people from all walks of life in a fun, homey setting.

The food is so good that these tiny stands have won Michelin stars, normally reserved for fine dining restaurants. In 2020, UNESCO even listed the humble hawker center as part of the world’s intangible cultural heritage.

Urban Hawker is the only Singaporean hawker center outside Southeast Asia.

Our little hockey puck erupted with lights and vibration — our food was ready! In life, there is no moment more exciting than this.

I gingerly carried the clamshell containers back to our table. Drop them and lose a friend forever.

“When is she going to get back from the bathroom — and can I wait that long?”

Her timing was impeccable. She slid into the booth and we popped open our containers, unleashing the smell of fresh fish and fragrant rice.

The sauce was a wonderful surprise — redolent of hot chili and deeply flavorful. I was rather unsure how to eat the fish, so I started with the massive mound of rice.

Each grain shined with crackly unctuousness. I crudely shoveled rice into my mouth like a bulldog at dinner.

Okay, let’s figure out this fish.

Stingray has a lot of bones. For Americans like me who are less accustomed to fish with bones, it can be a bit of a puzzle.

But as I plunged my fork into its depths, it soon rewarded me. The flesh is delicate and toothsome with a slight whiff of the sea.

My friend’s childhood in China seemed to have given her a distinct advantage. She surgically dissected the flesh with her fork, scraping the tines through the bones like a comb.

“Ah, that’s how you do it.”

It reminded me of when I took a Korean friend out for calzones. I neatly sliced mine and gobbled it down, smile on my face.

After a few minutes, I looked over at my dinner companion.

She had taken the calzone apart, turning it back into something resembling a pizza. Nothing had been consumed.

“How do you eat this?”

I guess she felt a little like I felt with that stingray. But for both of us, once an old hand showed us the way, we never looked back.

For all its problems, this is why I love New York. People from every culture come together and eat good food and are happy.

I hope we can do it for a hundred years. Cent’anni.

What are your favorite restaurants? Leave a comment and let me know!

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

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Bear Market Hits Climate Tech

April 14, 2023

Raising money is hard these days. Even climate startups, a VC darling, are starting to feel the pinch.

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From a Pitchbook report:

In Q1, climate tech startups raised $5.7 billion across 279 VC deals, according to PitchBook data. That’s a 36% decline in deal value and a 31% decline in deal count from the previous quarter. From its peak in Q3 2021, quarterly deal value has fallen more than 50%.

Overall US venture funding fell only slightly in the last quarter. But it too is down over 50% from the peak in 2021.

The bear market hit most startups hard in 2022. But climate tech held up better — until now.

Bad practices purged from the market in 2022 continued in climate tech until recently.

In February, I saw an uncapped note in a climate company. Even generative AI startups don’t seem to be getting away with that.

These notes are a terrible deal for investors. You don’t even know what you’re paying for your shares!

Running a financing like this will attract poor quality investors.

Savvy founders wouldn’t do it, even if they could. They want the best people around the table, period.

In a hot market, loosey goosey business practices proliferate. That sloppiness kills companies once the downturn hits.

I expect to see numerous climate companies go bust soon. That said, they’ll have plenty of company.

Long term, the outlook for climate tech is bright.

The US wants our own energy, produced here, cleanly. That’s true regardless of the business cycle.

Businesses and individuals also want to reduce their energy use. Energy costs money!

If you can produce clean energy or save energy, you can find customers.

I’m still excited about investing in climate tech. I’m mostly looking for SaaS products that can track and reduce energy use.

That product should be easy to sell.

The customer doesn’t believe in climate change? No problem.

You believe in saving money, right? If you don’t believe in saving money, you’re not a businessman.

I encourage climate founders to keep at it! Don’t worry about the macro environment — just build something great.

What do you think of climate tech? Leave a comment and let me know!

Have a great weekend everyone!

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To Riyadh, Hat in Hand

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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.

To Riyadh, Hat in Hand

April 13, 2023

“We came to San Francisco looking for them in 2017. Now . . . everyone is coming to [us].”
Ibrahim Ajami, Mubadala Investment Company (Abu Dhabi’s $284 billion sovereign wealth fund)

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Every hour on the hour, a private jet filled with men in Patagonia vests is landing in the Middle East. What do they want?

What does everyone want? Money.

From a new report in the Financial Times:

Top technology VCs such as Andreessen Horowitz, Tiger Global and IVP have jetted teams of executives to Saudi Arabia, the United Arab Emirates and Qatar in recent weeks, according to people with knowledge of the trips.

These visits come after their traditional North American and European backers contend with an economic downturn that has forced them to rein in private investments.

Here’s what’s going on.

VC’s usual investors are US pensions and endowments. Those guys aren’t investing right now.

Pensions and endowments allocate a certain percentage of their money to venture capital. A typical allocation might be 15%.

But the rest of their portfolio, especially stocks, has been hammered in the past year. Since venture investments aren’t priced daily, those appear to have held up better.

What happens when your stocks are in the toilet and your VC funds haven’t taken big markdowns? That 15% venture allocation has ballooned to 20%, 25%, or more.

So, want to put more money in venture? Yeah, didn’t think so. You’re already overexposed.

But on the other side of the table, VC’s have spent a lot of their funds. They invested rapidly in 2021, and need to raise again so they have something to deploy.

If their normal investors (also known as LP’s) are out, who else is there? Who else has a giant pot of money?

The oil rich nations of the Middle East.

The Middle East is the only game in town for the big VC’s. And the folks in Saudi Arabia and the UAE — they know it.

Now is a great time for them to get huge allocations in the finest funds. They should seize it.

But should the funds take their money?

Some governments in the Middle East have a poor human rights record. If it were me, I would never accept a dime from any authoritarian government, anywhere on Earth.

I just don’t agree with their actions. And frankly, I didn’t need money when I started this business.

However, there’s no reason to paint all of the Gulf with the same broad brush. Some countries are more forward thinking than others.

If a government displays a commitment to treating its people with respect, we should be happy to do business with them.

For smaller funds, the picture gets even more interesting.

Governments aren’t the only ones in the Middle East interested in tech. There are also many wealthy individuals who want a piece of the future.

If that person is honorable, I welcome the opportunity to do business with them, wherever they live.

What do you think of tech in the Middle East? Leave a comment and let us know!

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Why I Still Love Silicon Valley

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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.

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

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

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.

Meet My Latest Investment: TANGObuilder

April 12, 2023

Housing costs are out of control. We all know it — but how do we fix it?

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Construction delays are a major driver of costs. If only we could design buildings easily, get them approved, and break ground sooner!

TANGObuilder makes that possible. This cutting edge software makes structural engineering a breeze.

Designs take less than half as long. Projects start months earlier.

TANGObuilder’s approach is unique. CEO Martin Diz is a PhD aerospace engineer who noticed that structural engineering was decades behind aerospace.

So Martin and his team took the best tools from aerospace and applied them to construction. TANGObuilder helps engineers avoid costly errors, cut unnecessary materials, and more.

Martin’s unique insight and strong customer focus excites me. And so does living in a rock solid home that costs less!

I’m delighted to be a new investor in this great startup. Check out TANGObuilder and build something great!

What do you think the future of housing will be?

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Why I Still Love Silicon Valley

Seedscout: Where Underestimated Founders Win

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