SomethingVentured

Roughly, every eight to ten years, life seems to cycle through like a brush fire to clean up the excesses of the past decade. I’ve experienced this both on a personal and business level four times now (in addition to the 1987 one day 23% market drop). The Great Financial Crisis cycle has abruptly ended and the next cycle has begun. The core paradigm has also changed from fed protected economic growth powered by dropping interest rates to fiscally driven money printing & deficit spending.

This viral crash scares the crap out of us on many fronts. However, with each new cycle, new opportunities, new trends and new paradigms arise. New rules lead to new ways to profit and challenge the incumbents. Furthermore, we have time to reflect on our lives. We get knocked out of our set ways and have a chance to learn, grow and improve. This can include job loss, financial distress and companies going under. In 2000, a lot of companies went under but people eventually found new opportunities but brought with them the wisdom learned. As cycles age, we get stuck in old patterns and behaviors. We lose sight of why we are even doing things at times. With the brush fire, we have an opportunity to look at everything with fresh eyes…if we let it. As David Whyte wrote:

“You increase your velocity…But are afraid that if you stop you won’t know who you are. You have no affection for what you’re doing but you have an abstract thought that this is what you must be doing…The key to getting out of the cycle is to…Throw yourself away and shed the skin. As Nietzsche said, the snake that does not shed its skin must die”

During each cycle, a catalyst exposes the excesses from the previous cycle, creating a violent reversal/crash. We respond by trying to survive. Greed & FOMO shifts to fear. We simplify our lives, reduce expenses and go to church/mosque/synagogue/yoga and promise to reform/change. We focus on the fundamentals, endure hardships, change or modify jobs and re-evaluate our lives. We eventually find our footing and begin to rebuild our lives. We are more intentional and thoughtful for this window and profit from the occasional run up in the markets or our firms. Eventually, like child birth, the trauma of the past crash fades to be replaced with FOMO compared to those taking more risks. The excesses start to rebuild, debt grows in pockets and valuations start to reach head scratching levels. We keep playing at the casino, thinking that this has to correct but stretch further and further (higher P/E ratios, higher acquisition multiples, lower cap rates, etc). Like a rubber band, it eventually snaps from being stretched too far and we start over again. In the middle of all of this, our relationships also go through stages, are stretched, tested and transform (sometimes snap) under the amplified pressures of the economy. We re-examine what is important to us; we are forced to slow down; and we recommit, often, to being higher versions of ourselves.

I’ve seen four of these crashes now (plus growing up in the economically surreal 1970’s). In 1990-2, we had a recession that crippled the commercial real estate market, bankrupting many developers and properties. In 2000-2, the NASDAQ dropped nearly 80% in the dot com bust. Three years in the desert eventually led to the creation of LinkedIn, Facebook, etc. In 2008-10, we all know about the Great Financial crisis. Elon nearly lost all three companies but persevered. Eleven years of bull markets and lower interest rates ensued. In 2020, the most surreal of catalysts has launched a new cycle. The government is racking up deficits/printing money at unprecedented rates.

When cycles change, it creates massive disruption but also opportunity both in business and personally. The brush fire is roaring through, the skin is shedding. As the Rahm Emmanuel said: “Never waste a good crisis”. There are a number of things to reflect on. A couple include:

Your customers are in pain and facing new challenges. How can you help them? What new offerings or adjustments to your product can you create?
What new trends and realities are driving the economy? What new behaviors? How to leverage the past cycle infrastructure of AI, IoT, cloud, genomics, etc to solve?
Demographically, we also have a generational shift with the rise of Gen Z (plus Millennials are hitting economic importance). How are their buying patterns different, especially in light of this crisis?
Study after study concludes that the strength of your relationships drives happiness more than any factor. You are the sum of the five people you spend the most time with. Use this time to assess and strengthen your friendships and your connection with spouse/partner & kids. For example,what two things could you do to tighten your familial foundation?
If you are feeling stuck at work, why is this? What excites you each day? What do you dread? Are your values aligned with your firms? Do your strengths align with the needs of the firm?
What would bring more joy into your life? What should you do more of? What should you do less of?
Get out a piece of paper and journal non-stop for 20-30 minutes. What is the life you want? What does it look and feel like (get specific)? What two things can you do to start moving in that direction?

This too shall pass. It is brutal and scary and I feel for everyone going through hardship. The Phoenix shall rise from the ashes. It always has and always will. The key question is how do you want to show up in this new cycle?

Tech and VC are entering the Dawn of a New Era. Our industry goes through thematic cycles roughly every 10 years (in addition to the “15 year tech” cycle). The 2020’s will be known for the rise of Stakeholder Capitalism. We will significantly change how we build companies and what their greater roles are. There will be an expanded focus of business to “positively impact society” versus simply cranking out record earnings. We will be reminded daily of this as inequality continues to grow, homelessness worsens, cities & countries burn, etc. I’m not hugging trees here…ignore this advice at your own peril.

Something feels off as we are 11 years into an unprecedented bull market and most people are unhappy & anxious. We have “hedonically adapted” to all of the dopamine hits & blue ribbons of the past decade. Whether it is young entrepreneurs or veteran investors, I keep having daily conversations with people commenting on “how there has to be more to existence than “this”. We are hearing an increasing drum beat from mainstream America as well as idealistic millennials around stakeholder capitalism…the notion that corporations service a larger societal role beyond simply greasing the palms of the moneyed shareholder class.

For the first time in 40 years, the Business Roundtable (comprised of the largest 200 CEO’s in the country) recently broadened the purpose of corporations to include serving all stakeholders (not just shareholders). Larry Fink, CEO of Blackrock & its $7 trillion in assets, has famously championed that his firm will start evaluating companies based on their ESG track records. TPG has raised over $3 billion in Impact related funds targeting 10 of the UN Development goals. Marc Benioff, CEO of SalesForce, announced the death of traditional capitalism and the rise of stakeholder capitalism at Davos. Goldman Sachs will not take any company public that does not have a least one female board member. Investors like the Gates Foundation & Emerson Collective will join mainstream venture investors. The list goes on and on. When the largest corporations and the largest investors pivot, you don’t want to be standing in the way…you want this wind at your back.

Everyone seems to be raising “Impact Funds” these days. Many of these will fail since most haven’t thought through the “Yes And”. They need to operationalize how embracing a new approach to investing and building companies leads to competitive advantage vs simply feeling good. Whole Foods upended the grocery world not just by creating a company culture & value set but also innovating around a unique supply chain that Safeway was unable to replicate. While Whole Foods increased its store count, Safeway shut down entire regions.

Why does this matter? Because you can’t put the genie back in the bottle. We have a demographic change of power in the US going on, with Millennials stepping into their key spending years and accounting for core parts of the workforce. The Gen Z’s are right behind them. They don’t want their father’s brand of capitalism. If you can’t clearly define what your firm’s values & mission are, how these translate into positive societal change and how you are focused on all stakeholders, the headwinds are going to grow significantly. Good luck recruiting top engineers. Many of my daughter’s top engineering friends in her class at Stanford won’t consider apply to Facebook & its brethren. They increasingly won’t buy your products. Your company will be less attractive to buyers (IPO or sale), especially when the Larry Fink’s of the world begin to demand to see greater ESG transparency. This will become table stakes.

I’ve simplified how this stakeholder impact shows up into three buckets:

your customers & product…what you do, what does your product stand for, what impact does it have when used or consumed
your culture…how you do show up to your employees, what behaviors & norms do you foster or repress, what trade-offs are you willing to make, what do you look for in your hiring & firing
your supply chain & your community…how do you engage & treat your suppliers, what do you demand of them, how do you give back to your community & cities

I will write in more detail about each of these. However, in the interim, appreciate that we are entering a new era in entrepreneurship which will create significant new opportunities as well as increasingly punishing those clinging to old dogma.

Embracing Life’s 8-10 Year Cycle

The Dawn of a New Era in VC & Tech

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