Persistence and a great story, CFOs/GC's (hint real value), Bad terms- bad idea.

Portfolio update:

Most companies are steadily moving forward.  I have seen an uptick in bridge rounds again.  As mentioned, not a good thing when you have to do it.  Its worse if its multiple times. 

Breakout winners coming in agtech in my view.  Lots of progress in this category.  I credit many of the teams and entrepreneurs for executing well.   Will report more on that front soon. 

Then there is Axia Vegetable Seeds , which I posted about earlier in the week.  This was not a Divergent Portfolio company but instead a board seat I had kept for Kleiner Perkins all the way back from 2012.   This company has been through so much. 13 years on the board. The picture above says it all.

I preach about persistence and perseverance but I want you all to see I am practicing it as well. I could have quit anytime. Do you know what I got paid to do this? No more than $35K per year. I have board members at my previous startup who so called "professionals" paying themselves $200K per year to be on a board while performing poorly.

Ethics dictate my actions. I dont want to get paid more. I want to deliver results and who I am the best at it. Anyone and everyone can trust me on a board to do a great job. I prefer to do a great job in the right way over just making money. This was a good return but for me not a big payday. I dont mind, at all. I did this for a purpose.

I suggest all you younger entrepreneurs learn what it takes. You can get lucky and think self interested but you wont get that far. If you think long term and play a long game, your short term or long term sacrifices will turn into long term gains.

Finally, I will tell you we are about to enter a period of hysteria.  There may be a few more hiccups before it all goes parabolic but just be prepared.  The issue is going to be whether your an ai company (or possibly a crypto/fintech type) or just something else.  If you are, you will be parabolic.  If your not, you will need to be patient.  Even being a tech company won't be enough.   I got advice for you because while I run an ai company I am not aware of any true ai companies in my portfolio of investments. 

Entrepreneurs Corner:  

Part time CFO's,  lawyers and your needs:

I rarely see a startup that actually has its act together from a financial or legal standpoint.  Most are shit shows.   Entrepreneurs tend to want to "save money" on these costs in the first few years of a company.  These actions do not save you money.

And especially depending upon your predilection and skills.  As a "first time" entrepreneur, you don't realize how important financial, legal and regulatory matters early and often at your company.  The issues don't bite you until they do and when you are unprepared you lose time and end up spending more.  If you have avoided the work of proper financial modeling or legal you will end up with a rude surprise.  

How do you deal with this when it feels like spending $400K of your $2M seed round on lawyers and part time CFO's is a waste?    Here are some tips:

1) Ask your investors, immediately, for referrals.  Not to big firms, but to PEOPLE.  Who have they worked with that has done a great job?  responsive?  Agile?  reasonable cost? 

2) Don't focus on big name firms for lawyers or and for finance avoid the "bookkeeper".   You don't need some high flying firm but you need someone who knows the details of financing, contracts, employment law.  A jack of all trades is more valuable that high end firm.    Financially, everyone says they will start with a "bookkeeper".  Instead try to get someone who can build your first financial model as well and will also pay the bills take admin off your hands but build credibility with reporting. I consistently notice companies with bad/no financial reporting end up with issues or fail completely.

3) Personality and responsiveness fit:  Where I have seen this not work is when the person is just slow to respond, slow/poor with work product and has a rigid personality.  The best people are those that can move at your pace.  Test this when you are screening them. 

4) Bias to full time post A round (versus contractors as you will be tempted to do):   For seed you will need to contract.  After your "A" round I suggest going full time.  You won't hear this advice elsewhere. You have the money at this point and hiring a couple of great people in these roles is will be game changing for you.  

I have helped some of my early companies through referrals already on this front.  Need a referral, come to me and if I have someone I will send them your way.  Sometimes its just a free agent between things and others are people who have set up shop for this.   But don't cut corners! 

You can recover from a down round, but not an awful financing:

I was confronted recently with a few different companies that needed some money, had been behind, and insiders decided it was smart to effectively annihilate the company for the sake of a sweetheart deal. 

Firstly, this is self-destructive. 

Secondly, when a company really needs the capital and can't get it from outside, you need operational work as much as you need money.   

A "good deal" won't solve the investors problem or yours.  

I see it all the time, 2X, 3X, all kinds of conversion crap, basically a washout without a washout.   Total amateur night.  It doesn't work.  Clean down rounds are and always have been the best solution.   Dont roll over and accept crap terms.   Here are some thoughts:

1) Fight for a "down round" that is clean: Just reduce the price and take the dilution and money. Dont agree to ridiculous structures. If you simply can't limit to a minimum the money that is structured.

2)  Whoever is proposing this is Amateur night- turn to board or advisors with real experience:  An investor thinking liquidation preferences for ridiculous features will get them a return in a startup or growth stage business is silly.  You get the return through outperformance and then premium value in the future for that performance.   

2) Fight back against self interest- fight for yourself and your shareholders:  dont waste your time squashed under a crappy structure.  There is no way out.  The only thing you can get is a carve out at some point.  It is impossible to fix. These structures are often conceived and pushed by investors who want more control

3) Precedent set, can't be changed:  Once the company has distressed terms, it will remain distressed.  Unless it completely turns itself around ( I have seen this once, at Axia seed) but very few times in history.  Usually bad terms compound.

4) Demotivating for employees:  To turn a company that is struggling you need massive commitment and belief from employees.  They aren't dumb and you won't get it with ridiculous terms. 

Parents Corner: Boarding school and environmental change

Do you ever hear parents say "I want to spend more time with the kids"? As if they are being a saint or good parent by doing so? What if your kids really dont need that? Can you be humble enough to think differently? Or is it about you? My son with autism has blossomed in a way I never expected. But truthfully he has been in a bubble since he was 2 years old. This summer, he left for boarding school by himself. This was something he wanted. Its also something I NEVER expected. yet, I am 100% sure its the right thing for him. Why? because he needs to have the cord cut and start doing everything on this own. A neurotypical kid can be eased in and doesnt need as much immersion. But my kid, immersion of that kind is game changing. It means less time for me directly, but more development for him. Bottom line, its not about you, its about what is best for them. Sometimes changing the environment can have a profound change on the kid. I am certainly seeing that (although its early). I will report back as I see more...