What Doesn’t Kill You: Reflections From A Founder

Previously Published January, 2023

As 2022 came to a close, I had the time to reflect on what has been one of the most complicated years in my career — as a founder, entrepreneur, CEO and leader.

This year presented multiple events and challenges of all kinds. The economic environment — inflation, interest rates, company earnings, a looming recession; the unjust and terrible war in Ukraine; the stock
market slump especially the tech sector, taking with it the venture growth and venture capital world as funding dried up and valuations massively compressed; and for Capitolis, as one of our main businesses is financing long equities — the market shrunk meaningfully.

All of these happenings presented difficult challenges that are affecting nearly every industry, business and individual on this planet. But when you’re an entrepreneur, especially in the venture backed world, hard decisions are necessary to be taken sooner and carry a different weight to them — they pull on every ounce of your mind and body in ways that are sometimes hard to appreciate from the outside.

One can look at the sensational articles about layoffs, readjustment of growth plans, and revaluation of companies as indicators of failing companies and their investors. Or one can look at them with admiration, and with appreciation that many of these companies and their investors are making the tough decisions necessary for the long term.

I have been doing this, that is being a (fin)tech entrepreneur and founder for a long time. Throughout my career, I have experienced moments of extraordinary highs as well as the most trying of lows. As an entrepreneur, the challenging times call for elevated decision making, and this often separates the long term successful companies from the rest. Cost cutting, layoffs, reprioritization — these actions aren’t in your mind when you build your vision, which make them even harder to execute when external, and
sometimes internal forces make them sometimes necessary. But tough times require truly tough decisions to protect your long term path.

These times are a test of your decisiveness, transparency, and perseverance. It’s a moment to step back and ask yourself why we do this. And more importantly — “Do you have the courage?” The courage to listen, absorb, learn, and act. And to achieve this, it requires a fair bit of vulnerability.

The venture capital funding game allows founders to invest more money in their company over a much shorter period of time. The implication is you will by definition lose money for a long time, and will need to go back and report (and impress) to the market and new investors your progress every couple of years, otherwise you will run out of money. You literally see your cash balances go down every month and know how many months your company still has to live, unless you make great progress and are able
to bring the investors who will invest in the next round of funding. That is the game and why the stakes are so high: Succeed or die, all the time.

This is why starting a venture-backed company is different sport. One can start a company without it, grow slowly and build a business into profitability. There is nothing wrong with that — quite the opposite. But when you do pursue the venture capital route, there are two requirements: the outcome should be much bigger and returns very high. You can build a company you will completely own and sell it for $100M. For a VC-backed founder, to get to the same value, they need to build a company that will sell for probably $1B or more when it is all said and done.

So why ever pursue a VC model, you might ask yourself? The answer is simple: because your aspirations are big — you want to change the world. It is not about making money per se (though for sure a lot of money can be made) but rather about realizing a huge dream. A dream that takes investment over many years. A dream that if realized, will change the world forever, having a fundamental and meaningful impact on the future as we know it. This requires investment but also partnership from the best people on the planet — both VC investors, your own team, your clients and more. Ninety percent of the market cap of Nasdaq is represented by venture backed companies — this is an elite group that has redefined most aspects of our lives.

So what’s the downside? Simply put, the risk and probability of failure is far greater, and if you fail, it is much bigger and much more public. Hence, when people come to ask me if they should start a startup company my answer is: 1) If you are asking, the answer is probably no. Most people do it because they must. Because they have this burning passion they cannot resist, and 2) how well will you deal with failure plus public humiliation? It’s a hit big to your ego! My hat and respect therefore go to people who try. The people who put themselves out there, the people who dare and go for it, irrespective of the outcome.

The past few years have certainly seen inflated valuations, and we have seen some behaviors that were “bubble-driven,” but on the other side, there are many real companies, excellent companies that have been built. Most have had to endure layoffs recently — and we at Capitolis certainly haven’t been immune. Layoffs are never easy, but from a macro perspective, they are a good sign. Companies are doing what they need to do to resize and adjust to the current reality. This is a time to focus on the balance sheet rather than optimize your income statement. Great companies will come out of this — as much as Amazon, Google, Netflix have all came out of the 2001 crisis strong, healthy, focused and disciplined.

This startup game is not for the faint of heart. Building a real company takes time — about 7–10 years, where you lose money all the time and with a very unclear outcome. During such a time, just like in any long-term relationship, you are bound to encounter turbulence — some external and some internal. It will happen. If you are a part of the company, you are not diversified: you are putting all your eggs into this one basket, and it will take a very long time and enduring multiple challenges until you know if you have a duck or a swan. You could end up with nothing, or a blue bird. Or a unicorn. Most of the time, it is not a glamorous life — it is a lot of grunt work, it is scrappy, it is hard and exhausting. It includes months or years where things almost fall apart and all that keeps you going is your belief in your vision. Or a vision to find a vision. Or just a great team that somehow agrees to keep putting one foot in front of the other believing they will find it and somehow it will be OK. And sometimes it indeed ends up being OK or great, and sometimes it ends up differently but either way, these startup people, the real ones, know that they left it all on the field, they gave it their all to be all they can be and dare greatly, which will separate them from the rest of the crowd forever.

This is why I believe it is the ultimate sport — it brings the highest highs and lowest lows. It is testing every ounce of every aspect of our capabilities and personalities. And the biggest reward is the game itself, it is the journey rather than the outcome, it is the privilege of dreaming every day, the alchemy of creating something out of absolutely nothing, of the opportunity of being and inventing who you are every day, or daring to put yourself out there, completely. It is not business, it is personal.

Or in this case — business is personal, and vice-versa. And it is wonderful even when it is awful, and it is precisely why I keep doing this and going back to these garages.

A very successful friend of mine (a brilliant leader of successful public companies) has been saying for a long time: “Gil gets to skip to work.” It is true. Even though I have to stop every now and then on the side of the road and throw my guts out!

This year delivered us all some humility, challenges, complexity and anxiety. It brought to the front a lot of critics, naysayers, judgementalists and sensationalists. That is exactly the time when entrepreneurial teams and their investing partners are tested and the best will adjust, survive, grow and thrive.

This round goes to the entrepreneurs, to the fighters, to the believers. This round goes to the winners who ignore the noise (or use it as fuel), do the right things, and keep going.

I am so grateful to and for the amazing team at Capitolis all over the world, our fantastic investors as well as our great clients and partners. Sending best wishes to all for endurance, strength and success.

Game on.

Happy 2023!