As a rule I am an optimist but…

imgresSomeone asked me at dinner the other night why is it that I do what I do.  He pointed out that it can’t be the possible financial rewards so what is it?  He also noted that being as early as I am takes a certain amount of patience and frustration that isn’t for everyone.  Both of these points are something that has been rattling around my brain for months.

Everyone loves financial rewards no matter what your bank account looks like.  I absolutely want to see financial gains but more important is I like to win.  I really hate losing and my moral compass is large so I do not like being taken advantage of either.  Seeing founders that I have backed hit the high notes makes me insanely happy.

I was one of the earliest investors in Nestio and originally was on the advisory board and then led one of their rounds and ended up on the board and still am today.  I know how well that they are doing so going up to their office and seeing 50 people sitting there with room to grow on their own floor with a big Nestio sign looming over the team is beyond rewarding.  It makes my heart sing and it feels fantastic.  That might even be more gratifying than an exit because you see it and feel it in a very different way.

The frustration is the capital.  There is a lot of cash out there but it doesn’t always end up in the companies that I have invested in.  I scratch my head daily seeing large sums of cash back companies that I do not believe will have the potential to be large wins which is what those investors are looking for.  Like founders I also have fundraising dreams.  I had one the other night where the founders couldn’t raise the cash and they were paying someone to pitch for them instead of going to the meetings.  I freaked.  Thank god it was just a dream.

Vinepair had an event this week with Coravin where they did a day of events on branding and wine classes.  I spoke with Adam, the founder of Vinepair, on Wednesday evening about investing in the food and wine space.  We spoke about what type of opportunities that I was seeing in the food space.  It was the first time I have ever left an event thinking I wasn’t my normal optimistic self.  I am not convinced that many of the big bets that have been made will succeed.  I actually think many of them will implode.

We discussed a few things.  The big box retailers are still relying on old school ways of bringing new products on to their shelves putting all the costs of marketing on the onus of the young brands.  That the money is getting more difficult to raise when people bet on start-ups that did not turn out to be multi-million dollar businesses.  For instance when ecommerce fails, VCs tend to back away for awhile before jumping back in.  I do believe there is an opportunity in the back end of the food chain so more applied technologies vs consumer facing products.  I talked about pursuing your dream but being realistic about the market, the money you can raise and perhaps thinking about scaling a business that can do a few million a year and be able to create jobs, a great culture and live really well without having to report to investors who expect massive scale quickly.  Also if you bring on investors make sure they really understand your business.  That is the biggest value ever.

Maybe it is the expectation of investors wanting massive scale quickly without being thoughtful about the reality of how big you can become or being willing to hit a mesa before really thinking about unpacking your gear for a bit and thinking thoughtfully about the next steps.  As long as the company is not losing money but can continue to be profitable it isn’t a bad thing to take time out to think about next moves.

The environment of start-ups is changing.  The next two years will be very interesting.  My advice to the companies I am in…get profitable, don’t expect another round, buckle down and be scrappy, listen to the market, read the landscape and be agile.