“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” — Winston Churchill

This is certainly a time to remember. Not for the reasons most would think such as the torrential downpours here in Los Angeles, or this insane Pandemic shutting down normalcy as we know it, or the financial markets panicking and dropping to levels unseen since 1987, or because schools have shut down and our kids are now digitally homeschooled, or that grocery store shelves are empty, or the insanity of toilette paper hoarding, or because we socially distance ourselves to levels where some people are now missing out on human interaction, or because the media is flaming the fire of panic and disorder. Ironically, none of these are the reasons that this is a time for us to remember.

The reason this is a time for us to remember is because this should be a time of optimism rather than pessimism, a time to stand tall and not let the world beat us. Adversity can either break us or make us if we let it, the choice is ours. Many are touched by adversity, they fall down and they never get back up, whereas some go through adversity and discover their true self.

I remember my father, may he rest in peace, telling us [my two brothers and my sister] that when he was a little boy on September 7, 1940, 300 German bombers raided London for 57 consecutive nights of bombing. This bombing “blitzkrieg” (lightning war) continued until May 1941. By the end of the first day, German planes had dropped 337 tons of bombs on London. The poorest of London slum areas the East End [where my father lived] had felt the fallout literally, from direct hits of errant bombs as well as the fires that broke out and spread throughout the vicinity. As many as 180,000 people per night were sheltered within the London underground system and devastatingly, 448 civilians were killed that afternoon and evening. By the end of the war about 60,000 British civilians had died through German bombing.

My father taught my siblings and I from a young age that in times of adversity, to always remain calm, do not panic and look to how you can help your fellow neighbor while seeking opportunity to build a brighter future. This is when my father learned to become a very astute entrepreneur. My father built a bicycle from scrap then rode from town to town in all the rubble looking for items he could collect and then barter to help put whatever food he can find on the table for himself and his mother [my grandmother], who worked in a munitions factory during the day while his father [my grandfather] fought the Nazis in North Africa.

My childhood was filled with such stories of my father’s perseverance to overcome adversity despite the world collapsing around him. He grew up to become a very successful entrepreneur as a consequence of having endured what he went through during his childhood. I hear his words today “Richard, life is a zig and a zag not a straight line.” He taught me that the ones who can adjust, remain strong and think positively regardless of how bad it is or it is said it is, will ultimately achieve success whether it is putting food on the table allowing to live another day or being able to make payroll for your business.

Last Thursday, I was asked to present Rebel Fund to a Family Office consortium. Despite everything transpiring [the rain, the worst drop in the markets since 1987 and the Pandemic], the meeting was not cancelled. The fact they didn’t cancel the meeting spoke loudly to me like my father’s words that in the midst of all this chaos, one cannot panic, and that life MUST move on.

Here is a group of some of the most respected businesspersons in Los Angeles looking at a potential opportunity from me! All I thought was how could I not go with precautions such as elbow bumps and be my best. I went! A room packed with 1st generation and 2nd generation Family Office members looking toward the future despite everything happening at that very moment. I dug deep to find my inner strength and optimism as I presented for 1.5 hours facts about investing in times of adversity and what our tomorrow can look like being on a journey together. I presented the merits of Rebel Fund’s investment thesis and it went as well as I could have hoped.

I’ve spent about 25 years as a professional and an operating executive in companies ranging in size from startups to Fortune 500. I have now seen a few cycles and I remember the dot-com meltdown in the early 2000s with my first start up, the very first advertising insertion platform and streaming video search engine (remember, this was pre-YouTube). Despite our vision and implementation being remarkably good, we had to shutter after a couple of years because timing was simply not on our side. Then the Great Recession which peaked in the fall of 2008. And now we’re faced with the end of the longest bull market in recent history, the uncertainty of COVID-19, and the possibility of a recession.

Given the speed and scope at which this virus has swept the globe, we now find ourselves unsettled, disrupted and scared. The virus has impacted the way we work, travel, and interact with one another and care for our families, selves, and communities.

As a venture professional and my father’s son, I see this current chapter as a promising time to be investing. Let me caveat my comments: I’m not writing to offer advice on what or what not to invest in. I’m simply sharing my perspective as a veteran of past downturns and long-time entrepreneur and venture investor.

So why do professional investors choose to invest in private assets today, while our public markets are trending down?

One of the key reasons is that venture returns are largely uncorrelated with the public markets. Past cycles and history show that venture investing is relatively isolated from public markets. (Additional reading from an Invesco White Paper on the subject can be found here.)

Additionally, irrespective of what’s happening in the public markets, venture is an illiquid asset class with a ten-year horizon. It’s the long-term nature of venture investing into visionary projects that creates the potential for enormous value appreciation, regardless of the market’s cycles.

As we listen to the news pundits, politicians and those we know in our inner circles speak of economic doom & gloom and spread fear amongst us all, best to remember that in the past those VCs that have achieved a 10x return in their portfolio are the funds that have bet against the odds during a recession.

Investing in venture is simply betting on the future of the market. Smart investors will look at downturns as an opportunity to find great investments. Google, Uber, Groupon, Square, Roku, Airbnb, Twilio, WhatsApp are some of the companies that all raised money during an economic downturn and were all able to return 10x for early investors, far exceeding the average IRR for a fund. As such, venture capitalists are financially incentivized to look even more closely for top performing companies to diversify their portfolio, especially if they are able to get on the capitalization table at a good valuation.

Another reason it’s a great time to invest in venture is that downturns attract the best founders — those with a lot of grit and determination who aren’t just chasing easy money. If investors remain active in venture during a recession, they have the ability to help new investments hire top talent during a floundering job market, allowing their invested capital to play a role in the trajectory of their portfolio companies as well. More of these winners will undoubtedly present themselves in this current environment.

If we are indeed entering a recession, VCs and founders can expect smaller round sizes, fewer and smaller IPOs, and lower valuations. Although, these predictions should not prevent startups from raising money during a recession at all. The smart (and lucky) venture capitalists will continue investing over the next 3 years just like we will at Rebel Fund, and the big winners will follow Ben Graham’s timeless investment principle: “Expect volatility, and profit from it.”

The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” — Winston Churchill

To Entrepreneurs:

Humbly, I offer you a few thoughts I recently presented on February 26th to over 1,000 entrepreneurs at SOCAL Startup day.

1. Being CEO will become lonely as you can’t be as vulnerable & authentic as you’d like. Find other founders who will be honest with you. Have dinners with them & share problems openly and candidly. It will make a difference. We aren’t an island and much can be learned from sharing each other’s challenges together.

2. Find a great mentor and pick someone you want to impress. Find someone who will lift you up when you’re down & take you down a notch or two when you’re overconfident. Ideally, they have all been a CEO/founder before so they can relate as they have been in your shoes. Remember though: they offer guidance, not a blueprint. For me, besides a few mentors I cherish, I also have my wife.

3. Buckle up, being a founder is tough even in the best of times. Take care of yourself physically and mentally. Be present with your family. Find a balance and be “steady as it goes.” As a VC I can tell you I look for founder’s who nurture this balance. The ups are high, and the lows are frankly very dark and depressing. I have been there often, and I can share to make it through the darkest days, you must take care of yourself. Eat, work out, be social. We’re all human & have our insecurities so consider a therapist as well to assist in helping with your personal psychology. If you associate a stigma with it as I did for a long time, know that I was wrong & wished I had done this earlier in life.

4. Make sure you have enough capital to sustain a burn for a year. Don’t wait too long before you raise. If you have 6 months or less in capital, raise now! Expect valuations to soften so be flexible on terms and what financial instrument you use.

To Venture Investors:

1. Top quartile performance for venture capital has outpaced that of other asset classes. Limited partners (LPs) who had abandoned venture capital after the bursting of the NASDAQ bubble in 2000 slowly returned to the asset class. Even non-traditional investors like mutual funds, hedge funds, and sovereign wealth funds have taken note of this asset class. As companies remain private longer due to the burdens of being a public company, more of the value is being captured before going public and these investors are increasingly participating directly in later stage private rounds.

2. Ignoring venture capital is a potential missed opportunity. Long a staple of some of the most sophisticated institutional portfolios, prudent exposure to venture capital has the potential to provide meaningful accretion to any asset allocation.

With this being shared, it is certainly a time to remember as it is now a time to think with optimism rather than pessimism, a time to stand tall and not let the world beat us.

Skiing the peaks and valleys of Private Equity and Venture Capital. Cofounder of two great kids.

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