Disappointed Billions are the Best Thing Ever

"Square, the payment technology company founded and led by Twitter CEO Jack Dorsey, this evening raised $243 million by pricing its initial public offering at $9 per share, which would imply an market value of around $2.9 billion.

It is a major disappointment for the San Francisco-based company..."

Can we just all let that sink in for a second?

A "major disappointment".  

What I wish for every single entrepreneur out there is to be so majorly disappointed in their lives.

The only people who should be disappointed where the regular folks invested in these T. Rowe Price and Fidelity funds who bid the company up to ridiculous valuations in their pre-IPO rounds.  Seemingly everyone except them knew that the company wasn't worth that much--but it didn't matter.  Unlike venture capital funds, they don't make money directly off the multiples of their return.  They make money on asset gathering--having the biggest pool of money and needed to put lots and lots of dollars to work.  If you were willing to take their $500 million checks, they were willing to give you whatever valuations you wanted. 

It's a market that had gotten completely detached from the regular venture capital market--you know, the VCs and angels like SV Angel, First Round, and even Foursquare CEO Dennis Crowley who I'm pretty sure aren't crying a river over a multi-billion dollar exit to the public markets after just six years.  They did quite well on their angel investment in Square.  

Don't let the media tell you things are bad and the sky is falling, when it's really just a return to normalcy in a completely overheated part of the market that they themselves couldn't get enough of.  For every seed funded company struggling to get press, journalists fell over themselves to get the latest scoop on who became a decacorn and to rewrite the same story on private valuations that meant absolutely nothing.  

What's worse is that this end of the market is even affecting early stage VC mindset.  If you're a VC and you think for a second that whether or not Square pricing at $2.9 billion or $6 billion has anything to do with that Series A you're about to do, please pick up your marbles and go home.  The very fact that you created a fund so ridiculously large that can only survive if you get $6 billion exits was your first mistake.  

I hope every company has a disappointing IPO this good.  Maybe for once public investors will get a chance to benefit from a little runup of the companies they use everyday.

Congratulations on your huge disappointment, Square.  I'm proud to say that I was dollars number 476 and 477 to be swiped on the platform after Jack demoed the very first prototype to me on a bench in Washington Square Park in late summer 2009.  Congrats on your huge disappointment.  

The Fantastical, Stupendous, Wonkariffic Tale of How Ample Hills Creamery Raised a $4 Million Venture Capital Round

...At least, that would be the title if somebody made a kids movie out of it.  

It just seemed like a fitting title for a company built around narrative by a founder who used to write stories for a living.  It's a story that just hit a milestone--a $4mm round of venture funding that I'm ecstatic to say Brooklyn Bridge Ventures just led.  I'm joined by Lerer Hippeau Ventures, Red Sea Ventures, NucleasHG, the founders of Seamless, a host of extremely helpful angels, and a CircleUp syndicate led by my friend Tom Potter, co-founder of Brooklyn Brewery.

Brian Smith was a science fiction movie screenwriter, penning low budget alien movies starring the likes of Lou Diamond Phillips.  He started Ample Hills Creamery four years ago with his wife, Jackie Cuscuna, after turning a home ice cream making hobby into a reality with a cart at Celebrate Brooklyn in Prospect Park.  

When they first opened, they ran out of ice cream in four days and had to close the shop to make more.  That kicked off a story that would take them up to two consecutive Zagat #1 ice cream in NYC ratings, the Food Network calling them the #1 ice cream shop in the country, and a prime spot on Oprah's List of Favorite Things.  

So what makes Ample Hills so special?  After all, there's lots of good ice cream out there these days, right?

First off, you have to think of Ample Hills as a destination--and it was designed that way.  It's a place that you go to and want to hangout.  You take your kids there.  They have birthday parties there.  It's a part of the neighborhood--not just a dispensary of ice cream.  

I'm always struck when I visit their two main locations in Gowanus and Prospect Heights how much sheer human joy is being created.  The human joy per square foot metric is one we'll be tracking closely over time here.  You see people sitting around with smiles, laughing, and all looking like little kids, no matter what their age.  

That's their target market--little kids and the little kid in you.  There's a little girl who I've seen in their Gowanus shop who always gets chocolate in a cup.  No spoon.  Just face + cup.  By the end of her snack, chocolate covers her entire face.  That's Ample Hills.

Creativity is at the heart of everything they do.  When the Mets got to the World Series, they release a kettle corn flavored ice cream with blue and orange M&Ms and a contest on social media around naming the ice cream.  Party Like It's 1986 soon joined their rotation.  That's Ample Hills.

I ran the Staten Island Half Marathon and came to the Gowanus shop after.  I asked for a large.  The guy behind the counter asked me if I was sure, because their large is large.  I told him I just ran 13 miles and I was quite sure.  He said, "Oh, wow...  Well, then we're going to do something special for you."

That's Ample Hills.

It's also Ample Hills to get into a debate with the staff as to whether or not there was any shame in taking a cup just in case these scoops should topple.

I did not take the cup, just for the record.  Nor did I spill it.  Cone game strong.

Everything sold at the store is made from scratch.  When you get something with a brownie with it, they don't buy the brownie from other suppliers.  They make it right there.  That's what makes the quality so high.  When they needed Nilla Wafers for their banana flavor, they made their own.  That's Ample Hills.

Ample Hills is a mass appeal brand that, unlike a lot of other artisanal NYC places, you could see anywhere in the country.  It fits just as well into Gowanus, Brooklyn as it does Iowa, Kansas, and Wyoming.  It's not "intellectual ice cream", as Brian likes to call some of the more unusual high end flavors you see in NYC these days.  With flavors like Snap Mallow Pop, which is essentially a deconstructed Rice Krispy treat melted down into ice cream, he told me that he never lost out on a sale to a five year old.

But just because you could see them everywhere doesn't make them an obvious venture bet--nor does it tell the story of how the round even came to be.

That story actually begins about eleven or twelve years ago, with a little bit of VC mentoring.  I was working for the GM pension fund, an institutional LP, as an analyst, doing a research project on consumer private equity and venture capital investing.  I was researching consumer focused funds, building and fixing brands, and talking to just about every consumer minded investor I could find.  

The person who spent the most time with me in my research was Jerry Gallagher from Oak.  Jerry took two phone calls with me and his enthusiasm for the space was infectious.  He had been an investor in Dick's Sporting Goods, Office Depot, PetSmart, P.F. Chang's, Potbelly, and Whole Foods and he inspired me to get interested in the space.  Over and above the numbers, he talked about the importance of consumer love for the product and also how key it was to work with great quality founders who were just as good at being people as they were at running a business.  Jerry was a great guy and his love of retail investing kind of stuck with me.  Sadly, he passed away last year, but I think he'd really love Ample Hills.  He certainly would have been my first co-investor call.

Still, I followed the space closely.  At GM, I actually got onto the buyout co-investment team that worked on AMF, the bowling company--so I know more about the retail economics of bowling than most people and I still have a bowling pin deal toy in my apartment.  I've been fascinated by the growth of consumer retail plays like Jamba Juice, Soul Cycle, and Shake Shack and have done some ecommerce (chloe + isabel, Bezar) and retail tech (Singleplatform, SocialSignIn, Homer Logistics).

Leading an investment into an ice cream chain, however, that's another beast.  At least, I thought it was.  What made is possible was actually my investment in another food company, Hungryroot.  After getting to know Ben from the tech community, he pitched me his concept for a CPG food company.  Thinking that it wasn't "tech enough" for my investors, but loving the concept, I passed it on to my LPs as a potential deal for them to do directly.  They came back with a lot of support for me to do it through the fund as long as I felt like it met our return criteria.  They said they trusted me and that they signed up for great opportunities in great startups, not just specifically tech.

So when I got introduced to Brian and Jackie from Ample Hills, and fell in love with their business for the second time, that opened the door for me to consider it for the fund.  For that connection, I have to thank Amy Bennett, the co-founder of Shopkeep.  After talking to them about how much they should raise, who they should hire, and what they should focus on, I realized that this was the very same kind of conversation I have with all of my other early stage founders.  I made a decision to not only help them raise a round, but to be a part of it.

I'm actually coming in not just through the fund, but also personally as well.  It felt better to invest my LPs money in a company a little outside of the fund's normal target area with a little more skin in the game of my own--to assure them, and myself, that this was something I felt strongly about.  That actually makes Ample Hills my first ever angel investment.  

I'm also excited to have shared this opportunity with a fantastic syndicate of investors.  One of the earliest meetings I ever took with Ample Hills was a working lunch with Tom Potter, co-founder of Brooklyn Brewery, who I co-founded the Brooklyn Bridge Park Boathouse with, and John Stage, founder of Dinosaur BBQ, just down the street.  They provided terrific guidance and Tom decided to come into the round through the CircleUp syndicate platform.  

The round really got momentum when I got a note from Taylor Greene of LererHippeau on how he heard I was doing Ample Hills and as a frequent Brooklyn customer, wanted to come in as an angel.  He said he had to run it by LHV first, as it turned out, they wanted to come in with a significant investment.  We're also joined by Red Sea Ventures and the founders of Seamless, as well as a bunch of angels and limited partners from my fund.  It's the second deal I've done side by side with the founders of Dos Toros and former USHGer Camilla Marcus as well, as we all invested in Homer together.

While this is a company already making millions of dollars, there is so much to be done.  I'll be heavily involved as a board member, helping them see through the opening of a local production facility, new stores, and most importantly the buildout of their management team.  We also need to codify and implement process around exactly what makes Ample Hills so special, so it can live on in every single customer experience, no matter how far from Brooklyn that experience might get.  

This is one small step for cartoon cows, chickens and pigs everywhere, and hopefully one giant scoop of ice cream everywhere.


Why do you win?

When I first started in venture capital, back in 2001, I used to fund funds.  I worked for an institutional investor that invested in both venture capital funds and later stage growth deals.  My job was to figure out why certain firms were winning and why they might continue to win.  

Part of this, of course, involves looking into the past.  Why someone did well previously is the first clue to figuring out whether or not that would be sustainable--but it isn't necessarily predictive.  Many of the reasons why someone had previous success might have to do with unique windows of opportunity that no longer exist.  

Furthermore, for many investors, once they achieve success doing one thing, they often move onto other things, assuming their success will follow them.

They raise larger and larger funds, for example, after building up a track record of successful angel investments.  Just because someone let you tag on to their seed round doesn't necessarily mean they're going to look to you to lead the Series A in the future, especially if you're going head to head with Sequoia, A16Z, or Union Square Ventures.  

Over the past few months, I've been wrapping up fundraising on Brooklyn Bridge Ventures' second fund--and these are the types of questions I get from LPs all the time.  With all of the various investors out there, with the transparency brought to the market with things like Angellist and Product Hunt, how can I continue to be successful in the future?

One thing that never made me feel comfortable is the idea that I might be smarter than anyone else.  There are a lot of smart people in our industry--and there's so much uncertainty in the startup world, even if you could say that you were smarter, it's not totally clear that just being smart wins in venture.  

The best bets often look pretty stupid, if we were honest with ourselves.  There were a million reasons not to do Uber, for example--regulatory hurdles, first time VC backed founder (Remember, Ryan Graves raised the seed round as CEO, not Travis), the fact that it required individual launches in each city, premium product, etc, etc.  

It's this kind of risk taking that I can comfortably hang my hat on.  In NYC, there aren't a lot of funds that are taking the level of risk that I have--and I think that has paid off.  Somehow, I seem to have done a good job figuring out which huge risks are better payouts than others, but more than anything else just this willingness to dive in when things are "too early" is probably the biggest driver of my returns:

  • GroupMe was a hackathon project.  
  • chloe + isabel was pre-product
  • Singleplatform hardly had any tech built
  • Tinybop was pre-product
  • Canary was a pre-product hardware company pre-presale
  • Clubhouse was pre-product
  • Orchard was pre-product
  • goTenna was pre-product
  • Ringly was barely at prototype

In this market, that's sustainable.  If anything, as other firms mature, they're getting larger, and less willing to write small checks for unproven companies.  Plus, it's a lot of work... and who wants to do *more* work as they become more successful as an investor?

Doesn't sound smart at all.  :)

If you're an investor, why do you win?  Can you sustain that going forward in a world that becomes more connected and more transparent?

What about as a startup?  As a professional?  What makes you actually good and is it repeatable?  What would prevent your success in the future?

Scary thoughts...



Subway Thumbing

On Sunday I wound up leaving my car by the office because of the NYC Marathon.  Last night I took it home, so this morning I find myself on the subway in a rare occurence.  It's unfortunate because today is an absolutely perfect day to bike.  Luckily I have to be in the city later so I'll have a chance to ride.

For now, I'm subway thumbing.  Lately, I've been a little stuck for things to write about.  It's a combination of being heads down on fundraising and the feeling like everything that could be said about unicorns has been said.  The current conversations in venture and startupland bore the hell out of me.  Yesterday's top Techmeme article was about the Twittee favorite button turning into a heart.

Stab me in the eye with a fork.

There's a guy sitting across from where I'm standing who could be Dave Bautista.  

Next to him is a young woman studying a medical textbook.  Her hot pink canvas sneakers and oversize denim jacket make her look eleven.

The rest of the passengers come in two flavors--staring at their phones and staring into space.

There's a lot of casual gaming going on.  I wonder if any of them have heard of Activision.

Another man standing across from me is leaning against the doors.  He's wearing a generic baseball cap pulled tightly down to his red tinted sport sunglasses, making him look a bit like igcognito Cyclops from X-Men.  If it wasn't for the flannel shirt and the beer belly he'd be perfect.

I just realized how tall the woman is next to me.  She's in flats and is at least an inch taller than I am.  She's letting her dark roots grow in for the winter.

Headgear is pretty diverse in this car.

I spot Beats, a yellow #2 pencil, a hijab, a Yankee cap, sunglasses perched high, and a crumpled knit winter cap clearly intended as fashion versus function on an unseasonably warm November day.

There's an elderly woman with bleached blonde side pony.  She's probably close to 80. 

Seriously.  A side pony.

RegulatoryKings: Thoughts on the Duel Between Government and Fans

Full disclosure: I'm an investor in a stealth daily fantasy sports company.

Daily fantasy sports have exploded onto the scene in the last couple of years, and recent events have caused regulators to look at the area with increased scrutiny.  Generally, creating rules to protect individuals from nefarious business practices or to leverage things like taxes fairly and consistently is a good thing and I support it.

I can't say, however, that the government has a great track record of implementing consistent and sensical policy around this.  That's my major concern.

Take the argument around the influence of gaming on the sports themselves.  If lots of money was at stake around these games, would that increase the amount of cheating that happens?

(Side note, since when does the government really care about cheating?  It took them forever to act on the obvious steroid usage going on in baseball, and just recently, the government overturned Tom Brady's ban by the NFL for deflating footballs to gain an advantage as a quarterback.)

Yes, cheating is bad for everyone, but the idea that daily fantasy sports is going to create more cheating than, let's say, a player's potential to sign a huge contract, isn't logical.  With outsized player salaries these days, you'd be hard pressed to convince a player to cheat when actually sports success and actual winning gives them the opportunity to make tens of millions of dollars per year--not to mention the risk of getting completely banned from the game.  Players are much more incented these days to cork a bat, scuff a ball, or ingest something they shouldn't to try and win versus trying to throw a game. 

If you want to track the influence of gaming, you make it as legal as possible, but you make it a requirement for all the platforms to know their customer, just like in banking and securities.  Legality puts a spotlight in dark corners.  You can never prevent money from flowing to places people want it to go, but you can track it and pin it to individuals.

In terms of protecting the consumer from themselves, only applying this to daily fantasy sports is an incredibly inconsistent argument.  I'm allowed to spend as much money as I want on Candy Crush--an app built by the most thoughtful user behavior manipulators on this planet whose sole job is to get me to play more and more--but I won't be allowed to put money behind my fantasy baseball picks?  At least if I'm playing fantasy sports, I have the chance of earning some of the money back.  If you're playing Clash of Clans and buying weapons, none of that money is ever coming back--and you can't tell me there aren't lots of people who are hopelessly addicted to those other games.

I'm also allowed to empty my bank account and take it to Vegas, Foxwoods, Atlantic City, etc.  I can invest in penny stocks and I'm allowed to buy as much junk food no matter what.  To pick out this one particular "vice" and curb consumer freedom to spend their hard earned dollar as they please is a slippery slope.  

Plus, protecting people from themselves can have unintended consequences.  By not allowing individuals to invest in startups and venture capital funds unless they're already wealthy, we're widening the gap between the rich and everyone else.  When Uber goes public, the only people that will have benefitted from the growth of their market cap will be high net worth individuals and institutions.  So you can buy all the crappy penny stocks you want, but you can't buy private shares of the apps you spend money on everyday that are growing like wildfire and will actually increase wealth.

We've got equally screwball policies in the drug "war".  We've got less than 5% of the world's population but we house over twenty percent of the world's inmates--many of whom are in jail for minor drug offences.  By trying to make certain drugs more illegal than others, we've doomed multiple generations of mostly minorities to higher unemployment, lower wages, and increased future returns to incarceration.  You can drink, smoke and Xanax all you want, but get caught with pot in most places enough times and you'll never get hired anywhere legit again because of your criminal record.  

Thankfully, unlike with online poker, Daily Fantasy Sports sites have some power and influence on their side--the actual sports leagues and media networks themselves.  DFS creates lots of increased fan engagement.  It's a major driver behind the purchase of streaming media packages and cable plans that show all the games.  DFS sites are major advertisers as well.  The leagues want this fan engagement, as do the fans, obviously, and they'll fight tooth and nail to maintain it. 

So who's on the other side?

Vegas, for one--who for years has been the only game in town for sports betting.  Nevada's recent requirement that DFS sites get a license to operate in their state is protectionism at its worst.  They like their regulated government monopoly and don't want anything to change.  

Of course, being the US, we'll also hear from the moralists and religious right.  You know the type--the ones who will defend good from evil with their cache of semi-automatic weapons that you have to pry from their cold dead hand.  


Let's make sure kids aren't playing and the right safeguards are in place to prevent league influence, insider trading, etc, but let's not throw the baby out with the bathwater on an industry that employs people, makes sports more enjoyable, and has a huge potential to generate tax revenue.  

You remember tax revenue, right states?  

That's what you get when you run lotteries, otherwise known as a tax on the poor.  I guess taxes on the poor are better than Daily Fantasy Sports, where the user is more likely to be higher income and college educated.  More than 60% of players report higher than $75,000 annual income.  

My investment relies on fair and thoughtful, consumer friendly regulation.  I hope we get that.