How She Can Recover
I see panic in her supporters. Here in Silicon Valley, they are predominate. The worry is palpable. Yesterday 538 had her odds of winning at 52%, uncomfortable close to Trump at 48%, and way down from her post-convention peak at 96%, a virtual lock. What she is doing is not working. Can she recover?
Let’s diagnose the problem: she is using tired, old tropes. It’s as if she is still in the ’90s. Or, the ’80s: the attacks on Trump are eerily similar to those on Reagan, 36 years ago. He was a cowboy, he‘s a…
Tech booms emerge like the Cambrian Explosion of life 500 million years ago — a period of rapidly filling every ecosystem niche with experiments. Or, if you like, like Microwave Popcorn. After heating up, the new ideas begin popping, more and more rapidly; then suddenly slow, down to an occasional pop, with some uncooked kernels left behind.
The iPhone and cloud software unleashed our popcorn, until practically every app idea had been tried, multiple times; and businesses had begun to feel SaaS fatigue of too many subscriptions. …
All I can say, quoting Bart Simpson, is Doh!
Founders, take note — you are better off fixing this and not inadvertently driving your post-money valuations up too high.
It is about time this came out. We have dealt with this from the beginning of Bullpen Capital, five years ago; it is easy for the VCs who price the round after capped converts to handle it. Surprisingly, many haven’t, so we have been the inadvertent beneficiary in our capped note investments.
Bullpen Capital focuses on investing in the fast growers coming out of the seed stage. We have watched Bitcoin with interest but seen fast growing valuations get way ahead of real business growth. As a currency, it was the worst performer of 2014, falling more than the Russian Ruble. Ouch.
Our macro concern is that most BTC companies haven’t gotten out of the starting gate.
Is BTC a technology in search of market?
The focus has now shifted from the currency to the blockchain. It’s all about the chain. The blockchain has tremendous potential, but this sort of pivot is not a good sign.
Our micro concern is “being Slacked.” Coinbase could be the Slack of Bitcoin, raising gobs of money and secretly getting regulatory approvals. The barriers now facing other exchanges are huge.
The conventional wisdom of venture capital has become that only 10–15 deals each year matter: the so-called Rule of 15.
This rule emerged from a study done by Andy Rachleff of Benchmark, now teaching at Stanford. In the twenty years between 1985 and 2005, he found that around 15 deals per year got to over $100m of revenue, and these deals drove 90% of all returns to the venture industry. Ok, if that is the case, the smart strategy is to do whatever one can to invest in those deals!
If one could figure out ahead of time which deals…
Danielle Morrill of Mattermark put out a remarkable graph that seems to show a Seed Bubble popping in the last few quarters (see chart above). I have also seen charts from CBInsights showing a drop in seed financings in 2014, the first YoY drop in five years, yet still an increase in overall seed funding.
Danielle notes that the size of the drop may be a data lag — many Q4 financings haven’t been reported, some super-sized seed financings may be mischaracterized as Series A, etc. Still, directionally something has changed: seed financings down, but overall seed funding still up.
Most times when people talk about conferences, they say the “networking” was the best part. Damning with faint praise, or just low expectations from so many mediocre events. I’m with them.
My fund Bullpen Capital, along with Venture51 and Vator, are sponsoring the first Post Seed conference in SF this week. We have brought together people pioneering post-seed investing, and we hope this is the first of what we expect to be a series of Post Seed events.
Seed is not an event but a process. Most startups now pursue multi-stage seed rounds before seeking traditional venture capital. The reason for this is structural:
Lawrence Coburn had ridden the dot-com bubble up – and down. His new company, DoubleDutch, is scaling fast and was planning to raise a big round – when he faced the public market drop in SaaS valuations.
Was bubble history about to repeat? What to do? Raise at a lower value? Ride out the downturn? Or something else?
Let me lay out Four Lessons from the bubble:
The first lesson is to react with prudence and thought, not panic.
With the wisdom of hard experience, described in this NYT…
When I started Covad fifteen years ago, we envisioned a rapid ascent to a broadband future via DSL. I had also done analysis for Bell Labs which strongly suggested that a Fiber to the Neighborhood approach (FTTN) would be the best for the long term future of the copper phone companies; they would use DSL for the last mile, after the fiber, and would steadily push fiber all the way to the home in new build and rebuild areas. It nonetheless took almost 15 years for AT&T to finally put fiber nodes near my home.
I was finally getting a…
Managing Partner at Bullpen Capital