Recharge day

I had a frustratingly decent weekend. I decided to drive up to Tahoe Thursday afternoon and take Friday off for a recharge day. Everything sounded great in theory as we were going to drive up in off hours on Thursday and ski all day Friday. But the traffic bug caught us on Thursday and the Friday weather did not cooperate as it was cold and windy on the mountain.

In addition, I had signs of a slight cold during the week, but I decided to push through anyhow. Unfortunately the cold caught up with me and really threw me for a loop. I struggled quite a bit with my energy levels on Friday and Saturday.

I still had a good time although it wasn’t the weekend I had envisioned. The sun finally came out here in San Francisco and I’m feeling a lot more optimistic with the nicer weather. With that said, my one day off recharge day made me realize that I am likely due for some extended time off.

It’s been since the holidays since I had beyond a long weekend and it’s been a busy Q1. I’ll likely look for some opportunities to take a proper recharge week off.

FinTech

I decided to take this afternoon and tomorrow off to get up to Tahoe and do some snowboarding. It’s been a busy winter and unfortunately I’ve only got 2 days on my pass this season. I’m excited to finally get up and recharge my batteries a bit.

Today, I listened to a webinar in which Frank Rotman, the Founding GP of QED, spoke about his fund and his views on FinTech. It was fascinating to listen to one of the foremost experts in fintech. It’s my first time hearing him speak and I am just amazed by how much experience and knowledge Frank has.

It was satisfying to hear that Frank shares some of the same views on why he’s bullish on FinTech as me.

First, FinTech is incredibly difficult and not everyone can get in it. I joined Secfi as we were doing something complex and a large part of our moat is the difficulty in doing what we do. Unlike starting a DTC company where someone out of business school can get into and effectively disrupt, you need to have quite a bit of knowledge and experience prior to building in this space.

Second, finance in general is a very profitable business. Unlike other industries being disrupted like ride sharing or grocery delivery, financial services are proven profitable businesses.

We’ve taken a lot of hits in FinTech lately, but the financial services industry is prime for disruption. I remain bullish on the sector and proud to be a small part of it.

Time for change

San Francisco and the tech industry is a bit rocked today as we heard that the former CTO of Square and inventor of the CashApp, Bob Lee was stabbed to death in San Francisco. I didn’t know Bob, but from everything I read, he was a great person and a father.

It’s incredibly sad news as it seems like yet another random act of violence in our streets. I’m angry at the entire situation. From the fact that this happened all the way to the people using this to shit on San Francisco.

My stance on the issues here in San Francisco have been that it’s not nearly as bad as the way some folk love to paint it on Twitter, but at the same time it’s a real and growing problem. No it is not a lawless waste land where you can’t walk down the street during broad daylight, but yes it is common to see gross things all the time.

A lot of the criticism for the city comes from people who probably grew up in nice suburban areas. A city the size of San Francisco will never be their version of “paradise”. I’m very much happy to see those folks leave the city and flock for greener pastures like Miami. But at some point, change needs to happen. The problem is getting worse and it’s hard to ignore a lot of their valid complaints.

This city is wealthier than a lot of countries. If the politicians can pull their heads out of their asses, progress will be made for the better. Yet it seems like everyone is focused on the wrong things like blaming the tech industry for the problems we’re facing.

The man in the arena

There’s a lot of good jokes right now on VC and tech twitter. I’m not going into details as it’s not my M.O. to bash others in this industry so you can scour Twitter on your own. But this said investor was quite loud during the bull market years and unfortunately things are coming back to haunt him. If you’re going to talk shit, you best be ready for it to come back at you.

In the sports world, Caitlin Clark of Iowa exemplified experience beyond her years as she came up short against LSU in the national championship game and was taunted by LSU’s Angel Reese. There’s been a ton of talk about class in basketball, but hey shit talking is part of the game. You just need to be ready for it to come back at you. It’s been awesome to watch Caitlin handle the experience with class and dignity.

A lot of executives and investors could learn from this 20 year old from Iowa. I definitely did.

Q1 in review

We had a busy weekend that left Sophia and I absolutely exhausted yesterday. We had a much needed late afternoon and evening on the couch. This had all the makings for a rough Monday but I’m actually feeling great today. I made a pact with myself to stay positive going into today, and it’s worked wonders.

On another note, I can’t believe how fast time flies but Q1 is officially over. Next thing I know, we’re going to be heading into the holidays again. The quarter was a big mixed bag.

There was a lot of optimism going into the year that we could see things start to improve in the second half. A bank run paired with potential of a credit crises has largely put a damper on that optimism. I’m starting to see bankers and investors start to push back the timeline going into 2024 now.

The public tech markets have rebounded nicely with the $QQQ up 20% YTD. The private markets always lag behind the public markets so there is reason for potential optimism here. With that said, I do feel that there is more pain ahead. Stripe’s down round probably is the first big domino to fall and we’re going to see more down rounds soon. I’m all open for this as the faster we rip the bandaid off, the faster we can move on.

Personally, Q1 was not as exciting as Q4 considering I got married in December. With that said, Sophia and I have had renewed energy lately trying to enjoy our lives as much as possible before we start having the family talk. It’s been a lot of fun.

Admittedly, I’ve had trouble staying positive over the last 12 months. There was a lot of bad news out there and it’s been a struggle to keep up with everything. But I’ve been feeling better than ever before recently and I believe that’s largely due to my changing mindset. It’s been working and I’m very optimistic about the rest of the year.

The Stripe problem

I wrote about Stripe’s unique fundraise in Secfi’s newsletter, Founders and Funders. You can read a bit more here.

I’ve had a lot of good reactions to it from Stripe employees and non-Stripe employees. However, I am a bit shocked to hear some of the stories from the Stripe employees we are working with.

Like most of us, a lot of Stripe equity holders got caught up in the mad rush of 2021 and had thought Stripe would have been public by now. The risk that some people took on to exercise Stripe options is downright scary.

I’m seeing a lot of people who borrowed against their 401ks, borrowed money from family and friends, exercised with no way to pay on the hopes that they would be public, etc. Some even took risky recourse type loans and most of those people have been completely wiped out.

Yes, they’re now in a position where they are getting nothing from the Stripe shares because they took on leverage to exercise. It’s really freakin’ sad. A lot are blaming Stripe for this problem and while I do share the sentiment that they probably should be public already, it’s also on each individual to make the right choice for themselves. Unfortunately a lot of these individuals made the wrong choice.

Clarity in times of crisis

We’re in the process of finalizing our strategy and plans for the coming year ahead. In a normal year, we’d have done this back in November. But given the volatile market and changing landscape, we had pushed things off to see where things stood after Q1. We’ve still got a bit of work to finalize things, but I don’t think the team has ever been so in sync before.

The tech bear market has actually bonded us a bit closer together and forced us all to be crystal clear in our objectives, goals, and plans. Like pretty much all startups, we likely got a bit lost in the craze of the bull market. We didn’t pay as close attention to the details as we were busy growing the team.

Now with tightening budgets and capital at a standstill, we’ve been forced to tighten up for the better. We’re operating at a much higher efficiency and level. It was absolutely fascinating to watch as each team presented their proposed plans for the year ahead and seemingly everyone was already on the same page.

I’m more excited than ever for the year ahead.

$ARB

Given all the AI hype, it seems like people have forgotten about web3. Well.. I suppose not completely as the regulators have crypto squarely in their sights. That’s a story to watch in the coming months.

In other news in crypto world, Arbitrum just ran an airdrop for their token $ARB last week. Arbitrum is the largest Ethereum layer 2 platform. I’m not the foremost expert in crypto, but generally speaking a layer 2 or L2 platform is a network that sits on top of a L1 like Ethereum. L2s are a solution to the scalability problem of Ethereum and allows transactions to go faster and cheaper.

I’ve been playing around with L2s, specifically Arbitrum over the last year and half or so. The first thing I noticed is that the cost of the transaction (gas) is night and day compared to a transaction on Ethereum directly. It made a lot of crypto gaming built on-chain actually possible. I’ve dabbled in a lot of projects on Arbitrum and have had a lot of fun with it.

Arbitrum did an airdrop of $ARB last week in order to give their users governance tokens to vote on the future of Arbitrum. Of course, one (major) side point to all this is that these tokens can also be sold as they can be viewed as ownership tokens of Arbitrum. The market cap currently sits at around $12B fully diluted.

I’m overall bullish on the future of L2s such as Arbitrum. They solve the scalability issues of Ethereum at the moment and I’m part of a lot of interesting projects being built on Arbitrum.

Daffy and DAFs

Today, Secfi announced a partnership with Daffy. We’re excited to partner with such a great organization. In short, Daffy is a donor advised fund and a non-profit. Users can easily create an account at Daffy and donate to their favorite charities in a few clicks.

So how is this different than just plugging in your credit card to your favorite charity’s website? Well, Daffy allows individuals to contribute to what’s called a donor advised fund (DAF). With a DAF, you can contribute highly appreciated stock and crypto, receive a tax deduction at the full market value, AND not pay any capital gains on the appreciation.

This is a win-win scenario. The contributor gets tax benefits for contributing. The charities get the full market value of the shares pre-tax. In addition, individuals can even dictate which charities get allocated funds.

We knew that charitable giving was something that we wanted to implement at Secfi, even from the start of the company. We want to help our clients do good in this world and we want them to achieve that in an easy, tech enabled approach. Daffy provided that.

We’re excited to see this partnership evolve.

Twitter's new "valuation"

I had a great weekend recovering after last week. By the time Friday came around, I could tell that I was running on fumes. It took me until Sunday to start feeling better though as I had that much sleep debt built up. It was a much needed weekend of rest and leisure.

It was a rather slow news weekend which was great. Perhaps the only notable thing to mention is Elon mentioning that Twitter is now worth $20b and employees would be issued stock compensation at below that price.

I don’t really know where Elon got the $20b number from. It could be the 409a valuation of the company, but it could just be what Elon decide was a good number to announce to the public. He tends to say what he wants, when he wants it. And let’s not forget that he paid $54.20 per share for Twitter which is of course a joke on 420.

The original employees who cashed out at $54.20 must be laughing right now. Many of these folks were fired or laid off and they were able to cash out at a much higher valuation. Not an awful parting gift from Elon.

Those employees still at the company likely falls into one of these two viewpoints. Some may think that the $20b is way too high still and they’re getting absolutely screwed with their equity grants. The other group may think that Twitter is still severely undervalued and believe in Elon’s vision.

I don’t know where the majority of employees sit on that spectrum. I’d imagine if they’re still at the company that they believe in Elon still and possibly believe his statement that the company may be worth $250b one day. I’m not sure where I sit on this, but if I had to put a bet on things, it’s hard not to take the under on that.

"The best funds are the ones who did less bad"

The VC industry has taken quite a big beating over the last two years. The media and world has taken their shots on the industry. A lot of the criticism is undoubtedly warranted. A lot of investors acted on hype and overpaid mightily for a lot of companies. Fundamentals were non-existent for a lot of investors.

In defense of VC, it is an industry where you expect to fail more than you succeed. An early stage fund can have over half of the portfolio go to 0 and still be wildly successful. Some funds have caught a lot of flak for investing in certain companies like FTX, but the reality is that missing an opportunity like FTX, if successful, is much more costly than not making the investment.

One constant saying I heard during my trip to Sand Hill last week was that the worst you can do with an investment is lose 1x but the upside on some of these deals are gigantic…1000x even. For a lot of VCs, taking those shots far outweighs the potential downside. Of course, the idea here is to make sure you take the right calculated risk which is harder than it seems.

Perhaps the most interesting thing I heard all week during my trip to some top tier VCs is Samir from Khosla stating that “every fund overpaid for companies in 2021, but the good investors are the ones who did less bad”.

That statement really paints the picture of how the industry works. It’s an industry where you need to take shots and you fail more than you succeed. Yet, many in the media love to focus on the failures and attribute blame to the bad picks they make.

As we eventually come out of the tech reset, we’ll see which funds did less bad. My hunch is that it will be the ones who have been through these cycles before. If there’s one thing I’ve learned during this downturn, it’s that nothing can beat experience.

Sand Hill

I took the last couple days off from writing as I was at an event in Palo Alto called the Innovation Field Trip. It was hosted by a fellow startup and Secfi partner, Allocate. The event was largely a way for people not in the startup/tech ecosystem to meet VCs and learn about what’s getting built here.

Despite living in the area and being part of the ecosystem, I was incredibly impressed by how well the event was run. We met a lot of top tier venture capitalists both who are running solo shops as well as those working for some of the biggest names. Huge shout out to the Allocate team for putting it on.

I seldom make it down to the Menlo/Palo Alto area. Growing up and living in San Francisco, I never really saw the allure of visiting the “legendary” Sand Hill road much. My trips down there are for football games when UW plays Stanford.

This time around felt a bit different for what I believe to be a couple of reasons.

I believe my change of perception comes from the fact that I’ve been working a startup the last 5 years and have come to appreciate the companies being built. Startups are incredibly hard and there is a level of appreciation I now have for those that endured the long journey of building a successful company.

Secondly, I’ve come to terms that all VCs are not built the same. I’ve had somewhere between an irritation and disdain for a lot of VCs out there - both ones that I have met and ones that I haven’t. Some have treated me like shit. Some are just annoying as shit on Twitter. I also blame some for helping cause of the issues we’re facing right now.

After meeting over 10 different managers between the 2 days, I’ve realized that most of these top tier VCs also share that same disdain for a lot of these same VCs. They acknowledge that the industry has gotten out of control and will need to be reeled back. Some had harsh words for those “VC tourists” and even called out quite a few.

I do have a new appreciation for the industry after the trip. Most of these funds are built more like startups than they are actual just investment funds. It was really awesome meeting and learning about each firm and how they differentiate.

Once I get my head above water and get a chance to put my notes together, I’ll write more about some of the key takeaways. For now, back to work getting to inbox zero.

Getting away from the madness

It was incredibly stressful leaving on Thursday as I was absolutely swamped given all the news and happenings of the week. I had even thought about canceling last minute so I could focus on work.

I’m glad I didn’t. It didn’t take me long on Thursday to realize just how much the last few weeks have taken out of me. I felt my anxiety and tension the entire flight and it didn’t really subside until my friends and I met up and started our night. There was an immediate sense of relief as my friends and I hung out at dinner and talked about anything but work.

With a lot of the happenings in our world, it was amazing to just get away from everything for a little bit. Sometimes you just need to escape the craziness of your current world and I’m in a much better headspace after a 3 day break.

No rest for the weary

I booked a trip to Vegas this weekend to golf and watch March Madness with some friends. I booked it a few weeks ago given things were a bit slower and I wanted to take advantage of the times.

Of course, we’ve had a hell of a week with the SVB and bank issue combined with some major announcements like Stripe’s round closing.

I couldn’t help but just laugh. This may be the worst weekend to go on a trip. For some reason, this seems to happen to me quite a bit for some reason. Everytime I go away, a big deal comes through the door or some news hits the wire.

I’ll be running on fumes this weekend, but I also need to pace myself and ensure I’m getting the proper rest. It’ll be a good trip regardless.

Ponzi scheme?

I had a great chat with the CFO of a unicorn today. I hadn’t spoken to him in about year and we were shooting the shit about all the events of the last 12 months or so. We shared a lot of the same cynical takes on the broader tech and VC industry. We couldn’t help but ponder just how much of this mess that we’re in right now is because of greed in the industry.

I was especially intrigued by what he said about VCs of the last 3 years effectively running a ponzi scheme. Many of these funds and investors were just bidding up the prices of their portfolio companies and hoping to get out before the crash. They had known that this was not sustainable but they participated anyways in hopes of building massive gains and dragged the entire industry along with it.

I had never heard someone equate VC to a ponzi scheme before. I thought it was an incredibly interesting take and angle on the situation and it was hard to argue as many of these investors had this idea in mind.

The unfortunate part to all this is that a lot of these companies will suffer greatly from all this. There’s many companies out there that are trading down over 80% of their peak valuations and not many can or will recover from a large crash whether they are private or public.

I do believe there are many great investors out there looking to build companies. I’m personally ready for the market to turnover so we can get back to building.

Rooting against tech

One thing I’ve come to fully realize amidst all this SVB fallout is just how much of the country has a negative view on tech, VC, and Silicon Valley in general. Sure, part of it is all political and you can expect that, especially in 2023. But you can’t really ignore the fact that it seems like the vast majority of the country is rooting against the broader industry. Some of it is warranted of course.

There’s a lot of load individuals in the industry that can give us a bad look. They are loud and vocal. We’ve received a lot of flak for living cushy lives funded by VCs in a near 0 interest rate environment for almost all of the 2010s. Many “businesses” never should have been funded in the first place. When they fail, it’s easier for people to laugh.

I can’t fault people for making tech, VC, and Silicon Valley the butt of a lot of jokes. We bring it upon ourselves. Hell there’s a hilarious HBO show called Silicon Valley that makes fun of us and is embarrassingly accurate. All that is fine and I have a thick skin. I’ve been in this industry for 5 years and I’ve seen a lot of this first hand. We could use a bit of a reset and we’re going through that now.

But at the same time, it is disheartening to see just how many people are rooting for us to fail. They ignore the innovation, jobs created, and life improvements that have been created in Silicon Valley. They don’t understand the repercussions of watching Silicon Valley Bank fail. When tech/SV wins, the country wins… yet we are rooting against our own.

All this does start with us. We need to do a better job getting rid of the bad apples… the grifters, the startup and VC tourists, etc. They unfortunately exist and a small number of people and companies are outweighing a lot of the positive momentum in tech right now. We can’t fully control what people think of us - there will be haters one way or another, but we can start by taking a deep hard look at ourselves and do better as an industry.

Grateful on another Monday

This was probably one of the weirdest weekends I’ve had in recent memory. The SVB explosion kicked off the weekend with a lot of fear and panic. That was not great for my anxiety levels. I had gone into the weekend thinking that something would be done by the Fed and luckily that was the outcome. I tried as hard as possible to keep calm all weekend, but admittedly it was difficult at times to get it out my head. I was nervously clutching my phone pretty much for the entire 48 hours.

What made it also weirder was that this was the weekend that I was celebrating my birthday so my brain was a bit conflicted. Sophia and I had dinner plans at Ken Sushi on Friday followed by a short celebration at Top Golf + dinner with friends. In a way, having all these distractions over the weekend helped keep my sanity by not focusing on the bad news. It was an incredible weekend and I do feel very fortunate.

At the same time, I do feel quite a bit of anxiety today given everything. Call it a case of the Mondays, anxiety from the bad news, and/or being tired from the day light savings time change. In light of not feeling my best, I figured I’d take the time to practice some gratitude and write down some things I’m grateful for today. It always does wonders in helping making me feel better.

So today, I am grateful for:

• An amazing wife that planned an incredibly birthday celebration for myself. Dinner was something that I’m going to be dreaming about for awhile and Saturday’s festivities was exactly what I wanted to do for my birthday. I’m incredibly lucky.

• Intelligent and talented coworkers who care about the company and our customers. Despite everything going on last week, our team stayed calm and acted quickly to get our employees and clients comfortable with what was happening.

• Living and working in the U.S. Our gov’t and country isn’t perfect by any means and I have my fair share of complaints, but we are lucky to live in a country that can and has protected individuals and consumers. We could be in a much worse position if the Fed hadn’t stepped in. Many unfortunately do not have that privilege.

Life comes at your fast

Just a little over 24 hours ago I was writing about how I was hoping the SVB situation would work out and that I was hoping it was an overblown overreaction.

Turns out that overreaction turned into more panic and the whole situation became a death spiral. It’s a sad day for tech and the entire startup ecosystem. SVB has been supporting startups, tech, and investors for almost 40 years. To see this happen is a sad realization of the day and age we’re living in.

Don’t get me wrong here though. SVB made a lot of critical mistakes starting with mismanaging their risk profile of their assets. They got greedy during 2021 like so many in this industry, and sought out higher yields for bigger profits.

Largely though, I can’t help but think that this situation could have all been avoided if everyone stayed calm. Instead, we had a lot of people inciting panic in the situation and caused a bank run that sent SVB spiraling.

This could have been avoided at multiple points including SVB properly managing their risk. I don’t know how this will all shake out. I’m hoping that it gets settled quickly and we had a bigger institution saving SVB and the depositors. The rippling effects otherwise are going to be ugly and beyond things we’ve seen since the GFC.

For now, I’m going to take my mind off everything and try to tune out as much as I can over the weekend. I can use a hug, a break, and many drinks.

SVB

I just got off 7 hours of calls so I’m severely behind on work and haven’t had much time to digest or dig into the SVB news much. I’ve only seen headlines at this point.

My initial thoughts are that there seems to be quite a bit of worry and overreaction to the earnings release. SVB is raising money as they are expecting continued higher interest rates in the future so hopefully this is just a precautionary measure to shore up their balance sheet.

I’ve heard the term “bank run” thrown out a lot today in Twitter. At this point, it seems like there isn’t a liquidity crisis the bank. For the good of everyone in the tech and VC ecosystem, we can only hope that this is all an overreaction.

Startup tourists

I’ve been seeing the term VC tourist thrown out a lot recently. I thought it was a pretty good way to describe the recent situation with lots of people looking to get in on the action when times are good in VC, but have been flocking for greener pastures during the down times.

I’ve started to borrow this term and start labeling some folks as startup tourists as well. I think in the late 2010s, we started to see quite of the workforce look to join startups. They were promised high salaries, work-life balance, and perks all funded by the incredible amount of venture capital money.

Many of these startup tourists never joined a startup to build something or believe in their company’s mission. They just wanted the perks and the clout that came along with the job. As we enter the 2nd year of this down market for startups, we’re going to see a lot of these tourists flock back to greener pastures, i.e. large companies.

Finding talent will be harder for us startup folks, but at the same time, it’s a palate cleanser for the industry. We’ll be left with the builders and those passionate about building great products and companies.