We talk a lot about bubbles in tech because, like real estate executives, we had our world turned upside down by one.
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Bubbles have popped five times in my life.
The 1987 crash and subsequent pullback in consumer spending largely caused my dad to lose his bar when I was 17. In 1990 the recession, driven by the Iraq war, terrorized everyone in college for years. There were literally no jobs for people with five to ten years of experience. With 0 years under your belt your options were to stay in school or be a waiter — if you were lucky.
Those two crashes were modest when compared to the big three.
First, the dotcom crash killed my magazine, Silicon Alley Reporter, and then 9/11 killed thousands of my fellow New Yorkers. As we rebuilt we got the biggest sucker punch ever from the “financial crisis” of 2007, which I refer to as “a-hole bankers fuck everyone in order to get bigger houses in the Hamptons” crisis.
Given these blow-ups, everyone is waiting for the stock market to crash today. Can’t blame ‘em, the movie seems to play out like clockwork. In fact, I keep asking my insiders to give me the top three reasons why things might blow up.
Best they can come up with right now:
- The crazy bear (Putin) does some crazy shit.
- China’s incomprensible economy suddenly becomes understandable — and it ain’t pretty!
- The maniac generals in Pakistan, who thought it wise to house Osama Bin Laden in their West Point, decide to jump the fence… with their nukes!
All of this is so outside of any of our control it’s not worth worrying about. Play a little defense is all we can do, so I’m refusing to pay $8-12m for brand-new startups and moving the majority of my personal net worth out of public stocks (especially in emerging markets).
I’m barbelling my portfolio between bonds/cash/blue-chip stocks on one side and startups run by resilient people with tremendous work ethic and skills on the other. Those startups need to have appropriate valuations as well, which means the angel round should be $2.5-5m. That lets angels own 1% for 25-50k, which means if you hit a 100x or 200x return after 50 investments, you’re good.
Capital Everywhere, But No Attention
What founders need to realize is that in the drunken monkey moneyfest of 2015 the limited commodity is attention.
You can get all the money from any number of people these days. First-time angel investors are packing the room at demo days, throwing money into deals without doing any due diligence. They don’t read the documents because they’re, well, SAFE! They don’t negotiate the terms because, well, FOMO!
Founders are taking this money at high valuations without having a lead investor, which is a great deal for founders in the short term. This party round, party monster vibe is resulting in a lack of discipline and focus on everyone’s part.
Founders don’t check in with their investors and investors are too busy to spend any time with their founders! There is no time to consider what we’re building or why.
No one is asking the hard questions, like “Can we get there on what we’ve got?” or “Where’s the last investor update — and what’s missing from it? revenue? earnings? months of runway left?”
As the free money river flows on, the number of startups is ever increasing.
As the startups increase the attention given to each one by customers and investors goes down. You can’t possibly keep the quality up if your incubator keeps adding a dozen or two startups every class — can it?
You can’t possibly expect folks to show up when you run out of money if you have never met them in person — can you?
Savvy founders should be optimizing for attention. If you’re negotiating with investors ask them the following:
- Are you available to meet with potential hires?
- Are you willing to call a journalist and tell them about why you invested?
- Will you come by our office and do a jam session with our team?
- Can you help us by writing a personalized introduction to venture capitalists?
- Can you respond to our monthly updates with your specific ideas around improving our product and solving our problems?
- Will you pick up the phone when I need to talk?
Getting the money is easy today. Don’t give yourself too much credit for closing your angel or seed round. Give yourself credit when your investors are working with you to scale the business, get a press hit, and push the startup to break even.
In other words, give yourself credit when you’re doing all “the work.”
Writing the check without reading the docs is not doing “the work.”
It’s a drunken orgy of cash right now, with absurd real estate deals and $7,000 tickets to vapid “founder summits” in the mountains run by people who have never built anything of value in their lives.
Opt out of it all.
Ignore the noise and parties and do “the work.”
If you do the work now, you’ll be one of the ones who makes it through the correction.
Remember: Fortunes are made in the down market and collected in the up market.
Get back to building.