Hacker Bits, April 2016

There are storm clouds
gathering over Silicon Valley
— and it’s more than
just El Niño.
As a venture capitalist, I see
a lot of data points within the
private company marketplace.
Every Monday, I sit in a room
with my partners and we discuss
dozens of companies, both
portfolio companies as well as
those we are considering for investment.
When a market turns,
we tend to see the signs earlier
than the entrepreneurs working
on the front lines.
This market? I’d say it has
turned.
It is going to be hard (or
impossible) for many of today’s
startups to raise funds. And I
think it will get worse before it
gets better. But, hey, my entrepreneurial
friend, who ever said
it was going to be easy? One of
Stop clinging to your
(or anyone else’s)
valuation
You know what somebody else’s
fundraise metrics are to you?
Irrelevant. You know what your
own last round post was? Irrelevant.
Yes, I know, not legally,
because of those pesky rights
and preferences. But emotionally,
trust me, it is irrelevant now.
We even have a name for this –
valuation nostalgia. Yes, it was
great when companies could
raise those amounts, at those
prices, blah, blah, blah, but the
cheap-money-for-no-dilution
thing is largely over now. The
sooner you get on with dealing
with that, and not clinging to
the past, the better off you will
be. As my DFJ partner Josh Stein
says, “flat is the new up.”
rounds can ultimately be demotivating
to your team. If you can
make it through the downturn,
you will have those opportunities
again. But for now, reset
your goals.
Get to cash-flow
positive on the capital
you already have
(aka, survive)
My DFJ partner Emily Melton said
this in our last partner meeting:
“Must be present to win.” I used
to say it at T/Maker (the company
for which I was CEO) in a
slightly different way: “In order
to have a bright long-term future,
we need to have a series of
survivable short term futures.”
You need to survive in order to
ultimately win.
This market? I’d say it has turned.
my favorite expressions is: “that
which does not kill us makes us
stronger.”
So which is it going to be for
you? Tougher? Or dead.
Fortunately (unfortunately?),
I’ve been to this movie before,
during the dot-com “nuclear winter”
— anyone remember that?
I’d like to think I’ve learned
some things from that painful
experience.
I’ve seen companies live,
and I’ve seen them die. And I’ve
concluded that certain behaviors
separate the two.
Which behaviors, you ask?
Here are a few from my downturn
playbook for how to stay
alive.
Redefine what
success looks like
I had lunch last week with a
friend of mine who broke her
leg in three places four months
ago. “I used to think a successful
weekend was 10+ miles of
running,” she said. “For now,
success is going to have to
mean making it to the mailbox
and back without my crutches.”
When a market like this turns,
in order to survive, it is critical
to redefine what success is
going to look like for you — and
your employees, investors, and
other stakeholders. Holding on
to ‘old’ ideas about IPO dates,
large exits and massive new up
You know what kind of companies
generally survive? Companies
that make more money
than they spend. I know, duh,
right? If you make more than
you spend, you get to stay alive
for a long time. If you don’t,
you have to get money from
someone else to keep going.
And, as I just said, that’s going
to be way harder now. I’m embarrassed
writing this because
it is so flipping simple, yet it is
amazing to me how many entrepreneurs
are still talking about
their plans to the next round.
What if there is no next round?
Don’t you still want to survive?
Yes, some companies are
‘moon shots’ (DFJ has a fair
hacker bits
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