Tremendous

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!

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.

Photo: Peter Thiel’s Founders Fund got it right, as usual. “Peter Thiel” by jdlasica is licensed under CC BY 2.0.

Venture Funding Down 65%

March 9, 2023

Raising money just got harder. Global venture capital funding fell 65% in February from a year prior, according to a new report from S&P Global Market Intelligence.

Get the blog before anyone else…subscribe!

As an investor, I see the funding freeze every day. Many startups I meet are completely out of money and facing liquidation.

Here are some trends I’m seeing in today’s market:

Fewer Deals Getting Done

In general, I see a lot fewer deals happening.

Everyone has slowed down, from big VC firms to syndicates to individuals. Deal volume seems to be down by around half.

Even when a great company is raising and the deal gets done, it often doesn’t fill up.

Valuations Are Down

In 2021, I routinely saw seed stage deals at $25 million, $50 million, even $100 million!

Now, a typical seed stage deal is more like $8 to $12 million. I don’t see many above $18 million.

Strong seed stage companies usually have about $200,000 to $500,000 a year in revenue.

Poor Business Models Are Unfundable

In 2021, all you needed was growth. No one cared how you got it.

Today, growth has to be cash efficient. If your unit economics aren’t solid, it’s hard to raise.

Let’s say it costs you as much to acquire a customer as you’ll ever make from them. A business like that can never be profitable.

VC’s don’t want to throw more money at a broken business model.

Pre-Revenue Companies Are In a Tough Spot

If you have no revenue, you’re totally dependent on outside funding. That funding is now much harder to get.

What’s more, you don’t have a revenue track record to show investors.

Getting those first customers just got a lot more important.

Profitability Is the Trump Card

If you can tell a VC you’re profitable in 2023, you’ll impress him. You also won’t need his money.

That’s a great position to be in, especially in a down market. You can dictate the terms or just wait until markets recover.

2023 belongs to the founders that can control their own destiny.

What are you seeing in markets today?

Leave a comment and let me know!

More on tech:

Beware Pre-Revenue Companies

Build in a Small Town!

Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

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:

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!

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.

Beware Pre-Revenue Companies

March 8, 2023

What’s scarier than a clown? A pre-revenue startup with a $5 billion valuation.

Get the blog before anyone else…subscribe!

That was autonomous trucking startup Embark Trucks, which now faces liquidation. From Crunchbase News:

Autonomous trucking startup Embark Trucks capped off one of the faster riches-to-rags stories of the SPAC era, announcing that it is laying off most employees and winding down operations.

The planned closure comes just 16 months after San Fra1ncisco-based Embark went public through a SPAC merger at a target initial market capitalization of $5.16 billion. Even by the bubblier market conditions of the time, the deal set an astounding valuation for a pre-revenue company, with backers touting its “sophisticated self-driving software,” built to navigate trucks on long-distance freight trips.

By all accounts, founder Alex Rodrigues tried his best. But the demise of Embark shows just how dangerous it is to invest in pre-revenue companies.

As an angel investor, I never touch a pre-revenue startup.

Maybe that pre-revenue company becomes the next Google. But today, it’s completely reliant on fundraising and doesn’t have a single paying customer.

The sad truth is most pre-revenue companies will never make a dime.

As an investor, you have to play the odds. If you invest in pre-revenue companies, you will lose your money the vast majority of the time.

Once those first customers roll in, you have a much better idea what your market is. You can also look for a growth trend.

What’s more, the company is no longer entirely dependent on the next round of funding.

But what if you miss your chance to invest?

Investors have to take that risk. And never forget, startups are always raising money.

More than likely, there will be numerous chances to invest in the future.

Best of all, a pre-revenue company and a company with some early revenue often go for about the same price! What’s the better bet — a company with no customers at a $5 million valuation or a company with $200,000 a year in revenue at $8 million?

Unless you’re an extremely experienced investor, the latter bet is better 10 times out of 10.

Back to Embark….if a pre-revenue company at $5 million is a bad bet, why would you pay $5 billion? Even with a few customers, that price would be rich.

Had investors simply waited until they signed 3 paying customers, they could’ve averted billions in losses.

So, should we ignore all pre-revenue companies?

No. Actually, I meet with them regularly.

Sometimes a great team has an awesome product that they’re just starting to sell. It’s good to meet them early and get the inside track.

But it’s not the best time to invest.

What do you think of pre-revenue startups?

Leave a comment and let me know!

More on tech:

Build in a Small Town!

Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

Let’s Double the Human Population

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:

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!

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.

Build in a Small Town!

March 7, 2023

For decades, if you wanted to build a startup, you had to be in Silicon Valley. But today, the best place might just be Tennessee.

Or Omaha. Or Little Rock.

Get the blog before anyone else…subscribe!

In today’s market, building away from the coasts offers some huge advantages:

1) Lower burn. This is critical in today’s tough fundraising market.

When I meet with companies in NYC and SF, they often have massive burn rates. Part of the reason is high cost of living.

If you rent is $2000 or $3000 a month, you have to pay yourself and your team more. But what if you could rent a 1 bedroom for $750?

In Biloxi, MS, you can!

This means your seed funding will last much longer. That gives you precious time to find product-market fit.

2) Exposure to different opportunities.

I recently met with a company in a small town in the Midwest. They’re building SaaS for meatpacking.

No one in New York or SF is going to think of that. After all, we don’t have much of a meatpacking industry!

The middle of the country simply has different industries than the big coastal cities. And they need tech too!

Would you rather sell a unique, valuable tool to meatpackers or try to sell the 10th team collaboration app to an over-SaaSed startup?

3) Global teams. In the past, you had to be in Silicon Valley or New York because that’s where the talent was.

Now, remote work is common. A startup based in Iowa could hire a developer in SF and a product manager in Brazil.

This levels the playing field, big time.

4) Fundraising is on Zoom. Today, I met with founders in Nigeria, Canada, New York and DC.

Many of the investors are still in the Bay Area and New York. But the founders are everywhere.

Even as COVID recedes, fundraising has stayed on Zoom. It’s so efficient, I don’t think we’ll ever go back.

This means that a Kalamazoo startup and a Palo Alto startup are on similar footing. They both pop up as boxes on the VC’s screen!

If you have a great product and lots of happy customers, investors will take you seriously.

Wrap-Up

There are still some advantages to being in a tech center. You can meet investors at in-person events and learn from other founders.

But balanced against the high costs, you’re better off in the heartland.

Where do you think is a better place to build, SF/NYC or a smaller town? Leave a comment and let me know!

More on tech:

Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

Don’t Go Into Debt to Fund Your Startup

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:

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!

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.

Everything You Always Wanted to Know About Venture (But Were Afraid to Ask)

March 6, 2023

What does everyone get wrong about angel investing? What’s the future of Twitter? I dug into that and more recently at Starta VC!

Get the blog before anyone else…subscribe!

A bunch of smart young interns at Starta peppered me with questions for an hour. Their knowledge and depth of thinking really impressed me.

Here are some of my favorite moments:

3:38: How the book Angel led me into angel investing

7:52: Misconceptions about angel investing

9:12: Founder power struggles

11:40: Running out of money isn’t the #1 killer of startups

18:20: How I evaluate founders

42:27: The only reason VC’s exist

44:15: How to network and why

45:40: Opportunities in the down market

52:11: What happened to Clubhouse?

54:56: Twitter prediction

These young people are the future of our industry. The future is bright.

What parts did you like? What did I get wrong?

Leave a comment and let me know!

More on tech:

Let’s Double the Human Population

Don’t Go Into Debt to Fund Your Startup

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:

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!

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.

Let’s Double the Human Population

March 3, 2023

Sounds crazy, right? But doubling our population is the goal of one of the hottest new startups, Figure. The catch: half will be robots.

Get the blog before anyone else…subscribe!

Figure emerged from stealth yesterday, unveiling a humanoid robot. It plans to build one for every person on earth, doubling our productive capacity.

💫 WE’RE LIVE 💫

Today, Figure emerges from stealth.

We’re building autonomous humanoid robots.

One robot for every human on the planet.

Here's what the future will look like: pic.twitter.com/McEXbHtRpo
— Brett Adcock (@adcock_brett) March 2, 2023

Figure is addressing a very real problem: slowing population growth. Worldwide human population is expected to peak in 2100.

Some countries are already shrinking, including China and much of Western Europe. For countries like Japan and Russia, deaths outnumber births by 2:1 or more.

But whether population is rising or falling, jobs must be done. For many countries, the solution may be robots.

Figure’s robot mimics a small human. It’s 5’6”, 132 pounds and walks about the same speed we do. Being shaped like a human lets it operate smoothly in an environment built for mankind.

Is this creepy?

Yeah kinda. But unless humans decide to have more babies, it’s hard to see an alternative.

In the near term, human workers (just the need to specify tells us something) are likely to view Figure as a threat. Indeed, Figure aims to drastically cut labor costs.

From the company’s website:

Today, manual labor compensation is the primary driver of goods and services prices, accounting for ~50% of global GDP (~$42 trillion/yr), but as these robots “join the workforce,” everywhere from factories to farmland, the cost of labor will decrease until it becomes equivalent to the price of renting a robot, facilitating a long-term, holistic reduction in costs.

This means much lower wages for manual laborers.

But I’m optimistic that humans will find safer, more creative and better paid work. After all, YouTubers and yoga instructors barely existed 10 years ago.

Regardless of desirability, making 8 billion of anything is incredibly hard.

Let’s take another big, complicated product: cars. Global automobile production is only about 80 million per year — just one percent of the number of robots Figure hopes to build.

Whether Figure succeeds or not, I’m certain about one thing. VC’s are going to eat this up. I can practically hear the armored cars pulling up in front of Figure HQ now, ready to dispense billions.

There’s no down market for stuff like this. It’s a giant opportunity and involves the current hot thing, AI.

I just wish I had a slice!

Do you think Figure’s robots are creepy, awesome, or creepy and awesome?

Leave a comment and let me know!

Have a great weekend everyone!

More on tech:

From Design to Code in Seconds with AI

ChatGPT for Medicine

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:

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!

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.

Don’t Go Into Debt to Fund Your Startup

March 2, 2023

In 2023, startups are hitting the wall. Many are down to their last few dollars. But how about a loan?

Get the blog before anyone else…subscribe!

Going into debt is a mistake I am seeing more and more founders make.

Debt comes in a variety of forms. Founders use bank loans, SBA loans, and even credit cards to fund their businesses.

But you should not go into debt for an early stage startup.

Avoid Debt Like the Plague

Most early stage startups fail. Best case scenario, about 70% of my seed stage bets are going to 0.

For me, that’s fine. I can afford to lose the money. But for a founder, an indebted startup going to 0 can be disastrous.

Most business loans require a personal guarantee. That means that if you borrow money and can’t pay, the lender can (and will) come after you personally.

This means you could lose your bank accounts, 401k, even your house. No startup is worth that.

Losing your business is hard. You’ll be emotionally drained and forced to look for a job.

You don’t want to add personal bankruptcy to those problems.

What About Venture Debt?

Venture debt is different.

Venture debt can work for some later stage companies with large and predictable revenues. But it’s not a viable path for an early stage startup.

What’s more, venture debt generally doesn’t involve a personal guarantee. If the company blows up, you can walk away.

But Early Stage Startups Raise Convertible Debt!

Perfectly true, although SAFE’s are more popular these days. But convertible debt works very differently from most business and credit card debt.

Convertible debt operates more like equity.

You don’t pay the interest in cash. Instead, you just give the investor extra shares.

And if the company doesn’t make it, the founder can walk away. There’s no personal guarantee.

Wrap-Up

I don’t want to see you lose your business. But we have to admit, it’s possible.

If that happens, you want to be free to walk away and start over. Clean slate.

What you don’t want is to compound a bad situation with losing your house and all your money.

Be very careful with debt. And always work with an attorney who knows tech startups inside and out.

Win or lose, you must live to fight another day!

Do you see startups going into debt in this tough market?

Leave a comment and let me know!

More on tech:

I See Negative Gross Margin Businesses

Dawn of the Dead VC’s

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:

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!

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

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.

The Kosher Kings of Reserve Cut

March 1, 2023

Tiny tacos hit the table, oozing with juices of unctuous brisket. Good thing I got here early!

Get the blog before anyone else…subscribe!

Reserve Cut is a kosher steakhouse in the Financial District. Despite the emphasis on beef, Reserve Cut has something for everyone, from vegans to sushi lovers.

It was time for another taco. How can I grab one without anyone noticing?

Better to ask for forgiveness than permission.

Next from the kitchen was a form of sushi I’d never seen. Rice was compacted and crisped to form a substrate for immaculate salmon.

Oh and there’s green stuff too! Scrumptious salad in fact — but no one else at the table seemed to notice. 🙂

The table grew tense with anticipation as the hour of reckoning approached. Entree time!

I had to be that guy. I ordered fish at a steakhouse.

No shame in my game — the Chilean sea bass was cooked to perfection. The chef knew exactly when to kill the heat, yielding a flesh flaky, tender and juicy.

The sauce was a silky smooth lemongrass citrus concoction. Acid is always a good pair with fish.

Feeling all healthy, I took the natural next step. I ordered a chocolate lava cake with vanilla ice cream.

As I cracked open the cake with my spoon, a river of fudge cascaded across the plate. Carefully, I scooped it up, grabbed a bit of cake, and surgically topped it with ice cream.

The perfect bite.

Reserve Cut is just off Wall Street and everything on the menu is kosher. But even for us Gentiles, it’s a heck of a meal.

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

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!

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.

Goldman Sachs Under Federal Investigation

February 28, 2023

Goldman Sachs is under multiple federal investigations of its consumer business. The Consumer Financial Protection Bureau and the Federal Reserve are probing areas from credit cards to bank accounts.

Get the blog before anyone else…subscribe!

From a new report in the trade journal PYMNTS:

…in its annual report — filed Friday (Feb. 24) — Goldman amended its earlier statement to say it was cooperating with the CFPB “and other governmental bodies relating to investigations and/or inquiries concerning GS Bank USA’s credit card account management practices.”

But that’s not all:

The news comes a little more than a month after reports that the Federal Reserve was investigating Marcus, Goldman Sachs’ consumer business. A report by the Wall Street Journal citing unnamed sources said the Fed is examining the bank’s oversight of the consumer business, its management and governance, and how it handles customer problems.

These investigations could result in huge fines or worse. However, no wrongdoing has been proven thus far.

What we do know is that Goldman is losing a fortune on its consumer bank. Losses total over $3 billion at several units since 2020 alone.

Consumer banking was supposed to help Goldman diversify.

Its mainstays of mergers, IPO’s and trading are boom and bust businesses. But consumers tend to keep their bank account and credit cards in the same place for many years.

Instead, Goldman is posting its worst quarterly results in a decade. Add that to numerous scandals and Goldman is looking like the weak man on Wall Street.

Now that multiple federal agencies are poking around inside Goldman Sachs, there’s no telling what they’ll find. I’m willing to bet there’s more chicanery we don’t yet know about.

I was always reluctant to open a Marcus account, despite the great rates. Doing business with a company with such a checkered history scares me.

I guess I’m not alone.

What do you think investigators will find at Goldman?

Leave a comment and let me know!

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!

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.

Photo: Goldman Sachs CEO David Solomon. “Unleashing the Potential Of Women Entrepreneurs Through Finance and Markets” by World Bank Photo Collection is licensed under CC BY-NC-ND 2.0.

Sequoia Dumps Citizen: Ruthless, or Reasonable?

February 27, 2023

When a startup is struggling, what’s the duty of investors? This question is front and center as Sequoia has walked away from controversial startup Citizen, cutting it off from funding and resigning from the board.

From a report out this weekend in the Financial Times:

Sequoia Capital has resigned from the board of controversial crime-tracking app Citizen after it told the company it would not participate in its latest attempt to raise capital amid a funding crunch for tech start-ups.

[Sequoia partner Mike] Vernal resigned from the board earlier this month after Citizen’s management approached venture investors with a proposed deal to raise new funds and recapitalise the business by restructuring its debt and equity, said two people close to the deal.

The deal will virtually wipe out Sequoia’s investment. The firm’s decision to stop funding Citizen has some in Silicon Valley crying foul:

One of the people close to Citizen said Sequoia’s decision was “ruthless” and that, as its earliest backer, it had “abandoned” the company in its hour of need.

Across Silicon Valley, venture capitalists are carrying out an “internal triage” of the “companies that matter . . . and those where the [return on investment] makes continuing to invest irrational”, the person added.

There is no public information on Citizen’s performance. But clearly, it’s not doing well

Successful startups don’t see their equity wiped out.

So Sequoia is faced with a tough choice. Should it give more money to a struggling company, or cut its losses?

It chose the latter. And since Sequoia will no longer be a meaningful investor in Citizen, Vernal naturally stepped down from the board.

The “hour of need” hand-wringing misses the point. No one is entitled to venture capital.

If a company isn’t performing, how can Sequoia put more of its investors’ money where it’s likely to be lost? Sequoia has a responsibility to the universities, pensions, and charities it works for.

We also have no idea what internal dysfunction may exist at Citizen. Its founder has shown poor judgment in the past:

In 2021, its founder Andrew Frame faced scrutiny for offering a reward to find a man wrongly suspected of arson. Prior to Citizen, Frame created a similar app called Vigilante that was banned by Apple over content concerns.

Declining to re-invest doesn’t mean Sequoia won’t support Citizen in other ways. The firm can provide advice, introductions, and more.

But this is business, and capital goes to the people who can best use it.

Whenever you get a dollar from an investor, assume it’s the last. Find paying customers and get your company on firm footing.

Then, VC’s will be begging to invest. And you can be the one to choose.

What do you think of Sequoia’s decision?

Leave a comment and let me know!

More on tech:

Sequoia Cutting Back on China Investments

The Hard Thing About Hard Things

I See Negative Gross Margin Businesses

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:

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!