We’ll be doing Q&A today at “The Labyrinth”. I’ll be checking in all day but will be live for about an hour beginning 9am pacific.
This is an open forum but a few questions for all of you….
1) What are you doing to support your co-workers, employees or portfolio founders during this crises? Any ideas for how we can all be more supportive of one another?
2) For investors, what are the non-obvious opportunities you see coming out of this?
3) For founders who recently raised capital, how long are you thinking you need it to stretch now? How are you adapting plans?
What does terms like "pre-seed" or "day zero" actually mean for funds? Are they really "day zero" funds or funds that are only "day zero" if you're Elon Musk? Have chatted to funds like this and they keep on saying they want "more traction" or revenue up to $1M ARR.
As a founder, why would I need pre-seed investors if I've already cracked the nut for traction and revenue with a playbook. Wouldn't I just go directly to seed stage investors instead? It seems like there are investors who actually invest in seed stage or beyond that's just looking for deal flow under the guise of "pre-seed".
Is that true? What do you see on the investor side of the table?
There are some folks out there that are true "day zero" funds but they're few and far between. Some operate more like studios and are going to be taking a bigger piece of your company and some invest most of their money into founders who are already known quantities. At Day zero you're really better off pitching angels usually or micro VCs.
The problem with angel rounds, pre seed rounds, seed rounds, post seed rounds, series A rounds, etc is that investors all define them differently. I certainly would not think $1M in ARR would be a minimum threshold for a pre-seed fund. Thats kinda crazy.
Ok, that's what I figured. Thank you! On the topic of studios, I noticed that there's a lot of early stage funds with their own studios now and allocating their early stage resources and capital towards those projects. Do you think that would impact capital availability for that "pre-seed" stage?
Maybe in the positive direction. The more successful studios show they can be the more people will be willing to deploy at "day zero".
I'm thinking of creating a studio focused on national security. The studio model is really hard (almost impossible) to do well but I think in certain sectors it could make sense. For Nat Sec I think it works because there are a bunch of problem sets that aren't bankable by a traditional VC fund but if there were a vehicle to aggregate them, they are a great opportunity.
Similarly a studio focused on pure play consumer makes sense. I think Science has done a great job. They're very thoughtful folks and have a studio fund hybrid model. Atomic is also great.
Mandatory work from who globally until further notice
Unlimited paid time off no questions asked
Weekly online game night for the team, starting with SecretHitler.io
OPPORTUNITIES
Digital gig economy
Touch-free interfaces
Cleaning robots
RUNWAY
Raised seed in 2018, aiming to stretch until Dec 2021, if necessary
Questions
1. Have you thought of converting this into a chat? I just created one for you and everyone here, if there an interest to try: https://openland.com/jackoh
2. What's your best guess on the impact of crisis on valuations?
Unlimited paid time off!?! Obviously there has to be some cap there but I applaud the policy during a crises like this. Also love the team game nights. Really excellent way to keep people connected.
Touch free interfaces are a great idea. I think we were already on the cusp of some major human/machine interface changes and this virus might be a real accelerant to the transition. Good call.
Your questions:
1) group chat isn't a bad idea but I want to keep everything in one place and I'm experimenting with Sub-Stack. The idea that each week we can spin up a new Q&A board but they'll all live on one platform is appealing to me.
2) Changing everyday (my opinions and the valuations). Generally I think asset prices are going to come down 30%-50% across the board. Things were way overpriced before hand and everyone has been waiting for an exogenous shock to shake things out. The shock is here.
The question is what happens to valuations and venture if we see a real depression? 25% unemployment, breadlines and full financial collapse? In the longterm I think venture recovers and bounces back much better than peer asset classes because growth in the 21st c century will be about productivity (technology) growth, not population growth (which is what the last 20 years largely relied upon). The next 2 years though could be really rough.
You might be right! We'll know in a few weeks. Might add a group chat to this community too for more synchronous work. I'm planning on running a bunch of experiments but want to pace things out to keep from fatiguing folks. Open to suggestions, though... keep em coming.
2) Non Obvious opportunities: Being able to create a network of some of the top talent in their respective fields being hired to digitally apprentice / educate small groups for upskilling & reskilling the American workforce. Small-ish group, intimate mentorship and training that is micro-personalized and deployed via edtech.
Interesting. If we are indeed about to enter another greart recession or worse, the opportunity cost of learning a new skill will plummet... This could be an opportunity to prepare America for a roaring 30's.
What do you think the new critical skill sets are? Obviously coding in general is one... any specific software skills or non-tech skills we need to be retraining folks for?
Anything tech related...we’re so behind that many small business owners don’t have the basic knowledge to manage and hold accountable freelancers or devshops. We also need tactile skills to overcome the tradeskills gap. Construction, repair, plumbers, farming, etc.
We just invested in nana.io and its one of the companies I'm most excited about. They're part skills/vocational training part marketplace. Starting with appliance repair but moving into trades from there.
First, anyone who hasn't started a fund raising process already and has 8 months+ of runway should probably not start a process today unless its a pure internal round. Normally sooner is better than later but the last week has been so crazy I think it would be a waste of time.
If you don't have the luxury of waiting a couple weeks to see if some stability (not normalcy) returns, I would try to incorporate Covid-19 directly into the story and upfront. "The world is changing due to Covid-19... here is the change thats coming .... here is how we are positioned for monster success in the Covid-19 or post Covid-19 world.
You can't ignore it.
Finally, if you are a consumer facing company you absolutely need to show that consumers will buy your product even if they are very resource constrained. In the hierarchy of needs, where do you sit, why will people with very little discretionary income and living in an environment of fear give you money?
What does terms like "pre-seed" or "day zero" actually mean for funds? Are they really "day zero" funds or funds that are only "day zero" if you're Elon Musk? Have chatted to funds like this and they keep on saying they want "more traction" or revenue up to $1M ARR.
As a founder, why would I need pre-seed investors if I've already cracked the nut for traction and revenue with a playbook. Wouldn't I just go directly to seed stage investors instead? It seems like there are investors who actually invest in seed stage or beyond that's just looking for deal flow under the guise of "pre-seed".
Is that true? What do you see on the investor side of the table?
There are some folks out there that are true "day zero" funds but they're few and far between. Some operate more like studios and are going to be taking a bigger piece of your company and some invest most of their money into founders who are already known quantities. At Day zero you're really better off pitching angels usually or micro VCs.
The problem with angel rounds, pre seed rounds, seed rounds, post seed rounds, series A rounds, etc is that investors all define them differently. I certainly would not think $1M in ARR would be a minimum threshold for a pre-seed fund. Thats kinda crazy.
Also, what's the threshold of "micro VC"? $10M and under?
Again, nobody really agrees. Some people say anything under $100M
I tend to think of it as $25M or less but $10M is a pretty reasonable cutoff too. Some people call sub $10M as nano-vc.
Ok, that's what I figured. Thank you! On the topic of studios, I noticed that there's a lot of early stage funds with their own studios now and allocating their early stage resources and capital towards those projects. Do you think that would impact capital availability for that "pre-seed" stage?
Maybe in the positive direction. The more successful studios show they can be the more people will be willing to deploy at "day zero".
I'm thinking of creating a studio focused on national security. The studio model is really hard (almost impossible) to do well but I think in certain sectors it could make sense. For Nat Sec I think it works because there are a bunch of problem sets that aren't bankable by a traditional VC fund but if there were a vehicle to aggregate them, they are a great opportunity.
Similarly a studio focused on pure play consumer makes sense. I think Science has done a great job. They're very thoughtful folks and have a studio fund hybrid model. Atomic is also great.
Jake, thanks for doing it!
EMPLOYEE SUPPORT
Mandatory work from who globally until further notice
Unlimited paid time off no questions asked
Weekly online game night for the team, starting with SecretHitler.io
OPPORTUNITIES
Digital gig economy
Touch-free interfaces
Cleaning robots
RUNWAY
Raised seed in 2018, aiming to stretch until Dec 2021, if necessary
Questions
1. Have you thought of converting this into a chat? I just created one for you and everyone here, if there an interest to try: https://openland.com/jackoh
2. What's your best guess on the impact of crisis on valuations?
Unlimited paid time off!?! Obviously there has to be some cap there but I applaud the policy during a crises like this. Also love the team game nights. Really excellent way to keep people connected.
Touch free interfaces are a great idea. I think we were already on the cusp of some major human/machine interface changes and this virus might be a real accelerant to the transition. Good call.
Your questions:
1) group chat isn't a bad idea but I want to keep everything in one place and I'm experimenting with Sub-Stack. The idea that each week we can spin up a new Q&A board but they'll all live on one platform is appealing to me.
2) Changing everyday (my opinions and the valuations). Generally I think asset prices are going to come down 30%-50% across the board. Things were way overpriced before hand and everyone has been waiting for an exogenous shock to shake things out. The shock is here.
The question is what happens to valuations and venture if we see a real depression? 25% unemployment, breadlines and full financial collapse? In the longterm I think venture recovers and bounces back much better than peer asset classes because growth in the 21st c century will be about productivity (technology) growth, not population growth (which is what the last 20 years largely relied upon). The next 2 years though could be really rough.
Thanks Jake! A tough, yet realistic outlook on venture funding.
Love Substack. They and me were in the same YC batch. Still think chats are better for community building.
You might be right! We'll know in a few weeks. Might add a group chat to this community too for more synchronous work. I'm planning on running a bunch of experiments but want to pace things out to keep from fatiguing folks. Open to suggestions, though... keep em coming.
Just found another big opportunity area: the digitization of religion.
Btw, I track Corona impact on all economic sectors here: https://www.notion.so/openland/Corona-Opportunities-9458a0d9898a4f29bfbc0539e6b3afad
2) Non Obvious opportunities: Being able to create a network of some of the top talent in their respective fields being hired to digitally apprentice / educate small groups for upskilling & reskilling the American workforce. Small-ish group, intimate mentorship and training that is micro-personalized and deployed via edtech.
Interesting. If we are indeed about to enter another greart recession or worse, the opportunity cost of learning a new skill will plummet... This could be an opportunity to prepare America for a roaring 30's.
What do you think the new critical skill sets are? Obviously coding in general is one... any specific software skills or non-tech skills we need to be retraining folks for?
Anything tech related...we’re so behind that many small business owners don’t have the basic knowledge to manage and hold accountable freelancers or devshops. We also need tactile skills to overcome the tradeskills gap. Construction, repair, plumbers, farming, etc.
We just invested in nana.io and its one of the companies I'm most excited about. They're part skills/vocational training part marketplace. Starting with appliance repair but moving into trades from there.
Hi Jake! What are you saying to founders who were/are about to raise?
First, anyone who hasn't started a fund raising process already and has 8 months+ of runway should probably not start a process today unless its a pure internal round. Normally sooner is better than later but the last week has been so crazy I think it would be a waste of time.
If you don't have the luxury of waiting a couple weeks to see if some stability (not normalcy) returns, I would try to incorporate Covid-19 directly into the story and upfront. "The world is changing due to Covid-19... here is the change thats coming .... here is how we are positioned for monster success in the Covid-19 or post Covid-19 world.
You can't ignore it.
Finally, if you are a consumer facing company you absolutely need to show that consumers will buy your product even if they are very resource constrained. In the hierarchy of needs, where do you sit, why will people with very little discretionary income and living in an environment of fear give you money?
Right, awesome! I'll pass this along.