Waking Up in Woodside

So there I was, listening to the infectiously giddy (and, indeed, bittersweet) Katy Perry tune “Waking Up In Vegas.” Now, I realize that I’m probably more than twice the age of the typical Katy Perry listener, but the ditty struck a chord. There’s a great moment about halfway through the song in which Katy seems to be at the bottom of her stack of chips, and she urges her gambling partner to “Send out an S.O.S.” But, then, as she pauses to inhale, the momentary silence is filled with an ethereal, angelic sigh, perhaps portending a change of luck. With the wheel of fortune finally spinning her way, she changes her tune and exhorts her sidekick with renewed optimism: “and get some cash out!”

Maybe it was because I was driving back from an annual meeting during which I’d heard some GPs describe a great year after a period of difficulty, but the first time I heard the song on the radio I thought it was a must-add to my mental soundtrack of the VC world. After all, the way some people think about venture and its potential for discontinuous outcomes (and punishing loss rates) makes it akin to gambling; I’ve always thought of Curtis Sharp as the patron saint of some venture investors, no?

Anyhow, as I thought about it a bit more, I re-envisioned the song as a lament from entrepreneurs to venture capitalists who sit on their Boards. Spoofing the song, I’ve replaced Vegas with Woodside, a tony Silicon Valley hamlet that’s home to many VCs and entrepreneurs. Keeping true to the original, there’s little rhyme and funky meter, but here it is for your enjoyment:

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Fat Startups, BMI and The Lorax

So, there I was hanging out in Denver airport again, reading the back-and-forth between Ben Horowitz and Fred Wilson on fat versus thin startups. They’re both cats that I respect and I think they both make carefully reasoned, nuanced arguments that have far more depth than a quick summary can articulate.

But all this talk of heft got me thinking about the Body Mass Index. Those hip to the BMI calculation know that it’s a measure of weight relative to height. Doctors tend to be fans because it’s a decent indicator of body fat which correlates with increased risk of morbidity and mortality.

And BMI tends to work pretty well, except when it doesn’t. For example, serious athletes tend to have more muscle per unit of height than the rest of us and thus have unusually high BMIs: Arnold Schwarzenegger’s BMI clocks in at 33 (the “ideal weight range” runs from 18.5 to 24.9). Even George Clooney clocks in at 29, just shy of the “obese” cutoff of 29.9.

The beauty of muscle, though, is that it’s so much more metabolically active than fat. That’s why one can be heavy, but fit; the two are not mutually exclusive. And neither, necessarily, are capital efficiency and cash abundance in the startup world. Indeed, while I do find myself more firmly in Fred’s “lean” camp, I am sympathetic to the notion that sometimes a company with a lot of dollars on hand can pivot more quickly as business conditions change, or scale faster to discourage new entrants or build competitive advantages that give them a leg up on existing rivals. Companies can be well-funded but hungry. I get it.

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The ’86 Mets of Investing

I’ve been working on a blog post called the Epistemology of Investing for about the past year. Now, epistemology is a ten-dollar word that those — like me — with five dollar brains rarely sling around, but sometimes I think investing could be called applied epistemology. As investors — specifically, investors in opaque, illiquid markets — […]

Keeping The Window Open

Most people seem to have a favorite Saturday Night Live skit. One of my favorites is, “Ruining It For Everybody,” a 1993 masterwork that features John Malkovich and some cast members discussing how they did something to ruin things for everyone else. The Adam Sandler character, for example, explains why many restaurant bathrooms are now, ahem, “for customers only.”

Of course, finance is full of people who ruin things for everybody, too (thanks for the SarbOx, Enron!) But the most insidious wreckers are those companies that go public and then miss their numbers within a few quarters (what’s up, Rosetta Stone?!?) It’s those flubs that have a chilling effect on the market for emerging growth companies.

And as the IPO backlog builds, I hope the bankers take out only those companies that can keep the momentum going, not just those that will pay enough fees to help them get out of

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Getting Out of The Doghouse

Hey, finance professionals: We’ve got a problem. Really we do. In case you haven’t noticed, the Great Recession of 2008/9 has a Villain (with a capital V) and it’s you and me.

I know, I know, we did nothing wrong; we’re generally decent, hard working, well-intentioned souls who humbly ply our trade in a peculiar, esoteric and well-paying corner of the economy. But we don’t actually produce anything tangible, which makes us an easy target when a lot of people who do actually manufacture real “stuff” are out of work.

And, indeed, the demagogues swirl like turkey vultures seeking carrion. Who is blameworthy for the sad state of affairs in this country? The cry rises from the frenzied mob: Banks! Private Equity Firms! Mortgage brokers! Investment banks! Venture Capitalists! Money Managers! MBAs! (Barney Frank busies himself handing out torches and pitchforks while Timmy G and the Treasury crew ready the shackles.)

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Pain Points

“Don’t waste a good crisis,” the new mantra goes. So let me ask this: Why aren’t we using this epic downturn to fundamentally re-frame the relationship between GPs and LPs? Instead, people are battling along the same lines across which LPs and GPs have been skirmishing for years. It’s like World War I: fierce battling yields a few acres of pockmarked muddiness.

But what if it doesn’t actually matter if the fee offset is two-thirds or three-quarters? What if it really doesn’t make a difference whether the no-fault is triggered by 66% or 80% in interest? Maybe the the LP-friendly/GP-favorable axis needs to be discarded in favor of some entirely new, orthogonal continuum that re-thinks how interests are aligned?

Let me put a finer point on it: Currently, LPs worry that the carry system grants GPs a free option in times of frothy markets; LPs ask: “Why pay an incentive to people who simply capture beta?” GPs on the other hand bellyache about how long-dated carry payouts can be; after all, those wacky hedgies get paid every year (watch those high watermarks, boys).

A Hundred Days, A Hundred Months

Sometimes, I envy public market investors; occasionally I think, “wouldn’t it be nifty to actually see your investment theses play out in less time than a presidential term or two?”  But then I remind myself how cool it is to watch portfolio companies flourish and strive and struggle and dream.  It’s like watching your nieces […]

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Patience in the Time of Least-Worsts

Yesterday, I caught myself chain-drinking Diet Cokes again. With about ten ounces left in my Double Big Gulp, I’d start waltzing over to the 7-11 on Lytton. By the time I got through the door, it’d be time to reload. Maybe it was the caffeine, but back in the office after my third trip – […]

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An Open Letter from an LP

Dear Portfolio Company CEO, Hi, my name’s Chris and I fund the folks who fund your company. I’m the money behind the money. I can’t remember if we’ve met, after all, I’ve got several hundred cats just like you in my portfolio. There’s a chance that we talked at your backer’s last annual meeting; maybe […]

Frankie Says: Relax (Don’t Do It)

The first time I saw a swan we were on a class trip to Central Park (Look, kids!  Nature!)  White and fluffy and graceful, that swan was nothing like the flying rats we had back in Brooklyn.  I remember, too, that our teacher said a pair nested every September over at the 79th Street Boat […]

Tyranny of the Relativists

There’s a great riff in John McWhorter’s book, The Power of Babel: A Natural History of Language that describes how expressive force in language diminishes over time. His poster child is the word “terrible” which once meant “causing dread or fear or terror,” but now is used as a mild negative modifier (e.g., “I’m such […]

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Justify My Love

My buddy Peter – a very smart cat – was a pure math major in college. Once, I asked him what the difference between pure and applied math was and he told me with an impish grin: “the applied math guys know how to add . . .” Of course, Peter went to Brown University, […]

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A Dollar and a Dream

Anyone remember Curtis Sharp? A long time ago, Curtis won a $5 million New York Lottery jackpot and he spent the rest of the 1980s sashaying around New York in bespoke suits and bowler hats attracting crowds wherever he went. Curtis was the Man. Charismatic and impish, Curtis was the Toast of the Town. I […]