The Exchanges

Q In terms of that outcome, how should they approach the valuation game?

A Well, it's all about anchoring. So when, when an acquirer asks you that, The goal is to come up with a valuation that's way higher than what you would take, but not so high that, that the acquirer hangs up on you. It's all about anchoring. So you want to anchor high. If you don't anchor high, then the buyer will try and anchor low, right? So, so your goal is when you're asked that question, even if you're not asked, your goal is to anchor high in, in your language, in, and you don't actually have to give a number to anchor high. You can anchor high by saying that you have Significant interest in the company, and it's urgent, and you have term sheets you're expecting, and, or you can actually give enough. So with the spinner, we were asked what our number was, and we, and I remember, I was sitting in the boardroom with AOL, and I, I said, five hundred million. Now, first, what was that based on? Nothing. It was just, it was just, I said it with conviction. I remember, I looked the, uh, the CorpDev person in the eye when I said it, and he looked down first, and He said, give us a minute. And we had this crazy negotiation where he came back with two hundred and fifty million. Now remember, I've anchored high now. I would have taken two hundred and fifty million, but because I'd anchored high, we ended up negotiating around my anchor. So we ended up with three hundred and twenty mi…

AI assessment note: “Well, it's all about anchoring. So when, when an acquirer asks you that”

Q In terms of that outcome, how should they approach the valuation game?

A Well, it's all about anchoring. So when, when an acquirer asks you that, The goal is to come up with a valuation that's way higher than what you would take, but not so high that, that the acquirer hangs up on you. It's all about anchoring. So you want to anchor high. If you don't anchor high, then the buyer will try and anchor low, right? So, so your goal is when you're asked that question, even if you're not asked, your goal is to anchor high in, in your language, in, and you don't actually have to give a number to anchor high. You can anchor high by saying that you have Significant interest in the company, and it's urgent, and you have term sheets you're expecting, and, or you can actually give enough. So with the spinner, we were asked what our number was, and we, and I remember, I was sitting in the boardroom with AOL, and I, I said, five hundred million. Now, first, what was that based on? Nothing. It was just, it was just, I said it with conviction. I remember, I looked the, uh, the CorpDev person in the eye when I said it, and he looked down first, and He said, give us a minute. And we had this crazy negotiation where he came back with two hundred and fifty million. Now remember, I've anchored high now. I would have taken two hundred and fifty million, but because I'd anchored high, we ended up negotiating around my anchor. So we ended up with three hundred and twenty mi…

AI assessment note: “Well, it's all about anchoring. So when, when an acquirer asks you that”

Q the kind of basket approach to portfolios instead of having it all in one. Uh, but I would love to discuss one element that you've mentioned before, and it's kind of particularly poignant given your operating past also, and that's kind of the, the founder and VC perspective. So I'd love to hear your thoughts on whether founders can really trust their VC. You've been both. What are the thoughts?

A Well, I think it, the easy answer is it depends, right? It really depends on the VC and the situation. So I always think about, you know, when I talk to entrepreneurs, uh, I sometimes will say, you know, we're, we're in the process of getting to know each other. I'll say, listen, can you imagine telling me a deep personal secret and, and our, does that make you nervous? How do you feel that we talk about that? And I want to be in a place where my VCs are comfortable telling me things that they want to keep private. And, you know, part of what I do is, is therapist. And if you don't trust your therapist, you can't actually be effective. And so, you know, there are moments when you shouldn't trust your VC and those moments should be called out. They shouldn't be mysteries before I've invested in you. I'm going to try and get the best deal I can, and you're going to try and get the best deal you can as an entrepreneur, and we're not going to be aligned. Once we invest, we seek to be aligned in every possible way. There are some other areas where we're less aligned. I tweeted something about this yesterday. One percent of the time, I find myself out of alignment with an entrepreneur at some point in the process. It's so rare. Around M&A, sometimes VCs want entrepreneurs to sell more rapidly, and other times they want them to go for it, and these may be These desires are being confl…

AI assessment note: “the easy answer is it depends, right? It really depends on the VC”

Q the kind of basket approach to portfolios instead of having it all in one. Uh, but I would love to discuss one element that you've mentioned before, and it's kind of particularly poignant given your operating past also, and that's kind of the, the founder and VC perspective. So I'd love to hear your thoughts on whether founders can really trust their VC. You've been both. What are the thoughts?

A Well, I think it, the easy answer is it depends, right? It really depends on the VC and the situation. So I always think about, you know, when I talk to entrepreneurs, uh, I sometimes will say, you know, we're, we're in the process of getting to know each other. I'll say, listen, can you imagine telling me a deep personal secret and, and our, does that make you nervous? How do you feel that we talk about that? And I want to be in a place where my VCs are comfortable telling me things that they want to keep private. And, you know, part of what I do is, is therapist. And if you don't trust your therapist, you can't actually be effective. And so, you know, there are moments when you shouldn't trust your VC and those moments should be called out. They shouldn't be mysteries before I've invested in you. I'm going to try and get the best deal I can, and you're going to try and get the best deal you can as an entrepreneur, and we're not going to be aligned. Once we invest, we seek to be aligned in every possible way. There are some other areas where we're less aligned. I tweeted something about this yesterday. One percent of the time, I find myself out of alignment with an entrepreneur at some point in the process. It's so rare. Around M&A, sometimes VCs want entrepreneurs to sell more rapidly, and other times they want them to go for it, and these may be These desires are being confl…

AI assessment note: “It really depends on the VC and the situation.”

Q I do want to discuss one final element, and we mentioned transparency earlier. I'd love to apply that to this exit scenario and discuss, is it worth being open and transparent with your team about potential exit situations, or is that merely a distraction?

A I wouldn't tell the team until you have a deal. Like, you're, you know, the founders just have to bear this burden on their own, and I remember with, in fact, there's a recent M&A Transaction that I have been involved in with one of our companies, and I remember telling the founder, warning the founder, that once they actually go down this path of, you know, enabling M&A and actually being promised an offer, it's almost impossible to go back to running the company, and that psychology, even though I told the person this, I knew that the psychology would be hard to change, even though I gave advance warning, and sure enough, I wasn't able to change the founder. They ended up selling for You know, at a price that I think was considerably lower than they could have gotten, but they crossed over. And, and the idea of going back to operating was that idea vanished.

AI assessment note: “I wouldn't tell the team until you have a deal.”

Q How do you perceive the founder VC relationship, say, evolving in the future? We've seen, obviously, the move to Founder friendly VCs. Everyone's founder friendly. How do you perceive it evolving in the future? Will we see kind of a, even more of a kind of emergence between the two?

A There is hopefully a trend towards more transparency between founders and VCs so that it's actually not a mystery when, when you're not on the same page. What I, what I, what I can't stand, when I was an entrepreneur, what I couldn't stand about my working with my VCs is they were just, they were open about the things that were transparent. Troubling them about me. We had a horrible situation, Dave and I did, when we started Spinner. We had a VC who was whispering, I think I wrote about this, whispering in Dave's ear bad things about me, and whispering in my ear that things were okay. Like, not thinking Dave and I would eventually figure it out, which we did. I think movement towards greater transparency between founders and VCs is a positive element, and I think it's happening.

AI assessment note: “trend towards more transparency between founders and VCs”

Q And then how did you make the entrance in in the first place?

A Well, you know, like, it's funny, you know Jenny, my My other partner, Jenny, Dave, and I are all serial entrepreneurs, and you know, I thought I'd be an entrepreneur once I started the process. I thought I'd be one the rest of my life because it's, uh, it was my calling, but being an operator is the most stressful thing you'll ever do, and, and so I think it can evolve you, but it can also make, make it hard to experience the other pleasures in life, and so I, so Dave and I started two companies together with one of the first internet music companies called Spinner, and We had a great outcome, and we sold it for three hundred twenty million dollars in 1999, and, and then we started a second company, which was a mass market dark net that became Crackle, and we sold that to Sony. I'm giving you the short version of all these things. They were wonderful journeys. One was a rocket ship to the moon. The second one was a pivot. They were, certainly, it's the most stressed I've ever been in my life, and after we sold the second company, I kind of literally broke down and cried for a day.

AI assessment note: “Dave and I started two companies together with one of the first internet music companies”

Q We spoke about the role of the board member there, though. So I'd love to discuss kind of your views of the role of the board member, and particularly with yourself and being rather self-reflective. I'd love to hear how you've seen yourself develop as a board member over your time and over the funds with Freestyle. So how have you changed and developed as a board member?

A Jenny is a much better board member than I am. She is. So, you know, she, she's, I'm going to lift her up because it's true. She's, I'll compare my role to Jenny's because we're so different. So I am more board member. So what is my, what are my responsibilities? And then which of those do I shirk? Uh, you know, because I'm, my roots are as our founder, right? So I am a good generalist board member. I, um, I focus, you know, sometimes on metrics, sometimes on therapy, sometimes on the interpersonal stuff and the stresses that go with being an entrepreneur. I do try and represent my fellow shareholder's And so sometimes representing the shareholders does come into conflict with being a supportive, emotional pillar for the entrepreneurs. It happens rarely. So I've become better at both calling that out and saying to the, to the, all the parties involved that I am on the one hand, I really feel the pain of the entrepreneur. Let's say if it's something negative, but yet I still need to be forceful in pushing this, my agenda forward that maximizes the value for the company. So I guess I My evolution of all is really around my communication style and being more transparent when we actually have a conflict and I have an internal conflict. So I think shedding more light on these challenges disinfects them. And I think it allows for typically allows for a resolution that everybody can l…

AI assessment note: “My evolution of all is really around my communication style and being more transparent”

Q Can I ask, is that not your role then as a board member to either encourage them and bring them up or to replace them as a CEO and have them more as a visionary and a kind of placeholder?

A Great question. And I went through this whole process of trying to break down what does an early stage board member look like versus a later stage board member? How are they different? And also reputationally, like how important is reputation in all this? So I can make a short-term decision that would actually maximize shareholder value for that company, but I could Destroy my reputation doing it, and so then that, so if I look at my ultimate, my ultimate duty is to my LPs, so short-sightedly I can say, well, you know, I'm gonna fight this acquisition and maybe maximize shareholder value for this company, but that can damage my reputation to the point where it impacts my, my ability to create great returns to my LPs longer term. So it's a very, a very, like, so that's the clinical, uh, Kind of look at my, at the challenge for me, but then there was the human approach. You know, I really do relate to what these operators are going through, and I really always err on the side of support, and so even though I'm expressing my strong opinions, I'm openly going to support what the founders want, because the history of replacing a founder at the siege stage with a new CEO, that historical performance of that experience is so poor that I can't imagine, it would have to be almost a fraud situation Situation for me to do that versus kind of replacing a founder who wanted to sell early.

AI assessment note: “I'm openly going to support what the founders want, because the history of replacing”

Q We spoke about the role of the board member there, though. So I'd love to discuss kind of your views of the role of the board member, and particularly with yourself and being rather self-reflective. I'd love to hear how you've seen yourself develop as a board member over your time and over the funds with Freestyle. So how have you changed and developed as a board member?

A Jenny is a much better board member than I am. She is. So, you know, she, she's, I'm going to lift her up because it's true. She's, I'll compare my role to Jenny's because we're so different. So I am more board member. So what is my, what are my responsibilities? And then which of those do I shirk? Uh, you know, because I'm, my roots are as our founder, right? So I am a good generalist board member. I, um, I focus, you know, sometimes on metrics, sometimes on therapy, sometimes on the interpersonal stuff and the stresses that go with being an entrepreneur. I do try and represent my fellow shareholder's And so sometimes representing the shareholders does come into conflict with being a supportive, emotional pillar for the entrepreneurs. It happens rarely. So I've become better at both calling that out and saying to the, to the, all the parties involved that I am on the one hand, I really feel the pain of the entrepreneur. Let's say if it's something negative, but yet I still need to be forceful in pushing this, my agenda forward that maximizes the value for the company. So I guess I My evolution of all is really around my communication style and being more transparent when we actually have a conflict and I have an internal conflict. So I think shedding more light on these challenges disinfects them. And I think it allows for typically allows for a resolution that everybody can l…

AI assessment note: “My evolution of all is really around my communication style and being more transparent”

Q I do want to discuss one final element, and we mentioned transparency earlier. I'd love to apply that to this exit scenario and discuss, is it worth being open and transparent with your team about potential exit situations, or is that merely a distraction?

A I wouldn't tell the team until you have a deal. Like, you're, you know, the founders just have to bear this burden on their own, and I remember with, in fact, there's a recent M&A Transaction that I have been involved in with one of our companies, and I remember telling the founder, warning the founder, that once they actually go down this path of, you know, enabling M&A and actually being promised an offer, it's almost impossible to go back to running the company, and that psychology, even though I told the person this, I knew that the psychology would be hard to change, even though I gave advance warning, and sure enough, I wasn't able to change the founder. They ended up selling for You know, at a price that I think was considerably lower than they could have gotten, but they crossed over. And, and the idea of going back to operating was that idea vanished.

AI assessment note: “I wouldn't tell the team until you have a deal.”

Q How do you perceive the founder VC relationship, say, evolving in the future? We've seen, obviously, the move to Founder friendly VCs. Everyone's founder friendly. How do you perceive it evolving in the future? Will we see kind of a, even more of a kind of emergence between the two?

A There is hopefully a trend towards more transparency between founders and VCs so that it's actually not a mystery when, when you're not on the same page. What I, what I, what I can't stand, when I was an entrepreneur, what I couldn't stand about my working with my VCs is they were just, they were open about the things that were transparent. Troubling them about me. We had a horrible situation, Dave and I did, when we started Spinner. We had a VC who was whispering, I think I wrote about this, whispering in Dave's ear bad things about me, and whispering in my ear that things were okay. Like, not thinking Dave and I would eventually figure it out, which we did. I think movement towards greater transparency between founders and VCs is a positive element, and I think it's happening.

AI assessment note: “trend towards more transparency between founders and VCs”

Q No, I agree, and I hope it happens much further, actually. But we discussed your exit with Spinner there, and so I do want to discuss that. And Potentially the exit scenario. So with this in mind, when is the right time then for a founder to throw in the metaphorical towel, so to speak?

A Well, I'm going to answer that with an example because I think it's going to be more interesting. So last, last year we, we had a company go through the M&A process and we were surprised by it because we were on the page of this company being a billion dollar company. We really were. And all the investors were. And the founder had a rough experience raising capital from outsiders, and so the insiders all said we would bridge the company, and we were excited about it, and, and the founder kind of rejected that offer, and ended up selling at a, at a price that was quite low by any standard. And so it was a really tough place to be in, because I gave the founder my undying support, and I really did. Yet, I communicated in very strong terms what I wanted to happen, and it was the first time, I think, that I really was like, I fucking wish I was running this company. Um, now, I'm not arrogant enough to say that I, maybe I would have totally fucked it up, but I felt like I might have found a path versus throwing in the towel. So in this case, I think the entrepreneur, again, easy as an outsider looking in, I believe the entrepreneur, for, uh, his or her own personal reasons, threw in the towel early because they were having a, a moment in time That was very negative around fundraising.

AI assessment note: “threw in the towel early because they were having a, a moment in time”

Q No, I agree, and I hope it happens much further, actually. But we discussed your exit with Spinner there, and so I do want to discuss that. And Potentially the exit scenario. So with this in mind, when is the right time then for a founder to throw in the metaphorical towel, so to speak?

A Well, I'm going to answer that with an example because I think it's going to be more interesting. So last, last year we, we had a company go through the M&A process and we were surprised by it because we were on the page of this company being a billion dollar company. We really were. And all the investors were. And the founder had a rough experience raising capital from outsiders, and so the insiders all said we would bridge the company, and we were excited about it, and, and the founder kind of rejected that offer, and ended up selling at a, at a price that was quite low by any standard. And so it was a really tough place to be in, because I gave the founder my undying support, and I really did. Yet, I communicated in very strong terms what I wanted to happen, and it was the first time, I think, that I really was like, I fucking wish I was running this company. Um, now, I'm not arrogant enough to say that I, maybe I would have totally fucked it up, but I felt like I might have found a path versus throwing in the towel. So in this case, I think the entrepreneur, again, easy as an outsider looking in, I believe the entrepreneur, for, uh, his or her own personal reasons, threw in the towel early because they were having a, a moment in time That was very negative around fundraising.

AI assessment note: “I believe the entrepreneur, for, uh, his or her own personal reasons, threw in the towel early”

Q Can I ask, is that not your role then as a board member to either encourage them and bring them up or to replace them as a CEO and have them more as a visionary and a kind of placeholder?

A Great question. And I went through this whole process of trying to break down what does an early stage board member look like versus a later stage board member? How are they different? And also reputationally, like how important is reputation in all this? So I can make a short-term decision that would actually maximize shareholder value for that company, but I could Destroy my reputation doing it, and so then that, so if I look at my ultimate, my ultimate duty is to my LPs, so short-sightedly I can say, well, you know, I'm gonna fight this acquisition and maybe maximize shareholder value for this company, but that can damage my reputation to the point where it impacts my, my ability to create great returns to my LPs longer term. So it's a very, a very, like, so that's the clinical, uh, Kind of look at my, at the challenge for me, but then there was the human approach. You know, I really do relate to what these operators are going through, and I really always err on the side of support, and so even though I'm expressing my strong opinions, I'm openly going to support what the founders want, because the history of replacing a founder at the siege stage with a new CEO, that historical performance of that experience is so poor that I can't imagine, it would have to be almost a fraud situation Situation for me to do that versus kind of replacing a founder who wanted to sell early.

AI assessment note: “history of replacing a founder at the siege stage with a new CEO, that historical performance of that experience is so poor”

Q And then how did you make the entrance in in the first place?

A Well, you know, like, it's funny, you know Jenny, my My other partner, Jenny, Dave, and I are all serial entrepreneurs, and you know, I thought I'd be an entrepreneur once I started the process. I thought I'd be one the rest of my life because it's, uh, it was my calling, but being an operator is the most stressful thing you'll ever do, and, and so I think it can evolve you, but it can also make, make it hard to experience the other pleasures in life, and so I, so Dave and I started two companies together with one of the first internet music companies called Spinner, and We had a great outcome, and we sold it for three hundred twenty million dollars in 1999, and, and then we started a second company, which was a mass market dark net that became Crackle, and we sold that to Sony. I'm giving you the short version of all these things. They were wonderful journeys. One was a rocket ship to the moon. The second one was a pivot. They were, certainly, it's the most stressed I've ever been in my life, and after we sold the second company, I kind of literally broke down and cried for a day.

AI assessment note: “I'm giving you the short version of all these things.”