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Remembering David Freschman

I was saddened to learn last week of the death of David Freschman to pancreatic cancer.  David was a friend to many in the venture community and was one of the pioneers of venture capital in Delaware and in the Mid-Atlantic region.  

As the founder and continual sponsor of Early Stage East, an important regional venture event, David used his force of personality to push this region and its entrepreneurial and venture ecosystem to where it is today even though at times he must have felt he was pushing a stubborn mule from behind.  In recent years, other people and organizations, spurred on by David's efforts to prove the viability of the entrepreneurial community, bypassed the stature of Early Stage East, yet David still ran the conference while reveling in all the other parts of the ecosystem which were finally kicking into gear.  We all kept coming to the conference because David innovated and kept it interesting and also because none of us wanted to disappoint David.  

David was a kind and good man.  We lost him too early.  Fifty-two is far too young, but David sure did not waste a moment of it.  I never heard him say a bad word about anyone and he always had genuine smile, making anyone he welcomed feel like he or she was the most important person he had seen all day.  When I first came into venture eight years ago, others made me feel like an outsider to a tight and closed community.  David made me feel like a welcome addition.  Thanks David.  

I first heard that David was sick a couple weeks ago.  We sat on a board together and he dialed into the meeting and we were all told what was happening and why he wasn't there.  On the phone he was the same old David.  Nothing was dragging him down.  

My lasting memory of David is also the last time I saw him.  He was moderating a venture panel in an obscure club near Grammercy Park in New York, and somehow the panel of five he had prepared for became a panel of eight without anyone telling him.  For some this would have ruined their flow and their prepared conversation.  For David it was just more the merrier; if five investors were a good panel then eight made a great one.  He smiled broadly, made the extra three feel welcome, let the audience know how lucky they were and then moderated the best panel I have been on in years.  That was David as we all knew and valued him.  

David we will all miss you.  Thanks for all you did for the region and for Philly.  Thank you especially from all of us who were warmed and welcomed by your smile.


Are You Ready to Run Your Business for the Next Ten Years?

I recently wrote a recommendation for an entrepreneur who I have known for a number of years.  Osage never invested in his business because it was a bit out of our scope, but I used to spend time with him discussing his business, his strategy, and his challenges.  His company had a less than successful outcome although it was ultimately sold.  Part of the recommendation is below:

In my job I watch people build businesses successfully and too often unsuccessfully and the character of a start-up entrepreneur is constantly tested through financial hardship, business setbacks, and a whole myriad of unpredictable outcomes.  I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do.  I have seen many in less challenging situations alter entrepreneurs’ behavior in unfavorable ways, but in “Tom’s” case, he stuck to his principles and ultimately found an acceptable outcome.  

Building a business takes time and can be a slog.  We all know that the rewards can be high but the challenges can also seem insurmountable at times.  We have many criteria for assessing entrepreneurs and management teams but I have come to realize that in addition to everything else, entrepreneurs need to be considered on their ability and willingness to take a ten year journey.  We are not investing in the next WhatsApp or Instagram.  We are B2B technology investors, and those businesses take time to build.  SevOne and InstaMed, two of our oldest but most successful companies to date, have had their ten year anniversaries since founding – and the founders are still at it.

Ten years is a long time, especially as a founder and CEO of a venture backed business.  Some of the things an entrepreneur needs to make this journey include:

  • A belief you are building something of real durable value.   Peter Theil talks about the durability question of “will your business exist ten years from now?”  He also suggests that to build a durable business, one needs an appropriate combination of proprietary technology, network effects, economies of scale, and strong branding.  If you are building a gap filler that you feel will be acquired quickly by one or two potential acquirers think again and go back to the drawing board.
  • A real passion for the business vision and the problem being solved or the technology being applied.  Too many entrepreneurs just think that they have identified an area where they might get rich versus an area that meets their passion.  This works in a very small number of cases where exits happen fast.  Where exits take time and rely on the building of a real business, passionless CEOs frequently don’t finish the journey.
  • A willingness to accept below market compensation for all or much of the time.  Most CEOs could be making 2x or 3x what they are making in the start-up if they were working in large established businesses.  It is easy to give up this salary for the dream of entrepreneurship in the early days, but harder to sustain below market compensation for the long run as equity can’t be used to cover personal cash burn.   Many CEOs may go from single to married to married with children during the lifecycle of their business, and their personal expenses (and the challenge of foregoing cash compensation) rise dramatically when that happens.  When entrepreneurship works, the sacrifice is well worth it.  Equity doesn’t pay the rent, but over time it can make you the landlord.
  • Strong relationships and a strong sense of self.   As I wrote above, “I saw “Tom” ride a rollercoaster and do it with his character, his family, and his identity intact – which is very hard to do.”  I do not know the statistics on failed relationships for entrepreneurs but they must be high.  Successful founders are thinking about their business 24 / 7 and are on the road constantly – with customers, investors, and partners.  This can create challenges at home and can cause relationships to fail – marriages, friendships, and partnerships.  Founders who are not seeing visible success may have even greater stresses without the promise of the brass ring to salve the hardship incurred.

If you are in a meeting with Osage and we ask you if you are ready to run this business for the next ten years – think about whether you really have the right business, the passion, and the willingness to go all in.  The risks can be extremely high, but the rewards can also be great.  We are hoping you say yes – but with eyes wide open.  At Osage, we fundamentally respect entrepreneurs and hold our portfolio CEOs in high regard because they have put all their chips on the table and work tirelessly every day to increase the odds of success.


What a Google Car Means to My Blind Son

My son Nicholas is almost twelve and he has been blind for most of his life.  For seven years he was mostly blind with a shade contrast, but he lost that five years ago and has been completely blind since then.  He goes to a school for the blind, which is working on getting him ready to be mainstreamed for high school.

Nicky is fortunate to live in the decade he is living in because technology is making his life so much easier.  He has a braille computer, which allows him to type in braille and upload it to a flash drive (and eventually the internet) in text for non-braille readers.  He can also take in content, have it translated to braille, and then read it on this computer through small pins that form a flow of braille delivered at his fingertips.  He also has all the Steve Jobs gifts of accessibility, which have been built into his iPhone and his iPad.  He manipulates those devises, is self sufficient on the phone, sends and reads texts and emails, and watches movies when he wants (or listens to them).  Books on tape through iTunes or Audible allow him to be one of the best-read people in our house.  It is amazing what enabling technologies have emerged in Nicky’s short lifetime.

None of these innovations compare to the promise of the Google car.  For a blind person, it is a life changer.  Nicky and I were driving one day listening to a discussion of the Google car on NPR.  We both listened for a while and then during a break, Nicky said to me, “Dad, when will those cars be ready?  Do you know how that would change my life?”  I looked over at this little kid – ten years old at the time – and I marveled.  I asked him, “Nicky, how did you know I was thinking the same thing?”  He grabbed my hand, which he rarely does unless he needs to be guided from one place to another, and he smiled at me.

Since he learned about the promise of the Google car, he brings it up regularly.  When I imagine Nicky as a grown up, I do not see him with a dog or a cane walking down streets and finding his way or trying to manage public transportation.  I see him in a Google car, talking non-stop to the computer robot, and feeling excited about offering others rides in his car.  His guide-dog will be sitting next to him, enjoying the ride, and ready for the last segments of the trip that cannot be driven.  I know autonomous cars are a reality for the future, whether from Google or Tesla or someone else, and I know they will change Nicky’s life. 

For some of us, consumer technology is a luxury we can live without.  For others, like Nicky, technology is a game changer that continues to change their lives for the better.  I look forward to Nicky giving me my first lift in his car and in joining in on his non-stop conversation with his computer driver.  I also look forward to watching him head off, completely on his own, a boy and his dog and his robotic car, and then watching him return hours later with complete confidence in himself and in his technology.  His guide-dog will be more companion than support, another job casualty of technology’s onward march.


Don’t Celebrate Failure, Celebrate Learning and Perseverance

I recently read the New York Times article about the conferences celebrating failure and I had to laugh.  It reminded me of the line from Jon Stewart’s unforgettable tribute to Bruce Springsteen: 

“And I never again felt like a loser. . . When you listen to Bruce’s music, you aren’t a loser, you are a character in an epic poem about losers.”

People who fail don’t want to be failures, they want to be characters in an epic poem about failures.  Being one of a large number of people who have failed depersonalizes the failure and eases the pain.  It makes it ok to have failed.  It becomes easier to say “it wasn’t my fault”, “it happens to many people”, “it is all about good luck and bad luck.”  The Times article comments that “ failure has been significantly destigmatized on a cultural level in Silicon Valley and the Bay Area, even though on an individual level it can still be painful to endure.”  Damn right – except that the personal level is where it really matters.

Bottom line is that failure is personal, lonely, and isolated.  The reason why failure is so personal is because people fail in different ways and every person takes something different from the experience of failure.

Many of our entrepreneurs are in their late thirties or forties.  In most cases, these folks have faced a setback or two in their fifteen years or more as professionals.  When CEOs go through their personal histories, one of the things I probe for is an understanding of such setbacks, a willingness to discuss, acknowledge, and personalize the setback, and some real introspection into what they took away from the experience.  It doesn’t have to be a failed business, it could be a poor career move or a failed marriage.  I look for places where people have had to hunker down and work hard just to keep a ship afloat.  I worry when people have not yet had a setback because I am concerned that they might experience this for the first time as an Osage CEO, and that can be expensive learning. 

When I was CEO of Verticalnet, we went through some hard times as we transformed the business.  It is a challenge to turn around a small, undercapitalized, technology company in the public company limelight and even harder when, having been an internet highflyer, most people’s reactions to the fact that I was CEO of Verticalnet was “didn’t Verticalnet disappear years ago?”  After a couple years as CEO, I had friends of mine who felt they were looking out for my career path tell me that this role was doing nothing for me, that I had done the public CEO thing, and I should leverage it to find my next job.  To me, leaving then would have been failure.  It would have been the easy way out, and it would have broken my commitments to my investors, employees, customers, and board.  Even though getting to a good outcome was harder than I expected and took longer than I had planned, it was the right thing to do.  I learned more about business and about people and about myself in riding the Verticalnet rollercoaster.  If it had been all easy sailing, I would have learned less.  If I had walked away because it was proving too hard – I also would have learned much about myself, but I would not have liked those lessons.

We meet many entrepreneurs in our business and we always start with personal history.  Many times the people we meet are repeat entrepreneurs.  When discussing their past efforts, I want the details – What happened with the business?  What was your role through the business cycle?  Did you raise money?  Did the business exit?  Why did you leave?  Did you return capital to investors?  What would your previous investors say about you?  Most importantly, what did you learn?  If your personal history is filled with fast failures where you left a leadership role shortly after recognizing that you weren’t piloting a rocket ship, then you would be best to go elsewhere for capital – you are not a good fit with Osage.  If instead you stuck with it, brought the damaged plane in for a crash landing, did what you could for your people, your customers, and your investors and learned a ton along the way about business, about people, and about yourself, then welcome to Osage.  We would love to hear about your next gig.  Let’s celebrate learning.  Let someone else write an epic poem about losers.


Keeping Score: Entrepreneurs Should Stop Focusing on Capital Raised and Focus on SaaS Metrics

I am writing this on an Amtrak train returning from the last board meeting of the third quarter earnings season.  I sit on a bunch of boards and am an observer on several more.  This cycle there were at least five conversations where the competitive intelligence discussion went something like this. 

CEO:  “Two of our competitors recently raised rounds of between $15 million and $20 million and they have each raised between $40 million and $50 million since inception.  A new company that was in stealth mode just raised $25 million and we have never heard of them before.  We are falling behind and need to raise more capital.  Maybe we should think about a much larger capital raise.”

Osage: “How big are these guys?”

CEO: “Well, they have a lot more people than us and their booths at trade shows are always the big ones in the expensive slots, but we have beaten them in most customers where we run into them and from what I hear, their revenue is within the range of ours.”

Osage  “Is the amount raised the right metric?  

The problem is that we are dealing with private companies and the only data that is public is the amount of capital raised and sometimes the valuation.  This means that the data on the amount of capital raised is what people fixate on when, in fact, large amounts of capital being raised often suggests capital inefficiency, founder dilution, layers of preference, and the inclusion of very large venture funds who need to write big checks.  Maybe CEOs need to focus on other metrics.

My suggestion to CEOs is to compare their companies instead on performance metrics.  Openview Ventures, Pacific Crest, and others provide great benchmarks of SaaS performance.  If your company is more than one standard deviation above the mean for companies your size on growth rate, is better than your peer groups on CAC and CAC recovery, and your retention rates are much better than the average – then you are killing it.  If you have done this with less capital than other companies, then you are killing it and you own a ton of your business.  

My message to CEOs – if you are growing faster, outperforming benchmarks, and you have raised less capital than your peer group – congratulations.   Keep it up and you will win.