Building a Startup

I saw this tweetstorm by Jack Dorsey on Saturday evening and thought “Good, Jack is taking care of himself.”

For my birthday this year, I did a 10-day silent vipassana meditation, this time in Pyin Oo Lwin, Myanmar . We went into silence on the night of my birthday, the 19th. Here’s what I know

— jack (@jack) December 9, 2018

I guess I was the only one who reacted that way given the amount of abuse and vitriol that has been thrown at him on and off Twitter for that tweetstorm.

I understand the frustration that users feel about the things that don’t work right on Twitter, particularly the abuse and hate and the other unpleasant stuff that the Twitter platform attracts, including our horrible President and his nonsense.

I also understand that the country Jack visited and made a number of positive comments about, including suggesting that others visit there, is a place where the government and military has done all sorts of bad things, including genocide.

Certainly the comments that Jack’s tweetstorm was “tone deaf” are accurate.

But I would like to take the other side of the argument here and make a few important points.

Say what you want about Jack Dorsey, he came up with the ideas for two hugely impactful products that I use every day and many others do too. Those products are Twitter and Square.

Not only did he come up with the ideas for those products, he has breathed life into them with his work and his passion and they are two of the best products brought to market by the tech sector in the last decade.

Jack is not a conventional CEO. He does “run” two companies. But he has very strong teams who operate both companies underneath his leadership.

And since he came back to Twitter full time in the summer of 2015, Twitter has slowly but surely addressed much of what was ailing it. The stock has doubled in the last 18 months and user growth has stabilized. And, most importantly, the company is addressing many of the most troubling aspects of the service, certainly not as quickly as its critics would like, but the service is undeniably dealing with the abuse issues more seriously than it has in the past.

Square is a company that Jack has run since day one. And as Jack tweeted out the other day, the Square cash app is doing great.

pic.twitter.com/g9ZhUCpxAx

— jack (@jack) December 8, 2018

And here is Square’s stock price since going public:

Even with the recent pullback, Square is up 5x since its IPO in late 2015.

So, it’s not like Jack hasn’t been doing his job. He is leading not one, but two companies, and from the outside, I would argue that he is doing a pretty solid job at that.

I am not on the inside at either Twitter or Square, so I don’t really know how things are going at these companies, but from where I sit, I would say he’s doing well.

So, with all of that backdrop, I want to make a point about the toll leadership takes on someone and the need for self care, particularly in high stress jobs like running public companies.

Leadership is a burden. You are the one everyone looks to for inspiration and direction. The things that land on your desk are the things that nobody else wanted to or could deal with. Leadership is lonely, stressful, and takes a toll on people.

Just take a look at the faces of every President on the day they took the job and the day they left the job. You will see the burden and toll of leadership right there.

And so, it is very important for leaders to take care of themselves. That can take many forms, but here are some things that I recommend to the leaders I work with (in no particular order):

• Vacations
• Sabbaticals
• Eating Healthy
• Drinking Less
• Exercise
• Meditation
• Coaching
• Working On Your Marriage
• Spending Quality Time With Your Family

And yet, for some reason, we criticize our leaders for doing these things. Like taking a vacation, or doing a workout, or going on a meditation retreat is some abandonment of their duties.

I think it is exactly the opposite. It is their duty to take care of themselves. Because if they don’t take care of themselves, they can’t take care of their companies and all the stakeholders who rely on them.

I am glad Jack went on a meditation retreat. I am glad he is taking care of himself. I understand why that tweetstorm was tone deaf, but let’s not get carried away here. Leaders are humans too. Let’s be decent humans to them.

Disclosure: My wife and I own shares in Twitter and I was on Twitter’s board a decade ago.

In the last week, we have learned that Uber, Lyft, and Slack plan 2019 IPOs. I am sure that a few more highly valued private companies are also planning to go public in 2019.

It is something that I have been expecting and predicting for a few years now. Eventually these companies that have raised a ton of capital in the private markets will choose to go public and generate liquidity for the shareholders who plowed all of that capital into them.

And yet storm clouds are on the horizon for the capital markets in 2019. Rates have risen significantly in the last eighteen months, pulling capital out of the equity markets and into the fixed income markets. There are some leading indicators that suggest a business slowdown is on the horizon, which would be the first one in the US in a decade. And, of course, the situation in DC is getting dicey and that will weigh on markets as well.

Good companies can go public in bad markets so I am not saying that the long delayed IPO plans of juggernauts like Uber will be squashed by a bear market in 2019. 

But what I am saying is that 2019 is shaping up to be a very interesting year for the capital markets that power the startup economy.

There is a big difference between the private markets and the public markets. They do not move in lockstep. For years now, the late stage private markets have been trading at valuations that are well in excess of their public market comps. That is true for a number of reasons. First, private market investors have longer time horizons and are looking for a three to five year return, not an immediate one. Second, private market investors get a liquidation preference which in theory protects them from losses. Finally, deals in the private markets clear in an auction like environment where the highest bidder wins the deal. All of these factors mean that a hot company can raise capital in the private markets at valuations well in excess of where they can raise capital (and trade) in the public markets.

But the public and private markets are connected to each other. If the Nasdaq falls significantly, and it is down roughly 15% from its highs in the late summer/early fall, then it will eventually weigh on the private markets.

And, if Uber, Lyft, and Slack do go public in 2019, where they price and where they trade will impact startup valuations, both late stage, and ultimately early stage too.

These markets, public, late stage private, and early stage private, feed off each other and the participants in one look to the others for supply of deals and liquidity. So while they may appear to be disconnected, and often are, they do ultimately sync up.

And so I’m wondering if 2019 is the year they start to sync up again, after quite some time being out of sync. And if that comes to pass, what it means for our portfolio companies and their financing and liquidity options.

Fortunately for most of our portfolio companies, and most companies in the startup sector, we have had a number of years of very flush capital markets and many companies have strong balance sheets and a lot of staying power. The same is true of most venture capital firms as the past few years have been a great time to raise capital.

So if things slow down in 2019 and I am not predicting they will, but I think they might, the startup sector is in good shape to weather it. But at some level, the startup capital markets are a game of musical chairs and you don’t want to be the one who can’t find the chair when the music stops. 

Our friend and USV Limited Partner Beezer Clarkson hosted a panel at the recent Slush Conference in Helsinki talking about the shifting landscape for startup funding. My partner Rebecca participated on the panel along with several others.

It’s a roughly 30min conversation and covers the big topics in startup finance.