Powerball: The Difference Between Gambling and Investing

Wow! After weeks without a winner, there were three winners in last night’s Powerball lottery. Congrats to the winners!

Powerball is a bad bet and an even worse investment. We can all run the math. The WSJ did a nice visual comparing the odds of winning Powerball to other odds. A one in 292 million chance of winning is inconsequential. [As an aside, a 1 in 112 chance of dying in a motor vehicle accident is scary and something we’ve got to improve.]

What was unusual about this Powerball drawing is that the NPV of an investment in a ticket was not far from break-even. There are a lot of practical and technical reasons that made it less than break-even, including the prospect of multiple winners, taxes…

Powerball: The Difference Between Gambling and Investing

Unicorpse and The Moral Hazard of Making Unicorns

UnicorpseI’m sure that many more thoughtful than me have written about the moral hazard of venture capital. In economics, moral hazard occurs when one person takes an unreasonable risk because someone else will bear the burden of the negative consequences. In the age of unicorns, the moral hazard in venture capital has never been greater. Moral hazard and exuberance to make unicorns leads to unicorpses. I was reminded of this today during a conversation with an emerging growth business run by capable, yet young entrepreneurs.

The Situation

The 20 something entrepreneurs with whom I was talking have built a solid, already profitable business generating $4.3 million ARR. The company has taken a total of $200k of outside financing. With a modest amount of incremental…

Unicorpse and The Moral Hazard of Making Unicorns

My Thoughts on Launching Tahosa Capital

Tahosa CapitalIt has been about two weeks since Tahosa Capital announced its launch. I’ve found the launch to be invigorating. I find myself wanting to share the sense of purpose behind Tahosa Capital with anyone willing to listen. But, I can’t possibly reach everyone I know one-on-one; hence this post.

I started Tahosa Capital with a point of view on what it will take for Tahosa to be successful.

Start modestly And with a BHAG

Starting modestly (and alone) is humbling and really good. For now, Tahosa Capital is just me and a big hairy audacious goal (BHAG). As we wrote in Tahosa’s introductory blog post, Tahosa sets out with a clear sense

My Thoughts on Launching Tahosa Capital

Kindred Disciplines: Growth Equity and Growth Hacking


growth equity and growth hackingGrowth hacking is now a mainstream term in tech circles, particularly those that are consumer-focused. Growth hacking definitions abound, but generally emphasize a data driven, creative and flexibly opportunistic approach to customer acquisition. Many would argue that growth hacking is simply a new term for an old concept – marketing. While the functions, tools and skills require for growth hacking may be essentially the same as “marketing”, the psychology and mission of growth hacking feel totally different to me. When I hear “marketing”, I think soft, fuzzy, ambiguous, and cost center. When I hear “growth hacking”, I think maniacal focus on growth, scrappy, data driven, tech/tool savvy, and…

Kindred Disciplines: Growth Equity and Growth Hacking

We Sell the Ultimate Commodity – Money

venture-capital-adLast week I participated in a panel discussion at Denver University organized by Maclyn (Mac) Clouse. Mac is a long-time educator and supporter Denver’s entrepreneurial community. I was joined by Peter Adams, Executive Director of the Rockies Venture Club. Mac’s setup for the discussion was “dangerous” because he offered both Peter and I the opportunity to speak for 15 minutes (thankfully without slides) about the angel, venture capital and growth equity investing landscape. No-one who knows me would ever give me that air time…

Peter led off and did an great job talking about the angel investing landscape and the do’s and don’ts of approaching angel investors. Peter is the co-author of Venture Capital

We Sell the Ultimate Commodity – Money

Founder Liquidity and Growth Equity

Founder LiquidityI’m seeing more and more growth equity financings come to market with an over-sized component of the financing allocated to existing shareholder liquidity. I’ve seen enough of these transactions to consider it as a trend and to wonder what is motivating it.

Founder Liquidity in Context

Whereas liquidity isn’t typically a feature of venture financings, it is  often – but not always – a feature of growth equity financings. A modicum of liquidity for key management team members or founders can act as lubricant for a growth equity investment, particularly where the management team founded and has successfully bootstrapped a successful business.

Founder Liquidity and Growth Equity

Finding harmony between advice and self-interest

advice and self-interestI just wrapped one of those calls where I had the opportunity to give advice to an entrepreneur that runs counter to my short-term interests. In this case, it is a story of a first-time entrepreneur who has built a $7 million revenue business and is wrestling with the decision whether to take growth capital or sell the business. He owns the vast majority of the company and he has a fair offer from a strategic buyer that emerged during the course of his exploring financing alternatives.

After meeting yesterday (our third meeting or so), I committed to outlining how a growth equity investor would structure an investment transaction for his business.

Finding harmony between advice and self-interest

What is an entrepreneur to do when restrictive covenants become restrictive

Restrictive Covenants - HandcuffsRestrictive covenants are standard features of venture capital, growth equity and private equity transactions although each investor type has its own standards. Restrictive covenants are the actions a company cannot take without investor approval. A short list of typical restrictive covenants includes:

What is an entrepreneur to do when restrictive covenants become restrictive

Basics of Unit Economics Analysis

When an investment passes our first-screen at Meritage Funds, the first deep-dive we typically do is on the unit economics of the business. Unit economics are the fundamental financial building blocks of a business. If you can pin down the unit economics, you can determine contribution margins, break-even points and perform ROI calculations all of which can help to determine whether a Company’s economic engine works. Without an understanding of unit economics, predicting whether a business can be profitable in the long-term is all guess-work.

Basics of Unit Economics Analysis

Growth Equity Investors are Hedgehogs; VCs are Foxes

Growth equity is increasingly being recognized as an investing discipline that is separate and distinct from venture capital. That being the case, how does one distinguish between a venture capitalist and a growth equity investor. In my mind, growth equity investors are hedgehogs; venture capitalists are foxes. Allow me to explain.

Growth Equity Investors are Hedgehogs; VCs are Foxes