This is my one-hundred-seventy-sixth weekly reflection. Here are my takeaways from this week:

• Founders’ mindsets are changing – More early-stage founders are thinking about customer revenue as a source of funding. This forces them to build something customers will pay for—not something they can pitch to VCs. Regardless of what happens in the fundraising environment, this is a good mental shift for founders.  
• Exposure gap – Some people haven’t been exposed to certain concepts or ways of thinking, which puts them at a disadvantage. To reach the same destination as people who’ve benefited from wide exposure, they must travel further. It isn’t fair, but it’s the way the world is. Acknowledging the gap and working hard to close it is often the best approach to minimizing its long-term impact on one’s trajectory in life.
• I don’t feel like it – This week was a reminder that the things I don’t “feel like” doing are exactly the things I “should” be doing.

Week one hundred seventy-six was another week of learning. Looking forward to next week!

This week WeWork included a warning in its quarterly results report:

[A]s a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the Company’s ability to continue as a going concern.

Translation: WeWork is struggling to survive. It may or may not make it through a rough patch. To turn things around over the next 12 months, management has a plan that includes the following elements:

• Reducing rent by renegotiating lease terms
• Increasing new sales and reducing churn
• Scrutinizing expenses and capital expenditures
• Raising capital by taking on debt, selling equity, or selling assets

Crunchbase says that the company has raised over $22 billion in equity and debt financing over the years. Its valuation peaked in 2019, when it raised a reported $6 billion from Softbank at a $47 billion valuation. As of Wednesday, August 9, 2023, its public market capitalization (i.e., valuation) is $272 million. Dropping from $47 billion to $272 million is about a 99.5% reduction in valuation in roughly four years.

I’m not sure what the future holds for the company, but its fall from grace is stunning. I’m curious to see what impact WeWork’s struggles will have on start-ups who depend on it for office space and on the owners of office buildings that house WeWork’s locations.

Over the last few weeks, I’ve chatted with several emerging VC fund managers who are preparing to raise their first or second funds. They’ve seen the headlines about established mega funds cutting their fundraising targets. And they’ve chatted with their peers who went to market in 2022. There’s lots of uncertainty about what to expect if they go out to raise in the second half of this year.  

The fundraising environment for emerging VC fund managers has been difficult for the last eighteen months for several reasons. But one of the variables has changed, I think: the NASDAQ stock index. In 2022, the index was down over 30%. It declined most of the year and no one knew when it would bottom. The sentiment toward tech (and public equities in general) was negative in 2022, with many potential LPs reluctant to make new investments in emerging funds. Through the end of July of this year, though, the NASAQ is up ~35%. I wouldn’t call sentiment in 2023 optimist, but so far it’s better than it was in 2022.

I’m not sure what the NASDAQ will do—or what fundraising environment emerging VC fund managers will face—the rest of this year. If the NASDAQ rises further or at least stays in positive territory, I wouldn’t be surprised if LPs are more receptive to pitches from emerging VC fund managers than they were in 2022. I’m curious to see how the fundraising environment for emerging managers shapes up for the rest of the year.

I was at a social event where aggressiveness in deal negotiations was discussed. The main questions being asked were how aggressive should a party be in negotiations and when have they taken it too far.

This gathering was attended by founders (early-stage and mature), VC investors, people in the start-up ecosystem, people not involved in start-ups, and a few non-start-up lawyers. The perspectives were diverse, which made for an interesting conversation.

After a while, people mostly ended up in one of two camps:

• There’s a point in deal negotiations where you can be too aggressive and jeopardize the long-term viability of a deal. Negotiate to that point but don’t take it further (even if you have the leverage to do so), because it will have negative consequences down the road.
• Deal negotiating is an example of what has applied to humans for a long time: survival of the fittest. You must fiercely negotiate for your best interest in any deal. Not doing so leaves an opening for others to take advantage of you. Negotiate like your survival depends on it.

The conversation was much more involved than that, but I’ve tried to simplify it. I really enjoyed hearing the different perspectives. At the end of the conversation, most agreed that how people thought about aggressiveness was influenced by their upbringing and professional experiences.

I don’t think there’s a right or wrong way to think about aggressiveness. I’ve come to believe that the answer to how aggressive one should be in negotiations is it depends. It depends on the dynamics at the time, on what you’re negotiating, on what leverage you have, and on the parties you’re negotiating with.

One thing holds true in all negotiations. Be mindful of this when deciding how aggressive to be: no one will look out for your interest more than you will. If you don’t look out for yourself, don’t expect the other party to do so.

I recently listened to an entrepreneur, let's call him Bob, share an interesting management approach. He created a document called What It’s Like to Work with Bob. The document, a few pages long, is essentially his operating manual—it helps people understand how he operates.

Usually, it takes time to figure out how to work effectively with someone. It’s a process of trial and error that could take months or years. In extreme cases, people never figure it out. Minor examples are preferred communication methods and meeting times. Maybe you like texting, but your team is used to Slack. When subordinates Slack you, you’re annoyed. Or they’re annoyed because you never respond (because you don’t check Slack). Maybe you like to focus in the morning and keep your calendar open for meetings between 2:00 and 5:00. It annoys you to be interrupted during your focus time. Or maybe you annoy your subordinates by declining their a.m. invites.

Bob aims to avoid the adjustment period altogether. His objective is to use the document, on day 1, to set clear expectations and tell people who he is and how he operates. His subordinates will understand how to work with him after a few minutes of reading his document (and maybe a clarifying conversation) instead of months or years of trial and error.

I really like Bob’s approach. Setting clear expectations early can save lots of time and prevent unnecessary friction and frustration during the getting-to-know-your-work-style period. I can see this approach leading to healthier, deeper, and more productive work relationships from the start. It no doubt also helps in quickly recognizing working relationships that aren’t likely to work (which is OK too).

I like the operating manual approach and plan to create one!

Today I listened to Marcelo Claure and Shu Nyatta discuss their new growth-stage fund, Bicycle Capital. Both of them had spent several years investing at SoftBank’s $7.6 billion Latin America Fund (source).

Claure shared that $200+ million of the new fund’s $500 million capital target will come from Bicycle partners. He and Nyatta went on to explain that venture capital partners investing a significant amount of their own net worth in a fund has an impact on how the funds are invested. When they’re investing their own money, it becomes more personal. They’re not just allocating other people’s capital; rather, they’re looking for people they can partner with who will be good stewards of the partners’ capital. The investing goes from thinking in terms of bets to thinking in terms of partnership. Also, the returns matter more because they affect the personal wealth of the venture capital partners.

I agree with Claure and Nyatta. I’ve learned best and focused more on partnering with entrepreneurs when I’ve had skin in the game via my own capital.

In April, Apple launched its savings account product. A few weeks later, a Forbes article reported that Apple saw inflows of almost $1 billion in the first four days after the launch. At the time, I wrote that it was a sign of a huge unmet need and perfect timing (right after the Silicon Valley Bank failure).

This week, Apple shared that its savings account product has reached $10 billion in deposits. An astonishing amount in just four months—especially when you consider that the savings product is available only to people who have an Apple Card. I wonder what the deposits would look like if the account were available to iPhone users who don’t have an Apple Card.

This product is off to a strong start, and I can’t wait to see how it does over time and what Apple’s next banking move will be.

iBank coming soon?

This is my one-hundred-seventy-fifth weekly reflection. Here are my takeaways from this week:

• Compounding goes both ways – I shared a post yesterday about the power of compounding. I’ve been thinking about this more. That piece is an example of the positive power of compounding. But compounding doesn’t discriminate—it works both ways, positively and negatively. I’m considering how to illustrate the negative impact with an example.
• Market drivers – Interest rates drive public markets, which impact private markets (e.g., venture capital). I’m learning about perspectives on lesser-known factors that could also drive markets in the long term.
• Too good to be true – I read an article that reminded me that when something seems too good to be true, it likely is. It may take time to understand why this is the case (when more facts are revealed, for instance). But you can usually tell early on that something doesn’t add up.

Week one hundred seventy-five was a week of learning. Looking forward to next week!

Albert Einstein famously called compound interest the eighth wonder of the world. Compounding is indeed a powerful force. Yet I’ve noticed that many people don’t understand just how powerful it is. More importantly, they don’t understand that compounding is applicable to other aspects of life, not just money. Relationships, effort, knowledge—all of these and more can benefit from compounding.

I tried recently to communicate the power of compounding to someone but failed miserably. The concept didn’t resonate with them. It wasn’t their fault. I realized I wasn’t doing a great job of explaining it in a simple way that everyone can grasp. I searched for a simple way to communicate this powerful concept and found a helpful monetary example.

Start with a penny. Double it on day 2. Then keep doubling the amount you have every day for thirty days. How much do you think you’ll end up with? The answer is over $5 million, an astronomical amount, all because of compounding. To be exact, $5,368,709.12. Not sure how you go from a penny to over $5 million in a month? Here’s a breakdown of what happens when you double the amount you have every day:

A few things to note:

• It takes 15 days for the value to surpass $100.
• On day 18, the value surpasses $1,000.
• On day 21, the value surpasses $10,000.
• On day 25, the value surpasses $100,000.
• On day 28, the value surpasses $1,000,000.

This is a great example that most people can understand. It demonstrates that most of the benefit from compounding is backloaded.

• Days 1–15: $100 added
• Days 16–30: $5.3+ million added
• Days 28–30: ~$4.7 million added (or 88% of the final amount) in 3 days!

This example also does a great job of showing how powerful it can be to stick with the process even though the payoff is small in the beginning. The small amount you have in the early days provides the base required for future compounding. Without the $100 gained in the first 15 days and the continued compounding, you never reach the $5.3+ million on day 30.  

While this example is monetary, the concept of compounding is applicable to various aspects of life. If you start something and stay consistent over a long period of time, you’ll likely see outsize benefits toward the back end due to the compounding of your consistent efforts.

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The other day I came across a small clothing brand. I did some digging and learned it was Atlanta based. Since I enjoy supporting local founders, I ordered a few pieces.

A few days later I got an email saying my order had been refunded. No explanation or additional information. I wasn’t sure why I’d been given a refund and decided to email the company for more information. My hope is that I’ll understand what happened with this order so I can place another order or find some other way to support this local brand.

Having built a company that sold physical products online, I know how hard (and expensive) it is to acquire a customer. Lots of great brands are competing for customers’ wallets. If you acquire a customer, you want to think about it as an acquired relationship. Not a transaction. You want to manage the relationship as best you can to increase the probability of their ordering again (thus increasing their lifetime value) and telling others about your brand (word of mouth is the best and cheapest marketing). If you can’t deliver on the product or service the customer has paid for, an explanation goes a long way and often opens the door to the customer accepting a comparable substitute product. But this is possible only if you manage the relationship . . . not the transaction.