Jon’s Birthday

Today would have been my little brother’s 41st birthday and I will miss calling him to give him a proper ribbing. 

Jon, Jonny, Little Jon, or his trail name “Duke” unexpectedly left us last year just a few days following his 40th birthday on September 22nd. We’ve had almost a year now to reflect and try to wrap our heads around his passing. And what a year it’s been. I smile when I say this but perhaps Jonny knew 2020 was coming? He was always pretty good at spotting trouble and definitely smarter than me when it came to avoiding the hard stuff.

If Jon were here, I’d probably find some reason to give him a hard time and tell him I loved him while reminding him that he was getting old and turning grey like me. And to be honest, I’d probably still be judging and pushing him to be something different or something more than he was. He was five years younger and a wholly different person than me. I still don’t completely understand Jonny and wonder at how two boys that grew up together would bake so differently. We always struggled to find the right place to meet. I’ll take most of that blame as I kept waiting for Jon to be something else.

With a little time, I recognize that I could have met him in the place he was and been more accepting. It would have been good for both of us and enriched each of our lives more. So, I’ll share this as a reminder to meet your friends, your family, your spouse, and especially your children as you find them. It’s fine to have high expectations but don’t put your own hopes, dreams, values, or judgment on somebody else. Each person has their own life to lead and if you value the relationship, you’ll be better served to try and meet them on their path with love and compassion. 

One great part of the human condition is that you tend to focus memories on the good parts of any past relationship. I’m still working on it but this allows me to smile, shake my head, and laugh at so many funny memories with Jon. There are plenty of “only Jon” stories to be shared.  He was a great son, uncle, and brother that is especially missed today. 

Happy Birthday Jonny. 

Celebrating 4 Years of Boulder

Celebrating 4 Years of Boulder Living

We closed on our house on June 2nd, 2015 and I left UTIMCO back in September of 2015, but we didn’t really arrive in Boulder until July 16th, 2016. This weekend marked 4 years of Boulder for our family. We’re happy to be here, just like in the picture above from day one.

In truth, it really wasn’t an easy transition. Boulder is actually better described as a base camp in most years. The Fall and Spring shoulder seasons are normally the best time to meet and greet with your Boulder friends. That’s really the only time that many families are based in Boulder as you see a lot of people take off for their second homes in the Summer (hiking and camping) and Winter (skiing!). Many people spend half the year in other locales and we’re no exception to that rule. We were spending time in the mountains most weekends and traveling across the summer. This leaves you little time to cement friendships and become accustomed to the community. Unfortunately, my work and personal travel tend to be really busy in the Fall and Spring, leaving me on the road most weeks. I began to recognize that I needed to make more of a commitment to Boulder if I wanted to put down roots and make it feel like my new “home”.

One of our neighbors told me early on that it takes at least 3 years. His wisdom became a mantra for me as I’ve waited for Boulder to feel like “home”. For me, it took four years and a global pandemic but this weekend really made me realize that Boulder is now home for all of us. We socialized with friends, hiked a few favorite paths, and had quality down-time together. It wasn’t anything special, and I think that’s the point. 

The first year was a challenge of learning everything new. We had been long-time visitors to Boulder but it’s very different to decide to live in a new town, new climate, and a new job. I barely lived here while traveling to put together a new portfolio and adjusting to a new role. The girls were great and their connection to the school was our best asset. They jumped right into kindergarten and first grade, making friends and performing in school. Melissa and I took longer to land as we were both really busy adjusting to a new life. The amount of new gear and learning related to the snow alone was really something! I think we were still in the honeymoon phase with living in Colorado, doing our best to explore the ski resorts, gawking at the Fall colors on Mapleton, and laughing at the hot weather in Texas… 

The second-year felt like the first for us. We had been so busy between work, school and life that we didn’t begin to try and feel settled until at least 12 months had passed. However, through school and our neighborhood, we began to make acquaintances and some of those have turned into friends. We began to know our way around without having to check a map and have a few favorite restaurants and favorite hikes. It was good but the new shine was off. It felt like we had now seen that we had some work to do if we were going to put down roots. As year 2 ended, we had a pretty solid case of the “Austin” Home Sick Blues. Neither one of us was talking about it to the other but I think it’s fair to say that we individually would have voted to head back “home”.   

Melissa was first among the two of us to make the turn in year 3. She began to find a group of her own friends through skiing and school activities. The kids were continuing to thrive and our house was becoming a hub of activity as lots of neighborhood kids came through to play. I was still absent too much but she began to make friends with other parents and to involve us in the community. It was great to see her establishing a real set of roots here. She is a hero for leaving Austin with me, ripping out 40-year roots and transplanting with me here. I couldn’t be any luckier to have her as my partner.  

For me, it took a global pandemic and no travel for this to feel like home. It really wasn’t until this crazy Spring that I’ve felt settled here. It’s the longest I’ve gone without travel in ~ 20 years and that, combined with the fact that everybody else is locked-down here too, has led me to finally be present. We’ve cemented would-be friendships and made new ones. We know what to do and who to call for almost any situation. We even find ourselves as a guide to some friends that have just arrived and others that have returned recently. It’s nice to be able to be a resource for them. We were thinking of going somewhere else this Fall and that would have been great but I’m also pretty damn happy to say that it looks like we’re just going to stay “HOME”.  Thanks, Boulder.  Glad to finally be here. 

Learnings from our community

One of the values that I’ve really internalized over the last few years is to think about the world in terms of networks, and our own value or role in those networks. The more interesting networks are not hub-spoke networks but rather mesh networks that can and do create value even while missing a node. Enabling that type of network is one of our goals with Foundry Group Next. A network becomes a community in the very best case. We try to foster that community and connections among our family of founders, partner funds, and limited partners. 

One benefit of the last few challenging weeks has been bringing together our group of partner fund managers on a weekly basis. These get-togethers have a light agenda, but they really enable friends and peers to connect over the week’s challenges, share concerns, and have a little fun. It’s been especially gratifying to see the more experienced managers chime in actively, sharing prior experience and addressing some of the questions and concerns that the newer managers have been facing for the first time. It’s these consistent interactions and sharing that have enabled a feeling of community. We’ve also met with our direct portfolio of companies and those of our partner funds. It’s been heartening to see the consistency of leadership across our group.

We’ve been taking notes as we go along, and I thought that some of the more general thoughts would be worth sharing. Each of these points could probably be a separate post, but I thought it more important to get these out in the wild than to crisply edit. So, with apologies for the draft nature, I hope you enjoy seeing notes from a few of the shared conversations we’re having across our network. 

What does the market environment look like? 

  • LPs, GPs, and Founders are all experiencing anxiety at both a personal and professional level. Today, most have made it through the initial shock of high anxiety, deep engagement, and triage mode with their portfolio or business. Consumer-focused businesses have almost certainly felt the first wave of change whereas many B2B companies have yet to see the real impact of a slowing economy. Look for that over the next two quarters as we experience higher churn and reduced sales for existing customers.  
  • Expect a lag in private markets relative to public markets, maybe 6-9 months if this is a real reset of pricing. Reset could become protracted, and that would be the best time to invest. A guess among the group is that we see valuations come down 20-30% and that round sizes will reflect that for dilution. We’re already seeing anecdotal data (or “anecdata” as we fondly call it) of this in the market.
  • Valuations are already coming down in some segments, e.g., an experienced/pedigreed founder expecting 15M pre going into demo day, now expecting 9-10M pre and getting comfortable with investors pricing and not being able to “set” a price. The hot rounds are still “competitive” but not being bid up so much on price. There also seems to be a more pronouncedfeast or famine” modality at seed/A rounds.
  • Technology and innovation aren’t correlated to the markets. New investments are still building products and will come to market after this cycle turn. Are you willing to keep investing with a 2-3 year timeframe in mind?
  • Deal re-trading: folks are starting to see it both for M&A and follow-on financings. Deals are being put on pause and/or terms are being retraded. We’ve already seen some bad behavior. Make sure you know where your syndicate partners sit w/r/t an inside round if the external deal falls away. Also, a reminder that pay-to-play rounds are usually a bad place to put capital. Think about what you’re defending. How much does this company matter to your fund? How hard will you be hit if you don’t play? Our experience is that it generally doesn’t work and creates an adversarial relationship between the company and investors. You definitely need to understand the founder’s position and the investor preference stack well. 

Conversations we’re having with/about LPs 

  • This crisis will likely cause a ripple effect through the whole ecosystem. Everyone should over-communicate about working arrangements (business continuity plan in place), acknowledge some fallout in the portfolio due to business risk and increased financing risk, and provide guidance on capital calls/pacing over the next 3-6 months.  
  • Many LPs are essentially out of business until the end of the year – by their nature, LPs are conservative and will have a bias towards waiting, the value of the free option just went up as FOMO disappears. 
  • Some LPs might experience liquidity issues (e.g. hospitals and universities may need to spend more money on operations) and will be less liberal with their investments, particularly in new funds. Cash needs and spending are up at the same time that balance sheets are down. Liquidity fears are greater as LPs stare more directly at unfunded commitments. 
  • Staff and teams are likely feeling pressure from board/CIOs, and there’s no benefit to them for taking risk. They will focus on existing, proven relationships that are easier to get done. And our favorite CIOs will question (even more!) venture returns (and also anything with leverage). This will pose difficulties for younger funds especially ones that have more “adventurous” investment theses.
  • Understanding where you stand in your LPs’ portfolios is imperative, having multiple points of contact is important, and you should not just assume a re-up from them if you have to raise this year. Do your best to slow down and not hit the market until 2021. There will be a logjam of funds trying to wrap up in the fall, and LPs are way overcommitted. If you are stuck fundraising, give LPs a little break to find their footing and tell them you’ll circle back in the summer to see if you can push to a fall closing. 
  • Capital calls should be maintained at a normal or slower pace if possible. LPs are unlikely to default; previous cycles were < 2%, almost solely individuals. LPs have little to lose if you haven’t called much capital. If less than 10% is called, you should keep a careful eye on it, as the cost of default isn’t so large. If you do have a challenged LP, we encourage GPs to proactively manage a secondary sale.
  • Be prepared for LP questions.
    • A portfolio analysis in light of COVID-19 is a good idea if you haven’t done it already. Make sure to point out which companies are most at risk, which ones benefit from this environment, and which ones can weather the storm and still be potential fund drivers.
    • Capital calls for institutions should be fine, but it’s helpful to give them a heads up to set expectations for upcoming call schedules.
    • For individual HNW LPs, you may need to be flexible and give a little extra time. It’s a good idea to give them a heads up on your expected call schedule as well. 
    • One detail that was interesting. You might consider doing calls as close to the beginning of the quarter as possible. (If you have a call outstanding and not paid at quarter-end, you’ll have to reflect that in financials.)

Conversations we’re having with/about GPs

  • It’s important to acknowledge that we’re all humans.
    • Likely to be fraught with emotion, people are tired, partnerships are stressed, maybe families are stressed. Really important to understand the full person across from you and their state of mind. And how their state of mind might affect their risk profile.
    • Human nature is to draw in risk appetite in those moments when you don’t see continued income. You stop spending, raise the bar for anything new and are not confident to add more mouths to feed in a constrained portfolio size/fund. 
  • It’s been a helluva few weeks. We are all rightly focused on our existing portfolio. We need to focus there until we “find the bottom” and feel comfortable that companies are responding, or at least scenario planning, appropriately. Most people are expecting to get through that by May 2020. 
  • Portfolios need to be examined in the context of individual funds. Important to understand which positions retain option value and where you must concentrate capital.  Now is the time to make hard decisions about which companies you can support.  Distilling your investments can be a good thing for the performance of the fund, though it forces tough conversations and expectation setting with your founders.  
  • The balance between supporting the portfolio (triage/firefighting mode) and looking at new deals is challenging. It’s more of a challenge for firms with large existing portfolios, especially with more mature companies.
  • Great opportunities will present themselves in this type of market, and at better prices. Many firms will remain active and even ramp up in this market. We should still be “crazy selective” on quality, and this group should keep working together. 
  • Painkillers > Vitamins. We should be investing in products that are critical to success. The nice-to-have products are the first to go in a downturn. Make sure you’re investing in solutions that customers can’t live without. 
  • Valuations are a real challenge in this environment. The general consensus is that we should all stick to our existing policies and see where the next quarter takes us. Q1 financials may take longer to finalize as we get a better sense for the macro environment, and we should all expect auditors to put footnotes in Q419 audit docs. 

Conversations we’re having with companies 

  • It is important to act swiftly (while you still have the opportunity to make decisions) versus waiting and hoping that conditions will change and create more flexibility. 
    • Founders must be willing to confront a situation before they are forced to confront it (i.e., not all companies will be immediately impacted by the downturn but may face consequences in 1-2 years if they don’t make the necessary decisions today)
    • There is more risk to underreacting than overreacting. In fact, overreacting might be a forcing function for reconsidering and optimizing business model, team operations, etc.
    • In a time of displacement and crisis, you must have a bias towards action and a lens for confronting reality, no matter how difficult it is.
  • Understand your existing investors.
    • How strong are your individual leads at each fund?
    • How does the rest of the fund portfolio look?  Where do you fit in that portfolio?  Do they have reserves for you? Have they done bridge rounds (convertible notes) for other companies? 
    • You need to understand the size and total portfolio of the fund that you’re a part of.
  • Talent has been the biggest challenge for companies.
    • Talent becomes more dispersed in up markets and more concentrated in down markets. You’ll be able to attract talent if you have a strong product/company/cap table.
    • Like it or not, there is about to be a huge reshuffling of talent. The good companies will attract stronger talent, perhaps much stronger than that of the employees they are trying desperately to retain. 
  • How are you playing offense during this time? You can’t just hibernate during a crisis. Instead, you sharpen your focus. You divest in some/most areas, but you need to be investing in some area. The goal is to come out of this stronger than you entered in at least one critical area. 
    • Online CACs have come down in some categories.
    • Do you have technical debt in the infrastructure? 
    • Do you have product work that can be prioritized?
  • FOMO that exists at the top of cycles has disappeared  As a result, startups will need to provide more data / demos / proof points to get VCs to bite. Think of venture funds as a table of diners that have just finished a big dinner, and you’re asking them to eat dessert. The best thing you can do is bring the tray around and SHOW them. Convince at least one diner to order the cake, and you may have others join. You’ll need to show more, demo often, provide more data, and recognize that your company has to be more compelling in this environment. 

This post was way too long but I hope it gives you a sense of some of the conversations and learnings inside our community. We hope that sharing them out helps others and we’re always glad for more input, thoughts, and debate.

Reflecting on five months

Yesterday marked five months since I got the phone call from my mother. We lost my brother on Sunday, September 22nd, 2019. 40 years and 5 days after he came into this world.

We buried Jonny’s ashes on October 5th with great love and support from a community of friends and family. It was really wonderful to see so many attend his service and to honor the relationships that Jon built over his life. We saw friends of his from grade school through college. And friends that he made later in life, including a great group of his Masonic brothers from Colbert that came to provide services and honor him. I’m grateful for all that participated and I’m happy that we laid him to rest in that way, on that day.

Weddings and funerals are such a blur of emotion and relationships. I loved seeing so many of my mother’s friends at Jon’s services. Even some relationships that carry back to my father. Those are friends that hold old memories and bring big smiles from our youth. It’s striking that we had so many of our extended family together, some that probably hadn’t been in the same room in far too many years. I also loved seeing so many of my friends, spanning from grade school to business school. It’s comforting to feel that support from this community and yet painful that we don’t have more time to share. I suppose it takes a wedding or a funeral but I certainly wish that we all had more cause to be surrounded by our loved ones more frequently. And to spend time in a deeper way that allows us to share those memories and those feelings that brought us all together for Jon. Thank you all for being a part of our larger family and supporting us as we began to process and grieve for Jonny.

Five months later and it’s only begun to sink in and feel very real. I think of him often even though he wasn’t a fixture in my daily life for the last many years. We lived apart and were on different life trajectories but had the history of youth together. His passing has prompted me to talk more about Jonny with my own family and to tell funny stories (there are plenty of them) from when we were young. It’s nice to be able to smile at those memories.

I certainly missed him this week when our mom pulled a very humorous stunt. We both would have worried about her together while also laughing at her misadventure. It was the first time that I’ve missed him in a happy way, able to acknowledge that he’s gone but still very much with us as we go through life. I hope that his extended community feels the same way.

Jonathan Ellison Eakman

Jonathan Ellison Eakman (1979-2019)

Jonathan Ellison Eakman (Jonny), age 40, passed suddenly on September 22nd, 2019 as he was comforted by his mother. Jonny was born in Fort Worth, Texas to Glen and Barbara Eakman in 1979. Jonny will be missed every day by his Mother and his older brother, Lindel, and Lindel’s family alongside his loving aunts, uncles, cousins, and friends. We are comforted that he will now spend more time with the father and grandparents that he lost too early in life.

Jonny graduated from Texas Christian University and later attended Southern Methodist University. Jon had struggled with his health and wellness in recent years even as he found solace in nature, through-hiking the Colorado Trail and Appalachian trail as “Duke” and navigating the length of the Mississippi River by paddle. He loved living at the lake with all his childhood memories of Colbert Boat Club on Lake Texoma.

Jonny was a spiritual believer, attending church regularly, and cherished his participation in the Masonic Lodge of Colbert, Oklahoma and the Scottish Rite of Macalester, Oklahoma. He was a constant reader, studying history, culture, and religion deeply. Jonny also enjoyed gardening, born with a green thumb inherited from his mother and grandfather.

We will be holding graveside services for Jonny on October 5th, at 10AM in the Garden of Rest at Bluebonnet Hills Cemetery located at 5725 Colleyville Blvd, Colleyville, Texas, 76034.

In lieu of flowers, those who so desire may make memorial donations in memory of Jonny to the charity of your choice. If you need a suggestion, Jonny was very proud of his thru-hike of the Appalachian Trail and we think he’d like to support the Trail Foundation. Our family would really appreciate sharing any memories and photos at JonEakman@gmail.com or by tagging him on Facebook.

It was a tough thing to write Jon’s obituary. We could have chosen many pictures to include here but the one where Jonny was on top of the world seemed the most appropriate. It’s been a little over a week since his death surprised us and we would prefer to remember him as happy, motivated, and smiling just as he was in this picture.

Jon’s death was unexpected. He had struggled with his health and wellness in recent years but we had no sense that he might be so sick. And we knew he had suffered a fall in recent days that left him bruised and scraped but we had no indication that those injuries were serious. We still don’t know the specific cause of death but we believe that one or more of his internal organs failed and that caused his death. He may have had an underlying condition or a rupture that caused him to go quickly. Either way, we lost Jonny all too soon when he passed suddenly at my mother’s house on Sunday morning.

We are left with a sense of deep sadness and loss for a brother and a son.

We are supported by the outpouring of love and emotion from our friends and family. It has been truly wonderful to hear from so many old friends over the last week, especially Jon’s friends that come with stories, pictures, and appreciation for the life he led. These stories of Jon’s life are pure gold for us. They hearten us against grief and help us smile when we’re sad. For example, I love that picture of him dressed up as a TCU cheerleader. I can’t help but smile at that one even as I know it would drive him crazy for us to have it.

We treasure these stories and would love to see more of them. We would ask that you help us maintain Jonny’s memory by sharing privately with us at JonEakman@gmail.com or by tagging him on Facebook. We love to see the stories and reconnections made among old friends even as we plan to lay him to rest. We do hope to see many of you for Jon’s graveside services on Saturday, with a reception at Barbara’s house afterward where we can tell stories and smile in his memory.

We love you and miss you Jonny.

Le Tour

Today wraps up the final stage of this year’s Tour de France or “Le Tour”. This is my admission of love for this event. I’m certainly not a bike rider (wrong shape for that) but I simply love to follow this one cycling event each year. It’s not just the amazing bikes, incredible physical feats, or even the drama of the crowds on mountain top finishes. It’s the story of strategy, team strength, differing goals, good days and bad days, psychological warfare, and glorious solo rides off the front. There is so much drama, even during a flat stage, with the ever changing winds, intermediate sprints, and threat of crashes. Each competitor looking for weakness from their rivals, a constant reappraisal of standing, and a reward each day for glory by capturing just one stage. Yep, I love it. All of it.

Yes, Lance Armstrong was the Texan that got me into Le Tour nearly 20 years ago and I have at best mixed emotions on him, but the sport itself has kept me interested all these years. It’s right up there with the college football playoffs as one of my favorite sporting events of any given year.

So, while I may not be the obvious bike nut in our partnership (Moody and Seth holding that role), I want to publicly congratulate Egan Bernal for an incredible race, not just for the yellow jersey, but also winning at such a young age. I hope we see lots more of Egan in the coming years. It’s also worth congratulating Julian Alaphilippe on an incredible run in this year’s tour. He should be proud. I’m sorta sad to see this year’s tour end. It was a great one. Until next year, see you on the Peloton….

What happens if you do get a big win?

Go ahead and click this link and hit play. It definitely changes the read (warning: explicit).

I was recently asked to talk to a room full of founders and one of the questions was sorta taboo.  Not something that we talk about often but a real-life issue that everyone in that room hoped to face. What happens if you do have a big win? How do you think about the life-changing money? How do you invest it?

Maybe it’s all the news of the upcoming IPO bonanza that prompted this question but if you’re in a spot where you have that upside, then you ought to at least have a plan. Now, I’m not a retail investment expert so don’t take this as any specific guidance. However, I did have the benefit of seeing how you successfully manage one of the largest endowments in my time at UTIMCO. I would argue that a large amount of money for a family starts to look like an endowment, planning for intra-generational wealth over long periods.

The quantum of money definitely matters. There is an entire spectrum of risk that lies between managing money to create wealth and managing money to stay wealthy, perhaps while living off the proceeds. One size does not fit all but I think the process does transfer: Understanding the goal of your investments, Understanding what risks you want to take, and Working with the right partner to help you execute.

I talked a little bit about this with that room full of founders and have continued thinking about it. I wanted to write a blog post so I reached out to my friend who comes from the endowment and foundation world and now manages HNW clients for a living to see what I was missing. I jokingly said that my best advice was to “Stop, Collaborate, and Listen”.  His response was perfect. I’ve included it below in italics and inserted my own commentary below:

So it sounds like you are going with a hip hop themed post (Vanilla Ice lyrics)?

I would include:

1) I got to say it was a good day (It was a good day – Ice Cube)

Enjoy the win. Run a victory lap. Recognize the success for what it was – a combination of hard work, skill, and luck. Celebrate. But that’s in the past, what are you doing tomorrow?

That’s right, you had a big win and you likely still have some work to do closing that out. Take a little money and buy yourself (and your partner/spouse) a few nice things. Maybe you take X% and buy that boat, car, house, ranch (let’s dream big). I hope you also had the foresight to think about Pledge 1% before that Good Day.   

2)  We used to fuss when the landlord dissed us, no heat, wonder why Christmas missed us. Birthdays was the worst days, now we sip champagne when we thirst-ay.                                         (Juicy – Notorious BIG)

Don’t forget where you came from.

This is good advice, even before you have that big win. Wealth can do more than change zip codes, it can also change relationships. Be prepared for some challenges and stay humble, that’s how you got the win.

3) I’m not a businessman, I’m a business man   (Jay Z – We’ll go with “all the way up” even though it’s just a quote)

Post exit, you have now proven expertise in a specific area. Leverage that into a brand.

He brings up a good point, is there more that you can do with the attention your exit got you?  Is there something else you want to work on in that sector? However, I come at this one a little differently.

Many entrepreneurs possess a lot of self-confidence (some call them crazy to start in the first place), don’t let that risk-taking approach automatically bleed into your investing. Have a business plan and make sure you understand what your risk tolerance is before you start scatter blasting angel investments across the universe.

4) Check Yo Self before you wreck yo self  (Check Yo Self – Ice Cube)

Being successful at one thing, doesn’t mean you will be successful at everything. Know what you are good at, and recognize other people are better than you at other things. Get them on your team.

I’ve seen too many people assume that they are going to have continued success or another big win, and that usually leads to some very poor decision making. One challenge is thinking that you have more money than you’ll ever need. Too many people adopt a lifestyle and burn rate that eats up their capital. Or decide to pile money into their next start-up. Or worse, their friend’s start-up. Don’t be the pro athlete or the pop star that finds themselves in the bankruptcy court.

Now, let’s talk about how to get the right team in place and not make that mistake. I’m one of those people that have always been guilty of being cheap, too cheap in fact and it has come back to bite me many times. The more capital that you are investing, the more important it is that you get someone that has the right experience and is aligned with you. Paying for professional services is hard, just make sure you get the right team. More on that in a minute.    

5) As I leave my competition, respirator style

Climb the ladder to success, escalator style   (You’re Nobody (Til Somebody Kills You) – Notorious BIG)

Long term financial success is a methodical approach made up of repeatable wins managed in a risk controlled format. The only scorecard that matters is your own – define the game you are playing and stay focused on that game – don’t let the games of others cause you to lose focus on the outcome you determined matters for you.

Tushar brings up a good point. Successful investing isn’t about the big win, the most important thing is to execute your own plan and not take big losses. Erratic moves as an investor almost always come back to bite you, don’t let emotion drive your game. Instead, understand the risks you’re taking and keep your portfolio balanced.  

6) Ain’t no half steppin  (Ain’t No Half Steppin – Big Daddy Kane)

Exit was successful because you fully embraced the journey. Fully commit on the next thing if you want the same kind of success.

Many successful founders start to forget the grind and miss the commitment of the start-up world. Too often, they accidentally find themselves back in an operating role without the true passion for a project. We all know that start-ups aren’t a part-time job. Whatever you do with your time, make sure you’re committed to it.

7) Even the genius asks his questions    (Me Against The World – Tupac & Outlawz)

Seek out experts to help you achieve your goals.

So back to that idea of getting the right team. I’m going to bash most retail brokers right here but I don’t think you can ever know what excellent looks like until you’ve seen the world of investment opportunities at the global institution level. It’s difficult to grow up in a retail-oriented financial institution or trust company and understand what the manager opportunity set looks like.  No knock on that background or that specific person, they may be great, but the challenge is that they’ve never been exposed to the full menu. I have the same concern with affiliated bank platforms (Goldman, UBS, ML, etc). Plus, you have the underlying motivation to use that platform’s products (yuck). You also need to understand exactly what the rest of their practice looks like. Are you important? Do you resemble their other clients? And how, exactly, are they getting paid? Easy questions don’t always have simple answers, but the answers should at a minimum be transparent. This is where the relationship can take one of two turns – one that is a partnership or one that has more of a transactional type bent. Relationships that are partnership-based strive to deliver value to both parties over a long period of time; transactional based relationships often result in one party trying to extract value from the other party. Make sure you understand the incentives and motivations created by whatever arrangement or platform they might be using. Who owns their business?  What happens if they leave? They are essentially your key-person. You get the idea. How are you aligned at every turn?

8) So here I go it’s my shot, Feet fail me not, (just capitalizing Feet as a reference to my Peleton screenname), this may be the only opportunity I got  (Lose Yourself – Eminem)

Not sure what the lesson is here in this context, but can’t have a list like this without the G.O.A.T.

I think Tushar just wanted to include Eminem but I would use this to emphasize that you have some work to do when you hit the big win. The most important decision after your deal closes might be who you choose to be on your new team. Finding the right partner for your financial wealth is a big lift. These relationships are difficult to move with lots of friction from private investments, multiple accounts, and lots of shared historical knowledge between the parties. This is one hire that you want to get right (and not something that you wait on if you need to admit that you made a mistake). So get it right from the first shot!

Well, this turned out to be way more fun than I might have guessed. I hope you at least got a kick out of the quotes. Let’s hope that we have many of our founders and their teams that have these questions.

And if you’re looking for an advisor – I know one that I think is great. I’ll leave you with this quote from my pal – I love the intersection of hip hop and managing money…

Don’t let that negative bias win out

I was thinking about our predilection for negative bias on the way into work today.  Mostly in the context of the broader community but then that led me to muse about partnerships and spouses.  

If I’m being honest, I was internally cursing the fools that run in the middle of the street in Boulder.  I’m right behind you with a very large automobile. I’m empathetic that it’s cold and snowing. And I know the sidewalks aren’t always even and may be harder to run on. I’m freaking impressed that you get out in the very cold weather and get your run on. However, it’s 8AM and much of the world is trying to go to work or school. Let’s all work together to not run you over. That means you need to actively get out of the “effing” way. There, that’s what really prompted me to muse about the negativity of human nature and the way we all affect each other. Moving on….

The negativity bias is strong, it’s part of what informs our survival and it’s clear that we are constantly looking for risks even in our closest relationships. And we see the challenges of that in our companies (often among founders) and in our partnerships (more than we’d like to admit). And yes, even in our closest relationships with our spouses and family.

It seems the human mind is built to evaluate risk and look for the negative in any relationship.  That’s why you have to work so hard to stay positive. My wife likes to say that you aren’t just “happy” but that you have to make an active decision to “be happy”.  It’s something you have to work at and, for me, that usually comes from a place of humility and gratitude. It turns out you have to work even harder to stay happy or positive in your relationships with other people. I came across this interesting article that claims we have to maintain a 5:1 ratio of positive to negative experiences in a relationship just to maintain neutral bias.  

Your physical condition definitely influences your ability to bias positive. That’s why some form of consistent exercise is important. Also, the temporary setbacks of physical sickness affect your mental health. I’ve been trying to shake a cold for the last 3 weeks. Every time I get to feeling better, I try to rally or push through some travel and end up sick again. It has definitely impacted my psychological state. I’ve been “fussy” to put it kindly.  Thus, the rant against street runners above.

As investors, we have to guard against our physical and emotional state creating a too negative or too positive bias.  We are experienced (meaning we wear scars from our mistakes) and it would be easy to become cynical given all the daily challenges of investing in early-stage companies.  However, as an equity investor you must be an optimist at your core. The game is controlling that peaks and valleys.

As partners, we have to work hard to keep our partnership in a good place. It’s entertaining but we also have put emphasis against having fun together to keep that magic ratio in place. We all work hard and it’s easy to miss having those positive experiences if you don’t prioritize them.  

And most importantly as spouses, we all have to make sure that we maintain a positive relationship with our most important partners in life. I think the secret to our group may be that we all have strong, amazing partners at home that keep us in a good place.  

So, go work on the positive and make a decision to be happy.  

A Churning LP Landscape (and a bunch of great jobs)

As a venture investor, we often bemoan churn in our SaaS companies but we’re also seeing churn in our LP base too. Increasing staff turnover in the LP world has been a trend for several years and it has implications for institutional portfolios and private investment managers alike.  

If you’re a GP, you should know by now that you need to have at least two solid personal contacts at each of your LPs because one of them is likely to turn over in less than 5 years. And if you’re an LP, you’ve seen your friends move to new platforms much more quickly than in the past. Just take a look at the open jobs on ILPA.org or Trusted Insight! This churn is the result of so much more institutional capital trending into private strategies. We’ve seen that trend move from the E&F community into private and public pensions. We’re even seeing retail capital inroads into venture and private equity in a search for returns.  

So what does this mean? I will strongly argue that staff churn is highly damaging to institutional investors. It takes years to properly train even the brightest new LP.  I used to say 18 months before you even have any context. It takes even longer to build a portfolio and begin to learn from a terribly long feedback loop. And then team turnover inevitably causes a strategy reset as the new staff looks to distance themselves from the “mistakes” of the prior team.  A portfolio can be successful even with the inherent turnover but I think it takes consistency of leadership from the CIOs and Board (where you’ve also seen turnover). These leaders are recognizing the high cost of churn in the private portfolio, and have begun recruiting and paying more for talented, experienced individuals to lead their private programs as it is generally the only part of the total portfolio with expected returns greater than the required payout rate.  

As a GP, I believe you now have to underwrite meaningful staff turnover in your LP base between funds. I mentioned having more than one contact at your key LPs. I think it’s also wise to carefully consider diversification in your LP base by understanding the strengths and weaknesses of each group as both a capital source and a platform for your individual contacts.  Are they likely to stay? What is their system of governance? and basis for their compensation? How do you fit in that portfolio if the team changes? I think you should plan for 10-15% churn in your LP base. Sometimes you get lucky and get a 2:1, the existing institution returns and your former lead relationship bring in their new institution. That’s great when you can continue relationships, but do you have a pipeline of prospects to replace those that turnover?

GPs are wisely paying a lot more attention to not only where their capital comes from (and what causes it supports) but also to just how likely it is they have the same point person that understands their strategy and values the relationship that is built over years.

I’m particularly sensitive to this topic as I’m currently aware of several great opportunities that have surfaced in my network. I would love to help place great people in these roles.

Two Senior Leadership Roles

I know of two very senior roles that aren’t currently advertised. Each of these roles has a focus on venture and are amazing opportunities with a compelling platform.  One on the east coast and one on the west coast. These are the kind of opportunities that would have been interesting to me in my prior life. I can’t say more but encourage you to reach out if you have real venture experience in funds and/or directs.

Two Mid-Level / Senior Roles

We have two LPs that are either adding staff or have experienced churn. One is looking for a lead private investment manager at a large foundation with a great cause. I also like the new CIO greatly and I know the board is very supportive. You would inherit a good portfolio and have an opportunity to lead the private program.

Another LP is looking to add an experienced mid-level role with an emphasis on growth equity/buyouts. They are open to someone with fund experience but also someone with a direct background. They have a great team in place and you would be joining world-class investors that take their craft very seriously. They are based in Charlottesville, a great town very similar to Boulder.

It’s also worth saying that every one of these roles is seeking to add elements of diversity to their team.

So, I suppose I’m actually encouraging more churn but would love it if you let me play matchmaker for one of these roles. And even if you’re not really looking, I’d be happy for the chance to connect with you for future opportunities. I’ve been very lucky to build a good network of friends in the LP community over the last 15+ years and I hope to share these opportunities when they arise.

I’m easy to reach – Lindel@foundrygroup.com

The LP Anti-Portfolio

The idea of an “anti-portfolio” reflects some of the great investments where you had the opportunity to participate but missed for one reason or another. There are many excuses, as you’ll see below, but the truth is that you completely screwed it up. This idea was first shown to me in the Bessemer Anti-Portfolio and I think many other VCs have since copied it. I don’t know that any LPs have publicly owned their own fund investing mistakes but some may be out there and I hope readers will point them out to me.  

This notion of the LP Anti-Portfolio came up twice in the last few weeks in conversations with managers and prompted me to go ahead and write this post. It’s an interesting, albeit painful, mental exercise to look back at decisions you made that turned out to be wrong. If you invest for a living, you’re going to have made A LOT of bad decisions. You can only hope to learn from them.  

Venture investing is a little different than other asset classes. I always say that you have to be BOTH lucky and good in venture and I think that I’ve been very lucky. Early stage venture, whether in directs or funds, is about picking the right people to partner with as founders or GPs. There is often less data available than buyouts, or growth, or credit, and the like when you make your decision. When you invest as a venture LP, it’s very similar to investing in early-stage companies. You are buying off on a team and idea with little proof. However, the passage of time provides more information and, now that I’ve been doing this a long time, there is hard data on how fund investment decisions turned out from earlier in my career. And with the benefit of more data, I think you can learn from your mistakes. So, I’ll lay out the most obvious ones here and try to throw in a few learnings too.

True Ventures II –  It’s only fitting that I start with True Ventures as they recently announced their new fund. We are happy to be investors in the two latest funds. And I was lucky to be an investor in every fund since True II while at UTIMCO and now here at Foundry. However, I can remember the chair I was sitting in when we decided not to invest in True II. It was late in the fundraise for them when we got in front of Jon and Phil at the little office on Pier 38. And there wasn’t as much capacity as we needed for a minimum investment (these should sound like excuses) which was a common problem and part of the reason I needed to move platforms. All that said, we knew that True would be a good investment but we didn’t make the exception for size, nor drop everything and pursue it. It turns out True II was a REALLY GOOD investment.  I’m glad we have the whole True gang as friends and partners, we’ve had a lot of good direct investments with them and hope to have a lot more in the future.

First Round Capital – I remember a walk from the St. Julien hotel in Boulder, Colorado with Rob Hayes. We were walking up Pine Street to my partner Jason’s house for a social hour post dinner. I remember the walk specifically but I can’t place the exact year. It had to be the 2008-2009 time frame. FRC was raising a new fund and it was already clear that they were building something special yet it wasn’t well-known to LPs. Rob and I had a very direct conversation about sizing being a challenge but it was perhaps the very first time that I internalized the challenge of scale for me as a venture LP. I remember how that felt, saying it aloud to Rob, and knowing that scale was the enemy of returns in this case. Rob and I have had a chance to stay in touch as friends and now fishing buddies (thanks @Ken) which makes missing those funds all that much worse!  Even so, we are happy to cheer for our friends at FRC to continue knocking it out of the park.  And congrats to Rob on his new role as Board Partner. I hope that means more fishing time too.

Lux Capital –  Peter and Josh came to see us when they were raising what had to be fund two or three? We were still in the old UTIMCO offices so I know it had to be 2003-4-5? They were doing something really interesting with their thought leadership via research and writing. However, they were super young (my age at the time) and we had a really hard time wrapping our heads around their success. The thing that made us pay attention was that Bill Conway had been involved and begun to personally mentor them. That, and they were doing some completely amazing technology investing. Mind-blowing, “can that actually work?” type of investments. They had recently done 3-4 deals with Arch at the time they came to see us and Arch gave them a strong endorsement. We decided not to make the investment from a top-down portfolio perspective. That is almost always a dangerous way of thinking. It should be an input but the bottoms-up view on the specific deal should be the heaviest weighting. At that point, Arch was doing a lot of physical sciences investing and we felt like we were getting some of the exposure already. That may have been true but we shouldn’t have passed. Peter and Josh were a special pairing of minds (and good humans). We should have backed them early and it’s proven out that they’ve built a special firm that continues to back really cool technology (that can actually work!). We are cheering for them and I hope we find a couple more direct deals to do together.    

Spark Capital Fund III – We were lucky enough to find Spark Capital as they raised their second fund. Mark Shoberg gets much of the credit for this one as he found and built the initial relationship. We invested in that second fund which turned out to be a great returner. It was also one of those funds where you could see early on that it had great potential. Interesting companies with early mark-ups and connection to our network of other funds that built conviction for us. Unfortunately, Spark came out to raise fund III just as the overall economy was dipping in 2008-9. UTIMCO had its own set of challenges in that period that kept us from making the investment. One of the challenges was that we had a lot of pressure on legal terms that caused us to push too hard as Fund III formed. We got sideways with Spark and they pulled the fund together without us. Ultimately, that was a very painful outcome. Fund III was a huge returning fund that we missed on. I’ll take some of the blame for that, as I’ve always struggled with the balance of terms in LPAs versus what we see in term sheets for company investments. That said, it was a learning moment. I think you should always focus on the cash flow terms in an investment (timing, order, splits) but the governance terms of LPAs are not where you should focus attention nor burn a relationship. There is certainly data in the negotiation of terms but it should not end up solely driving the outcome. I’m glad to say that the Spark team remains one of our favorite relationships and a big co-investor of ours at Foundry Group.   

The Column Group – The Column Group is one of those where we engaged, recognized there was something there but found a way to be too busy to get it done. This was a team that had the confidence to preach a concentrated strategy and the experience to back it up, even in a first time fund.  Mark Shoberg should get credit for raising this one to the top and I’ll take the blame for not focusing on it. I haven’t seen the actual returns but I’ve heard that they are pretty darn impressive. I had a hard time listing this one, or the next one, as I’ve never been a great selector of life science funds. I feel like we were very lucky with Arch, Sofinnova, and Sante in our life sciences portfolio at UTIMCO. Add in Terry at Polaris and you had some pretty good drug development investors there, even if it was all likely luck. Those funds all were accretive from a return perspective and were done based on special partnership dynamics, not our ability to really vet drug development or life science projects. That said, the next fund to mention is a life sciences fund as well.  

Flagship Ventures – Simply put, Noubar is a force of personality. We should have invested with him. There was a clear change of culture happening at Flagship when we looked at it and the partnership dynamics didn’t feel quite right. We felt that life sciences was going to be driving the firm but it wasn’t apparent in the partnership at that point. We also were really keen on Samir and weren’t surprised to see him leave. However, those are excuses. Sometimes you see a money-maker type of investor and you should invest with them. I’m happy to have seen Noubar prove the success of Flagship and glad that he and Bob at Arch have been co-investors on a few of the good ones.  

There are A LOT more funds where we should have invested and I’m sure that I will get more than a few notes that remind me of other mistakes. That is part of investing. You can’t do them all, nor will you get all of them right. Note that I’m only listing a few of those funds that were deeply considered and/or where real conversations existed. There is a long list of funds where we didn’t engage, usually because of size or bandwidth.

We were lucky to have such good access and opportunity sets. I’m always grateful to have the opportunities to partner with emerging managers (something all these had in common) and I’m sure there are many GPs that are thinking they should be on the list. I always cheer for other portfolios, even when we’re not invested.

Hoping this gives some more insight as to how/why LPs behave and it was actually fun to revisit some of these mistakes, a few that were corrected, and a few on-going relationships despite missing on some good funds!