Some of the most recognizable private companies usually don’t allow individuals to invest. The interesting thing is that individuals are often the most passionate customers or believers in the company. A well-known private company worth tens of billions of dollars has a die-hard fan base of individuals who don’t have access to investing in it. Only venture capital investors or others close to management get the opportunity to invest.

A founder I chatted with decided to do something about this. He created a petition for individuals to sign to express interest in investing. Each person had to indicate a dollar amount they wanted to invest. He figured that if he aggregated $5 million in commits, he’d be lucky and have a strong case to present to the company’s management. Far exceeding that goal, he got close to $40 million in commits from individuals. The strong showing blew his mind and got the attention of company management. They like the idea of letting passionate individuals invest through a single entity on this founder’s platform.

Time will tell if this deal gets done, but it clearly highlights the massive enthusiasm individuals have about investing in private companies. A lot of capital wants the opportunity to invest in high-quality early-stage private companies. And there’s ample demand by such companies for the capital. The traditional matching process is inefficient and can impede the flow of capital. I like the petition experiment this founder is running and hope it leads to something bigger or a blueprint others can follow.

I met with an idea-stage founder who asked me about fundraising—specifically, when’s the best time, very early on, to start fundraising? He still has a full-time job, and he has a nontechnical cofounder (and he’s nontechnical himself).

The answer is, it depends. Every founder’s situation is different. If you have the right relationships with venture investors, you may be able to raise with just an idea and PowerPoint. If not, think in terms of risk. Idea-stage investors are comfortable with risk, but not unnecessary risk. For example, execution risk is a big one. Ideas are great, but execution separates founders from everyone else. Can the team build the solution? Teams that don’t include a technical leader are viewed as having high execution risk and are less likely to get funded. The next thing investors consider is the market. Is this a painful problem? Is the pool of people experiencing this pain big enough to build a large company around? Painful problems in markets that have the potential to be large are desirable (to investors) because the market demand for a solution can catapult a company to success.

The founder who asked me about this has a great idea and a way to mitigate the market risk. He’s got large potential customers lined up who are willing to sign letters of intent because this problem is so painful. He’s working on the execution risk now by trying to find a technical cofounder.

It’s never too early to raise capital for an idea, but the right time depends on your situation.

Tech layoffs have been top of mind for many and a topic of conversation with my founder and investor friends this week. Anytime anyone loses their job as part of a big layoff, it’s distressing. I recognize the real pain of anyone in this situation and sympathize with them. Also, though, I’m a big believer in playing the hand you’ve been dealt instead of dwelling on the hand you didn’t get. I try to look at situations that don’t seem great on the surface and think about nonobvious silver linings.

One unintended positive from these layoffs is the creativity they’ll spur. When people have ample resources, they have less incentive to be creative. If you’ve got the budget for a project, you can spend your way to completing it. When resources are scarce, people get creative. When you don’t have the budget, you start thinking of scrappy ways to check the box at minimal or no cost.  

I think the layoffs will lead to more people solving problems in creative ways and those solutions turning into companies. Said differently, layoffs will lead to more entrepreneurship.

If you find yourself unexpectedly short on resources, don’t give up . . . keep going, and embrace creative ways to accomplish your goal. Creativity could lead to something life changing.

Earlier this week, I shared a story about a venture capital fund having LPs renege on their capital commitments after signing paperwork. That was the first time I’d heard this from a VC fund manager I know personally. I assumed it was an exception rather than the norm but decided to do some digging.

Yesterday, Forbes published an article about this exact topic and why it’s happening. You can read it here. The article alludes to more established and larger venture capital funds being safer bets for institutional LPs than emerging funds are. I don’t agree with the connection this article makes that institutional LPs are investing now in established funds instead of in emerging funds. Institutional LPs don’t usually invest directly in emerging funds. Rather, emerging funds’ investors are usually family offices, high-net-worth individuals, funds of funds, and maybe some endowments (depending on their size).

I suspect that the LPs that emerging mangers target are being affected by the macro environment more than established funds are. And I suspect they’re trying to avoid selling assets at depressed prices to meet their commitments to emerging funds, or venture capital now represents too big a share of their overall portfolio (given that other asset types are more depressed than venture), or they’re gun-shy because of a looming recession and want to conserve cash.  

LPs reneging might not be the norm in venture capital, but it’s happening more than I realized and likely disproportionately affecting emerging managers. Emerging managers play an important role in getting capital to founders outside the traditional venture capital network and providing alpha to their investors. I suspect the savvy LPs will take advantage of this period and back high-potential emerging managers who will back non-consensus founders who generate outsize returns.

Today I chatted with founders of a growing software company who are trying to land a big multiyear customer contract and raise capital from investors. They’re considering raising a $2 million round of venture capital.

They proposed a $2.8 million two-year deal to their potential customer. The customer pushed back, saying $1M per year would be easier to get board approval on. The founders have internally agreed that $1 million per year would be a great deal, but they haven’t communicated that to the customer. I saw an opportunity to kill two birds with one stone.  

I pointed out to the founders that this deal has the potential to provide them with the capital they would raise from venture investors. It will be important to negotiate favorable payment terms.

Here’s what I suggested: Write up the contract as a $2.8 million deal over two years paid in equal monthly installments. Offer a discount of about 29%—$800K—if the customer pays the entire two-year contract—$2M—up front. This deal gives the client a strong incentive to pay up front. If they do, the founders will have the $2 million in capital they’re seeking to grow the business without giving up any equity in the company. If the client doesn’t want to pay up front (or can’t), the founders get a premium for taking monthly payments. I’d imagine there would be some negotiation. If they negotiate a $2 million deal paid in two annual $1 million payments, that’s still a win for the founders. They’d get $1 million Jan 2023 and another $1 million Jan 2024 to fund growth for each of those years.

Customer revenue is always the best way to finance growth. Founders should be mindful of this when negotiating and consider offering major customers terms they won’t want to turn down—if they pay up front.

I chatted with a founder who’s building an interesting company. He’s crystal clear about what he wants. He realizes the market he’s going after is small and doesn’t aspire to building a $1 billion company. He’s looking to build one that does $10 million in recurring revenue.

Not all founders want to build a unicorn, and not all companies are solving problems big enough that they could become unicorns. This founder is realistic; he doesn’t have unicorn ambitions.

He raised a few million dollars from investors and accelerated hiring significantly in anticipation of revenue growth. Things haven’t gone according to plan, and they’ve missed revenue targets. Given the revenue and growth rate, the team is now too big. Translation: the company is burning cash too fast.

The founder said he plans to raise more capital if revenue growth doesn’t accelerate. I was surprised. He wants to build a $10 million company but is thinking about raising capital as if he were building a unicorn. Let’s assume he tries to raise another $2 million. A total of $5 million raised to build a $10 million business isn’t appealing to most investors, and his capital raise would likely be difficult. Especially in the macro environment we have now.

I hope this founder can figure out how to grow his revenue. If he can, his company will grow into his current team size. Otherwise, he likely won’t be able to raise capital and may have to reconsider what size team is appropriate for the stage and growth rate of his company.

I had a chat with an early-stage founder trying to figure out his next move. He built a service business to help small businesses. From his work with his clients, he realized that software could create massive value for his service business and other similar businesses. So, he built software and funded that effort with the cash flow from his service business. The beta of the software is now complete, and he sees a large opportunity for it.

This founder is in a spot that feels tough to him. He’s trying to figure out how to continue running the service business and at the same time grow the software business. The financial runway he gets from the service business is important now, absent other alternatives. It pays his personal expenses in addition to funding the software development.

I’ve seen other founder friends with a similar predicament. One specific case comes to mind. My friend’s solution was to hire someone full-time who was his intellectual equal. Both were strategic and self-starting, had an owner’s mindset, and could manage people. My friend put in place an incentive plan that created alignment and transitioned the service business over to the new person. My friend focused exclusively on the software business and never looked back. The software business has become a massive success and changed his life.

If my friend had tried to focus on both companies, the software company would never have become what it is today. He recognized which opportunity had the biggest upside and turned his attention to it instead of splitting his time and mental energy.

Over the last few months, I’ve talked with several VC fund managers who’ve experienced fundraising from limited partners taking longer than planned. These aren’t emerging managers. They’ve established themselves with previous funds that returned capital to their limited partners. But as the public market and other asset prices have come down, limited partners have been slower to commit to making new investments.

Today I heard another story: limited partners who’ve signed paperwork and committed to investing in a VC fund reneging. They will no longer provide any capital to the VC fund. Notably, these limited partners are individuals, not large institutions.

This is just one story from one fund manager. I imagine it’s the exception rather than the norm, but it’s something I plan to watch closely. If this starts happening more often, emerging managers and the founders they back will likely be hit hardest.

This past week, I had independent conversations with a few people about spotting talented people early. Their perspectives varied because they’re in different industries: music, technology, and sports. All three are industries where talented people can have outsize success.

I won’t dive into the conversations, but let me just say they had a common thread: identifying talent before there’s data, traction, or association with a credible brand is hard. For example, Justin Bieber put out YouTube videos before his career got off the ground. Recognizing his talent among a sea of YouTube videos was hard, but Scooter Braun did just that.

Identifying talented people and developing them is arduous work. Many avoid it because it’s so hard. Instead, they prefer to come in after the talent has traction or numbers that are undeniable. There’s nothing wrong with this as it mitigates risk, but it’s not my preferred approach. My view is that yes, it’s difficult, but it’s fulfilling and an opportunity to have an impact. Recognizing something special in someone and helping them reach their potential is incredibly rewarding to me. Especially if they wouldn’t otherwise have gotten an opportunity.

The founder’s journey is something the average person can’t relate to. It’s a roller coaster of high highs and low lows. It’s hard to describe, and if you don’t see it firsthand, you don’t really understand it.

Today I found a video that documents the journey of a founding team from the idea stage to the sale of their company. These two cofounders weren’t even sure what problem they wanted to solve at first. The video details their year-long process to identify the problem they want to solve, their fundraising and hiring, and a host of other things. I don’t know these founders or their story, but the video appears to do a good job of documenting their five-year journey.

If you’ve ever wondered what the founder journey might look like, consider watching this video.