Financing Round Nomenclature Revisited

When I started investing in startups a long time ago, the labeling of financing rounds was as simple as the Sesame Street alphabet song – A is for Abbey, B is for Bert, C is for Cookie Monster; ok, you get it. The rounds were named for the purpose of identifying shareholder rights in a particular class of stock. The names weren’t used as a tool to avoid pigeonholing a startup into a particular stage of growth the way they are today.

The labeling of financing rounds has become silly: Seed. Pre-Seed. Early Seed. Gap. I’ve even seen a round classified as “Genesis” recently. To compound things, if you ask a dozen entrepreneurs or investors what each of these rounds mean, I guarantee you’ll get a dozen different answers.

I’ve come up with an idea to simplify this practice and ran it by a few friends. They all liked the logic and simplicity, so I’m throwing it out there. I propose that we start labeling rounds by the size & post-money valuation of the financing. Here’s a hypothetical financing history of a company using this method:

  • $500K/20% Discount Note round.
  • $750K/6.5M round.
  • $3.2M/17.8 round.
  • So on and so forth.

Using this process, when I look at the cap table as an investor, it tells me in an instant just about everything I need to know about a company’s financing history and eliminates all the nonsense about trying to properly name a financing round.

Whaddya think?

Why We Invested In Wevorce

Four years ago Michelle Crosby sat down in my office and told me about her plan to completely disrupt the divorce industry. Her story was fascinating: A child who watched her parents go through a brutal divorce becomes a divorce lawyer and winds up going through a divorce herself. She certainly checked the box for domain expertise, didn’t she? The most compelling part of Michelle’s story for me though was the fact that when the law firm she was working for offered her a position as partner, she had an existential crisis and decided to resign instead and that’s when she set out on her mission.

I’ve always been drawn to mission driven entrepreneurs. Folks who lay awake night after night grinding away on how to solve a particular problem. It consumes them and they’re driven by something far greater than money or recognition. Michelle fit the bill to a T. She had grown so disillusioned with an industry extracting obscene amounts of money from people going through a great deal of pain with no other options, that she turned down the brass ring she had been working so hard to earn and set out with not much more than a burning desire to reinvent the very broken process of divorce.

Michelle and her team have built an elegant and easy to use platform designed specifically to keep lawyers from running up bills by playing the middleman and escalating drama instead of avoiding it. Even more importantly, the entire Wevorce experience focuses on the well-being of the children who almost always suffer the most during the divorce process, and it works. Over 98% of the hundreds of Wevorce customers have avoided court and the company’s customer satisfaction metrics are through the roof.

https://player.vimeo.com/video/150356673

I stayed close with Michelle during the last four years and have enjoyed watching her grow into the amazing entrepreneur she’s become. We participated in the seed capital rounds and when Michelle told me that she was ready to raise her Series A, I didn’t waste any time in getting my partners to spend some time with her. They came away as enthusiastic as I’d hoped they would and we couldn’t be more excited to become the lead investor in such an important company.

Equally gratifying for me is the fact that Wevorce is based here in my hometown of Boise. I’ve been passionate about our startup community for a long time now and I’m thrilled to be joining the board of directors and help Wevorce reach its full potential and become one of Boise’s iconic companies. Michelle has been able to recruit some fantastic talent here and it’s yet another sign that Boise’s rising!

 

Why We Invested In A Circus

Englishman Phillip Astley is credited with creating the first circus in 1768 in England. A war-trained accomplished equestrian, he parlayed his advanced riding skills into a post Seven-Years War career when he opened a riding school where he rode his horses in a circle (a ring) rather than the traditional straight line which allowed him to use centrifugal force to perform advanced trick riding. He later added other riders, musicians, jugglers, clowns, tight rope walkers and acrobats and created the modern day circus. That format stayed largely unchanged for 200 years until contemporary circuses were created in the 1970’s. The most successful of those has been Cirque du Soleil which was created in 1984. 15 million people will see a Cirque show this year and they are approaching $1B in annual revenue.

While obviously wildly successful, it’s been more than thirty years since the Circus was disrupted. This summer, we met a couple of remarkable entrepreneurs who figure it’s time to change that. The moment we met Brent Bushnell and Eric Gradman, we knew instantly that we wanted to be a part of what they were up to and last week we co-led a $6.5M Series A investment (along with our friends at Foundry Group) in Two Bit Circus, the circus of the future. At Techstars, nothing excites us more than meeting mission-driven entrepreneurs and these two define that. It wouldn’t be hard to imagine Brent under the big-top with P.T. Barnum and Eric’s got both the imagination and roboticist chops to make Two Bit’s studio in LA the most amazing ideation lab we’ve ever seen. Most importantly, they’re both crazy enough to believe they can change the world.

Instead of sitting back and watching a circus, Brent and Eric believe that the experience should be completely participatory. Two Bit Circus is a modern tech-driven immersive circus encapsulating many components of the future of tech. Lasers, robots and virtual reality are just a taste of what they’re incorporating into their flagship STEAM Carnival this year which will be held at Pier 48 at AT&T Park in San Francisco next weekend (Nov 6-8). If you’re going to be in town, you don’t want to miss this! Use the coupon code “brent” for a few dollars off. You can get tickets here. I’m flying in for it and bringing my son. Hope to see you at STEAM!

 

 

Communication Breakdown

Over the last few months, I’ve watched three separate episodes of blowups between co-founders or between CEOs and board members. In each case, it’s evident in hindsight that it wasn’t a single act, but historically poor communication which led to pent up anger that ultimately boiled over into fractured relationships. These wrangles have not only caused harm to the individuals, but created collateral damage among the management teams of the companies as well.

During the early years of marriage, many young couples inevitably reach a point where they have to learn to communicate better or watch the foundation of their new relationship begin to crack. Little things like left-open toilet seats, uncapped toothpaste tubes and lights left on foster passive-aggressive behavior until someone explodes over something silly like dirty coffee spoons left on the counter instead of in the sink by their mother-in-law (yup, that was me). Luckily I’m married to Pam, a woman who has patiently taught me to be a better communicator and finally, after more than twenty years together, has been hinting to me lately that her work with me might be nearly completed.

As anyone reading this knows, building startups are indescribably taxing, even among the most functional teams. With everyone moving at warp speed, it’s easy to get frustrated and annoyed by little things that colleagues say and do. As someone who leaned towards passive-aggressive behavior when I was younger, looking back, I know I didn’t always handle these types of situations with patience and understanding. I can think of a couple of valuable relationships in my career that were irreparably harmed through poor communication on both sides. While I’m not big on regret as life is one big learning experience, in hindsight, I’m confident that healthy, open and honest communication would have saved those relationships which mattered a lot to me.

Two years ago, David Cohen told me he wanted to bring in David Brown as our partner to manage the operational growth of Techstars (absolutely brilliant move, he’s an operations ninja). He and David had worked together for almost 25 years across three startups. I soon found myself in a partnership with two people who had been working together since college. The two of them talked like an old married couple while David Brown and I spent the first few months feeling each other out. We certainly had our share of miscommunications (and still do) but we quickly developed a real knack for diffusing them in real-time or shortly thereafter. “Hey, when you said yada yada about that thing this is how it sounded to me” or “Your email to me earlier today felt a little off, is everything ok?” has become the norm between us. It’s fostered an incredible working relationship and a deep mutual respect.

After a couple of decades of being around management teams and boards of startups, it’s clear to me that healthy communication is a big stumbling block for many and causes a good deal of harm not only to the two parties, but the momentum of the company itself. If you see it happening in your company, you might want to consider bringing in a coach like Jerry Colonna and his team at Reeboot.io who can help a team get through these issues.

Halfway through my 50th trip around the sun, I’m far more focused on quality, high-functioning relationships than being right or getting my way these days. As those close to me might attest, I still have my moments, but I’ve learned that being thoughtful, proactive and choosing my words carefully produces much better outcomes than the power play of passive-aggressive behavior or the instant gratification of lashing out.