Book: Back from the Dead

I read Bill Walton‘s autobiography Back from the Dead on Saturday after my long run. It was a good one and does a great job of capturing a complicated life filled with super high peaks and extremely low valleys.

I was into basketball as a pre-teen. I played forward for a little while but really settled into my role as a guard. I played until junior high school when I stopped playing soccer and basketball and focused entirely on tennis, which lasted until high school when I smashed my last wood racquet on the court. After that, I ran track and cross country and really began my love of long distance running.

I dug Bill Walton when he played for the Trail Blazers. My team as a little kid was the Dallas Chaparrals until the ABA blew up. I didn’t really have a team again until I moved to Boston to go to college, so I just liked individual players. When I eventually stopped paying attention to basketball in high school, even though the Dallas Mavericks were now my home town team (and I won a Dallas Mavericks college scholarship for $1,000 for some reason I can’t remember), I lost touch with pretty much all the players. So it was fun to see Walton re-appear in my junior year at MIT on the Boston Celtics, which re-energized my interest in basketball a tiny bit (it didn’t hurt that the Celtics were completely dominant in 1986.)

In Back from the Dead Walton covers his years playing at UCLA, Phoenix, and Boston in great detail. He also talks about his time on the San Diego – and then LA Clippers – which includes some scathing commentary on the craziness and misery that was the team under Donald Sterling in its early years.

The basketball stories, especially some of the detailed history, is fun to read. I’ve always enjoyed sports history from a first person point of view of a player, and Walton doesn’t disappoint. But that’s simply the foundation for the book.

Walton’s basketball brilliance is interspersed with endless injuries. He talks about them in detail – initially the physical struggles, but then the mental struggles as the pain as well as the time recovering and rebuilding grows. He doesn’t complain, but shows a vulnerable side in his description of his struggles. For a period of time, he’s at the top and bottom of the game at almost the same time, fighting through the injuries until they overwhelm his ability to recover and he finally retires.

He then goes through his career as a sportscaster. Mixed throughout is his love for and journeys with the Grateful Dead. And then his spine breaks, ESPN fires him gratuitously (they eventually rehire him under new management, but he skims over this), and a very long recovery begins.

At this point, you can feel Walton’s pain. Sure – the physical pain is there, but the emotional pain is profound. And his writing about it is powerful. And clean. And clear.

He gets through it and ends the book filled with love and joy and the energy that bubbles throughout his early playing days. Overall, the book is a powerful reminder of this complicated thing we call life and how hard it can be, even when you are at the top.

CLI (Cognitive Load Indicator)

In a world of endless signal and noise coming at us from all angles including TV, radio, the web, Facebook, Twitter, Snapchat, blog posts, email, text messages, Slack, and fill in another 50 different sources of stuff, we don’t have a measurement for the sentiment of the noise (and signal) and the toll it takes on our thinking.

If you pay attention to finance, you are familiar with the VIX, which is officially the implied volatility of S&P 500 index options. It’s unofficially known as the fear index and is a measure of the market’s expectation of stock market volatility over the next 30 days. For example, here’s the VIX for the past 12 months.

VIX for the past 12 months

I don’t pay attention to the VIX on a daily basis as I don’t care about the stock market but I find it interesting in hindsight to see how it correlates to changes in the DJIA over a long period of time.

VIX vs DJIA

In February, I was pondering the tone of the noise – and the signal – that was coming my way. If I had a measure for it the fear in it, it tracked the VIX pretty well (a sharply increasing level with a peak some time in early March followed by a rapid decline back to normal). At the same time, the cognitive load from my daily life (work and personal) increased very significantly in Q1 due to a series of things good and bad.

I reached a point in March where I actually said out loud to someone “I can’t take on anything new – my cognitive load is maxed.” I literally couldn’t think about anything beyond what I was currently trying to process. While I’m still at a high load, I don’t feel anywhere near as maxed as I did at the end of March.

In the past 24 hours I’ve responded to a few emails that were particularly tone deaf to reality. The level of aggression in the noise seems unusually high these days. The random hostility from people I don’t know very well, but who feel like it’s an effective personal strategy to attack as a way to get attention, seems at an all time high. I presume some of this is from our current political cycle and the corresponding tone, but I could be coming from other dynamics as well.

Regardless of how zen one is, all of the noise, signal, interactions, and life activity creates a cognitive load. While I’m not sure a macro measure – like the VIX – is useful, I certainly feel like a personal one would be.

Reactions To The First Reboot VC Bootcamp

We had the first Reboot VC Bootcamp several weeks ago in Boulder. Based on the feedback and the experience, we’ve already decided to have another one, probably early in 2017.

Three of the participants – Steve Schlafman, Rob Go, and Josh Guttman – wrote posts about the bootcamp. Since the content was confidential, each of them is careful about what they say and does a good job personalizing the experience.

In A bunch of VCs went on a retreat. Here’s what happened Steve lists 16 things he took back with him to New York and his daily life from the bootcamp. To get a feel for them (and hopefully inspire you to go read the whole post), here are the first three:

  • When your inner and outer self aren’t in sync, it creates personal dissonance that results in being afraid, feeling unsafe, etc..
  • If you ask a founder how you can help, it means you haven’t been listening close enough. Be fully present.
  • Being a great board member or investor isn’t about having all the answers and fixing things. Don’t underestimate the power of listening and supporting.

Rob reflected, in his post Reboot, about the Parker Palmer notion of the shadow. 

“The idea is that one’s “shadow” is a deep rooted thing (not necessarily good, not necessarily bad) that exists in one’s psyche that drives your choices, behaviors, or emotions. The shadow is often linked to early, memorable childhood experiences, and is reflected in multiple arenas of life over and over again. The challenge occurs when one is unaware of these influences, and as a result, it drives him/her to make decisions or react to circumstances in a less than ideal way. Often, we can go years not really understanding how major decisions have been guided by hidden motivations, and that can get in the way of being the best leader, friend, or team member one can be.”

Josh wrapped the summaries up in his post Keeping it Real with an overview of the structure we used for the bootcamp

Practical Skills + Radical Self-Inquiry + Shared Experiences = Enhanced Leadership + Greater Resiliency

followed by a good discussion around imposter syndrome, which came up a few different times and manifests itself in many different ways in our daily life, especially around entrepreneurship and investing.

It was deeply enjoyable to host this event at my house and spent a few days at a very emotionally intimate level with some VCs I know and have worked with and others that I met for the first time. I was a player-coach for the weekend – participating instead of facilitating, but also co-hosting with Jerry. I was concerned that this would be a challenge, but in hindsight it felt very natural to me. And, during a session where I became Jerry’s focus, I realized something profound that I had never put together before about my relationship with power.

To everyone who participated – thank you for being brave and taking the risk to engage at the level that a Reboot bootcamp demands.

Making Space for Moms

Tami Forman, the Executive Director of Path Forward (a new non-profit that I recently joined the board of) just did a powerful five minute presentation on making space for moms in the workforce. I knew that Tami was a great speaker because of my interactions with her at Return Path, but she just totally blew me away with this talk.

Making Space For Moms | Tami Forman | DisruptHR Talks from DisruptHR on Vimeo.

My favorite one liner in the talk is “In the S&P 1500, there are more CEO’s named John than women CEOs.” This is definitely worth five minutes of your life to watch right now.

Current Startup Market Emotional Biases

Bill Gurley wrote an incredible post yesterday titled On the Road to Recap: Why the unicorn financing market just became dangerous … for all involvedIt’s long but worth reading every word slowly. I saw it late last night as it bounced around in my Twitter feed and then read it carefully just before I went to bed so the words would be absorbed into my brain. I read it again this morning when I woke up and I expect I’ll read it at least one more time. I just saw Peter Kafka’s summary of at at Re/Code (We read Bill Gurley’s big warning about Silicon Valley’s big money troubles so you don’t have to) and I don’t agree. Go read the original post in its entirety.

Fred Wilson’s daily post referred to the article in Don’t Kick The Can Down The RoadFred focuses his post on a small section of Bill’s post, which is worth calling out to frame what I’m going to write about today.

“Many Unicorn founders and CEOs have never experienced a difficult fundraising environment — they have only known success. Also, they have a strong belief that any sign of weakness (such as a down round) will have a catastrophic impact on their culture, hiring process, and ability to retain employees. Their own ego is also a factor – will a down round signal weakness?  It might be hard to imagine the level of fear and anxiety that can creep into a formerly confident mind in a transitional moment like this.”

Fred and I have had some version of this conversation many times over the past twenty years as we both strongly believe the punch line.

Entrepreneurs and CEOs should make the hard call today and take the poison and move on

But why? Why is this so hard for us a humans, entrepreneurs, investors, and everyone else involved? Early in Bill’s post, he has a section titled Emotional Biases and it’s part of the magic of understanding why humans fall into the same trap over and over again around this issue. The “Many Unicorn founders …” quote is the first of four emotional biases that Bill calls out. If that was it, the system could easily correct for this as investors could help calibrate the situation, use their experience and wisdom to help the founders / CEOs through a tough transitional moment, and help the companies get stronger in the longer term.

Of course, it’s not that simple. Bill’s second point in the Emotional Biases section is pure fucking gold and is the essence of the problem.

“The typical 2016 VC investor is also subject to emotional bias. They are likely sitting on amazing paper-based gains that have already been recorded as a success by their own investors — the LPs. Anything that hints of a down round brings questions about the success metrics that have already been “booked.” Furthermore, an abundance of such write-downs could impede their ability to raise their next fund. So an anxious investor might have multiple incentives to protect appearances — to do anything they can to prevent a down round.”

Early in my first business, a mentor of mine said “It’s not money until you can buy beer with it.” I’ve carried that around with me since I was in my early 20s. Even when I personally had over $100 million of paper value in an company I had co-founded and had gone public (Interliant), I didn’t spend a dime of, or pretend like I had a nickel of, that money. In 2001 and 2002 I learned a brutal set of lessons, including experiencing that $100 million of paper money going to $0 when Interliant went bankrupt. And, as a VC, I experienced a VC fund that was quickly worth over 2x on paper that ultimately resulted in being a money losing fund. I didn’t buy any beer or spend all the money on random shit I didn’t need and fundamentally couldn’t afford.

This specific bias is rampant in the VC world right now. As Bill points out, many funds are sitting on huge paper gains which translate into large TVPI, MOC, gross IRR, or whatever the current trendy way to measure things are. However, the DPI is the interesting number from a real perspective. If you don’t know DPI, it’s “distributed to paid in capital and answers the question “If I gave you a dollar, how much money did you actually give me back?” This is ultimately the number that matters. Structuring things to protect intermediate paper value, rather than focusing on building for long term liquid value, is almost always a mistake.

Let’s go to number three of the emotional biases in Bill’s list:

“Anyone that has already “banked” their return — Whether you are a founder, executive, seed investor, VC, or late stage investor, there is a chance that you have taken the last round valuation and multiplied it by your ownership position and told yourself that you are worth this amount. It is simple human nature that if you have done this mental exercise and convinced yourself of a foregone conclusion, you will have difficulty rationalizing a down round investment.”

This is linked to the previous bias, but is more personal and extends well beyond the investor. It’s the profound challenge between short term and long term thinking. If you are a founder, an employee in a startup, or an investor in a startup, you have to be playing a long term game. Period. Long term is not a year. It’s not two years. It could be a decade. It could be twenty years. While there are opportunities to take money off the table at different points in time, it’s still not money until you can buy beer with it, so the interim calculation based on a private valuation when your stock is illiquid just shifts you into short term thinking and often into a defensive mode where you are trying to protect what you think you have, which you don’t actually have yet.

And then there’s the race for the exit, in which Bill describes the downward cycle well.

A race for the exits — As fear of downward price movement takes hold, some players in the ecosystem will attempt a brisk and desperate grab at immediate liquidity, placing their own interests at the front of the line. This happens in every market transition, and can create quite a bit of tension between the different constituents in each company. We have already seen examples of founders and management obtaining liquidity in front of investors. And there are also modern examples of investors beating the founders and employees out the door. Obviously, simultaneous liquidity is the most appropriate choice, however, fear of price deterioration as well as lengthened liquidity timing can cause parties on both side to take a “me first” perspective.

This is one of the most confounding issues that accelerates things. Rather than making long term decisions, individuals optimize for short term dynamics. When a bunch of people start optimizing independently of each other, you get a situation that is often not sustainable, is chaotic and confusing, and inadvertently increases the slope of the curve. In the same way that irrational enthusiasm causes prices to rise faster than value, irrational pessimism causes prices to decline much faster than value, which increases the pessimism, and undermines that notion that building companies is a long term process.

Those are my thoughts on less than a third of Bill’s post. The rest of the post stimulated even more thoughts that are worth reflecting deeply on, whether you are a founder, employee, or investor. Unlike the endless flurry of short term prognostications that resulted from the public market decline and subsequent rise in Q1, the separation of thinking between a short term view (e.g. Q1) and a long term view (the next decade) can generate profoundly different behavior and corresponding success.