Bootstrapping 2020

Crowdfunding, ICOs and COVID. What do these have in common? All three have at one point or another been described as a deathblow to venture. Venture has and will survive all three of these. While we’re in the early innings of the pandemic, an initial freeze in venture has thawed, even if at a more tempered cadence. VCs are screaming on twitter that they’re open for business, and even we have a signed TS with a company right now, so we can scream too.

But should startups take venture in 2020? That is a more complex question. Paul Graham’s much cited and seminal piece Startup = Growth is a great reminder of what venture capital is for: to fund rapid, steep growth. The cost of venture capital is high. Often cited as a 20-30% APR – a reasonable approximation for the average cost of capital for “successful” VC funds – the true cost to an entrepreneur who succeeds can be as high as 100% APR or more. Remember, if you succeed wildly, you have to cover the costs of your VCs’ failures.  Now, if that’s the case, you are probably much richer than the VC in the end, so it was worth it. Now back to the growth…

Raise your hand if you have rapid, steep growth in 2020. Uh huh. Most startups will have a terrible 2020 in startup = growth terms. We expect the majority of our companies to fall between a -25% decline (for some consumer and B2B transactional businesses) to a +50% (for stickier SaaS businesses). We are also lucky to have a few “COVID bump” outliers. More on that below.

When you’re swimming, it’s good to know where the rest of your pod is. Here is how we see the growth profile of startups in normal times and in 2020. Don’t get caught up on exact numbers, business model etc. This is meant to be illustrative:

In normal times, we see lots of startups growing 25 to 100% annually. Few of these get funded unless they have bulky ARR (say 5M and above), in which case they oftend find a “growth” investor with the right appetite.  Then there is a decreasing tail towards and above 200% annual growth. Most venture deals get done in this range with “hot” deals above 200% growth. 

In 2020, this distribution has shifted left, roughly centered around 0% growth, maybe slightly above. Then there is a long desert to a small second mode of “COVID bump” companies, where the hot deals are getting done now. These tend to be in e-commerce, virtual care, remote collaboration, online education… you know, the obvious. They get a lot of buzz and are exciting, but most of the announcements you see are companies receiving supported from insiders.

Venture capital is not for survival. It is very expensive if things work out later, so if you’re in the middle of the pack now, do your best to avoid taking venture until you emerge on the other side. Barring the fortune of being in the COVID bump – where pouring gas on the fire makes sense – I’m convinced that the best companies and happiest founders will be the ones who bootstrapped through 2020.

Preparing your startup for COVID19

Below is a letter we shared with our portfolio companies with tactical ways to prepare for the worst and hope for the best with respect to COVID19. Other startups may find this useful too.


Dear HPVP Portfolio Leaders,

With COVID19 an increasing reality both for public health and business, we know that each of you is considering how best to lead your company in protecting you employees, families and customers and ensuring resilience of your venture through a potential downturn and into a recovery.

Our portfolio company teams vary significantly in experience level. For some of you, this shock may not be the first you have weathered. It is for others. Regardless, each of us benefits from a thoughtful and planful approach to the potential challenges ahead. Below is a set of resources and considerations in charting (1) how to help protect the communities you lead and (2) how to protect your company to weather what may be ahead. While we all hope for the best, we must also plan for the downside. We will be in touch with you individually to see how we can help.


(1)    Protecting your community, people and theirs:

There is a growing chorus of questions related to employee and family travel, professional and social gatherings and proper hygiene in the face of COVID19.

Remember that in times of uncertainty, your actions and leadership are even more closely watched and mimicked by employees than in normal times. Also consider that while many startup employees appear “young and healthy”, employees may have conditions that they keep private, and “healthy” employees may otherwise come in contact with loved ones, community members and customers who are at higher risk from the virus.

We are not doctors, and most of you aren’t either, so we recommend following the guidance of public resources on what you should do. There are resources available from the CDC on down to municipal government; HPVP has been most attentive to the City of Chicago’s recommendations. We outline these in some detail with additional thoughts on events and domestic travel at the end of this email. Since you’ve heard much of it before, we’ll now shift focus to your companies.

(2)    Protecting your company:

Sequoia Capital published a letter they sent to their companies last week. The letter outlined how startups can anticipate and weather the effects of potential drop in demand, supply chain disruption and cancelled meetings and events. We highly recommend reading their letter and offer additional thoughts below:

Cash is king:

Almost all of our companies burn cash in favor of growth. When met with strong economic headwinds, the growth per cash burn ratio will decline (even to zero). Meanwhile the cost of that capital you are burning goes way up  – it gets harder for startups to raise capital. While VCs have raised historic amounts of capital in recent years, we may see more of it to stay on the sidelines as VCs’ own fundraising cycles lengthen. In short, if you planned on raising capital this year out of need, assume that it may be difficult to do so.

If you can’t count on fundraising or revenue for cash, the only thing left is expenses. We are not recommending our companies cut yet – pending learning more about COVID19’s impact in the next few months – but delaying hiring except for the most clear ROI cases is prudent (for example a project manager to run a large signed contract rollout versus just another sales person).

We should all be watching closely over the next few months with regard to further hiring or cuts pending feedback from sales in Q1 and early Q2.

If this sustains, it will affect everyone:

There are always arguments about what industries and business models will be affected the most in an economic shock. Certainly there are some that will be affected more by COVID19 than others (hospitality, travel, etc), but our position is that all startups will be affected. Even companies that don’t travel for sales – e-commerce, inside sales, marketplaces  – are all likely to be impacted. In a contractive environment, everyone contracts at one level or another.

Make sure your customers are very happy:

In tough times, resilience and stability – after extending runway – comes from keeping customers happy. Delaying price increases, allowing contract extensions or downsizing contracts if customers themselves are downsizing can go a long way in saving a customer that might otherwise be lost. Remember, they are facing the same headwinds you are.

Exercise flexibility in your teams to ensure continuity:

Seattle has seen large tech companies (MSFT, GOOG, FB, etc) ask or require employees to work from home. In several cases, these actions followed the diagnosis of an employee. Other examples were purely proactive to reduce risk of spread  – actions that are, in fact, in advance of CDC and local health departments’ recommendations for only high risk individuals to remain home. This shows us that an explicit or societally implicit expectation that companies shift to remote work could happen at any time or anywhere. We know of several companies “practicing” remote work by rotating 20% of their team each day to work from home over a week. This allows them to exercise “remote” muscles and ensure adequate tools and processes at home should they be needed.

Perhaps the biggest need for team flexibility relates to employees managing childcare if schools selectively or broadly close. Reduced or adjusted work hours may be necessary to accommodate school closures amongst your employee base. It would be a good idea to recommend that your employees begin to plan for this contingency and for them to know you have their back to reduce anxiety.

Make no little plans:

Our most tangible recommendation is to put a plan together over the next few days to address how you are approaching COVID19 with your team, customers and 2020 plan. A good plan would answer these simple questions:

  • What have you communicated to your employees, and how are you preparing them for a potential broad isolation scenario?
  • What actions are you taking now with respect to previously planned hiring?
  • What signals are you closely tracking over the next 4 to 8 weeks as leading indicators of demand softness?
  • What actions would you take in 8 weeks based on different outcomes of those leading indicators?
  • How much runway do you have now… and assuming no growth plus aggressive cost management in Q2?

You will probably want to share this plan with your board or perhaps have a board call; you never know where you might hear a good idea.

**** Recommendations from Chicago Health Department****

Explicit recommendations include:

  • Practice exceptional hygiene and social distancing: stay home when sick, wash hands frequently, and avoid handshakes
  • International travelers from Level 3 advisory countries (China, Iran, Italy, South Korea per the CDC) should self-quarantine at home for 14 days; International travelers from Level 2 advisory countries (Japan per the CDC) are not yet advised to self-quarantine but should monitor their health closely

What is less explicit in guidance from most public sources is what to do about domestic travel and gatherings/events. Of course, this is a big question for many of you who travel for sales and either hold or attend conferences. We are seeing more and more public events and conferences be cancelled. This began with large international conferences, then large ones hosted in the US and now seems to be expanding to more regional conferences in the US. It seems prudent at this point not to hold large events. Whether that is justified from a public health perspective is not ours to say, but expect that attendance will wane until there is more uncertainty about COVID19’s spread. Better to do things virtually. Likewise, with many conferences cancelled and many customer companies limiting visitor access, there are increasingly fewer reasons to travel domestically. A final policy on domestic travel is yours to make. At this point, HPVP has bagged all non-essential travel. You can see what other tech companies are doing here.

Talent Talent

We announced recently that HPVP is hiring a Head of Talent to focus on hiring and people processes in our portfolio as well as to expand our talent network for portfolio hiring needs.

We are excited about this step for HPVP in formalizing a function that has become an important part of how we help our companies grow. It is no surprise that in its most nascent stage, a startup isn’t much more than the people that comprise it – an amalgamation of their ideas, experiences, network, leadership ability and executional prowess. This is to say that startups are as much or more about people (talent) than anything else.

Our experiences have taught us that there is no single “right” kind of founder. We’ve seen young teams and more mature teams alike found and grow great companies – though a common trait of industry expertise has been notable in our successful teams. We have also seen consistently that there is a right way to build a team to scale a company and many wrong ways: hiring friends, micromanaging, skimping on senior hires for too many cheaper juniors, etc.  All of our teams at one time or another benefit from an outside perspective on organizational design, attracting talent and retaining it.

In our view, the right way to build a team means systematically establishing company functions as a company scales past certain milestones and hiring experienced or emerging leaders to head those functions. For example, we know that an enterprise SaaS company probably doesn’t need a VP of Sales (and probably can’t get a good one) until it passes $3M in recurring revenue. Until then, the best enterprise SaaS companies have CEO or co-founder led evangelical sales trajectories. For an SMB SaaS company, you want to hire a VP of Sales between $1M and $2M to scale a more mechanized sales process of smaller deals. As another example, a SaaS company doesn’t need a Chief Marketing Officer before $10M in ARR (a Director or VP will do), but after $10M, a deeply experienced CMO is the first or second most important hire to get right. We have learned many of these heuristics the hard way – hand-in-hand with our teams – and it is now time for a Head of Talent to encode and share them systematically with our companies and beyond.

Beyond organization design and talent management, once the correct open role is identified, a company needs to find and attract great candidates for it. Our investing team has historically spent 10% to 20% of it’s time meeting with talent in our geographies that could be a fit for our companies as they scale. We have sourced one, two or more of the “C or VP level” leaders at many of our scaling companies. Indeed, as a geographically focused fund, the development of a geographically overlapped talent network is one of the ways we think we have and can add the most value at our companies. It is a differentiator for us versus other peer funds without a geographic focus and also makes us a good partner to the later stage coastal funds who invest in our companies after we do.

Our investing team members will continue to meet with top talent, but our Head of Talent will expand these efforts and formalize a process to track the best talent in our geographies. As we patiently seek the right person for this role, we welcome introductions to experienced talent leaders with deep experience in scaling startups and a passion for helping more. Thank you.

Everyone is busy

It’s a Thursday at noon, and I am done with my meetings for the day.  It’s a Thursday at noon, and I am not busy. It’s a Thursday at noon, and I am happy about not being busy today. So there.

I’ve had a few really nice weekends in January that were quiet – not busy – and when sharing my weekend’s events with peers on Monday by saying “I didn’t do much,” I got funny looks as if to say, “is everything okay?”

Many see busyness as a virtue and a status symbol. While the characteristic is often associated with people of greater impact, status or intellect, it is as much true that busyness befalls people who are disorganized, over-committed or unable to prioritize. Neither perspective is necessarily true. The answer depends less on the state and more on the individual person and their job function.

I use the word “befalls” above intentionally. If you ask most busy people in the moment if they like being so busy, they will answer negatively or at least demure. Few truly enjoy it. So what gives?

It turns our that busyness as a status symbol is a recent phenomenon. In Joe Pinsker’s Atlantic article identifying busyness as a status symbol, there is an insightful exploration of the origins of busyness. In short, busyness used to be a curse of the poor. If you had less, you had to work more. If you had more, you displayed your status by working less. In economic terms, little wealth meant your labor needed to sustain you, while great wealth meant your capital could do the work for you.  Today the opposite is true. We now see many wealthy and successful people pushing both their labor and capital to the extreme, while many unfairly dismiss the poor as “lazy”. This has engendered a set of heuristics in society that reinforce busyness as a virtue. As they say, “if you want to get something done, give it to a busy person.”

Aside from personal and life preferences (do you see your family, talk to your friends, pursue hobbies?), it turns out that whether busyness is actually productive as a work style is very dependent on the type of job you occupy. Cal Newport’s Deep Work explores this question in detail. He defines two extreme personas, the successful company executive versus the highly productive academic. Newport posits that the company executive is a “decision machine”, making high velocity decisions based on summary data from trusted team members and deep experience. The best executives make lots of good decisions quickly, either in parallel or in rapid successions of meetings. They are busy in the traditional sense and should be.

On the other hand, Newport finds that the most productive academics (as measured by published articles and citations) are the ones who lock themselves in their office, ignore email and work on one problem for days, weeks, months straight – a behavior that would solicit a lot of “what the hell are they doing in there?” from anyone but other academics. They are not “busy” by today’s definition, but both roles can create a lot of value in society.

As an investor, I often ask myself where I should fall on the spectrum. In one way, the job of pursuing and meeting entrepreneurs for potential investment is a high throughput “busy” process of emails, calls and meetings. On the other hand, venture returns are made when you make a non-consensus bet that turns out right. To do this requires assimilation of ideas through reading and talking to others… as well as thinking. It requires unstructured time. I find it is in these calm times that I find the confidence in our very ambiguous investing stage to make decision on where and where not to invest (or to collect my thoughts in a long term blog post!). Indeed, the likes of Oprah and Buffet are known to carve out time for similar purposes with a “five hour rule”, one hour a day each week day. See how I slyly added myself to a list with Oprah and Buffet? 😊

Don’t get me wrong, there is a lot to do. And because of technology and constant connectedness, we can do more through more of the day and more of the week. I am as guilty as the next person of rescheduling meetings, pushing calls or acting distracted all in the name of being busy. When I get on the phone with an entrepreneur and apologize for being late or rescheduling, they often say “no problem, I know you’re busy.” My response is that I know they are busy too, and busyness is not an excuse. It’s a choice.

New Year Letter – 2019 was the Year of Accountability

December 2018 was my first time writing a New Year Letter. I meant to write one going into 2020 before the tick tock of the clock, but vacation got in the way. Now better late than never.

My 2018 letter was spurred by a realization that holiday cards of yore – often with a folded up long-form letter inside – had devolved to simple family images, most without context for what’s behind the smiles and loving embraces. This year, I noticed a new trend. There is a correlation between card stock thickness and net worth! None of this is to say I don’t like receiving Shutterstock cards – keep them coming. 

This year, I will look behind and ahead as I did last, through three lenses – Family, Profession and Context (the broader world we live and work in). For most, the interesting part will be “Context”. Feel free to jump there.

Family – reading fuels curiosity, and a year of sweat

Ashley and my two kids Skye (7) and Winter (6), while not quite Irish twins, have reached a whole new level of twinsiness. Especially after a long vacation, Ashley and I find them inseparable and increasingly self-sufficient when together. I certainly never played Monopoly with my sister for three hours – bless their young hearts! They are not without the occasional fight but usually treat each other with care and respect (for their ages). The big change for Skye and Winter in 2019 is a shared acceleration and passion for reading, which serves as both a call and answer in their voracious cycles of curiosity. Skye is now into chapter books, and Winter is into long comics. 

Ashley too had a big year. She beat her personal best at the Chicago Marathon, shaving 4 minutes to hit 3:10. Dang. She also went on strike with the Chicago Teachers’ Union – an experiential history lesson in the roots, consequences and realities of collective bargaining for our whole family. I am proud of the impact she has on her students and in awe of her patience with them and everyone she touches – including me. Ashley and I continue to have a lot of fun with each other. Though we’ve been married for nearly 14 years, I still find myself surprised she picked me and am thrilled with the flow of our partnership. We had our first true weekend away together since the kids were born, leaving them with my amazing MIL in VT and driving to Montreal for two days. Mon dieu!

In 2019, I self-indulged in much personal reflection. I turned 39 – close enough to being over the hill that I am realizing the fleetingness of life, while also feeling lucky to register this when there is yet much ahead of me. Oddly, this is not unlike a venture fund where the weight of every marginal decision becomes heavier the further you are through deploying the capital. Not that it should… it’s just that we are only human. 

So what do I want to spend my time on personally and professionally? What should I do now that will be harder or impossible later? Ideas continue to swirl, but in 2019 I channeled these questions into endurance athletics. I have never been athletic – more of a drama club, choir guy. But I have a talent that has gone under-appreciated until now… I can eat almost anything any time. It turns out this is pretty helpful for endurance events. So I bought a wetsuit, a road bike and signed up for a full 140.6 mile Ironman in Louisville. The Louisville swim got cancelled, so it became more of a training day, and I become an Ironman* (emphasis on the asterisk). To eschew the asterisk, I signed up for another Ironman three weeks later in Panama City, FL and got it done… with the swim. We’ll see what happens this year.

Profession – a new fund at HPVP

I and the whole Hyde Park Venture Partners team were thrilled to raise our third fund in 2019, totaling $100M. We did this through the hard-earned successes of entrepreneurs we invest in and with the confidence of a tremendous group of investors, many returning and some new. I liken our new fund to a “Series B”. Just like a Series B stage company, we’re doing many of the right things and have hit some nice milestones, but there is yet much to prove. 

Our first $25M fund took us about 30 months to raise, our second $65M fund 18 months, and this one 12. This shortening trend is going in the right direction, though I’m reminded each time we do it that raising capital informs our own empathy for entrepreneurs’ fundraising travails. It is also a pleasure to reconnect with existing investors and meeting new ones. We are lucky to have many accomplished entrepreneurs, professional investors and executives among our investor base, and we learn something new from each in every meeting. The more I speak with these people, the more I realize how much I don’t know or haven’t experienced (back to the opportunity cost of life). Would that I had a month to shadow each like an intern!

HPVP also expanded its team by three people in 2019. That’s not a large absolute number, but still the 50% increase brings fresh thought and energy to everything we do. Our expanding team challenges us to break out of the ruts we’re used to driving, though damn we can be stubborn! 

Above all, we’ve continued to partner with many top entrepreneurs, investing more with existing partners and backing new teams in 2019. It’s been a particular pleasure for me in 2019 to spend much of my time with several highly experienced founders/executives, whom I mostly try to stay out of the way of, learn from and help when I can!

Context – signs of accountability

In my Dec 2018 letter, though loathe to do so, I crossed the business/politics divide and spoke about Trump’s extreme shortcomings as a leader and the political and business risks that result. I will cross that divide again this year. Unfortunately, the administration’s heliotropic tendencies make Trump such a dominant factor in considering the context of our economic and societal state. 

Interestingly, Trump’s special brand of economic protectionism and antagonism is not quite (yet) the undoing of our economy that escalating tariff wars had many, including me, predicting a year ago. Unemployment remains low, and output is still healthy though slowing a bit. Certainly in the venture/startup world hiring remains tight and there is access to capital, though the “flight to quality”  that we saw begin in 2017 continues. More capital continues going to larger rounds for the most proven companies.

Perhaps this is indicative of the larger reality of our economy – a stark juxtaposition in position and opportunities between haves and have nots. For example, while the tariffs have not yet dragged the overall economy down, they have caused extreme pain for farmers, commodity producers and the communities that surround them. This is sadly ironic given ag state voting patterns in 2016 and upsetting to see a constituency fleeced by political con jobs and storytelling. More on that below. 

As a city dweller, it’s easy to look around and think everything is going well for everyone. Most major cities are late in extended periods of growth in population, housing and wages. As a Midwest investor, however, I spend a lot of time driving through small towns, ones not even large enough for a Walmart. These are multi-generational home-town cultures now being re-cast around Dollar General. With ag down and other opportunities so limited in these places, it’s no wonder why their voters rolled the dice on Trump in 2016. We shouldn’t forget that, especially as we look ahead to 2020.

The point here is that even three years in, it’s easy to be shocked and upset about Trump in lieu of understanding the why behind his rise. Adolescents in the US are primarily taught about the righteousness of our elected democracy, its role in leading other countries to the same and its success in vanquishing the horrors of monarchy, fascism and communism. In this, we often overlook the imperfections of our own founding, but moreover we are misled to believe that representative democracy rooted in a literate citizenry is the human equilibrium. In fact, the equilibrium is probably the reverse: power, money and education in the hands of a very few as lords over the rest – whether this be monarchy, fascism or today’s kleptocratic version of communism in Russian and China. Some version of this was the standard for most of human history.

In Nicholas Wade’s Before the Dawn and Yuval Harari’s Sapiens the correlation between organized society and the development of speech are explored deeply. One causal hypothesis for the correlation is that speech was premise for humans to organize beyond family clans because storytelling was the necessary skill for a leader to unite followers that weren’t kin. In other words, aspiring leaders have to talk their way to the top in one way or another. The word “story” is an innocuous and harmless noun here, but the distance from truth to history to myth to lie is a short one, traveled for millennia by human leaders. Trump simply re-paved the faster lanes of this road, journeying along the dividing lines between haves and have nots. We see this in the business world too. Adam Neumann did something similar at WeWork, taking everyone for a ride.

Fortunately, while we can’t take democracy for granted, there is some robustness. As I said in 2018, “our nation is beginning to reject Trump like the body’s protective sack around a splinter, pushed back through the skin.” This is culminating – almost in a literal sense – with the impeachment process. While Trump is not likely to actually be removed (even I can buy arguments why at this point we should leave it to the election), impeachment proves that there is indeed some accountability for leaders who lie or otherwise pursue their own interests. This is important, not just for our politics but for our society. If for most of human history we were in the pre-truth storytelling era, will the “post-truth era” reign after a short few centuries of more enlightened human experience? I don’t think so. Trump’s impeachment is proof that we can still be grounded, and this political leadership accountability trickles down to broader society.

In fact, there is a good argument that 2019 was ubiquitously the Year of Accountability. In the broader economy, 2019 was a record breaker for public company CEOs stepping down, more leaving than in the financial crisis. While some of these departures were generational cash-outs after a long bull run, many resulted from boards enforcing business or moral accountability, as at Boeing and McDonalds respectively.  In the startup world we saw several spectacular events of accountability with the cratering of WeWork and fraud charges at Outcome Health. It’s the sign of a healthy system when specific problems can be rooted out without the tide having to go out completely to bare the naked swimmers at the expense of the modest, as happened in 2008.

There is hope. Have a terrific 2020!