Well, if we weren’t already THERE, then we certainly are NOW. So much for a soft landing in venture land. The SVB crisis just made it real.
The cycle turn for venture has been greatly discussed over the last year. It’s true, valuations were down, capital was slowing, LPs were cooked, and GPs were tight. It was all reflected in the valuations, specifically in the public markets, and trickling down in the last couple of quarters to the early stage.
Companies responded as they felt increased pressure and heard but perhaps didn’t LISTEN to concerns of a greater cyclical nature. They didn’t feel it in their sales pipelines and their balance sheets seemed fairly solid. We knew what burn looked like and what it would take to get more capital after we drew down the venture debt available. Everyone had a plan, most of which included raising money over the next 18 months.
NOW, we have those same balance sheets that just shrunk runway by a meaningful amount. We know that there aren’t/won’t be enough banks to pick up where SVB left off and most of that venture debt is now gone. We should expect meaningfully less availability (no new?) and much more credit focus until the next cycle. That means….”Cash is King”, again.
We will all have to recalibrate and make tougher decisions as any flexibility has been taken out of the system. GPs know that equity will have to replace debt runway. A further winnowing of the portfolio just happened. CEOs know that equity is going to be more expensive and harder to get. They will also have to make tougher decisions. LPs are going to take a more critical eye towards VC generally, and even more so to adding new managers. Things just got tight. We’re THERE, NOW.
Now that we got a reprieve and we can make payroll this week…What does your new plan look like from here? Time to get back to work.
It’s hard to write a post like this when your thoughts are jumbled. I suppose the ramblings below are meant to: – Acknowledge a challenging time and make a call to move past that period for me – Share gratitude for my family, partners, and friends that supported Barbara/me during this time
The last three years have been challenging for many reasons, not least of which Covid changing the way we work, live, and function as a society. It’s been a time…but I feel like that period is ending and we are finally moving on from a very intense period that will do down in history. For me, this was bookended by the passing of my brother, just before Covid began, and the passing of my mother, this summer.
Yesterday would have been Jonny’s 43rd birthday. And tomorrow, he died 3 years ago. One of the reasons that his passing was so intense is that it was outside the normal order of things. He was the younger brother and son that was supposed to outlive all of us and take care of our mother as she aged. When he died, my mother was understandably emotionally fraught and I had to step in to carry the load that comes with someone’s passing. It was a lot to absorb and I still have some grieving to do that was put off in the urgency to act. I suppose I’ll always think about him this time of year. I don’t want to make this post an annual tradition or some sort of “mopefest” for I know that it will eventually become a happy thing, where you remember the good memories more than anything else.
I’ve thought about Jonny a lot over the last six months. I really could have used his help as I navigated another intense period. My mother, Barbara, was diagnosed in March with advanced pancreatic cancer and we knew that she had a limited time to live. The statistical average is something like three months. She made it four. She passed on July 16th.
In the last few months of her life, I was lucky enough to be able to strip away much of the day-to-day and spend a lot of time with her in Texas. It was actually wonderful to get time with just the two of us and to be “home”, driving around in a city that had changed a lot but still evokes such memories and stories of your own childhood. Much of the time right after her diagnosis was spent between work calls/zooms. It was the ultimate bit of context switching. I would go from work mode to just sitting on the back porch, watching the familiar birds. We did have some important conversations but much of the benefit was just being present in the same space. Two or three times a day, something important would come out. The kind of things that don’t come out unless you give them space. Maybe it was the Texas heat that seemed to slow time down. Maybe it was the emotional intensity in the knowledge of death. I do know that I’m grateful for every minute, every conversation, and every story.
As her news spread and her health declined, I was amazed and grateful for the number of friends and family that stepped in to help. She had a lot of friends and they all came to help but I have to call out:
– My family, particularly Melissa, who turned me loose to focus on Barbara while she held our life together in Boulder. She also helped me clean out the house for the two weeks we were supposed to be on vacation this summer. That was really hard and we are overdue for a good holiday. My kids, who have experienced Jonny and Barbara passing with the resilience and trust of love and youth. – Her brother and my uncle, Tom, for alternating weeks with me on the flight from Boulder to DFW. I’m glad she had time with her little brother in the end. – Her partner and friend, Steve. He was incredible in his devotion to her and took on more than I could handle in those last few weeks. I’m so happy she found Steve in the last few years and only wish they had more time together. I don’t think Barbara could truly love until Jon passed (you’re only as happy as your least happy child) and Steve came back into her life at the perfect time. It was beautiful to see her find love and happiness at the end of her life. – Her best friend, Vicki, and Vicki’s husband, Don. Vicki was her exercise buddy and her adopted family. Vicki provided key referrals and support to all of us even while grieving herself. – Susan Cutts, who consistently came to visit and hung in there until the end. It makes me smile that she and Barbara became such great friends as I and her son have been as well. – My partners at Foundry who gave me the space to turn off work and focus on family. I’ve been bumping along the bottom for a while but I’m just beginning to rally. – Her caretaker, Linda, was an angel for all of us. If any of our friends in DFW need help for their aging parents, please reach out for her contacts.
A funeral is supposed to be a fitting send-off and celebration of one’s life. I loved seeing friends from all parts of her life. Her high school friends, her TCU friends, her First Hurst (church) friends, her grief group (GGs), her yoga instructor(!), and even a few of my father’s friends. The surprise for me was that I didn’t expect so many of my friends to show up. It was great to feel their love and support as well. Our cousin, Neil, delivered a wonderful eulogy and our friend, Jason, led some beautiful songs. I think Barbara would have been pleased. The reception afterward was so enjoyable that it produced the common lament that it takes a wedding or a funeral to pull together those you most love.
As I sit here on Sunday morning, there are so many more thoughts rumbling around. Perhaps some that I’ll write out to share as time and space allow. For example: – Grief that takes a “month of Sundays” to show up and begin to process – Embracing your role as a child, as a caregiver, as an executor, and some of the learnings I’ve been sharing with my friends that will have to walk this path – Our place in this generational transition. AKA, we’re becoming the old people and that creates a change in perspective. Our role as the sandwich generation is hard, what does growing old look like?
All for another day. It’s Porchfest today in our neighborhood and I’m going to go celebrate life with friends and family.
Barbara Jean (Ellison) Eakman October 10th, 1944 – July 16th, 2022
Barbara Jean (Ellison) Eakman, age 77, left us on July 16, 2022, after a brief illness with pancreatic cancer. She was comforted by her friends and family at home in Colleyville, Texas these past few months.
Barbara was born in Denton and raised in Denison, Texas with her loving parents, Ted and Faye Ellison. She graduated from Denison high school and Texas Christian University where she was part of the Delta Gamma sorority. She went on to serve in the USO, leading the officers club at the Nakhon Phanom Royal Thair Air Force Base, allowing her to experience new cultures and explore new horizons. She established her career as an educator in Dallas before focusing her time on raising two sons with her husband, Glen Evetts (“Ebb”) Eakman. They had a wonderful love for two decades before Ebb passed away at a young age. She was especially close with her younger child, Jonathan Eakman, who preceded her in death three years earlier. We are comforted she will now spend more time with the husband and son that she lost too early in life.
Barbara will be missed every day by her eldest son, Lindel Eakman, and his family who knew her as “Nana”. She is also survived by her brother, Tom Ellison, his family, a loving extended family, and a large set of long-time friends that supported and celebrated her through good times and hard spots. We are grateful for those friends that she considered an extended family.
Barbara knew that she had lived a full and good life. She reflected on a successful marriage and raising a great family. She also found love afterward. She counted herself lucky to have had meaningful relationships across her life. She was so very disappointed not to have more time with her companion, Steve Otis, with whom she shared a wonderful bond in these last years.
She was loved by many for her authenticity, with a candor that lacked criticism and a comfort in her own identity. She preferred “small-town people” and appreciated those values. Barbara was a spiritual believer, raising her children in the Methodist church. She enjoyed TCU Football and a special set of friends that came together to support the Horned Frogs over many decades. She was a gardener throughout her life, sharing a green thumb with her father and aunt, Juanita Williams. She loved the “good dirt” in the yard and memories made with her family at her lake house on Lake Texoma.
Graveside services will be held for Barbara on Saturday, July 23rd, at 10AM in the Garden of Rest at Bluebonnet Hills Cemetery located at 5725 Colleyville Blvd, Colleyville, Texas, 76034. Please join the family for a reception and lunch following the ceremony at Del Frisco’s Grille in Southlake located at 1200 E Southlake Blvd, Southlake, Texas 76092. For those that may be heat sensitive, we encourage you to join us for the reception at ~ 11AM.
In lieu of flowers, those who so desire may make memorial donations in memory of Barbara to Texas Christian University. The family would appreciate and cherish any stories, memories, or photos you could share to BarbaraEakman@gmail.com.
I participated in a Raise LP Only Conference today as a speaker. It was a lot of fun and I hope it will be useful to the participants. I don’t know if they’ll share the recording but I thought it might be worth sharing my own notes here. My designated topic was how to support emerging managers once you’re invested. I love our Partner Fund group and only wish that we could have more slots to engage and support beyond our bandwidth and capital limitations. I’m hoping more LPs will figure out what we’ve seen first-hand, emerging managers drive returns and they’re more fun to invest with too! LE
Raise LP Conference Notes –
I’m Lindel Eakman, partner at Foundry Group. We invest in early stage tech companies across the U.S. and Canada. We’re known as a series A firm but we’ve also built out a pretty unique network of Partner Funds that we use as a filter (not a funnel) to guide our own direct investing.
So at this point today, we’ve covered:
Alan making the case for emerging managers, both returns and network benefits
Winter helping define what the emerging manager opportunity set looks like today
Courtney laying out some of the challenges and ways to find those managers in a crowded, noisy market
Erin guided us in how to vet these managers and acknowledged that sometimes it’s a bit more work
Alright, so now you’re invested! I get to close with how you need to engage and support these managers more, but I’d also like to make the case that it’s not only worth it from a returns perspective, it’s a lot more FUN!
In my previous role at UTIMCO and now here at Foundry, I’ve been fortunate enough to invest in many emerging managers going back almost 20 years. It was always the most rewarding and most engaging part of the LP role. Now, as a GP and LP, I get to share some of that experience with these new managers. We structurally invest as a regular LP but we try to serve as a “senior GP that doesn’t take all the economics”.
We try to support emerging managers in the same way that we support companies. What does that mean?
EMs are start-ups too. LPs can and should engage more frequently and actively. Recognize that they are building a business from the ground up, sometimes that means thinking more like a GP than an LP in your input. Make sure to recognize that you’ll be successful when they are too.
EMs have LOTS of questions about:
GP Ownership and structure
LPA structures, service providers, capital call timing/capital call lines
portfolio construction, ownership and pricing
Early liquidity and recycling
Building a team, compensation,
Future funds and what, exactly, are all those OTHER LPs thinking?
Fundraising and reporting/meetings are probably the most asked questions
What should you do as an LP?
Our goal is to provide mentorship from both a GP and LP perspective but the most important thing you can do is create a real relationship/partnership that provides an authentic open space to ask the “dumb” questions; let them know that you made a bet on them as a person and you’re there to support them.
Be willing to lead.
Participate/anchor the first close
Do the work on the legals, they have no clue when their attorney (G*&!&$SON) is giving them “middle of the road” advice that looks more like the Sequoia terms.
In fact, get involved even earlier and help them pick the right service providers. Help them structure GP ownership, management companies, vesting periods, etc.
I have a text message relationship with most of my GPs, be willing to take that call/text.
At least have a more frequent interaction early on, maybe monthly/bi-monthly but keep it short and casual. Have an email beforehand to establish the agenda and encourage their questions
Create community and mentorship – Can you help pair them with a more experienced manager in your portfolio? Are there best practices you can pull from across your group?
Helping them build networks for deal flow and follow-on investments should be part of your job. You actually want your GPs sharing ideas if you trust their judgement, you’ll get more exposure to the best companies and you’re probably overdiversified anyway!
I’d also like to make the case that, even though EMs are more work – it’s way more fun to help someone build their business! You get to have more influence and you’ll often find that you build real relationships that are rewarding and may be transformational.
I was lucky enough to invest in a bunch of great funds that were formed in the 2000s, Think of names like: USV, True, IA, Spark and not least of which, Foundry. USV led me to these other great managers when I took a bet on them.
Here at Foundry, we’re lucky enough to invest in a bunch of funds from the 2010s,
A few of the managers such as: Founder Collective, Freestyle, Homebrew, Resolute, Forerunner
Now, we’re investing in firms from the 2020s. Not only do I think these returns will be great, but I also love that these firms are naturally more diverse.
Our job as investors, whether GP or LP, is to put capital behind talent. And I love that a more diverse network opens up new talent to back. That’s exciting!
I hope we’ve made the case for EMs, helped demystify some of the landscape and process but also emphasized that it’s more fun too. You’re MISSING OUT on both returns, network, relationships, and FUN – I hope that you’ll join this group of LPs in backing more emerging managers.
I took a week off and it made me realize how badly I needed a break. Mostly a mental break.
When you love your job, your life naturally intertwines with your work and vice-versa as many of your social interactions are also commingled. This year we’ve added constant zoom meetings as you work from home with no physical separation of the two. Now, layer on the constant low-level stress of physical health and economic uncertainty. Throw in virtual school and it’s really messy. But you already knew all that.
The week off included some time with friends, fishing and camping on the South Fork and Snake rivers in Wyoming. It was a group of friends that spanned from high school to venture capital for me but we weren’t focused on work. We enjoyed days outdoors with our minds focused on nothing more than fooling those beautiful cutthroat trout. We laughed and made fun of each other at night with good food and amazing stars. The energy of spending time outdoors with friends still sits with me. One of my friends described it as a mental “defrag”. I love that, partly because it shows both our age and general nerd status.
The second part of the week had me volunteering in Yellowstone National Park with Clint Bybee as part of the ARCH Ventures volunteer program in support of Yellowstone Forever (please support if you are so inclined). We worked with a group of veterans from Warfighter Outfitters to help rebuild the corral at Canyon. It was a fun group of people to be around and their enthusiasm to lock-in and build together was inspiring. They had us cutting, carrying, welding, and pounding retired drilling pipe to build fences that will last longer than the people building them. I couldn’t stay for the whole week but was proud to spend a couple of days among that crowd. Again, working outdoors with a focus on giving back with an incredible group of people.
The last, and best, part of the week was when my girls joined me in Jackson to see Teton and Yellowstone national parks. It was important to have a break and come back to my girls. I could be more present and patient, appreciating their enthusiasm even more. The girls loved the geysers, wildlife, and especially the bear we saw on a hike. I was glad it was a small black bear and not a brown bear! We know that it was just a preview of more time that we’ll spend in Jackson and the park but it was again, time spent outdoors with a focus on family.
Taking a break was really important and the week coming back (and catching up) only reinforced how much I appreciated that “normal” time with friends and family. I was able to forget about all the things of 2020. It gave me some of the mental break that I needed.
My partner, Brad, has always espoused the benefit of quarterly vacations and practicing a digital sabbath. It provides you the mental break to process and an opportunity to reset. That’s why, today, I’m sitting on the couch and watching college football. Doing my best to find a brief moment of normal in 2020. Tomorrow, we’re going to get outside and hike together in Rocky Mountain National Park. It’s important to get some time with friends and family in the outdoors.
This year is a real challenge. Make sure you take care of yourself.
Today would have been my little brother’s 41st birthday and I will miss calling him to give him a proper ribbing.
Jon, Jonny, Little Jon, or his trail name “Duke” unexpectedly left us last year just a few days following his 40th birthday on September 22nd. We’ve had almost a year now to reflect and try to wrap our heads around his passing. And what a year it’s been. I smile when I say this but perhaps Jonny knew 2020 was coming? He was always pretty good at spotting trouble and definitely smarter than me when it came to avoiding the hard stuff.
If Jon were here, I’d probably find some reason to give him a hard time and tell him I loved him while reminding him that he was getting old and turning grey like me. And to be honest, I’d probably still be judging and pushing him to be something different or something more than he was. He was five years younger and a wholly different person than me. I still don’t completely understand Jonny and wonder at how two boys that grew up together would bake so differently. We always struggled to find the right place to meet. I’ll take most of that blame as I kept waiting for Jon to be something else.
With a little time, I recognize that I could have met him in the place he was and been more accepting. It would have been good for both of us and enriched each of our lives more. So, I’ll share this as a reminder to meet your friends, your family, your spouse, and especially your children as you find them. It’s fine to have high expectations but don’t put your own hopes, dreams, values, or judgment on somebody else. Each person has their own life to lead and if you value the relationship, you’ll be better served to try and meet them on their path with love and compassion.
One great part of the human condition is that you tend to focus memories on the good parts of any past relationship. I’m still working on it but this allows me to smile, shake my head, and laugh at so many funny memories with Jon. There are plenty of “only Jon” stories to be shared. He was a great son, uncle, and brother that is especially missed today.
We closed on our house on June 2nd, 2015 and I left UTIMCO back in September of 2015, but we didn’t really arrive in Boulder until July 16th, 2016. This weekend marked 4 years of Boulder for our family. We’re happy to be here, just like in the picture above from day one.
In truth, it really wasn’t an easy transition. Boulder is actually better described as a base camp in most years. The Fall and Spring shoulder seasons are normally the best time to meet and greet with your Boulder friends. That’s really the only time that many families are based in Boulder as you see a lot of people take off for their second homes in the Summer (hiking and camping) and Winter (skiing!). Many people spend half the year in other locales and we’re no exception to that rule. We were spending time in the mountains most weekends and traveling across the summer. This leaves you little time to cement friendships and become accustomed to the community. Unfortunately, my work and personal travel tend to be really busy in the Fall and Spring, leaving me on the road most weeks. I began to recognize that I needed to make more of a commitment to Boulder if I wanted to put down roots and make it feel like my new “home”.
One of our neighbors told me early on that it takes at least 3 years. His wisdom became a mantra for me as I’ve waited for Boulder to feel like “home”. For me, it took four years and a global pandemic but this weekend really made me realize that Boulder is now home for all of us. We socialized with friends, hiked a few favorite paths, and had quality down-time together. It wasn’t anything special, and I think that’s the point.
The first year was a challenge of learning everything new. We had been long-time visitors to Boulder but it’s very different to decide to live in a new town, new climate, and a new job. I barely lived here while traveling to put together a new portfolio and adjusting to a new role. The girls were great and their connection to the school was our best asset. They jumped right into kindergarten and first grade, making friends and performing in school. Melissa and I took longer to land as we were both really busy adjusting to a new life. The amount of new gear and learning related to the snow alone was really something! I think we were still in the honeymoon phase with living in Colorado, doing our best to explore the ski resorts, gawking at the Fall colors on Mapleton, and laughing at the hot weather in Texas…
The second-year felt like the first for us. We had been so busy between work, school and life that we didn’t begin to try and feel settled until at least 12 months had passed. However, through school and our neighborhood, we began to make acquaintances and some of those have turned into friends. We began to know our way around without having to check a map and have a few favorite restaurants and favorite hikes. It was good but the new shine was off. It felt like we had now seen that we had some work to do if we were going to put down roots. As year 2 ended, we had a pretty solid case of the “Austin” Home Sick Blues. Neither one of us was talking about it to the other but I think it’s fair to say that we individually would have voted to head back “home”.
Melissa was first among the two of us to make the turn in year 3. She began to find a group of her own friends through skiing and school activities. The kids were continuing to thrive and our house was becoming a hub of activity as lots of neighborhood kids came through to play. I was still absent too much but she began to make friends with other parents and to involve us in the community. It was great to see her establishing a real set of roots here. She is a hero for leaving Austin with me, ripping out 40-year roots and transplanting with me here. I couldn’t be any luckier to have her as my partner.
For me, it took a global pandemic and no travel for this to feel like home. It really wasn’t until this crazy Spring that I’ve felt settled here. It’s the longest I’ve gone without travel in ~ 20 years and that, combined with the fact that everybody else is locked-down here too, has led me to finally be present. We’ve cemented would-be friendships and made new ones. We know what to do and who to call for almost any situation. We even find ourselves as a guide to some friends that have just arrived and others that have returned recently. It’s nice to be able to be a resource for them. We were thinking of going somewhere else this Fall and that would have been great but I’m also pretty damn happy to say that it looks like we’re just going to stay “HOME”. Thanks, Boulder. Glad to finally be here.
One of the values that I’ve really internalized over the last few years is to think about the world in terms of networks, and our own value or role in those networks. The more interesting networks are not hub-spoke networks but rather mesh networks that can and do create value even while missing a node. Enabling that type of network is one of our goals with Foundry Group Next. A network becomes a community in the very best case. We try to foster that community and connections among our family of founders, partner funds, and limited partners.
One benefit of the last few challenging weeks has been bringing together our group of partner fund managers on a weekly basis. These get-togethers have a light agenda, but they really enable friends and peers to connect over the week’s challenges, share concerns, and have a little fun. It’s been especially gratifying to see the more experienced managers chime in actively, sharing prior experience and addressing some of the questions and concerns that the newer managers have been facing for the first time. It’s these consistent interactions and sharing that have enabled a feeling of community. We’ve also met with our direct portfolio of companies and those of our partner funds. It’s been heartening to see the consistency of leadership across our group.
We’ve been taking notes as we go along, and I thought that some of the more general thoughts would be worth sharing. Each of these points could probably be a separate post, but I thought it more important to get these out in the wild than to crisply edit. So, with apologies for the draft nature, I hope you enjoy seeing notes from a few of the shared conversations we’re having across our network.
What does the market environment look like?
LPs, GPs, and Founders are all experiencing anxiety at both a personal and professional level. Today, most have made it through the initial shock of high anxiety, deep engagement, and triage mode with their portfolio or business. Consumer-focused businesses have almost certainly felt the first wave of change whereas many B2B companies have yet to see the real impact of a slowing economy. Look for that over the next two quarters as we experience higher churn and reduced sales for existing customers.
Expect a lag in private markets relative to public markets, maybe 6-9 months if this is a real reset of pricing. Reset could become protracted, and that would be the best time to invest. A guess among the group is that we see valuations come down 20-30% and that round sizes will reflect that for dilution. We’re already seeing anecdotal data (or “anecdata” as we fondly call it) of this in the market.
Valuations are already coming down in some segments, e.g., an experienced/pedigreed founder expecting 15M pre going into demo day, now expecting 9-10M pre and getting comfortable with investors pricing and not being able to “set” a price. The hot rounds are still “competitive” but not being bid up so much on price. There also seems to be a more pronounced “feast or famine” modality at seed/A rounds.
Technology and innovation aren’t correlated to the markets. New investments are still building products and will come to market after this cycle turn. Are you willing to keep investing with a 2-3 year timeframe in mind?
Deal re-trading: folks are starting to see it both for M&A and follow-on financings. Deals are being put on pause and/or terms are being retraded. We’ve already seen some bad behavior. Make sure you know where your syndicate partners sit w/r/t an inside round if the external deal falls away. Also, a reminder that pay-to-play rounds are usually a bad place to put capital. Think about what you’re defending. How much does this company matter to your fund? How hard will you be hit if you don’t play? Our experience is that it generally doesn’t work and creates an adversarial relationship between the company and investors. You definitely need to understand the founder’s position and the investor preference stack well.
Conversations we’re having with/about LPs
This crisis will likely cause a ripple effect through the whole ecosystem. Everyone should over-communicate about working arrangements (business continuity plan in place), acknowledge some fallout in the portfolio due to business risk and increased financing risk, and provide guidance on capital calls/pacing over the next 3-6 months.
Many LPs are essentially out of business until the end of the year – by their nature, LPs are conservative and will have a bias towards waiting, the value of the free option just went up as FOMO disappears.
Some LPs might experience liquidity issues (e.g. hospitals and universities may need to spend more money on operations) and will be less liberal with their investments, particularly in new funds. Cash needs and spending are up at the same time that balance sheets are down. Liquidity fears are greater as LPs stare more directly at unfunded commitments.
Staff and teams are likely feeling pressure from board/CIOs, and there’s no benefit to them for taking risk. They will focus on existing, proven relationships that are easier to get done. And our favorite CIOs will question (even more!) venture returns (and also anything with leverage). This will pose difficulties for younger funds especially ones that have more “adventurous” investment theses.
Understanding where you stand in your LPs’ portfolios is imperative, having multiple points of contact is important, and you should not just assume a re-up from them if you have to raise this year. Do your best to slow down and not hit the market until 2021. There will be a logjam of funds trying to wrap up in the fall, and LPs are way overcommitted. If you are stuck fundraising, give LPs a little break to find their footing and tell them you’ll circle back in the summer to see if you can push to a fall closing.
Capital calls should be maintained at a normal or slower pace if possible. LPs are unlikely to default; previous cycles were < 2%, almost solely individuals. LPs have little to lose if you haven’t called much capital. If less than 10% is called, you should keep a careful eye on it, as the cost of default isn’t so large. If you do have a challenged LP, we encourage GPs to proactively manage a secondary sale.
Be prepared for LP questions.
A portfolio analysis in light of COVID-19 is a good idea if you haven’t done it already. Make sure to point out which companies are most at risk, which ones benefit from this environment, and which ones can weather the storm and still be potential fund drivers.
Capital calls for institutions should be fine, but it’s helpful to give them a heads up to set expectations for upcoming call schedules.
For individual HNW LPs, you may need to be flexible and give a little extra time. It’s a good idea to give them a heads up on your expected call schedule as well.
One detail that was interesting. You might consider doing calls as close to the beginning of the quarter as possible. (If you have a call outstanding and not paid at quarter-end, you’ll have to reflect that in financials.)
Conversations we’re having with/about GPs
It’s important to acknowledge that we’re all humans.
Likely to be fraught with emotion, people are tired, partnerships are stressed, maybe families are stressed. Really important to understand the full person across from you and their state of mind. And how their state of mind might affect their risk profile.
Human nature is to draw in risk appetite in those moments when you don’t see continued income. You stop spending, raise the bar for anything new and are not confident to add more mouths to feed in a constrained portfolio size/fund.
It’s been a helluva few weeks. We are all rightly focused on our existing portfolio. We need to focus there until we “find the bottom” and feel comfortable that companies are responding, or at least scenario planning, appropriately. Most people are expecting to get through that by May 2020.
Portfolios need to be examined in the context of individual funds. Important to understand which positions retain option value and where you must concentrate capital. Now is the time to make hard decisions about which companies you can support. Distilling your investments can be a good thing for the performance of the fund, though it forces tough conversations and expectation setting with your founders.
The balance between supporting the portfolio (triage/firefighting mode) and looking at new deals is challenging. It’s more of a challenge for firms with large existing portfolios, especially with more mature companies.
Great opportunities will present themselves in this type of market, and at better prices. Many firms will remain active and even ramp up in this market. We should still be “crazy selective” on quality, and this group should keep working together.
Painkillers > Vitamins. We should be investing in products that are critical to success. The nice-to-have products are the first to go in a downturn. Make sure you’re investing in solutions that customers can’t live without.
Valuations are a real challenge in this environment. The general consensus is that we should all stick to our existing policies and see where the next quarter takes us. Q1 financials may take longer to finalize as we get a better sense for the macro environment, and we should all expect auditors to put footnotes in Q419 audit docs.
Conversations we’re having with companies
It is important to act swiftly (while you still have the opportunity to make decisions) versus waiting and hoping that conditions will change and create more flexibility.
Founders must be willing to confront a situation before they are forced to confront it (i.e., not all companies will be immediately impacted by the downturn but may face consequences in 1-2 years if they don’t make the necessary decisions today)
There is more risk to underreacting than overreacting. In fact, overreacting might be a forcing function for reconsidering and optimizing business model, team operations, etc.
In a time of displacement and crisis, you must have a bias towards action and a lens for confronting reality, no matter how difficult it is.
Understand your existing investors.
How strong are your individual leads at each fund?
How does the rest of the fund portfolio look? Where do you fit in that portfolio? Do they have reserves for you? Have they done bridge rounds (convertible notes) for other companies?
You need to understand the size and total portfolio of the fund that you’re a part of.
Talent has been the biggest challenge for companies.
Talent becomes more dispersed in up markets and more concentrated in down markets. You’ll be able to attract talent if you have a strong product/company/cap table.
Like it or not, there is about to be a huge reshuffling of talent. The good companies will attract stronger talent, perhaps much stronger than that of the employees they are trying desperately to retain.
How are you playing offense during this time? You can’t just hibernate during a crisis. Instead, you sharpen your focus. You divest in some/most areas, but you need to be investing in some area. The goal is to come out of this stronger than you entered in at least one critical area.
Online CACs have come down in some categories.
Do you have technical debt in the infrastructure?
Do you have product work that can be prioritized?
FOMO that exists at the top of cycles has disappeared As a result, startups will need to provide more data / demos / proof points to get VCs to bite. Think of venture funds as a table of diners that have just finished a big dinner, and you’re asking them to eat dessert. The best thing you can do is bring the tray around and SHOW them. Convince at least one diner to order the cake, and you may have others join. You’ll need to show more, demo often, provide more data, and recognize that your company has to be more compelling in this environment.
This post was way too long but I hope it gives you a sense of some of the conversations and learnings inside our community. We hope that sharing them out helps others and we’re always glad for more input, thoughts, and debate.
Yesterday marked five months since I got the phone call from my mother. We lost my brother on Sunday, September 22nd, 2019. 40 years and 5 days after he came into this world.
We buried Jonny’s ashes on October 5th with great love and support from a community of friends and family. It was really wonderful to see so many attend his service and to honor the relationships that Jon built over his life. We saw friends of his from grade school through college. And friends that he made later in life, including a great group of his Masonic brothers from Colbert that came to provide services and honor him. I’m grateful for all that participated and I’m happy that we laid him to rest in that way, on that day.
Weddings and funerals are such a blur of emotion and relationships. I loved seeing so many of my mother’s friends at Jon’s services. Even some relationships that carry back to my father. Those are friends that hold old memories and bring big smiles from our youth. It’s striking that we had so many of our extended family together, some that probably hadn’t been in the same room in far too many years. I also loved seeing so many of my friends, spanning from grade school to business school. It’s comforting to feel that support from this community and yet painful that we don’t have more time to share. I suppose it takes a wedding or a funeral but I certainly wish that we all had more cause to be surrounded by our loved ones more frequently. And to spend time in a deeper way that allows us to share those memories and those feelings that brought us all together for Jon. Thank you all for being a part of our larger family and supporting us as we began to process and grieve for Jonny.
Five months later and it’s only begun to sink in and feel very real. I think of him often even though he wasn’t a fixture in my daily life for the last many years. We lived apart and were on different life trajectories but had the history of youth together. His passing has prompted me to talk more about Jonny with my own family and to tell funny stories (there are plenty of them) from when we were young. It’s nice to be able to smile at those memories.
I certainly missed him this week when our mom pulled a very humorous stunt. We both would have worried about her together while also laughing at her misadventure. It was the first time that I’ve missed him in a happy way, able to acknowledge that he’s gone but still very much with us as we go through life. I hope that his extended community feels the same way.
Jonathan Ellison Eakman (Jonny), age 40, passed suddenly on September 22nd, 2019 as he was comforted by his mother. Jonny was born in Fort Worth, Texas to Glen and Barbara Eakman in 1979. Jonny will be missed every day by his Mother and his older brother, Lindel, and Lindel’s family alongside his loving aunts, uncles, cousins, and friends. We are comforted that he will now spend more time with the father and grandparents that he lost too early in life.
Jonny graduated from Texas Christian University and later attended Southern Methodist University. Jon had struggled with his health and wellness in recent years even as he found solace in nature, through-hiking the Colorado Trail and Appalachian trail as “Duke” and navigating the length of the Mississippi River by paddle. He loved living at the lake with all his childhood memories of Colbert Boat Club on Lake Texoma.
Jonny was a spiritual believer, attending church regularly, and cherished his participation in the Masonic Lodge of Colbert, Oklahoma and the Scottish Rite of Macalester, Oklahoma. He was a constant reader, studying history, culture, and religion deeply. Jonny also enjoyed gardening, born with a green thumb inherited from his mother and grandfather.
We will be holding graveside services for Jonny on October 5th, at 10AM in the Garden of Rest at Bluebonnet Hills Cemetery located at 5725 Colleyville Blvd, Colleyville, Texas, 76034.
In lieu of flowers, those who so desire may make memorial donations in memory of Jonny to the charity of your choice. If you need a suggestion, Jonny was very proud of his thru-hike of the Appalachian Trail and we think he’d like to support the Trail Foundation. Our family would really appreciate sharing any memories and photos at JonEakman@gmail.com or by tagging him on Facebook.
It was a tough thing to write Jon’s obituary. We could have chosen many pictures to include here but the one where Jonny was on top of the world seemed the most appropriate. It’s been a little over a week since his death surprised us and we would prefer to remember him as happy, motivated, and smiling just as he was in this picture.
Jon’s death was unexpected. He had struggled with his health and wellness in recent years but we had no sense that he might be so sick. And we knew he had suffered a fall in recent days that left him bruised and scraped but we had no indication that those injuries were serious. We still don’t know the specific cause of death but we believe that one or more of his internal organs failed and that caused his death. He may have had an underlying condition or a rupture that caused him to go quickly. Either way, we lost Jonny all too soon when he passed suddenly at my mother’s house on Sunday morning.
We are left with a sense of deep sadness and loss for a brother and a son.
We are supported by the outpouring of love and emotion from our friends and family. It has been truly wonderful to hear from so many old friends over the last week, especially Jon’s friends that come with stories, pictures, and appreciation for the life he led. These stories of Jon’s life are pure gold for us. They hearten us against grief and help us smile when we’re sad. For example, I love that picture of him dressed up as a TCU cheerleader. I can’t help but smile at that one even as I know it would drive him crazy for us to have it.
We treasure these stories and would love to see more of them. We would ask that you help us maintain Jonny’s memory by sharing privately with us at JonEakman@gmail.com or by tagging him on Facebook. We love to see the stories and reconnections made among old friends even as we plan to lay him to rest. We do hope to see many of you for Jon’s graveside services on Saturday, with a reception at Barbara’s house afterward where we can tell stories and smile in his memory.
