The startup world is one where it’s easy to miss the forest through the trees. Starting something from nothing is extremely difficult, and the time and detail it takes in raising capital, coding, talking to customers, and hiring a team in the early days is immense.
The startup world is one where it’s easy to miss the forest through the trees. Starting something from nothing is extremely difficult, and the time and detail it takes in raising capital, coding, talking to customers, and hiring a team in the early days is immense.
As a result, most founders lose the big picture.Their conviction and curiosity may be fantastic, but they fail to see just where the road ahead is taking them. Founding teams turn inward and state they are “heads down” (uggh that phrase will not die) but forget about the big picture of the changing world around them and how it fits into their thesis.
Most VCs can suffer the same myopia. They walk around in their fleece vests waxing poetic about certain future sectors and ideas but in reality have no idea when or if these will play out. Ironically, these technology predictions many times become reality, but if one is too early and right, it is still too early. And being early in venture capital is the biggest risk to generating IRR.
After 15 years (and now many grey hairs) investing in startups, I routinely see both founders and investors woefully inept concerning the clues the public markets are giving them about their companies and models. If asked what gross margins they see their company generating in the future, their answer is nebulous and unaware of how their sector trades in the market. When pressed to give an outlook of the economy and raising capital in the near term, many are clouded by the straight upward climb of the Nasdaq since March 2009 and seem to believe everything just goes up and to the right.
Once one has lived through numerous business cycles, it’s clear that the public market and economy have massive implications on a startups business and fundraising ability. So how should one look to the public markets to get a better sense of what the macro is saying while running a startup? Here are three easy things to start today:
- Follow a large diverse basket of stocks and check prices daily.
- Read 20–30 earnings reports each quarter that are correlated with your industry and sector as well as other large bellweathers.
- Formulate a high level thesis on the economy/market each quarter and write it down as part of an investor update and send to a core team/investors.
That’s it? Yep.
By establishing this discipline, one will start to see other clues and data points that give a more colorful and big picture to the world and how one’s startup fits in this puzzle. It may sound like superfluous work but many good founders and vcs already do this and these routines give them the ability to see the big picture in a way others can’t.
Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment
in any fund.
