The CEO would make his way to the board room through a processional in the company’s hallways, flanked by clapping employees, shaking hands and giving thumbs up to the staff along the way.
The meeting would start with the CFO announcing the entrance of the CEO, and all board members standing and applauding.
The CEO would stand at the head of the table, with the CFO and CTO sitting in oversized chairs on a raised platform behind him.
All powerpoint slides and the projector would be replaced with a teleprompter.
When the CEO talked about cutting spending, lowering the burn and a hiring freeze, investors on both sides of the table would stand up and applause.
When the CEO talked about changing the healthcare plan to cover all employees and shareholders, the investors on the left side of the table would stand up and applaud while the other investors sit stoicly.
Thereafter, the CEO would have to remind all investors that their job is to represent the shareholders, not their own partisan interests.
Rather than talking during the meeting, the CTO and CFO would convey their opinion by smirking, giggling, and giving standing ovations as the CEO spoke.
Meanwhile, outside legal counsel, sitting in the first row facing the CEO, would never applaud and would be generally expressionless throughout.
At the appropriate time, the CEO would give a carefully calculated shout out to his wife who is sitting at the outer edge of the board room next to some carefully selected key partners and customers. She waves at the mention of her name.
The CEO closes the meeting by saying God Bless this company.
Ever since I started in the investment business, entrepreneurs would often ask in meetings, “What’s your typical time horizon for an investment?” To be candid, I never thought this was a particularly relevant question. No institutional VC or growth equity firm will say we’re trying to flip our investments in a year. And, no firm will say we’re looking to hold every company for 15 years. Though every firm with some history will have examples of both taking place. I’d guess that most firms will say their typical holding period is in that 3–6 year range with flexibility above and below that. To that end, I have always thought that time horizon was never that distinctive or critical of an attribute when selecting a firm.
As the years have gone by, and I’ve been exposed to different investment philosophies – financial or otherwise – and I’ve come to appreciate that in many ways, time horizon can be a driving force in one’s strategy or even ideology. Though in my vocational world, time horizon isn’t that distinctive because most firms are within a similar band, in the broader world, time horizon is profoundly implactful. Here’s what I mean…
On investments: What if a firm came along with the resources and focus to invest in companies with a 10–30 year return on investment? All the traditional defining attributes of a firm – stage, sector, geography, etc. – are subjugated to the outstanding fact that this firm is optimizing for the 20 year return, not the 5 year return.
An example of this might be Google. Google bought YouTube for $1.65B in 2006. Since that investment, they have taken much criticism because YouTube continued to burn cash and the business model hadn’t been proven to work. In other words, the YouTube acquisition didn’t make sense if your investment horizon was 3–5 years. But, what if Google’s horizon was 10–20 years, and that’s what they were focused on? What if they didn’t care as much about the economics and importance of video over the near-term, but just wanted to make sure they were dominant 10–20 years later in video? Google is one company that can afford to do that, and a different time horizon leads to a different set of actions.
On economics: Let’s say that you are sitting in Tim Geithner’s seat (U.S. Treasury Secretary) at the start of his term last year. And, he has a simple question – do I bail out the banks? I would argue that the question to drive the answer is – what’s your time horizon? Are you aiming to stabilize the U.S. economy in the 1–4 year horizon – over Obama’s term, or is your priority to create the stage for a strong and vibrant economy over the 20–30 year horizon? Clearly the nature of politics dictates a nearer-term horizon, and hence, the logical decision is to bail out the banks and deal with the consequences later. But, if your primary objective is to optimize the long-term (20–30 years) health of the economy, one could make a strong argument that bailing out the banks is not the right thing to do. This is not about big or small government, left or right ideology, populist or otherwise – this is simply about time horizon.
On poverty: Let’s say you want to help the homeless in Boston. Again, I’d argue that time horizon is a big driver. If your objective is to help today – you’d probably walk outside and lend a helping hand through money, food or clothing. If your objective is to help this year, maybe you’d support or volunteer at a homeless shelter. If your objective is to help over the 20–50 year horizon – then you’d probably focus all of your energies on a structural issues like education and jobs. Sometimes I wonder if different ideologies on poverty (e.g. Democrats and Republicans) are really just differences in time horizon rather than core philosophy.
If you look at all different aspects of life – career decisions, child rearing philosophies (think about sleep training), relationships, etc. – different time horizons leads to different decisions. Hence, while I tended to be dismissive about time horizon in the past, now in many ways, it’s a starting point for making decisions. I’ve come to appreciate that it’s a healthy thing to ask in any decision making process – what’s my time horizon?
Perhaps my favorite online video series is the Authors @ Google series where they bring the best and the brightest to Google to talk about their area of expertise. Tonight I was watching the video of Tim Keller (below), founding pastor of Redeemer Presbyterian Church in Manhattan. He was speaking at Google about his book – The Reason for God.
There’s an interesting part of his talk where he brings up the famous story of the blind men and an elephant - and the response of Scottish missionary, Lesslie Newbigin.
As Wikipedia summarizes: In various versions of the tale, a group of blind men touch an elephant to learn what it is like. Each one touches a different part, but only one part, such as the side or the tusk. They then compare notes on what they felt, and learn they are in complete disagreement.
In John Godfrey Saxe’s version (1816–1887), one man falls against the side of the elephant and proclaims the elephant is a wall. Another leans on the tusk and proclaims an elephant is a spear. Another touches the trunk and proclaims the elephant is a snake. Another touches the knee and proclaims the elephant is a tree. Another touches the ear and proclaims the elephant is a fan. And the last one grabs the tail and proclaims the elephant is a rope.
The point of the story is that while each blind man is proclaiming what they believe to be is an absolute truth, in fact all of their truths are just relative based on their experience of the elephant. No one has the Truth, in its entirety. This story is often used to critique those who proclaim some knowledge of absolute truth – most commonly those with a monotheistic religious world view. It is intended to teach us how knowledge and truth is in fact relative.
Here is Lesslie Newbigin’s response:
In the famous story of the blind men and the elephant… the real point of the story is constantly overlooked. The story is told from the point of view of the king and his courtiers, who are not blind but can see that the blind men are unable to grasp the full reality of the elephant and are only able to get hold of part of it. The story is constantly told in order to neutralize the affirmations of the great religions, to suggest that they learn humility and recognize that none of them can have more than one aspect of the truth. But, of course, the real point of the story is exactly the opposite. If the king were also blind, there would be no story. What this means then is that there is an appearance of humility and a protestation that the truth is much greater than anyone of us can grasp. But if this is used to invalidate all claims to discern the truth, it is in fact an arrogant claim with the kind of knowledge which is superior that you have just said, no religion has.
As Tim Keller further clarifies in his talk:
To say, I don’t know which religion is true is an act of humility. To say, none of the religions have truth, no one can be sure there’s a god is actually to assume you have the kind of knowledge, you just said no other person, no other religion has. How dare you? See, it’s a kind of arrogant thing to say nobody can know the truth because it’s a universal truth claim. To say, ‘Nobody can make universal truth claims.’ That is a universal truth claim. ‘Nobody can see the whole truth.’ You couldn’t know that unless you think you see the whole truth. And, therefore, you’re doing the very thing you say religious people shouldn’t do.
I think Newbigin and Keller make a valid and compelling point. Here’s the rest of the @ Google talk if you’re interested:
It’s exciting times these days after we launched Volition Capital on Monday (01/11/10). Commensurate with that launch, we also launched the Ask Volition blog – which is a Q&A blog that is authored by various folks at Volition. The first post on the blog is: Why did you choose the name Volition Capital?
Despite all that’s going on, I decided to publish the 3rd version of the Global VC Blog Directory (v1: May 2009, v2: Sept 2009). The past two versions have been based on Google Reader subscribers. Some requests came in to do a ranking via monthly uniques to better show current readership – so this edition is ranked by monthly uniques according to Compete. The specific number is the average monthly uniques in Q409 [(Oct+Nov+Dec)/3]. While Compete does have data for well trafficked subdomains (e.g. blogname.wordpress.com), approximately 50% of the lesser trafficked blogs on subdomains did not register unfortunately. I also couldn’t isolate traffic statistics for blogs embedded into a broader site (e.g. www.firmname.com/blog). Blogs without traffic stats are on a separate list below. Apologies to those I couldn’t get data for. Interestingly, lesser trafficked blogs with their own distinct domains did seem to get picked up more reliably. Give me feedback on whether you prefer the ranking on subscribers or monthly uniques – I’m not fully committed to either yet. Expect version 4 of this directory in April 2010 based on Q110 data. As always, if I’m missing any new or existing VC/PE blogs, please leave it in the comment field.
Links to subscribe to the Global VC Blog Directory in bulk via Google Reader (RSS/OPML) – will be updated, but still based on v2: Sept 2009:
- Top VC Blogs: Top 10, Top 25, Top 50, Top 100
- US VC Blogs: California, Massachusetts, New York
- Global VC Blogs: Europe, Canada, Israel
- Entire Directory: The Global VC Blog Directory
The Global VC Blog Directory (Avg. Monthly Uniques – Q409)
- Fred Wilson, Union Square Ventures, A VC (100,279)
- Guy Kawasaki, Garage Technology Ventures, How To Change The World (82,838)
- Paul Graham, YCombinator, Essays (71,924)
- Brad Feld, Foundry Group, Feld Thoughts (45,633)
- Mark Suster, GRP Partners, Both Sides of the Table (39,389)
- Bill Gurley, Benchmark Capital, Above The Crowd (23,084)
- Dave McClure, Founders Fund, Master of 500 Hats (21,462)
- Josh Kopelman, First Round Capital, Redeye VC (12,972)
- Bijan Sabet, Spark Capital, Bijan Sabet (12,451)
- Jeremy Liew, Lightspeed Ventures Partners, LSVP (12,097)
- Mark Peter Davis, DFJ Gotham Ventures, Venture Made Transparent (12,010)
- Larry Cheng, Volition Capital, Thinking About Thinking (11,851)
- Eric Friedman, Union Square Ventures, Marketing.fm (11,520)
- Multiple Authors, Union Square Ventures, Union Square Ventures Blog (11,408)
- Albert Wenger, Union Square Ventures, Continuations (9,729)
- Christine Herron, First Round Capital, Christine.net (9,561)
- Mendelson/Feld, Foundry Group, Ask The VC (9,270)
- Seth Levine, Foundry Group, VC Adventure (8,206)
- Nic Brisbourne, Esprit Capital Partners, The Equity Kicker (8,052)
- Fred Destin, Atlas Venture, Fred Destin’s Blog (7,928)
- Ryan Spoon, Polaris Venture Partners, ryanspoon.com (7,904)
- Jason Mendelson, Foundry Group, Mendelson’s Musings (7,763)
- Jon Steinberg, Polaris Venture Partners, Jon Steinberg (7,595)
- Marc Andreesen, TBD, Blog.pmarca.com (6,982)
- David Cowan, Bessemer Venture Partners, Who Has Time For This? (6,744)
- Roger Ehrenberg, IC Capital Ventures, Information Arbitrage (6,396)
- Dan Rua, Inflexion Partners, Florida Venture Blog (6,278)
- David Hornik, August Capital, VentureBlog (5,920)
- Stewart Alsop, Alsop-Louie Partners, Alsop-Louie Partners (5,346)
- Ted Rogers, PPI Ventures, Venture Capital Brazil (5,146)
- Ed Sim, Dawntreader Ventures, Beyond VC (3,973)
- Jeff Bussgang, Flybridge Capital Partners, Seeing Both Sides (3,224)
- Ouriel Ohayon, Lightspeed Gemini Internet Lab, MYBLOG by Ouriel (3,102)
- Rick Segal, JLA Ventures, The Post Money Value (2,723)
- David Lerner, Totius Group, Columbia Venture Lab, David B. Lerner (2,627)
- Rob Hayes, First Round Capital, Permanent Record (2,596)
- Rich Tong, Ignition Partners, Tongfamily (2,589)
- Mike Speiser, SutterHill Ventures, Laserlike (2,324)
- Will Price, Hummer Winblad, Will Price (2,066)
- Peter Rip, Crosslink Capital, EarlyStageVC (1,926)
- Rob Go, Spark Capital, robgo.org (1,908)
- Chris Fralic, First Round Capital, Nothing To Say (1,826)
- Matt Winn, Chrysalis Ventures, Punctuative! (1,757)
- Satya Patel, Battery Ventures, Venture Generated Content (1,744)
- Multiple Authors, Highway 12 Ventures, Highway 12 Ventures Group (1,700)
- David Beisel, Venrock Associates, GenuineVC (1,590)
- John Ludwig, Ignition Partners, A Little Ludwig Goes A Long Way (1,562)
- Sarah Tavel, Bessemer Venture Partners, Adventurista (1,518)
- Mike Hirshland, Polaris Venture Partners, VC Mike’s Blog (1,492)
- Martin Tobias, Ignition Partners, Deep Green Crystals (1,426)
- Christopher Allen, Alacrity Ventures, Life With Alacrity (1,283)
- Mo Koyfman, Spark Capital, Mo Koyfman (1,128)
- Derek Pilling, Meritage Funds, Non-Linear VC (1,090)
- Kent Goldman, First Round Capital, The Cornice (1,084)
- Greg Foster, Noro-Moseley Ventures, SouthernVC (1,082)
- David Aronoff, Flybridge Capital Partners, Diary of a Geek VC (847)
- Matt McCall, DFJ Portage Venture Partners, VC Confidential (844)
- Lee Hower, Point Judith Capital, Venturesome (802)
- Allan Veeck, Pittsburgh Ventures, Pittsburgh Ventures (789)
- Paul Fisher, Advent Venture Partners, The Coffee Shops of Mayfair (777)
- Rob Finn, Edison Venture, Ventureblogalist (734)
- Jason Caplain, Southern Capitol Ventures, Southeast VC (723)
- Baris Karadogan, Com Ventures, From Istanbul to Sand Hill Road (712)
- David Feinleib, Mohr Davidow Ventures, Tech, Startups, Capital, Ideas. (709)
- Ryan McIntyre, Foundry Group, McInblog (675)
- Marc Averitt, Okapi Venture Capital, OC VC (654)
- James Chen, CXO Ventures, PureVC (551)
- David Pakman, Venrock Associates, A Venture Forth (646)
- Rachel Strate, EPIC Ventures, Wasatch Girl (528)
- Jeff Joseph, Prescient Capital Partners, Venture Populist (446)
- Max Niederhofer, Atlas Venture, Life In The J Curve, baby (445)
- Jason Ball, Qualcomm Ventures Europe, TechBytes (413)
- Pascal Levensohn, Levensohn Venture Partners, pascalsview (397)
- Saul Klein, Index Ventures, LocalGlo.be (102)
Additional VC Blogs (No Traffic Data)
- Multiple Authors, Volition Capital, Ask Volition (n/a)
- Tim Oren, Pacifica Fund, Due Diligence (n/a)
- Jeff Clavier, SoftTech VC, Software Only (n/a)
- Stu Phillips, Ridgelift Ventures, Soaring on Ridgelift (n/a)
- Scott Maxwell, Openview Venture Partners, Now What? (n/a)
- Raj Kapoor, Mayfield Fund, The VC In Me (n/a)
- Howard Morgan, First Round Capital, Way Too Early (n/a)
- Rob Day, @Ventures, Cleantech Investing (n/a)
- Steve Jurvetson, DFJ, The J-Curve (n/a)
- Philippe Botteri, Bessemer Venture Partners, Cracking the Code (n/a)
- Andrew Parker, Union Square Ventures, The Gong Show (n/a)
- Marc Goldberg, Occam Capital, Occam’s Razor (n/a)
- Allen Morgan, Mayfield Fund, Allen’s Blog (n/a)
- Daniel Cohen, Gemini Israel Funds, Israel Venture Capital 2.0 (n/a)
- Max Bleyleben, Kennet Partners, Technofile Europe (n/a)
- Jeremy Levine, Bessemer Venture Partners, Nothing Venture, Nothing Gained (n/a)
- Michael Eisenberg, Benchmark Capital, Six Kids and a Full Time Job (n/a)
- Sagi Rubin, Virgin Green Fund, The Grass is Greener (n/a)
- Vineet Buch, BlueRun Ventures, Venture Explorer (n/a)
- Richard Dale, Sigma Partners, Venture Cyclist (n/a)
- Steve Brotman, Silicon Alley Venture Partners, VC Ball (n/a)
- Ho Name, Altos Ventures, Altos Ventures Musings (n/a)
- George Zachary, Charles River Ventures, Sense and Cents (n/a)
- Jacob Ner-David, Jerusalem Capital, VC In Jerusalem (n/a)
- Ed Mlavsky, Gemini Israel Funds, GOLB: Is This Israel? (n/a)
- Michael Greeley, Flybridge Capital Partners, On The Flying Bridge (n/a)
- Sid Mohasseb, Tech Coast Angels, Sid Mohasseb (n/a)
- Peter Lee, Baroda Ventures, Seeing Eye To Eye (n/a)
- Ted Driscoll, Claremont Creek Ventures, Evolving VC (n/a)
- Justin Label, Bessemer Venture Partners, Venture Again (n/a)
- Adam Fisher, Bessemer Venture Partners, Savants in the Levant (n/a)
- Gregoire Aladjidi, Techfund Europe, Investing In What’s Next (n/a)
- Todd Dagres, Spark Capital, Todd Dagres Tumblelog (n/a)
- Santo Politi, Spark Capital, This and That (n/a)
- Robert Goldberg, Ridgelift Ventures, Tahoe VC (n/a)
- John Abraham, Arrowpoint Ventures, JMA’s Views On Everything (n/a)
- David Dufresne, Desjardins Venture Capital, Dav-Generated Content (n/a)
- Brad Burnham, Union Square Ventures, Unfinished Work (n/a)
- Brian Hirsch, Greenhill SAVP, New York VC (n/a)
- Multiple Authors, Foundry Group, Foundry Group (n/a)
- Charles Curran, Valhalla Partners, VC Blog (n/a)
- Multiple Authors, Brightspark Ventures, Let the Sparks Fly! (n/a)
- Jon Seeber, Updata Partners, Jon’s Ventures (n/a)
- Todd Klein, Legend Ventures, Media VC (n/a)
- Multiple Authors, True Ventures, Early Stage Capital (n/a)
- Adi Pundak-Mintz, Gemini Israel Funds, Adisababa’s Weblog (n/a)
- Don Rainey, Grotech Ventures, VC in DC (n/a)
- Art Marks, Valhalla Partners, Entrepreneurial Quest (n/a)
- Rob Schultz, IllinoisVENTURES, Go Big or Go Home (n/a)
- Tony Tjan, CueBall Capital, Anthony Tjan (n/a)
- Cem Sertoglu, Golden Horn Ventures, SortiPreneur (n/a)
- Larry Marcus, Walden Venture Capital, Walden Venture Capital (n/a)
- Anupendra Sharma, Siemens Venture Capital, So Little Time, So Much… (n/a)
- Steve Jurvetson, DFJ, Uploads from Jurvetson (n/a)
- Gil Debner, Genesis Partners, TechTLV (n/a)
- Multiple Authors, Tech Capital Partners, Tech Capital Partners Blog (n/a)
- Simon Olson, FIR Capital Partners, Venture Capital Thoughts and Reflections (n/a)
- Josh Sookman, RBC Ventures, Startup Life (n/a)
- Vishy Venugopalan, Longworth Venture Partners, Longworth Venture Partners Blog (n/a)
- Chip Hazard, Flybridge Capital Partners, Hazard Lights (n/a)
- Ed French, Enterprise Ventures, TechGain.net (n/a)
- David Stern, Clearstone Venture Partners, The Raging Insterno (n/a)
- Jonathan Tower, Citron Capital, Adventure Capitalist (n/a)
- Dan Parkman, Venrock, Disruption (n/a)
- Charlie Kemper, Steelpoint Capital Partners, Opine Online (n/a)
- Eric Ver Ploeg, Metric Ventures, Pocket Watch (n/a)
- Jeff Bocan, Beringea LLC, Jeff Bocan (n/a)
- Boris Wertz, w media ventures, w media ventures (n/a)
- Charlie Federman, Crossbar Capital, CosmicVC (n/a)
- Multiple Authors, Golden Horn Ventures, Golden Horn Ventures (n/a)
If you know of any other VC/PE blogs, please put the URL in the comment field. It will be included no later than the next update.
I heard the magic words yesterday from a couple of my portfolio company executives that just warms my heart as an investor and board member. Those magic words are: “I want to invest in the company.” In a prior post, Founder Liquidity, I wrote about how founders/executives not selling shares when they have the opportunity is a big vote of confidence in the company. But, an even greater vote of confidence is when founders and executives want to invest their own capital into the business. I love it when a senior exec steps up and breaks out the checkbook ready to write a check. I’m trying to think if there’s any gesture that gives me more confidence in a business, and it’s hard to think of one. That’s the kind of alignment and confidence I like to see.
As I think about my own portfolio, about 2/3 of the companies have taken some form of debt or equity investment from someone(s) on the founding or senior executive team. While you don’t have want to have too many individual shareholders, key execs writing meaningful checks is a good thing in my book.
In my 12 years of investing in private technology companies, I’m finding that 2010 is a uniquely difficult year to budget for our portfolio companies. In many ways 2009 was an easy year to budget. If you rewind to Q408, the global economy was on a precipice of collapse. That made conservatism the principal theme for 2009 budgeting. Everyone got conservative on operating expenses and top line growth. The question wasn’t should we be conservative – the question was how conservative should we be? In some ways, that made budgeting easy.
Now we look ahead to 2010. The economy is not exactly in dire straights, but it’s not exactly healthy either. The capital markets aren’t exactly frozen, nor are they robust. There is some spending going on, but people are still cautious. Should companies put their stake in the ground and say this is a great year to invest and really push top line growth? The risk to that is you spend more, the top line doesn’t materialize and you burn more cash than anticipated. Or should companies be conservative and measured in any incremental operating expense and top line growth projections? The risk to that is you’re sitting on the sidelines and insufficiently aggressive as market growth returns. This is a tough year to budget.
Obviously, budgeting is a case by case exercise, but I’m seeing some common practices have emerge. Note that these are common themes for several of our portfolio companies, a vast majority of which are between $10 million to $50 million in revenue.
- Set a conservative maximum monthly opex. Many companies get aspirational on the top line target which gives them budgeting freedom to increase operating expenses while only showing only a moderate burn rate. Management and board are like-minded that their intent will be to lower expenses if revenue doesn’t materialize. In reality – it’s never that simple. It’s always harder in practice to lower expenses in the future than to simply wait and increase expenses in the future if business performance warrants further investment. My suggestion is to set the monthly opex presuming conservative top line performance relative to historical norms.
- Commit to a minimum cash balance. At the end of the day, cash is king. Many of our companies are committing to a minimum cash balance for the year – i.e. we won’t go below $X million of cash in the bank. As part of board approval of that budget, the Board and management agree to a re-budget if the company goes below that threshold cash balance.
- Set a top line growth goal that is realistic, but calls the company to perform. With #1 and #2 in place, I personally think the top line goal should presume high performance by the people in the company. If you don’t plan for and expect high performance, you’re less likely to get it. Again, a stretch top line goal shouldn’t be used to increase underlying operating expense, but it should be used to challenge the company to peak performance.
- Set the key performance metrics. Every company has the 3–6 metrics that determine the health of the business. Agree in advance on what those metrics are and what numbers suggest different levels of performance. Review those metrics every month to decide if the company is on the right track or not. If appropriate, agree on what performance should point towards additional investment and what performance should suggest more conservatism on expenses.
- Plan annually, revisit quarterly. This is one year where it’s necessary to have an annual budget, but prudent to think about the budget quarterly to see if there is any new information that has entered into the equation that calls the company to be more aggressive of conservative.
A final point is not to put form over substance in the budgeting exercise. The end goal is to build great companies and create shareholder value. The budget should be used as a tool to achieve those goals not to distract from those goals.
How well have US stocks performed?
With another decade in the books, here’s the quick compounded annual return of the S&P 500 for 50 years:
- Last 10 years: -2.9%
- Last 20 years: 6.1%
- Last 30 years: 8.3%
- Last 40 years: 6.5%
- Last 50 years: 6.2%
Here’s the compounded annual return of the Dow Jones Industrial Average for 50 years:
- Last 10 years: -0.5%
- Last 20 years: 7.0%
- Last 30 years: 9.0%
- Last 40 years: 6.7%
- Last 50 years: 5.8%
And finally, the compounded annual return of the Nasdaq Composite over 30 years:
- Last 10 years: -5.7%
- Last 20 years: 8.4%
- Last 30 years: 9.5%
People used to say that stocks generate about 8%+ annual returns over the long-run. It seems fairer now to say that stocks generate 6%+ annualized returns over the long-run. That type of return doesn’t blow my mind given inflation and capital gains tax though it’s still better than a lot of things. I also have to think that the next 10 years will be better than the last 10 years.