Okay, so what’s the number?

I often have conversations with founders that go as follows:

Me: That sounds like terrific progress with customers and revenue, how does churn look?

Founder CEO: A number of our customers are upselling very quickly and they all love the product.

Me: Excellent, and how does that net out in churn?

Founder CEO: We also think our product works a bit differently than most SaaS products. 

Me: Okay, I’m sorry to be pedantic [I use that word] but what is the churn number?

Yeah, VCs are like toddlers. If you don’t give us what we want, we will keep asking for it. 

So what’s wrong with this conversation? Before you conclude that I was “asking too soon” and that the founder is simply demurring politely from being probed for numbers too early in our relationship, let’s assume that we have already been sharing data and the founder is comfortable with telling me details about her/his business. Assuming that, the problem with this conversation is that in my mind I’m thinking that s/he either (1) doesn’t know the number, (2) doesn’t know the number is important or (3) thinks the number looks bad and (4) is therefore worried about telling me.

None of these four possibilities bodes well for the entrepreneur raising money. Let’s parse it out:

  1. Doesn’t know the number: At an early stage, a CEO should know every key metric for their business as well as understand how and why each is changing.
  2. Doesn’t know the number is important: Every CEO should know what KPIs apply to their business. Of course, these are different by business model: SaaS, e-commerce, marketplace, etc… More on this below.
  3. Thinks the number looks bad: If it’s not bad, then telling me will prove that. If it is bad, sometimes that’s just the reality, and we will both learn a lot from discussing why. Remember, early stage investors are accustomed to imperfect businesses.
  4. Is therefore worried about telling me: *Most* investors like to work with entrepreneurs that are transparent – with good news and bad alike. While perhaps it’s understandable to be putting on the best face you can for potential investors, remember that all of these investor pitches are simply dress rehearsals (in both directions) for your first post-financing board meeting together. You are certainly going to want to be transparent at that point.

You’ll note that the founder in the dialogue above says something we hear on occasion to explain away metrics: “our [pick one: SaaS, ecommerce, marketplace] startup works differently than most.” There are rare cases where that is true and so a standard metric or threshold for “best in class” doesn’t apply, but most of the time there’s nothing different or special about the economic model… except that it’s not working, at least yet. And that’s okay. We are early stage investors; we get our hands dirty; we pick the entrails off the floor and help make sausage. 

Indeed, for these reasons and others, I cherish that building relationships with entrepreneurs is not  just about getting to the number – that’s not my point. I want to hear the context, how it fits your big picture and ultimately your vision… for sure! But investors do need to know the number, know that you know it’s important and believe you are transparent.

Seed, speed, and we’re still here: my first decade in venture

December will mark a decade for me in venture. I didn’t start full-time, but it was nearly ten years ago that I landed an internship with a small fund in Chicago and “screened” my first startup story. I was a first-year business school student with a flip phone. A year later when I graduated, only one of my classmates went into venture full-time. It wasn’t I. After being an angel for several years further with my partner, Ira, we parlayed investing from a profession to an occupation in 2012.

On a personal basis, this run is unique for me against my prior three decades where people, places and engagements came and went in vignettes of 2-4 years. Now I have the pleasure of having known and worked with many of the same people – both entrepreneurs and investors – for ten years. Viewing the arc from original financial crisis to current 3.5% unemployment and from the launch of A16Z to the IPO fireworks of 2019, here are the changes that most impress upon me:

  • Seed: Ten years ago, seed investing was the uncouth cousin of venture capital, led by a group of pioneering angels and incubators, like Jeff Clavier and YC, who seeded for passion and intrigue, not management fees and prestige. That worked out nicely. Today, funds less than $100M represent about half of the partnerships being formed, and the data show that Seed may be the last refuge in venture for outsized returns. Later stages are unambiguously competitive with capital.


  • Speed: As summer approaches, entrepreneurs joke about us VCs taking the next two months off. In my earliest days as an investor, I saw some of that. No more. Entrepreneurs don’t slow down, and neither do (or can) we. There is more capital now, and there is no excuse for lazy money! On the startup side a decade ago, it wasn’t uncommon to see a struggling startup plod along for 3 or 4 years, still trying to raise that first round past angels. The forces of creative destruction are far swifter now. Companies form and then grow or bust much faster. Here in the mid-continent that is a measure of two positively increasing factors – the willingness to take risk (and accept failure) and a growing opportunity cost for founders and employees. Both good things.


  • FAANG: While Facebook, Amazon, Apple, Netflix and Google were all around ten years ago, they neither collectively represented >10% of public market caps nor greater than 3% of US GDP as they do now. Neither were they the menacing overlord of the tech ecosystems where our startups play. Since then, entrepreneurs and investors alike have repeatedly bet on innovating in their ecosystems, only to be (repeatedly) burned. This is a looming risk to future innovation that we worried less about “back then”, and it shouldn’t be lost on us that today Facebook may just have done the same again in crypto.


  • #metoo and beyond: As have most industries, venture has received its pro rata comeuppance for the under-representation and inequitable treatment of women, minorities and other constituents. Some progress has been made, but there is plenty more work for all of us to do.


  • It’s not just the valley now: 10 years ago, few believed you could build big companies outside of Silicon Valley. Now there are many examples – Grubhub, Shopify, Duo, Fieldglass, etc – and valley investors want in. Whether here in the Midwest, Texas, the Southeast, or Mountain West all the big venture funds are paying attention, hopping airplanes and writing checks. The valley’s cup truly runneth over, and that is game changing for entrepreneurs and us seed investors.


…yet some things don’t change. Despite two rounds of sirens foretelling the end of venture, we are still here! First the JOBS Act’s crowdfunding and then crypto ICOs were going to put us out of business. It turns out there’s more to what investors do and what entrepreneurs want than quick cash from strangers. Thank goodness.

So what’s ahead? As we dawn on the 2020s, our team has been thinking more about this. Next post.

SaaS: How will your 10th sale be 10 times easier than your first?

There was a period early on when we called ourselves a SaaS fund, playing just slightly on the “me too” side of the biggest trend of the 2000s, the saasification of software. We have since honed our message, but in those earliest of days, being a SaaS entrepreneur or investor was differentiating.

Fast forward more than a decade, and SaaS is not a differentiator for companies or investors. It remains a terrific business model, but while there are increasingly a lot of good SaaS companies, there are decreasingly many great SaaS companies.

Why? There is ferocious competition when selling to customers. While customers now expect SaaS – versus the early days of educating – there is deafening noise and precious few green spaces or verticals. SaaS is no longer differentiating for another reason. While modern dev tools and the cloud make it cheap to start a SaaS company (or any tech company), SaaS companies are expensive to scale. It turns out the only thing better for scaling than getting paid consistently over time is being paid upfront! With SaaS, investors fund now what customers pay back later, and that leads to large liquidation preferences on cap tables. Thus, even good SaaS companies often struggle under this weight, yielding disappointing returns for founders, employees and investors.

So what is the key to a great SaaS company? It’s pretty simple… but hard to achieve. In a great SaaS company, the 10th sale is 10 times easier than the first, and the 100th sale is 10 times easier than the 10th. This concept applies to almost any SaaS company, but here I focus specifically on enterprise.

Hard questions are frustrating, and nothing is as hard in SaaS as answering “How will your 10th sale be 10x easier than the first, and the 100th 10x easier than the 10th?” Several entrepreneurs have given me a knitted frown in response to this question recently (among other reasons :-<).

Sounds nuts, right? Well, this effect can manifest in two distinct ways (for now holding everything else constant).

  • First sale of $100K took 20 months in cycle time, 10th sale of $100K takes two months
  • First sale of $100K took 20 months, 10th sale at $1M takes the same time.

The second mode above is more common, but both are possible and describe a like economic reality. As we know, sales cycle time is a proxy for CAC in enterprise SaaS. SaaS companies that can achieve this base-10 exponential sales ease effect are rare. We are lucky to have one in our portfolio – FourKites.

Does that mean a company with this characteristic actually grows base-10 exponentially on the same burn? Well, no, and that is why this effect is so needed. Here are all the reasons why most SaaS companies become less efficient over time and cannot even grow linearly on the same burn, holding inherent sales ease constant:

  • Your 1st sales person is never as good as the founders at selling
  • Your 10th sales person is never as good as your 1st at selling
  • Half of the sales people you hire won’t work out
  • Your first non-founding employee worked 10 hour days; your 50th works 9 to 5 (ish)
  • Office politics themselves grow exponentially with employee count, consuming time
  • It’s bring your dog to work day, and everyone is playing with a puppy
  • Churn can fundamentally limit growth because of math
  • Competitors catch up or otherwise muddy the waters
  • You get the point

Even holding sales ease constant, a linear growth SaaS company will often asymptote at the same burn because of these, especially churn. The only way to maintain exponential growth is to have a sales ease effect that greatly outweighs this drag.

So how can you find this effect? There are a few obvious (but hard) ways:

Network effects: FourKites benefits from extreme network effects – it is software that tracks the location of long haul trucks for shippers. The supply chains they serve comprise a complex multi-part network of shippers, trucking companies and retailers. When they sell a new shipper, the shipper brings new trucking companies and retailers. Those trucking companies and retailers then bring more shippers. And so on.

Virality: Box, Dropbox, Slack. Need I say more?

De Facto Standardism: In a way, Epic has achieved this in the Hospital EMR world. “Nobody ever got fired for going with IBM.” Replace “IBM” with “Epic”. Veeva has done the same in pharma CRM and systems. The common theme between the two in reaching a de facto standardism is a vertical focus. Within a vertical, there is a resonance of brand and usership that can lead to standardization relatively quickly.

So ask yourself, what is your answer to making your 10th sale 10x easier than the first?

It’s 6:30pm. Do you know where your team members are?

Remember when it was just the five of you – three co-founders and two devs? You were flying from city to city knocking down your first few big contracts. Every Uber ride and hotel night was a flurry of emails with your co-founders – COO and CTO – implementing your first few customers and steering your first two developers towards product market fit. When you got back to the office Thursday evening from three days on the road, your team was still nose to the grindstone at 8pm. All hands on deck, rowing together.

On your last trip, you got back to the office from a major contract proposal – $1M ARR! But the office at 6:30pm is a ghost town. 15,000 square feet with 200 desks and all you see is a smattering of developers and two SDRs flirting with each other. Why doesn’t everyone work longer, harder? Why aren’t they more committed like you?

Does this sound familiar?

The truth is things probably started changing between 25 to 50 people. A startup’s evolution is like the human journey from hunter/gatherer tribes to complex societies with specialization. The scale and timelines are different, but the analog holds. In humanity’s early days, we operated like a just-founded startup: a small extended family unit that trusts each other and carves out very broad sections of responsibility: hunting (sales), gathering (implementation and customer success), and child/family care (product)… or something like that.  For the most part, everyone did anything they needed, because a loss or win for one member equally affected the others, largely based on shared DNA (equity) and an inherent motivation to continue that line.

A small town of 200 people or a modern city of 1M is different. Most citizens are not family members, and the town or city thrives based on job specialization and a common currency of money, not DNA. Likewise, somewhere around 25 people, a startup begins to rapidly specialize. In sales, you now have SDRs, AEs and managers. In product/tech, you  have developers, dev ops and PMs. And while most new hires have a little equity, junior and mid-level hires tend not to place much value on it – a sad truth. Employees are now mostly motivated by cash, affiliation (also known as culture) and the opportunity for self-advancement.

So now we understand that motivations have evolved, but is it a problem that people aren’t in the office until 8pm like they used to be? In fact, this shift can be a positive sign of a startup’s maturity:

You’re hiring more senior people: Experienced hires have families. They like to be home to put Sue and Skippy to bed, and they require much less “on the job training”. Both mean fewer hours in the office overall versus an inexperienced predecessor or team member. However, experienced hires should also be happy to hop on a plane any time or hammer through some emails after children’s bedtime.

Sales is processifying: There is a basic reality that sales people cannot sell at night – prospects don’t want to talk then. Sure, they can update notes, prioritize leads, schedule emails, etc.. But guess what? When sales process is humming, those activities are done contemporaneously during calls or with the real-time support of a good sales tools stack and sales ops function. For sales people, evenings are for hitting the gym and pounding protein shakes… or whatever it is they do.

Growth is not a successive journey of firefighting: Startups are a marathon not a sprint. If every day is a new firefight, people won’t stick around. A calm but intense culture with a regular working pace can be a sign that your people are on top of things.

However, empty offices at 6:30pm can also be a bad sign if associated with any of the following:

Where are the developers? Developers tend to start their days later and end them later too. Night creatures – or maybe it’s to avoid screen glare from the sun. It would be concerning not to see some tech and product folks hanging around well past 6:30pm. You can work on product at night!

Too much layering: One of the first things that can happen as a startup gets bigger and adds management layers is managers push too much down to reports instead of running the ball themselves. Bad sign. This is especially true for “support functions” (anyone that doesn’t build or sell, like finance, recruiting, ops, HR) Everyone wants to be a leader. Fine. But everyone still needs to do work. I’ve seen 7M ARR startups with three person finance teams. That better be a sweeeeeet board deck.

Lack of accountability: Accountability is measured in process and outcomes. On the process front, when you ask people questions, do they have the answers? Or do they point to other people? Is everything becoming a group decision? On the outcomes side, I view things bi-modally: (1) outcomes that are controlled perfectly internally by an organization (product launches, financial reporting, budgeting, etc) and (2) outcomes that rely heavily on external factors (sales, partnerships and hiring). Misses of the second mode don’t necessarily mean you  have a company or culture problem – startups are hard, and there are a lot of external factors that affect them. But if your team is consistently whiffing things it perfectly controls, there is for sure a culture problem.

Missing numbers with excuses: Despite the realities of externalities in outcomes you don’t control, they should never be used as an excuse. Welcome to capitalism!

Inflexibility to heroic undertakings: While persistent firefighting is a problem, team members should not hesitate to grab buckets when a conflagration appears. Resistance to last minute travel, pulling a late night or working a weekend when needed spells trouble.

So how does your growing startup stack up?

New Year Letter

As a kid, I remember a pile of holiday “update” letters on our sideboard during the Holidays. People wrote in depth about their year, positive milestones for their family, and bumps in the road too. These notes were personal, genuine and from a bygone age – before smart phones, texts and even e-mail. Few write these letters now, favoring the short form Minted card with family shots, “Look! our kids are beautiful too.”

I had the pleasure of receiving only two Holiday letters this year – one from an HPVP team member and one from an HPVP investor who runs his own large private equity firm. Two things struck me when I read these notes. The first is how little I know about (ask about?) someone who sits 20 feet from me 8 hours a day. The other is the timeless value of prose in expressing complex experiences and ideas. So, I thought I’d sit down and write a New Year’s letter sharing what is important in my life, and what I’m thinking about.  For simplicity, I’ll talk about Family, Profession and Context. Context is the world we live in: economy, politics, city, environment, arts, etc. This last section is probably the most interesting to most, so feel free to jump there. Spoiler alert: this year is dominated by politics and economy.

Family – the people we live with:

Lest you thought I would write this without a family picture because of my earlier swipe, ha! Here it is:


Hawaii sounded great for Christmas, but I’m cheap. So instead we went to Florida and bought matching Hawaiian outfits on sale. Try it sometime. It’s super fun, and, no, I don’t get an affiliate fee.

We’ve entered a new epoch with our daughter, Skye (6), and our son, Winter (5), in the last year. They are increasingly independent and speedily maturing, especially as thinkers and questioners. This has largely shifted the challenges of parenting from meeting banal needs like sleep, feeding and potty to making hard decisions about how we positively influence their character formation and self-management. One experience in 2018 highlighted this for us. One of our children “experimented” (ahem) with taking a toy from their very close friend and then lying about where they got it. In the middle of a Tuesday I received a call from the concerned mom of the friend. I was first annoyed by a call about “XYZ-Branded-Toy-Of-The-Seasons” that I was sure had simply gone missing. But I opened my ears a bit and promised to follow-up with my child. The mom was right, and we the parents of a budding bandit. While this episode is fairly mundane for a developing child, this was the first time Ashley and I really took pause to ask “what type of character and values are we instilling in our children?” The experience was also notable in the tremendous grace and forgiveness we received from the other parents and wronged child – who still remains very close with ours. The child and parents could have gotten upset and gone to the teacher; instead they approached us directly. You can’t ask for a better learning experience, and it highlights that openness to making mistakes and likewise rendering forgiveness are a key part of learning at all ages. It also highlights that child rearing is best done in community.

Notwithstanding the above, Ashley and I couldn’t be more proud of our kids who are truly good people and completely embracing of life and school. Skye has taken to swimming for sport, and Winter has taken to Legos. He also succumbed to peer pressure from Skye to learn how to swim and has become an equivalent waterbug after four years of screaming bloody murder whenever within sight of a pool!

I remain extremely proud and bedazzled by Ashley, our teacher-athlete-mother-wife who did the Chicago Marathon this year (her 14th) at less than 3:15. Wow. Ashley is the best life partner I could have – businesslike when it comes to running a common family and household; loving and thoughtful as a spouse. I also decided this year that the running group Ashley leads was filling up with too many strapping-young-single-20-something-boys vying for her attention, so I ran my first marathon this year to keep up at 3:42.

Profession – the people we work with:

Hyde Park Venture Partners had a tremendous year – which in venture capital is to say that the dollar weighted balance of good and bad tipped heavily to good. We had a number of companies (G2 Crowd, FourKites, Shipbob and others) raise large financings from premier later stage VCs (IVP, Emergence, August, Menlo, Bain and others) at significant markups. But these financings are only smoke from the fire of momentum our partner entrepreneurs are creating in our portfolio. We are truly in awe. These three companies, for example, will each double or triple revenue in 2019 again and likely hire 400 people, just in Chicago. It is a great pleasure for our firm to play a small part in this, and I proudly acknowledge the leadership of two of my partners, Ira and Tim, in the role they play with these three companies in particular. We also had liquidity in both funds, something that feels good for our entrepreneurs, investors and selves alike.

Increasingly, we recognize that good outcomes like those above are the result of well-worn ruts by a consistent team combined with a smidge of process. Ira and I have been working together for ten years, Tim and Greg with us for nearly six, and Jackie for nearly three. As an investing team, we find great joy in our work and each other… and there are sure things to laugh about. We recently implemented an “email of the quarter” designation for craziest e-mail received. It turns out that sleep e-mailing on Ambien is a real thing, and, man, the Ambien e-mail we received was a doozy! Keep ‘em coming, world.

Of course, it’s not all roses. Lots of thorns too – certainly in the portfolio – but sometimes with each other. Just as in a marriage, investing partnerships bring out both the best and worst in people, including myself. In my unadulterated form, I can be questioning and standoffish with those I don’t know or don’t like, charming and caring for those I like, and demanding and wielding of the sharp edge of whit with those I love, including my partners Ira, Tim, Greg and Jackie. We all have our imperfections, but we’ve also developed a safe zone for dissent and disagreement both in our formal investment process and our tacit culture. Indeed, when we first grew the team beyond Ira and me, we talked with a number of top VCs and found that a common feature of their funds’ best venture investments was original disagreement about those startups’ potential. We embrace this reality: in the fog of early stage investing, full agreement only means that everyone is missing something! So, here’s to more fun, success and disagreement in 2019!

Context – the world we live in:

To see the context of 2018 (and likely 2019 to come) as not dominated by politics and the economy seems impossible from where I sit. And yet, save for a short post after the 2016 election, I avoid talking about either much professionally. In short form (eg Twitter) the world doesn’t need one more fan on either side of the stadium shouting, and I am generally losing interest in Twitter as a means of communication other than for simple brand advertising for HPVP and me. In long form (eg blog) I’ve often viewed the line between business and politics a distasteful one to cross. Call me simplistic, but I’m happy to do business with anyone regardless of their politics, as long as we share similar values. It is because of this belief, however, that now is an important time to speak about politics in some depth, even to a broad audience of my business network.

The basic job of leaders is to enable their team members and constituents. For 90% of the time at a large company (not a startup), this means maintaining a consistent set of principles (values!), policies and procedures so that individual employees can do their jobs and keep customers happy. 10% of the time it means making really hard decisions to change the direction of a company to iterate a business model or otherwise stay ahead of the competition. This rubric for leadership applies well to government also, and maybe even more in the extreme. In the US, it is supposed to be very hard to change policies and laws so that a consistent political and regulatory environment is maintained to allow a relatively free economy and capitalism to thrive. Then, 10% of the time, strong leadership in the Presidency, House and Senate is needed to, say, elevate our society with respect to civil rights, recast an outdated tax code every 30-50 years, protect an ally in duress, or restructure our laws and policies to reflect a changing national culture and business model (eg, agrarian –> industrial, analog –> digital, etc). Generally, stability in politics matters and is good, creating a healthy environment for business. Just recently, we’ve seen how political instability is starting to undermine our business environment.

There is no one who understands base human instinct more than Trump. He swept into power on the long wavelength rumblings of a quake of discontent that others couldn’t hear. Unfortunately, no one understands the role of government, domestically or internationally, less than Trump. The interview simply doesn’t match the job.

Moreover, politics and government are much like venture capital in that 9 out of 10 times, your greatest worries will come true. Bad things simply happen all the time; so a good President and presidential team has thoughtful principles, policies and procedures in place to make sure the little things and the big things don’t throw the country off track. Over the past six months, we’ve seen any vestige or attempt of such a structure around Trump crumble. With accelerating staff departures and myriad new troubles rising every week, the frenetic spring that is Trump is simply unfettered to bounce around in different directions, introducing shocks and vibrations into both our political and business environment. There is no stability.

Much has been written about Trump’s lack of values… or adherence to the single value of I. It is not without purpose that I use the word “principles” in the framework for leadership and government above, or why the theme of values has been woven so completely through this letter. Without shared values, every interaction is a transaction, not a step in the natural ebb and flow of a continuing and maturing relationship. Faith to a common set of principles is what business and government leaders need to maintain consistency 90% of the time and then garner support to make big leaps 10% of the time. Instead, Trump’s lack of values and self-embracing volatility leave domestic and international institutions confused and reeling.

Sounds awful and scary, right?

Yet, when I look at my kids, I am not discouraged. As much as we and they are learning from mistakes year-by-year to become of stronger character and values, I can feel the country learning from our Trump mistake as well. Our nation is beginning to reject Trump like the body’s protective sack around a splinter, pushed back through the skin. That doesn’t guarantee new leadership in 2020; a lot can happen in two years. At a minimum, however, mean reversion will bring a more competent and stable leader by the time this Presidency can be formational to how my kids see the world and our country. Trump will be history and a footnote for them… and ultimately for all of us. Good riddance. (Aside: Many of you may note that Trump’s impact has a long half-life because of his SCOTUS appointments. Perhaps, but his two choices could easily have been appointed by any Republican president. One’s preference for that or not is within the normal envelope of political discourse. My point here is that Trump, himself, is not.)

The holiday letter from our investor was marked in its ability to tie the current political climate to business. It greatly informed my thinking here and convinced me that business leaders need to speak up when political leadership is in crisis. Except, we reach a slightly different conclusion. For our investor who runs a multi $ billion “distressed” private equity fund, he sees the volatility and impact on asset values as a buying opportunity. I can’t disagree in the short run.

But in the medium and long term – what matters for my kids and our investors in a 10 year venture fund – I am incredibly bullish. On a recent visit with another of our investors to provide an update on HPVP, we sat over coffee at his kitchen table. I looked at his living room to see piles and piles of sweatshirts, the inventory for his high school senior’s e-commerce business! (Of course, I told them they should use Shipbob to manage their inventory.) When I was the age of this budding entrepreneur, 20 years ago, there was neither an easy supply source nor scalable marketing channel for that same business. It would have required far more startup money, more time, and by definition had a much smaller audience. Now on the brink of the 2020s, there has simply never been a better and easier time to build something new. The rabbit is out of the hat, and there is no going back.