I wrote this email to a friend on the topic of crypto and my take. All disclaimers apply here and will be fun to go back and re-read this a few years from now to see how wrong or maybe right I was…

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Let me start by saying I really have no idea where any of this ends up but do feel it is important to have a defined point of view on this stuff at this point even if it ends up being totally wrong. So not investment advice or advocacy, mostly one dude’s opinion.

Crypto to me starts with a very basic premise:

“I’m me, you’re you, and who owns what when”

Lots to unpack there as it relates to identity, transactions, property rights, audit trail, etc.

What’s fascinating is that there is a way to digitize so much of what has been embedded in commerce and collaboration to provide proof – proof of identity, proof of ownership, proof of compensation due for facilitation of a connection or commercial transaction.

So what is Bitcoin? At its core it is a hash. A unique set of numbers associated with a unit of measure.  My Dad did cryptography in the Navy in the 50s before the NSA was formed for secure messaging and trying to figure out what the Russians were saying. Encrypted, digitally created codes. Dandy, why is it valuable? Because people think it is. Don’t let it be lost on you the Bitcoin as well as other crypto assets are denominated in US Dollars.

But do let it give you pause that why can’t banks process transactions on a weekend, why does it take days to transfer payments, why does it take days and lots of hands to process a securities or real property transaction. That is inefficient and not digitized…but can be.

So what is this? To me, it is an architecture and you should approach it that way. Bitcoin is an application. A currency application and actually the easiest place to start. What Venmo, Cashapp, etc. have done to digitize the movement of dollars but are still burdened by banks, bank infrastructure, clearing, etc.  What is a wire, what is an ACH payment, what is tapping your credit card on a point of sale reader at the grocery store? Electronic bits and bytes that lead to a journal entry of debits and credits.  Expensive, slow, error/fraud prone, single currency denominated (USD). 

Back to “I am me, you are you and who owns what when.”  To me, there are three layers of crypto related to protocols and standards of communication and commerce. Consider what SMTP is to email, HTML is to web pages, and ABA codes are to wires.

Down stack crypto platforms and application tokens are where this gets interesting. Ethereum is essentially the “oil” of crypto. Required to make it go, enable transactions, enable settlements.  All this bullshit around non fungible tokens (NFTs) which is essentially the next evolution of digital rights management and authenticity proof is enabled by Ethereum. Check out what NBA Topshots is doing. Unique, digital assets of f’ing highlight reels. Really? Sure, why not. The local yokel flea market signed player card going digital. Collectibles and their digitization and securitization is a whole additional world like Otis and RallyRoad.  Too much liquidity in the system driving up asset values, but I digress…

Buy the oil/gas, not the car.  Side note – you should watch Duped You on Netflix. Fascinating around art and art fraud but good reinforcing on the former.  “Is it real, is it authentic?”

But it doesn’t stop there. Application tokens are utilized for smart contracts (who owns what when with no question of identity) and other utility functions like search, identity verification, settlement, temporary possession, etc.

The architecture doesn’t belong to Microsoft, Google, or Amazon it is fundamentally distributed. The applications don’t belong to Stripe, Paypal or Visa, they are distributed and enabled.

Should you invest in it? Hell if I know. Have I? Yes, on a small dollar methodical “dollar cost average” approach over the last 3+ years via a Coinbase account. It amounts to what a single angel investment would be and yes, I am up, considerably, but I also know it could tank. Don’t care.  Heavy ETH, some BTC and then a long tail of emerging software platforms and application tokens using what Coinbase lists as the “quality filter.”

Should you?  Don’t know. Maybe take 1% of investable assets and roll into it via Coinbase.  I would focus on down stack platform and tokens. CoinDesk 20 is a nice reference point on building a portfolio.

You will see more brokerages and ETFs emerging in the space which seems an unnecessary layer of fees to add to direct purchase.  Hype and hustlers.  Oh and serious f’ing volatility. What ETFs did to normalize the stock market and reduce volatility is alive and well in crypto.  Big swings. Prepare to lose it all…and gain it back in a day.

Bitcoin is a thing and is valuable because others think it is valuable. It is not the cost per coin as this is fundamentally about math and finite supply.  If you own dollars, pounds, euros, or yen, you should add some bitcoin.  Will you buy your coffee with it tomorrow? Probably not.

Ok, sorry for the manifesto. Key takeaways:

•  I am me, you are you
• Who owns what when
• A distributed architecture for commerce and collaboration that no one entity owns
• It is more speculation than investing although I have tried to have an informed point of view that leads to an investor approach
• Consider it a “meta” portfolio allocation that hedges against inflation, way of life disruption and assets that move between national borders without friction
• I have no f’ing idea what will happen

I’ve spent the past couple days in Salt Lake City, Utah at the Silicon Slopes Summit. This is mostly a “get to know the community” trip although I did have some scheduled meetings while here.

This event is amazing and a testament to the folks who put it together including ringleader Clint Betts.

There is much written and said about building entrepreneurial communities but an accessible and well done event or set of events put on by people in the community is crucial in my opinion. This one is that and more.

That said, there is A LOT going on in Utah around technology. The event had 20,000+ attendees most of whom I did not know.

One of the highlights of the event was an onstage discussion between Bill McDermott, CEO of SAP, and Ryan Smith, CEO of Qualtrics. Qualtrics was just acquired by SAP for $8 billion (with a B) dollars. The “biggest enterprise software company you never heard of” to paraphrase a comment from the stage. Beyond Bill sporting a nice pair of shades on stage (the ultimate ‘deal with it” move), Ryan made a comment that stuck out and I believe is clarifying on the entrepreneurial journey.

“Build it to keep”

Starting a business is hard, building a business is hard, pre-planning a sale is unwise. Yes, entrepreneurs are asked about exit and exit comparables by investors. Mostly this is around wanting to build a comfort level that the money invested can be returned within some time frame most likely via an acquisition. That’s for the outside investor, not for you.

According to Crunchbase, Qualtrics raised $400M. That is quite a lot but not when you consider an $8 billion acquisition and they did not raise anything until they were 10 years old with thousands of customers. That $70M round in 2012 was strategic capital to grow the business not startup capital.

I have not seen or researched how much the founding team and executives owned of the company at sale but I assume quite a lot. This is great. Great for the team, their families, the community, and for the investors who backed an already great and established company.  The word “optionality” is well worn in venture lexicon but the power of having options should not be understated.

Build a business to keep and also understand that when you take outside capital, even later in maturity, there is still an expectation you will pay it back and then some. Qualtrics had filed to go public just before its acquisition so Ryan and team were planning to continue to “build it to keep” while paying back their investors and rewarding their employees but the draw of a global software company with 14,000 sales people to further their vision proved a better option to realize their vision.

Quite a story…

 

 

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If you spend enough time in startup world you will eventually, whether a result of your actions or someone else’s, find yourself out of work. It happens and can happen with some frequency. Fail to raise funding, get on the wrong side of a venomous company culture, or even get acquired…then let go.

This existence is odd to those who work for larger companies or operate outside startup circles. After 6 six startups in 20 years, it just doesn’t seem odd to me anymore. My Mom once asked me if my most recent job was going to be it for a while, I said that you need to think of my career as a series of projects. Some last months, some last years. She paused and then asked if my wife knew this. Fortunately, I met my wife at one of those startups.

Usually the best, most competent people are busy. Busy working on their next venture, busy working inside a great company doing great things. But, every once in a while, something happens and that person is available. Maybe they needed a break after achieving and grinding for so many years. Maybe, and we haven’t seen this for a while, a downturn in the economy causes layoffs and a whole mass of very competent and smart people are suddenly available.

That’s when really awesome things can happen because great people stand out from mediocre ones and are really good at creating their next opportunity. Companies and people who are use to dealing with the mediocre instantly see the difference and know they have something special.

So, the next time you get laid off or feel like you are stuck in a situation or job that is intolerable, ask yourself two questions:

1. Are you one of the great ones or are you satisfied with being mediocre?
2. What great opportunities await if you signal your availability?

I consider risk a constant in your professional life. Again, there are things you can control and things you cannot. Startups have an elevated risk profile but they way I look at it is that at least you know that…and can take actions to identify and meet that risk head on. If you believe you are in a job with no down side risk, you will be blindsided when there is a restructuring or a lay off. I learned this many years ago when I left Arthur Andersen. I was in Washington, DC, working with the Business Consulting group, doing well, and just wanted to go do something with a startup. It was circa 1998 so you probably know how the story ends and, yes, come 2001 I was available. My colleagues at Arthur Andersen who lectured me about risk found themselves blindsided and out of work shortly after as the Enron fiasco took down a company that was founded in 1913.

It sill sucked but I was prepared for it because I knew and could see the risk. Being available allowed me to help start a new company from the ashes of the dot com bust and begin a winding career path that led to 5 more startups, a move to the West Coast and eventually finding myself running a small seed fund working with great entrepreneurs.

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The success of any relationship, be it personal or professional, depends heavily on the shared expectations of the people involved. Relationships get strained when there is a divergence in expectations out of the gate or even over time so this is not something to be established once and never revisited.

I have learned this lesson repeatedly both in personal and professional settings over time. This is as mundane as what a group of friends expects out of an evening out – low key dinner vs. loud bar setting or situations where the stakes are much higher like raising capital for your business from outside investors.

There is a New York Times article “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost” making the rounds that has caused quite a bit of conversation about venture capital, who it is right for, and that it is but one mechanism to fund the growth of a business.

Any capital you receive that is not yours comes with expectations. This could be in the form of a financial return and/or some say over the decisions you make.   Venture capital has very high expectations or as Josh Kopelman of First Round Capital shared via Twitter “VCs sell jet fuel…”

I have the privilege of interacting with many entrepreneurs these days and do my best to demystify the venture funding process, what to expect, and how decisions are made.

I am fond of saying “you have a business if you can sell it for more than it costs you to make it.” If you’ve nailed that, you are a business and no one is questioning that.

The thing that gets lost often is that an external source of capital like a venture capital firm is working to build the investment case around your business. Smaller funds like ours have a lower hurdle rate because the size of the fund is small and return expectations are not to “return the fund” with just one investment. That means I would only invest in you if I think I can get $3 million in distribution (total size of our current fund) from that investment.   If you are talking to a $100 million dollar venture capital fund, that is your hurdle to build the investment case around.

The other dimension of taking on venture capital is that there is an expectation that you will (most likely) sell your business within a 10 year time horizon at that significant return. Don’t want to think about selling the business you started and love? Don’t take venture funding. Period.

When you raise money, you sell part of your business to someone else and surrender rights in that process – information rights, decision rights, rights about future opportunities, an obligation to provide frequent reports and updates. So often in the urgency to get capital to fund the business, those considerations are lost while setting the foundation of the expectations of the relationship.

Focus on shared expectations as you create new personal or professional relationships and take inventory of your current ones, especially those that are strained, and have an open and direct conversation to level set the expectations going forward.

 

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I had a conversation with an entrepreneur recently and he was trying to parse investor, advisors, when one can become the other, and how to manage it all.

I sent him the following input via email. This is my opinion for sure but thought worth sharing broadly and he agreed.

Investors:

You receive money and give up rights – ownership, control, decision making. Each dollar has a “cost” to the entrepreneur. The goal is to balance amounts and expectations with what you give up by taking external capital. A true “cost of capital”

Investors can be helpful, provide advice/guidance, etc. but rarely perform operational tasks assigned by the CEO. At the Board level this can formalize a bit more with specific asks/requests by the CEO of certain board members.

Advisors:

Uncompensated ones are fans but should not be expected to perform operational tasks. Compensated advisors should have operational accountability of some sort – that aligns with the CEOs current priorities. If equity compensation, they should vest like the rest of the employees (4yrs, 1 yr cliff) or 2 years in some cases for a very high value advisor. The vesting allows you to not incur unnecessary cost/dilution should it not work out and the value exchange happens over time.

If you feel you need to fill operational gaps with compensated advisors then consider your budget (equity or cash) and treat it like a hiring process. If there is a match between offered skills and operational needs then you can make the “hiring decision.”

Can someone be both?

Yes, an advisor can become an investor and an investor can become an advisor.

If the investor is doing more than being supportive and helpful and has a unique skill set that fills an operational need, then structure a separate and defined advisor role.

If the advisor wants to invest, then treat that process like all fundraising respecting minimums and adhering to current fundraising terms.

Should they be linked in some way?

A current advisor wants to invest

Generally a good thing as long as the CEO has not made the continued advisory role dependent on the investment.

Someone will only invest if you compensate them as an advisor. 

Generally no, unless they have a skill that maps to a current operational need/gap as defined by the CEO. In other words, they should be asked vs. this being a condition of investment.

A current advisor will only invest if you increase or extend the current advisor agreement. 

No. In this case the advisory role is now linked to the funding event and is a condition of investment.

Bottom line – treat them as separate and combine them intentionally and at the CEOs discretion.

So maybe I am joining a growing chorus around the negative impact that social media has brought to our existence including Sean Parker of Facebook fame talking about how it exploits human psychology,Chamath Palihapitiya also formerly of Facebook describing how it is ripping our social fabric apart, Jeff Nolan with “End Social Media Co-Dependency.” Mark Suster with “One Small Change I Made that Improved My Mental State” and Brad Feld with “Did Tech Companies Ever Have Our Best Interests at Heart.“

People much smarter than me but all feeling the same thing…

I have a unique relationship with social media having extended my blogging efforts to it early on then working with a company (Gist) that was focused on bringing social media into the lives of business professionals as a sort of multi-dimensional CRM. The more connections the better across as many platforms as possible. Connect and change the world was our rallying cry. Gist got acquired by BlackBerry and was assimilated into obscurity but social media marched on.

My first blog was titled Reply to All circa 2005 and I named it that because I thought of posting on the Internet as the ultimate reply to all action for all the world to see. I enjoyed writing for several years but other distractions and priorities took hold and I stopped – a common outcome for well-intentioned blogging efforts.

What has continued is my social activity so in a way I continued replying to all…just in shorter form with tweets, Facebook updates, Linkedin shares and more recently Instagram images.   I treated Twitter as two separate streams – personal and business with two handles to support that approach. Reply to All and RobertCPease.

The personal handle is dormant and my Facebook updates have mostly ceased favoring Instagram to share meaningful snapshots of life with a smaller group but still publicly posted, RobertCPease for business and college football (Georgia Bulldogs!) content supported by a continued professional presence on LinkedIn. I’ve tried and failed at SnapChat and still do try to tinker with anything new especially around the inbox and professional connectivity.

Long a fan of “lifecasting” as us old timers call it, social media has taken a decidedly dark and negative turn. Maybe it is where it is in the adoption cycle that brings out such things. No one shares the bad things, we’ve become addicted to self-reinforcing social gestures and the underlying platforms DO NOT have the users best interests as a priority. They shouldn’t because users don’t pay. Companies, causes, governments, etc. do and are accessing and leveraging these social platforms for good and bad.

I have no idea who did what in this past election but I do know that anyone with a budget and a message can target at a level unheard of 10 years ago along not just traditional demographic segmentation criteria but the data mined from the behavior on the platforms. That survey you took? Part of your profile and can be used to target. That post you liked, that cause you support, that emotional reaction you had? All part of the data and all for sale. How to prepare and educate my children about this environment is constantly on my mind. Great to stay connected but how to defend against sinister motivations?

Look, I’m not part of the tin hat crowd and do believe that transparency in living isn’t all bad. But the artificial lives we broadcast, the emotional toll that takes on others on these platforms, and the checks being cashed to take advantage of us all give me pause at this point.

Social media infancy was amazing in terms of new ways to connect with anyone anywhere. More information, more connectivity, more perspectives.

We seem to have entered social media adolescence. A bit rebellious, pushing the envelope, not always making the right decisions that can end up hurting others.   People hide behind keyboards or screen names and say things to people that no one would or should say in real life. The current political climate in the United States is an example of this. Holy smokes people. Maybe this will mature us…or maybe not.

What will social media adulthood look like and will we have the ability to actually mature to that point? I don’t have that answer.

I do know that at the Defrag conference last November at its 10^th and final gathering, API evangelist Kin Lane gave a talk on his life and what had happened negatively with too many inputs, too much to consume, too much to react to and the physical and emotional toll. He spoke of a boundary or force field that he now uses to protect himself and filter inputs. Like a lot of things I’ve learned at Defrag and from founder/organizer Eric Norlin, this crowd is ahead of trends. We’ve gone from a room full of laptops with TweetDeck on them in 2008 to protection and self-preservation eight years later. A fast and vicious transformation.

Like Mark Suster, I have deleted Facebook from my phone, am working to wean myself off my Twitter feed including removing negative or emotional inputs and focusing more on connected lives for a budgeted amount of time daily. I even aspire to write more for me and this post is part of that.

If you like it, great. If you want to share it, great. If you want to talk to me about it in real life even better.  I will continue to share things important to me in the spirit of “Reply to All” but with a more guarded and intentional approach.

Connect with meaningful people and organizations, appreciate what they share, keep in touch and even strengthen relationships that could have waned due to changing locations, jobs, or lives.

Real life is the best life even though it can be hard, messy, exhilarating, rewarding and full of joy all in the course of a day or week. Those who care about you will appreciate the journey and those are the people who matter most. Relish face-to-face conversations that challenge your opinions and biases or even just voice to voice interactions. Don’t hide behind a keyboard, a false or incomplete narrative, or self-reinforcing network of “friends, fans, and followers.”

Did that get your attention?

I don’t know where I heard this the first time so apologies to its creator as well as a big thank you. I do use it frequently when talking about customer acquisition and how to get prioritized as a “must have” vs. a “nice to have.”

This is a more dramatic version of the vitamin vs. painkiller comparison but they both get at the point around priority, urgency, and commitment to action.

It goes as follows….

If you wake up tomorrow and see a rat in your house, how quickly do you want to do something about it? Do you really care what it costs as long as the rats are gone?

If you wake up tomorrow and see a new dent in your car door, you will be frustrated and mad (if you are me) but the car still runs, gets me to where I am going and, if on the passenger side, not something I see or think about much – until a friend teases me about the dent in my door.

Get where I am going here?

If you are selling (or doing marketing to support selling), what is the “rat” problem you solve that will cause someone to immediately listen to you, commit to the path you suggest, and become your customer in the near-term?

If you truly are in the “dents” business, how do you become the go to for “dents” providing fast, painless, quality service that removes that nuisance and increases the value of your car for that next trade in?

I don’t like rats or dents but have found this an effective way to take a hard look at messaging especially that is used to engage and convert prospects.

It’s rarely a good place to be when no one disagrees with you about the problem you solve but is in no hurry to address it – the car still drives.

What are the rat problems your customers have?

Cross posted from the Heinz Marketing blog.

Over the last several years, I have spent a bit of time on the investor side of the table vs. the operator side.  I have more recently been directly involved in the deal review process as part of the Cascade Angels Fund and spend a fair amount of time talking to entrepreneurs as well as being a point of contact for them both before and after their presentations to our investors.

Not every presentation goes to the next step. Sharing that news is hard as I’ve been in that seat, felt the disappointment, and made the “they just don’t get it” argument often.  Mark Solon now of TechStars wrote Saying No Sucks in 2010 when he was with Highway 12 Ventures and I have found it super helpful to inform my approach.

The more I have done this and tried to provide direct, honest, and actionable feedback, I have begun to emphasize the point of this post.

When presenting to investors, build the investment case not the business case.

What I mean is, you spend day in and day out pitching the business to customers, prospects, press…anyone who will listen in an effort to make progress, get attention, get revenue.  That pitch is around the business and why doing business with you is the right thing.

You want them to buy from you.

The investment case, on the other hand, is similar in overall messaging but the specific points you need to communicate are a bit different.  You are working to convince the audience that it is an “investable business.” One that can scale, has good economics, is defensible/sustainable and is differentiated in some way.

You want them to buy into you.

There is no magic formula here as investors and entrepreneurs differ but I think this is an important point to think about how to make the most of the investor audiences that you work so hard to secure.

The inspiration for this post, like many I write, is an email I sent providing some feedback.  Here is what I shared:

It is sometimes tough to go from customer pitching to investor pitching (I learned this the hard way a while ago) where you are use to building the business case for a purchase with customers/prospects vs. the investment case for an investment from investors. Landscape is more important to investors than customers.  The overall message is similar but the core messaging points differ a bit – you are not trying to address/answer the question of “is it a business/why should you buy this product/service” you are working to build the case that it is an “investable business/you should buy in”

I have taken a bit of a hiatus from personal blogging over the last ~4 years.  I have done a fair amount of it via the Heinz Marketing blog and via Linkedin but have not had a dedicated and focused place to write and share.

Thus the creation of this blog and the start of “Venture Vice.”  My primary goal is to tell stories here hopefully through podcasts and copy.  I have worked with entrepreneurs for many years, been one myself, and continue to be blown away and intrigued by what it takes to start, grow, and scale a business.

Not the mechanics of spreadsheets and sales plans but the human side of the equation.  How did people, opportunity, and capital come together at a point in time to create something amazing.  What did it take to get there and how many times was it over…before it wasn’t?

Much more to come on all of that in the future.  I did decide to pull forward several years of personal blogging from my former Reply to All blog and have added those to the Venture Vice site.  I use writing and sharing as a way to learn and create and view it as a way to let my children (and their children) have a bit of insight and perspective into what was going on…and what I was thinking at various times in my life.

Onward!