I was debating the importance of culture with friends recently. Specifically, I said it’s a big competitive advantage in recruiting and retaining top talent. A good culture can be as or more important than salary. Not just in start-ups, but all organizations. An example I gave was that star athletes will sometimes take less money to stay with or join a team with a great culture.

During this debate, one friend asked me to define “culture” in one sentence. I told him it’s how people act when nobody’s looking.

If people are doing the right thing when nobody’s looking, you’ve got a good culture. If not, you’ve got a bad and possibly toxic culture. Guess which environment talented people with good values want to be in.

A founder told me about a deal he’s considering doing. It’s a deal for equity investment in a company. This start-up has runway and is executing, but it’s open to extending runway for more cushion, so this deal is appealing to the founder. I listened to everything and asked about the person presenting the deal.

The founder told me the person is known for using aggressive tactics to tilt things in his favor. His reputation among people he’s worked with isn’t great. Knowing this, the founder told me, he negotiated a deal that limited this person’s ability to exert control over the business or to influence it. As he put it, he’d negotiated a good deal.

There’s no such thing as a good deal with a bad person—even if the terms on paper are fair or in your favor. A bad person doesn’t comply with what’s written on paper. They play by their own rules (if they follow any rules). They will do unscrupulous things to get the outcomes they want. You can enforce what’s written on paper, but that usually requires involving courts, which is expensive, time consuming, and inherently risky (and bad people in business know that and take advantage of it).

I’ve learned from my experience as a founder and investor that working with bad people never ends well. So before I start negotiating terms, I focus on figuring out what type of person I’m dealing with. If they’re a bad actor, there’s no need to negotiate terms. Because I think it’s impossible to do a good deal with a bad person, I don’t do deals with bad people.

In 2019 I shared an idea with a few venture investors. Slow- or no-growth venture-backed technology companies weren’t all bad solutions or operating in bad markets. Some solved painful problems that had big potential. Some struggled because of poor execution, team dynamics, or other factors that I thought could be fixed. Surely some of these companies were worth fixing and could be grown into profitable companies—or so my thinking went.

The investors didn’t think the idea was viable. They made some points I hadn’t considered. Some I agreed with, and some I didn’t. In hindsight, I see that the low-interest-rate environment meant these companies probably could raise capital and stay alive, and the capital raises likely could happen at (sometimes modestly) increased valuations, meaning the company value was technically going up.

At that time, it was hard to acquire these companies at valuations that reflected their true state because the founders and investors had options. They could raise capital and keep going, likely at a higher valuation. The prospect of an acquisition wasn’t appealing unless it came with a material premium, which was less appealing to the acquirer. The cost to acquire these companies and the effort required to get stakeholders on board with a deal just wasn’t worth it. In many cases, starting a new company was easier.

I revisited this idea recently. Higher interest rates have reduced valuations on publicly traded technology companies. For context, Bessemer’s Cloud Index says bottom-quartile SaaS companies were trading ~6x forward revenue in 2019. Today they’re trading at ~3x. I suspect late-stage private companies are trading at a discount relative to public companies. Some of these private companies raised capital at historically high multiples in 2020–2022, which makes raising capital at today’s multiples challenging. Translation: challenged, unprofitable technology companies have limited options. Raising capital to extend runway isn’t easy, and it’s unlikely to occur at an increased valuation.

Timing matters a lot, and 2019 wasn’t the right time for what I was thinking. But I’m wondering if the time is right now. Will we see a sharp increase in unprofitable and struggling technology companies being acquired as turnarounds in the next year or two?

I’ve been posting daily for over three years, and I appreciate the craft of writing. I’ve started paying more attention to up-and-coming writers who share their thoughts via newsletters and platforms like Substack and Medium. Some of these writers are entrepreneurs who’ve turned their love of writing into a full-time business. They generate revenue in a variety of ways, including paid user subscriptions, sponsorships, and paid ads.

I chatted recently with one of these writers. He’s built a subscriber base of tens of thousands of people that generates material revenue. And while he loves writing, he does other things besides monetize his writing. His writing helped him build a brand and a following that attracts founders who are building companies in the space he’s writing about. He wants to help these founders, and he does: he invests capital in companies he’s intrigued by, makes connections to people in his subscriber network whom the founders normally couldn’t reach, and highlights start-ups his audience will want to hear about. It’s an interesting entrepreneurial approach anchored by writing.  

Writing is a great way to build a loyal audience. Once you have an audience that trusts you, you can pursue all kinds of entrepreneurial things with their support. I believe we’ll see the emergence of more entrepreneur–writers who use all kinds of interesting business models to turn writing into a viable solopreneur path. I can’t wait to see how this space evolves over the next few years.  

I caught up with a successful late-stage founder. His tech company is doing tens of millions of dollars in annual revenue and growing at a healthy rate, but it’s still unprofitable. Exiting his business has always been this founder’s goal, which he’s transparent about to everyone. During our call, he shared that his exit-value expectation has changed.

He was targeting a unicorn exit, meaning he wanted to sell his company for more than $1 billion. But he said that the late-stage market for tech companies isn’t great, and he’s come to accept the idea of an exit of $100 million or more. He, his investors, and his employees would all realize a material outcome above that number, and an outcome above $1 billion is unlikely.

That’s a big change in what’s acceptable to this founder, but it reflects the current reality. I’m curious to see how the thoughts of founders at all stages about valuations evolve as the rest of this year unfolds.

For early-stage founders, achieving product–market fit is an important hurdle. Iterating on a solution until it creates enough value for customers to be happy to pay for it isn’t easy, but for a successful company, it’s necessary.

In a world where people are more distributed, I’m a big fan of early-stage founders creating communities around the problem they’re solving. Bringing people with similar interests together can create value for all of them.

For the start-up, building a community early is a great way to accelerate reaching product–market fit. Early community members don’t need to be customers or users. They just need to have an interest in the problem being solved. Passionate community members can provide valuable insights on the problem that help founders understand what solution to build. Engaged community members with whom founders build a rapport are more likely to try a new product and provide honest feedback on how to make it better. All of this can help founders develop a superior solution sooner.

For community members, being around others with similar interests makes them feel connected and understood. The community has lots of benefits for members. One is the free flow of information and knowledge, which is valuable because it can lead to outcomes that otherwise wouldn’t happen, such as job opportunities.

Communities are powerful and can be cost-effective. Start-ups should consider whether it makes sense to create or become active in a community for their space.

I spent time with a smart founder this week. He’s started a few businesses that failed, which I knew about. During this conversation, he shared something I wasn’t aware of. He created a social event that he hosted annually for several years. It was focused on getting people from all walks of life to enjoy time together on a lake. What started as a small gathering with a few people turned into an annual event with hundreds of attendees and major sponsors. It was a profitable event the founder organized from thousands of miles away while working a full-time job at one of the largest public tech companies. Some of the learnings from this event led to the tech start-up he’s building now.

Listening to the event’s origin story, I concluded that this founder has a knack for understanding what people want (even if they can’t articulate it) and creating it. He’s a combination of customer focused and action oriented. Much of the event’s success was due to his marketing savvy. He created marketing campaigns that spoke to the customer’s desire. Word spread quickly: the campaigns were highly effective at acquiring event attendees for minimal cost.

This founder is hipster and hustler in one. I’m excited for what he’s building next and can’t wait to see how he uses his hipster–hustler skills to turn this new company into a massive success.

Early-stage founders have been asking for advice about their fundraising plans lately. Many are planning to raise this year after avoiding a difficult fundraise environment in the second half of last year. Many of these companies don’t have runway past 2023. They’re looking to raise venture capital to extend their runway.

If last year taught us anything, it’s that the availability of venture capital funding isn’t a given; it’s heavily impacted by macro conditions. Venture capitalists themselves were impacted by macro conditions and had a difficult time raising capital from their limited partners in the second half of last year.

Raising capital isn’t the only way to extend a start-up’s runway. Increasing revenue and reducing expenses are also levers founders can pull to extend runway. Expenses can be cut only so much, but revenue growth is limitless (hypothetically).

In today’s environment, I’m a fan of founders with limited runway taking control of their destiny by trying to get their companies to breakeven. It’s not possible for all founders, but if it is a possibility (even a slim one), it makes sense to work toward it if you have limited runway. It reduces or eliminates cash burn, extending runway. If venture capital is still an objective, it puts the founder in a better position because they don’t “need” the investment to survive. This approach has its downside, too. It could negatively impact growth. That’s not ideal, but a slower growing company is better than a dead company. If a founder achieves breakeven and manages to show growth (even slightly), it’s a good signal to investors and could increase their desire to invest.

If you’re a founder running out of runway, consider the option of moving the company toward breakeven.

Two emerging venture capital fund managers shared their biggest learning during a session I attended today. They said there’s a difference between being a fund manager and being an investor. They spend more time than they anticipated managing their fund versus investing. Managing a fund means doing administrative tasks like working with the fund administrator, doing people related tasks, and managing limited partners. They underestimated the amount of energy and time these tasks require. These tasks also take away from the time they can spend finding great founders to back and supporting the founders they’ve already backed.

Starting your own fund is about more than being an investor. It’s more like being a start-up founder—wearing multiple hats and being spread thin. It’s also a decade-long commitment (assuming your fund is a ten-year fund). For those who haven’t worked at a fund before, it’s even harder as they don’t have a baseline for how a well-run fund operates.

Building a successful fund requires that the founding partners be good fund managers and good investors.

Today I participated in a mock negotiation session that was designed to mirror a negotiation between venture capital investors and founders. Most participants hadn’t negotiated an investment deal before, so I was curious to hear their takeaways.

One of the founders shared something that stuck with me. Their negotiation started off with aggression from the investors, which set a bad tone. And the investors were aggressive with terms throughout the negotiations. Toward the end, the investors realized they were running out of time to get a deal done and offered a better deal. The founder was so frustrated by the experience that she didn’t even realize they had offered better terms and walked out without a deal. She was stuck on the aggressiveness of the entire process and couldn’t bring herself to do a deal with these investors.

Venture investors and founders, when they come to an agreement, are planning to work together for many years. But at deal term negotiations, they have opposing interests. Today’s session was a reminder that starting off with aggressive negotiating tactics isn’t a way to begin a long-term partnership and can blow up the partnership before it even forms. The best deals are ones that everyone is comfortable with, neither side got everything they wanted, and they’re looking forward to working with each other.