The Exchanges

Q the coming months, is it okay to just ask nicely any change? It's hard to get the money for the round. Is it, is it okay? Is that, is that, I know Bessemer doesn't have any issues, but is it okay to ask? And should you, should you not ask with a nice smile and not be a jerk? Should you ask if there's any issues or not there yet?

A I think everything's on the table. Um, I think the more insightful questions though up front are fun size, fun timing, reserve models, and, um, and types of LPs. I think those will give you the health, um, status kind of sense up front. Every VC is going to say, of course, the money's there, so I'm not sure you're going to get a candid answer, but I think the data on those earlier questions will actually give you the probabilistic model, um, to, to, to figure it out yourself. Um, and if they're, you know, if they just closed a fund but haven't done a capital call on it, um, and our first time fund, like there's some risk there. If they're at the end of a fund and they were about to go out fundraising, then, um, then it really matters what the reserve models are because If they're off on that math, there may not be money available, and so I think those are the things to really push on.

AI assessment note: “I think everything's on the table. Um, I think the more insightful questions though”

Q 50%, right? It's hard to even tell on this chart. It's 26. I mean, it's low, but like, it seems like a long time ago, but like the mood was so gloomy in February 2016. People thought it was over. A leading VC who I love was throwing unicorns at the founder saying that unicorns were dead. Uh, it seemed pretty bad for like 13 days in 2016, didn't it?

A Yeah, that was a ServiceNow and LinkedIn missed their quarters. There was some fear that it was going to roll through, fell 30%, and we'd fully recovered by December. It was a, it was sort of a false crash on, um, signals that, uh, people overread. Um, uh, this by contrast is the fastest 30% plus decline, um, by the broad market in history. I mean, this beats the, the great depression, the oh, wait, the dot com, et cetera. Um, so the, the magnitude and speed of this pullback across all sectors, not just tech, is unprecedented. Uh, the, the good news is that it is driven by this external, um, shock that will have a finite end. Uh, it, it's not the unknown like the housing crisis was or the, or the Great Depression where you had a whole economic, you know, complex equation unwind. In this case, a vaccine will ultimately solve this. The problem is that will probably take, you know, experts are saying nine to 18 months to mass produce, and so you could have this huge economic lag that's dependent on that, and then a, a rebound cycle that's unknown, uh, even after that, and so, um, I think from a total market perspective, uh, you know, we have to be pretty conservative in our expectations, but from a multiple perspective, I think that the thing to call out here is, even after this pullback, We're still looking at, you know, eight, nine, 10 X multiples in the public markets on revenu…

AI assessment note: “Yeah, that was a ServiceNow and LinkedIn missed their quarters.”

Q accelerator right now, right? Is, is there, is there any, I mean, of course there isn't. Is there any shame in just following up in 30 days? Do you get a pass if, if it's a challenging time? I mean, I, I, I, I, I can't pay any attention to any of this stuff. So what's your advice to folks in structured programs? Like, because this has pros and cons.

A It does. And, uh, I think to the extent possible, hit pause. Um, if you don't have discussions underway, I think maybe think of it as bimodal and two extremes. If you've got discussions underway and enough momentum to complete it, hit it hard and try to like finish immediately. And, uh, and don't worry about optimizing price or valuation or terms bluntly, just get it done and think of that as speed over greed. If you're not in the process, Uh, I think it's going to be really hard to start an outside lead process in the next few weeks and almost, uh, pointless. And so give it a few weeks to play through. And what I believe you'll find is first time will unlock. You'll be able to get the meetings and then over time, uh, you'll find that dollars unlock more and that you'll be able to find more of a match on valuation terms. And it's really hard to close a net new financing with people you've never met in person. And so Uh, I, I would have the mentality that you're, it's gonna be open as a process until things return to somewhat in-person meetings, but if there's some prior contact, it may be possible.

AI assessment note: “I think to the extent possible, hit pause.”

Q more opportunistic than a bridge, but you get my point. Like, so I guess the question is, can I, if I'm, if I'm, Byron, if you're my investor, can I send you an email today and say, I just want to talk about a bridge? Is that, do you want to have that discussion? Can we have an honest discussion and should all founders do that with their investors now?

A Um, so, uh, certainly, uh, I would hope that you can always have those discussions with your investors, and usually it's, it's the text or the quick call saying, hey, here's what I'm thinking. Um, and what the investors will say, will say back is, um, let's go through the scenarios first to understand just what the needs are, and let's, uh, and for companies that have a large balance sheet, many of our companies are still doing top off rounds, and the discussion is, is look, if you can get that outside, you know, top off done, We'll participate, but let's go out and get, you know, a pile of net new cash while the getting's still good. Those were discussions that were in process, and we've got, you know, several deals that are closing right now that are, that are for those top offs. Um, for companies that don't, and that can be large or small, for companies that don't have those underway, um, the next posture is look, if there's value in the business, assume a bridge is there, but let us look at what the internal options are first, meaning Um, how much cash do we have? What are our debt options? What are the, um, you know, what are the, uh, cost containment measures we can take, et cetera, so that we don't necessarily need to use that mulligan right away. Um, but we still have that in reserve and we can do other things. Um, for the companies that maybe were, were right about to …

AI assessment note: “I would hope that you can always have those discussions with your investors”

Q If you haven't, if you haven't seen any, there's no issues right now in order to be able to call it. You think you're still able to call it?

A So yes, right now that that's true. Um, and it's, it's intended to be insurance. So to be able to truly use that insurance, it really helps to be in your account. And, uh, and so paying a little bit of a carrying cost on that interest rates are really low, but paying the carrying cost to make sure you have access. Um, we think is, is worth it. In oh eight, we did see several venture debt providers, not the tier one folks, but the level below them, um, block lines or recall lines. And, uh, in, in one very painful case in our portfolio, it killed the company, a company that should not have died because of the complexity and it had a broad investor base and it created the storm where we couldn't single handedly fill the gap and, and save them given all the dynamics going on. And the venture debt provider took the company down As part of this. And so, uh, you know, for those of you that can do equity financings, absolutely, uh, do equity first, uh, because, you know, job one of a CEO or CFO has never run out of money and, um, and equity at least, even if you have to price it at terms you don't love, at least it's permanent. The next best is balloon capital that these flex products, Jason, that you're alluding to. Uh, if you can get, you know, equity like characteristics, so maybe you're not having to service the debt for two years or three years. And you can not only get through th…

AI assessment note: “So yes, right now that that's true.”

Q say my business is okay today, and I did the last round at And I was at four million ARR, and I'm at 12 today. Like, is flat a default if you're doing okay? Like, is it just simplest to default to flat if you've made progress, uh, or if there's not much lower, is, is, or is that not, or is that off the table in these crazy times?

A Yeah, I mean, the, the adage in the last pullback probably applies here, which is flat is the new up, that, uh, if, if you've raised, you know, recently, and you can do a top off or do another round, um, Close to your last round and that that's probably a win in the short term. If you made a ton of progress, then of course up rounds will still be readily available, but Just accept that those multiples were, were pretty fantastic before and, um, and in an objective sense, they still may be really good, even if, if there's a flat round to be had there. I think on the convertible notes and things, uh, it's just, it's tough because remember that is debt. It will make your next round harder. And so if you end up having a fairly low valuation and, um, a large bridge, then You set yourself up for what could be a roughnecks financing, and so my, my preference, if I'm in your shoes, would be to do priced capital, or at least keep the ratio of, of bridge capital to total valuation low, so that it doesn't create much of an overhang for the next round. But of course, if that's the way you're going to get a round done now, and you need the capital, take whatever you can get, go build a great business, and everyone will do just fine in the end.

AI assessment note: “flat is the new up, that... that's probably a win in the short term”

Q that sometimes even, especially if you're not on 12 boards and you work from home, you actually have more time for discovery, like a VP and associate or even a new partner, but, but, but the deals may take much longer and you may even get more meetings than you might that lead nowhere. Any thoughts on time management? Is it possible accidentally people might waste more of your time?

A It absolutely is, and I would say that it's a false leading indicator that your sales teams may be experiencing now as well. Some of our companies have reported a surge of demos, um, because some of their customers are sitting at home with more open calendars, and so they're tire kicking to learn. I think well intentioned, but the, the odds of those deals converting to purchases may be much lower. So you may have this This, um, spike in activity and the conversion rate may be much lower than you would have normally expected. The same could be true in venture for, you know, late April and May, which is a combination of some firms that aren't really in business, um, but are, uh, saying they are, and they're trying to keep the motions going, even though they don't have reserves or they were just about to close a fund that now isn't, isn't closing. Um, and I think for the, for the stronger firms, um, what you'll find is that Absolutely. People will be, will engage again and be, um, and be looking at new deals and active. Um, and in many cases, they may be reworking their strategies or what we call roadmaps at Bessemer for, um, you know, a work from home environment or these sorts of things. So, uh, I think it's reasonable to expect that as the time opens up, the, the, the checkbooks may lag a little bit.

AI assessment note: “It absolutely is, and I would say that it's a false leading indicator”

Q bunch of your time is just running a multi-billion dollar institution, right? You have help, but, but it takes time. Then there's your existing portfolio and how much time typically would you have for new deals and has that ratio changed the last two? Just to give folks, is it, do you have a third, a third of your time been compressed to 10% or it's gotta been compressed, right?

A Yes. Um, actually I think you nailed it. Exactly. One of the, uh, one of the benefits of new investors when they come into the market is you tend to have an open calendar. And so they spend a lot of time on net new deals. Um, maybe, you know, two thirds or more. Um, I'm, I'm kind of the reverse. I probably spend a third of my time typically on net new deals. And, and a lot of that is just the fun learning and, You know, sitting in the audience at events like Sasker and just absorbing, um, and doing the mine expansion. A lot of it is a meeting with new companies. Um, that's the, that's the piece that needs to shrink, uh, in the short term right now is, um, obviously I've expanded hours, uh, in the day to address this. So a lot of evening and weekend work as well, but, uh, current portfolio and firms certainly take priority. Uh, we've done a lot to Jason's point on, uh, internal firm things as well. Certainly one of the benefits of a, of a multi-decade platform and a multi-billion dollar fund is that we have tenure fund cycles. And so, um, we don't have the, the business model volatility on our revenue side that, that our businesses do. Uh, but we certainly have a lot of volatility in terms of portfolio values reserved, those sorts of things. We have, uh, calls with our limited partners and give them updates. We have, um, internal all hands calls to reassure people. Um, you know,…

AI assessment note: “I probably spend a third of my time typically on net new deals.”

Q Um, and what if I want to raise like, you know what? March is okay, Byron. Like, you know what? I I'm a work from home product, but I don't need to. I know you sort of hit this, but what if I, what if I have a hundred days of cash and what if I feel good about my business? Like what's your simple advice on those two scenarios?

A Yeah. Uh, Hit it hard if you need to raise, um, now and, uh, and also try to do anything you can for cost containment and also see what, um, top off tuck in, um, bridge or debt options exist. I would say pursue every option possible because, um, the name of the game right now is creating multiple viable options to then pick among them. Uh, but survival is essential. Um, if you want to raise but don't need to, Um, I would say, you know, absolutely don't be shy about it and get out there, but, uh, I, I think, you know, a, a, in the very short term optimization, two weeks from now or three weeks from now, maybe, uh, it may be cleaner to run a mini process than trying to hit it right now. Um, and then, uh, the message in terms of how you're thinking through it, if you, if you, you know, raised around last year, have grown a lot, but are open to extending that round for a great partner, Um, I, I think there's a lot of receptivity to that. It's clean. It's easy. Um, you're sort of diffusing the valuation question up front, and, and we have a lot of those discussions actually that are, that are in process now or that are starting up that we're open-minded to. Um, if it's a net new process with net new people at, at TBD terms, um, absolutely, you know, dive in if, if you want to, um, just expect that it may, it will be slower and that, You both may want to meet in person to make this t…

AI assessment note: “Hit it hard if you need to raise... If you want to raise but don't need to”

Q And things and things that I love as a founder that I see out there, just to finish the, the lighter capitals, Tamiya capitals, Clearbanks, all these interesting things. Are you, without picking any vendor in particular, are they still going to be open for business the next six to eight months, or are they going to be slowing way down too?

A So I think the, it's safe to assume that the new entrance or the fringe entrance in most cases are going to be the ones most impacted. Um, that applies to venture firms, debt firms, corporate venture firms, et cetera. There, there's, uh, even potentially the crossover hedge fund investors and the like, uh, there's, there's a whole group of folks that came into this asset class or these, these combination of asset classes because of the 11 years of great returns. And, ah, and they're not experts and or they don't have long-term commitment or capital base to go after it. And so I would be most worried about those folks and the, the people that are the longstanding stable partners, um, you know, the Silicon Valley banks, the Comericas, et cetera, of the world, um, are, are in here through the cycles, and, and I think those are worth the premium you're gonna pay. Give them a little extra kicker in, in fees, warrants, or, or interest, and, ah, and make sure you've got the best.

AI assessment note: “new entrance or the fringe entrance in most cases are going to be the ones most impacted”

Q does that mean? How do I, and maybe with like one or two scenarios for my revenue, what if my revenue hasn't shrunk that much? Right. Um, do I lay off half my, half my company Byron or like, how do I think about 18 Because there's so many scenarios, A, B, C, D, E, F. How the heck do I even think about 18 months beyond the next quarter?

A Yes. So, um, I'll try to come up with a few of the variables that will probably be leading indicators for, for, um, how directly you're hit by this. And then there's a lot of nuances for business, but, um, uh, obviously one of the overlays is geography, uh, uh, China early look like, uh, one of the early, um, it was going to be hit the hardest. They've actually, uh, already started to stabilize and their, and their economy will likely build out of this next few quarters, but New York and California are directly hit and probably much of the US now. And so for us focused businesses, which is probably many on the call and, and Western Europe, um, assume that you're in a direct hit, uh, industry job, uh, geography. The next is industry vertical. Um, you know, we talked a little bit about, uh, you know, the success that you're seeing for that zoom is seeing, and certainly a slack or a Peloton or a DocuSign or a box will probably benefit from this. Um, but We also, uh, read about, you know, trip actions doing meaningful layoffs or Airbnb needing to scramble for cash. Um, there, there's a whole class of, uh, companies that are serving hospitality, transportation, um, you know, the Gartner groups that we were talking, uh, earlier about that are all experiencing just complete dislocations, revenue that, you know, could trend to zero for a couple of months. Uh, so certainly if you're in …

AI assessment note: “I'll try to come up with a few of the variables that will probably be”

Q both venture debt and alternative things? And I love all these products, right? I'm a fan of all of it. Having used it, I like to raise it and not use it. That's what I, one thing I learned from John Doerr, raise it and don't use it for debt. But where are we? What is this? Is this over? Are the glory days of alternative to venture on pause?

A Uh, so, uh, very timely, um, and extremely active point of discussion in our CFO forums and, uh, the CEO discussions. In fact, yesterday we had an internal call with all of our CFOs and the CEOs of the three top, uh, debt providers, including Silicon Valley bank, uh, if on these exact topics and the, um, Um, I think the conventional wisdom there, which we would tell our CEOs, which, um, the debt providers may or may not like, um, is that the financial system is strong. There, there isn't, um, this isn't the O eight dislocation that was really generated from the banks out. Um, but take nothing for granted. And, uh, in the old, you know, possession is nine 10th of the law notion. Uh, if you anticipate needing to spend that venture debt in the next We would strongly encourage you to draw it down now. Have it in your account.

AI assessment note: “financial system is strong. There, there isn't, this isn't the O eight dislocation”

Q Well, that's the end. You approved two to three already, right? And no, don't, there's no shame in asking the question of your investor. Like ask, right?

A Absolutely. And quite the opposite. I think that that showing that you're on top of it, going in with the scenarios and having a clear point of view of this is what, what it takes. And, and those bridges are smaller than they normally would be because you're going through like, Hey, how do we get through this time period? So that then we can go out and do a raise, you know, second half of the year or those sorts of things. Um, but, uh, but those dialogues are absolutely happening. And, uh, and a related question, what I'd say is for those outside numbers. And one of the questions that have come in is, is there, you know, are the valuations, uh, bottoming out and, you know, eight or nine months or how does this play out? I think it's less that VCs are trying to time it. Um, I don't think any of us would be in this business if we were market timers, we'd be hedge fund folks, but it's that, um, just the natural inertia of private markets. Uh, it takes longer to adjust. You know, private markets can fall 30% in two weeks. The public, the public's can. The private side hasn't adjusted to that, and I think that's what folks, uh, you know, one is time. They're just, they're, they're doing triage internally, but then come mid-April, I think people will be, um, new deal minded. It's just that, that, that market cycle will need to come through to figure out kind of what is fair value aga…

AI assessment note: “Absolutely. And quite the opposite. I think that that showing that you're on top”

Q one? This is, March 16th was like, feels like months ago, but this was a Twitter poll. Are you deploying the same capital as in the past? 30% said it, and then 70% said less. Kind of like, Deepak this for us. What's going on at Vessemer, in the world in general? What's changed in terms of how many checks are going to be written this year in check size?

A Absolutely. Well, um, thank you for having me back, Jason, and, uh, great to at least virtually be back with the Sastra community, and, um, I'll just say your intro is very kind, but, um, probably most relevant to this, let me say that I've got a lot of empathy for where founders are at right now. As Jason alluded to, we were both Um, in your shoes back in the early 2000 going through this as founders and CEOs, uh, and I had a term sheet pulled on me. I had to do layoffs. I had to go through this, um, from your side of the table, so to speak. And now, um, on the, on the investor side, I, I went through the, the 2008 cycle as a, as a partner at Bessemer and a board member to many companies, uh, and now, uh, also leaning on the experience of my partner. So we'll try to bring that to bear. Um, but maybe responding to the, the tweet on, uh, you know, the open for business, uh, business as usual comment and this, um, I think the idea that, uh, uh, it's business as usual is, is crap. Um, I, I don't think any venture firm is approaching it that way. And I think anyone that's suggesting that is, is misleading, um, at best. Uh, I do think a lot of firms are still very much open for business though. However, uh, you have to understand that current portfolio gets priority. Uh, that'll be a benefit when you are in the portfolio of a venture firm, but the triage right now is non-trivial, an…

AI assessment note: “current portfolio gets priority... triage right now is non-trivial”