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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Public Service Announcement For Entrepreneurs: Ignore the Dow

Comments (27)

Today is Finance Friday and post #2 has been drafted by the Finance Friday team from University of Chicago Booth and is waiting for my edits. I’m procrastinating so I thought I’d write one of my periodic public service announcement for entrepreneurs. This one is more specific than “ignore the macro economy” – instead, it’s “ignore the Dow and the stock market and get back to work on your business.”

Tom Evslin had a post up this morning titled Don’t Watch The Dow! that caused me to say “right on.” In 1999, 2000, and 2001 I had a my.yahoo.com page up with a bunch of stocks, including a number of companies I was an investor in, as my home page. I’d hit refresh 5,321 times a day, generating plenty of CPM-based revenue for Yahoo. I’ve written about the emotional ups and downs in the past so I won’t repeat myself here other than to say this activity had zero impact on the stock market (I couldn’t do anything about it), it didn’t change my short term decision making (I’m not a trader), and all it resulted in was sucking a huge amount of emotional energy out of me.

When the market went down, I felt sad. When it went up I got the emotional equivalent of a sugar high. When it went back down again, I was bummed. Up – smile. Down – depressed. Up – happy. Down – cranky. And this was all before lunch time. Maybe it was too much coffee or not enough sleep, but it got even worse when the market shifted from 1/8s too 0.01s.

As an entrepreneur, this was all noise. As a long term VC investor, it was also all noise. Sure – the broad cycles had impact, although lots of people disagree on what they actually mean (e.g. do VCs actually benefit long term from down cycles, are the best companies started in recessions when everything is cheaper and more available).

Over time, I’ve learned that none of the short term moves in the stock market matter at all in my life. It’s occasionally entertaining to turn on CNBC and see my friend Paul Kedrosky in the octobox telling all the other people that they don’t actually understand macro-economics, but it’s no different than watching McEnroe when he’s announcing a Nadal – Federer match. It’s just sport.

So – for all the entrepreneurs in my world, take Tom’s great advice. Don’t Watch The Dow! And if you think Scott Kirsner is being sarcastic in his post titled How the players in the innovation economy rationalize away stock market dives, take a deep breath and consider whether the use of the word rationalize is correct or not.

Now, get back to work on something you can have an impact on!

  • http://MeetInnovators.com Adrian Bye

    when i first checked the NYtimes this morning the main headline was this:

    Double Dip Recession May Be Happening.

    and the entire front page was filled with lots of scary downward looking graphs and how the whole world may be collapsing, along with another 4-5 articles talking about how bad things are about to get.

    but then an hour later a job GAINS report came out.   what, employment went UP??! 

    after the nytimes spent all last night preparing for a negative front page!?!?!

    so now the front headline is this:

    U.S. Posts Stronger Job Gains Amid Fear

    i think we need to remember the nytimes has to make its money out of pageviews, and their incentives are not always aligned with ours.  its a pity they do the world such a big disservice sometimes.

    • http://www.adela.vn/dich-vu/thiet-ke-to-roi-to-gap.html Thiet ke to roi

      I agree with the comments you made.

  • http://www.mentortechventures.com Brett Topche

    If you’re talking about venture-backed companies and companies that don’t need outside capital, I agree with you completely.  However, there is a segment that should keep an eye on it – companies seeking capital from angels.  While the most active angels are unlikely to be significantly affected by the swings in the stock market, I find a lot of smaller angel investors (particularly those who did not make their money in tech entrepreneurship) pull back when public markets take a hit.  When they are less secure in the rest of their portfolios, they tend to be more risk averse in their startup investing.

    • http://www.kineplay.com/ben Ben Milstead

      Are they really more risk averse because of overall portfolio confidence? Or is it more likely because they deploy more capital in public stocks that are great values during a big drop?

      • http://www.feld.com bfeld

        I think it can be either. Angels who are investing a small % of their net worth aren’t that impacted by the market swings, but often loose confidence and/or pull back from this stuff because they get distracted. Angels who have less money / more % of their net worth tied up in public markets tend to be more impacted.

        • http://www.mentortechventures.com Brett Topche

          My point exactly, at least in the short term.  When it comes to angels, I have often heard “it’s not how rich they are, it’s how rich they feel.”  When their confidence gets shaken, investments viewed as high risk tend to slide down the agenda.

          Over the longer term, though, a down market can filter down to VCs, too.  It doesn’t impact the investments directly as much (though weaker equity “currency” might slow down the pace of acquisitions by public companies), but it can get very hard to fundraise.  We saw this in 2008, where the big institutions who provide the bulk of capital to VC funds lost enough money in the public markets that their pre-set % allocations to private equity were suddenly out of whack and several of them reduced or eliminated new commitments.  This “denominator effect” made it a lot harder to raise new funds for a while.  This isn’t something that entrepreneurs have to worry about for several years, as there are plenty of funds with plenty of capital to invest for a while, but it could be an issue if there is a prolonged market downturn.  Of course, if you’re spending a lot of time worrying about “several years from now” while running a truly early stage company, you are getting awfully far ahead of yourself.

    • Davin Riley

      Brett – i agree – I think it’s unwise to make a blanket statement advising people to ignore the financial markets. Entrepreneurs/angels and even VCs cannot operate in a bubble. We are a service economy and most of the “valley” tech innovation is service based. People, ie our consumers, are going to get hit as the govn’t slashes spending and does nothing to stimulate the economy.

      My humble advice fellow entrepreneurs. Don’t tie your emotions to the markets but be savvy. Understand how Washington decisions will inevitably affect you, your family, and your business.

      The fact that, after 70 years of AAA our debt has been downgraded to AA+….yes, that will affect us and it is wise to figure out how and what options are available to you to hedge yourselves.

  • http://www.appeos.com Steve Jones

    Great advice.

  • http://twitter.com/#!/georgelbowen George Lucas Bowen

    Great advice.  Financial cycles happen and should not impact your business.  If you are banking on up cycles to get funding then you probably don’t have a sustainable business.

  • Michael John Slavin

    Great advice on watching the markets.  This is a week where the failings of CAPM and Black Scholes, not being able to mathematically account for human a-rationality reveal themselves.  No matter how many times I have attempted to apply the teaching of the Secret, it hasn’t worked.  

    However, what is your take away on the news that the Bank of New York Mellon is charging large depositors to hold cash, essentially breaking the buck??  What type of companies/technology (fin-tech companies for example) do you foresee, or would like to see, that will fill this demand gap for a solid investment??

    • http://www.feld.com bfeld

      I have no idea – the Bank of NY Mellon stuff is totally perplexing to me.

  • Mcbyrne

    Scott Kirsner

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  • http://over40innovator.blogspot.com Roger Toennis

    One good thing for bootstrapping entrepreneurs running on seed money is seed investors are more likely to do an SD-IRA investment in your startup company when the DOW is sucking wind. 

    I’ve gotten half of my startup seed money from investors via SD-IRA investments of pretax money in my startup. If you are in seed stage and you don’t know about SD-IRA you need to do some research on this topic.

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  • http://www.facebook.com/people/Richard-Allen/1435539106 Richard Allen

    Don’t watch the Dow! If you didn’t on Friday but decided to take a peek today (Aug 8), you made a big mistake. As entrepreneurs we deal in fundamentals like sales, cash-flow, and when do I get to pay myself?  The fundamentals of the equity markets have been crushed by a rush to the door for Treasuries – paying 2 cents (90 days) and 10 yr bonds paying 2.3%. Wow? Buy me a bundle. Oh, and the U.S. was downgraded by S&P, so bonds should drop in price. Not!

    So take Tom’s advice and focus on what we do best and let the market do its thing.  We can’t influence it and worrying about what it does is a misuse of your imagination. Happy investing!

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