After the 1st round of the NCAA basketball tournament was all said and done, turns out I was “toasted in Tampa”. I went 0 for 4 in the games played there. I guess I better just stick with my day-job and “pick” start-ups instead — at least I have some control over their outcomes. Enjoy the rest of March madness.
I thought I’d share a couple thoughts with you this Friday. First, I spent a lot of time with VCs prior to becoming one myself and two “pearls of wisdom” seem to constantly come to the forefront in this industry. The first maxim is “don’t be greedy”. Venerable VCs will tell you that any time you get greedy bad things happen. The second maxim is “don’t be stupid”. This latter advice is easier said than done, to be sure, but a fair amount of this industry is predicated upon old fashion common sense. My second thought this Friday afternoon is about a different common sense — Common Sense the band. They are one of my favorite bands and, it just so happens, Rob Barnett has a nice post about them (and me) that you can check out here. While you’re visiting My Damn Channel, make sure to vote for them for this year’s YouTube awards by visiting The Night Feed and following the instructions. Until next time, exercise and listen to Common Sense.
A fellow VC just informed me that the OC Metro has an article on me/OC VC in their latest edition. You can read the article here. Not sure what it all means, but I find the media attention interesting. Enjoy!
I took a couple of weeks “off” to spend some time with my family and friends and am now just getting back in the saddle. So, what did I do while away from the office? It turns out that I’m never truly away from the office. I had a number of calls and traded a fair amount of emails with my portfolio companies despite being “out”. I guess old habits truly do die hard. I spent the bulk of the time with my family just enjoying the holidays. It gives them a whole new meaning when you’re able to do so through the eyes of a child… I also managed to read a few books recommended by friends (Done Deals, The Zookeeper’s Wife, and A Look Over My Shoulder: A Life in the Central Intelligence Agency) and even played wiffle ball yesterday for the first time in twenty something years. In any event, I hope your holidays were happy too.
Season’s Greetings to all you OC VC “fans” out there. Thanks for reading and catch ya next year.
Today was supposed to be the day that I broke my 141 day streak of no surfing. I was supposed to be in L.A. all day in meetings, but they were canceled yesterday and I found myself with a “free” day all of a sudden. I’d been following the reports on Surfline and Wetsand for a week or so and both had been predicting “epic” surf for South Orange County with wave heights in the 7-15 ft range today. In fact, so much attention had been given to the “monster swell” that was rolling in by the experts and my friends that I ultimately decided to take my son to one of my local breaks and watch from the sand rather than put my relative inexperience to the test in DOH (double-over-head) surf all by myself. Turns out, I psyched myself out for nothing. The picture below was taken at Doheny around 9am this morning and raises two points I’d like to discuss. First, I’ll address one of the age-old questions: “Does size matter?”. Finally, I’ll briefly delve into “how big is big enough?” Before you either tune out or turn on, you should remind yourself that I’m writing from a VC’s perspective in The OC and get your mind out of the gutter.
So, does size really matter? If you’re talking about markets, then the answer is unequivocally yes. What do I mean.? I mean that the size of the market (as measured by total available revenue realistically achievable per year) a particular start-up is attempting to sell its product or service to matters a lot for several basic reasons from a VC’s perspective: 1) The targeted market’s margins for operational errata are much bigger (and, therefore, more forgiving) the larger the market is; 2) The larger the market is the more room for competition there is (which will inevitably occur in today’s age); 3) The larger the market is the more revenue any one particular company can aspire towards; and 4) The “law of large numbers”. Why does all of this matter to a VC? Simply put, most VCs are looking for very large returns on their investments (e.g. 10x+) and companies targeting “monster markets” are more apt to realize such returns (all else being equal). To quote a legendary “patriarch of private equity”, Don Valentine, “It’s better to invest in a company in a large market with great demand than to invest in a company that has to create it.”
Okay, okay, so size really does matter for targeted markets…but how big is big enough? It has been my experience that the answer to this question depends on a few primary factors: 1) the size of the VC fund from which you are seeking an investment; 2) the targeted market’s rate of change (in terms of growth / erosion); and 3) the background of the team attempting to penetrate the targeted market. Clarification, please. Sure, since you asked. Generally, the larger the fund the larger the liquidity event needs to be on a per deal basis to achieve the returns most LPs expect (e.g., 2x-3x cash-on-cash) given historical statistics. As an extreme example, and all other things being equal, it is arguably much harder to turn $500M into $1.5B than it is to turn $10M into $30M. Additionally, a “small” market that is growing like wildfire may generally be preferable to a “bigger” market that is quickly shrinking. As an entrepreneur, you should research the size of your intended market and understand not only it’s absolute size, but its underlying growth/erosion dynamics as well. Finally, the less seasoned the team is the greater the margin of error generally required.
A couple of final, parting thoughts come to mind as I stare at the picture… First, don’t generalize size — do your homework and truly understand how big the total addressable market is rather than that of the market generally available. Finally, understand that size is relative. For those of you who know Doheny, you appreciate the fact that while the waves weren’t DOH this morning, the 4′-6′ footers were much nicer than the typical 1′-3′ footers found there. I guess I should have gone surfing afterall…
I was watching President Bush pardon two turkeys this morning on CNBC (appropriately named “May” and “Flower”) and, as I often do this time of year, reflected on all the things I have to be thankful for. After spending the day thinking about them all, I decided it really came down to four things:
1) my family;
2) my friends;
3) my fund, and
4) all the fun I’ve had this year living in their increasingly concentric “spheres of influence”.
May you be able to enjoy the holidays with your family and friends. Happy Thanksgiving!!!
“Paternal hiatus”… that’s what I’m calling my recent absence from my office and blog. A long story cut short, my then pregnant wife was diagnosed with pre-eclampsia and put on strict bed rest several weeks ago so I checked out to attend to her and our 2.5 year old son. The pre-eclampsia developed into eclampsia and necessitated the delivery of our second child 5 weeks early. We now have a beautiful (thanks to her mother) and healthy baby girl and both she and my wife are now doing fine. I thank God for both. Since the birth of our daughter, I’ve spent a number of my sleepless nights thinking (as I always seem to do) and will publish several posts based on my recent thoughts in the days to come. I thank all of you that reached out to my wife and I during the past couple of months. We greatly appreciate your kindness and support.
I’ve been buried on the home front so I thought I’d post this video to give you something to do while I ponder my thoughts for my next post. Hope you enjoy.
Well, I survived my wife’s 1st week of proscribed bed rest thanks, in large part, to my “professional mobility” and frequently found myself counting my blessings…which leads me to this post. Is professional mobility a blessing or a curse? I suppose it helps to define “professional mobility” first. For me, it is the ability to work anytime from anywhere and is achieved thanks to the nature of venture capital and some combination of technology/communication devices (e.g. cell phone, Blackberry, and/or laptop with wireless data connection and service). I first became truly “mobile” in 2000 and have been so ever since (except where culture or logistics dictated that I be somewhere in person). While I first considered my mobility a blessing thanks to a new ability to get work done from somewhere other than my then bland cubicle at Intel, it quickly evolved into somewhat of a curse as I found myself working 18-20 hour days on most days… just because I could… and it seemed others were too so why shouldn’t I.
I eventually learned to go “off the grid” for at least small periods of time and set boundaries otherwise such that my professional mobility curse reverted back into a blessing. So, my question to those of you who read this post: is professional mobility a blessing or a curse…and why? For me, it is now clearly a blessing and has allowed me balance work & life efficiently and I can never see going back to the way it was.
