C2V September Notes From The Trenches
Welcome Friends!
We’ve been crediting the close of our second fund to our recent run of self-reflective content. But whether that’s actually the case or not, one can only call out the bad apples in venture/startup culture so many times (plus we don’t want to talk about football right now because the Patriots look average). We may also be in the early innings of our midlife crises, or we just can’t come up with any better ideas; you’re getting one more “what have we learned” segment before we take a break.
So, while you contemplate whether ground beef might actually be a natural vaccine for cannibalism, we’re taking a quick trip to the dark side of venture capital…
When Startups Fail
Everyone who gets into the VC business does so knowing that venture-backed startups fail at incredibly high rates (75% seems to be the current internet consensus). While we think that number can be reduced quite a bit with better VC stewardship (a topic for a different newsletter), every VC, ourselves included, will have companies die on their watch.
Armed with this knowledge, we should all be like NFL cornerbacks or baseball closers who quickly process and move on, right? Well, no. When you’re mapping this all out, these failed companies are just numbers on a spreadsheet, but in real life, people are involved, and that adds additional messiness (ego, emotion, etc.), not to mention that the spreadsheet only considers outcomes, not the lead-up to those outcomes or the choices that need to be made along the way.
Fear not, though; we’re here to help.
So, What Are We Looking at Here?
As a VC, your challenges are threefold:
1) Most distressed situations aren’t binary. It’s pretty much never “if we just get past [fill-in-the-challenge(s)], we’ll cruise to great exit, and if we don’t, it’s a zero.” You may have choices for stopgap funding, acquisitions, or liquidations, and they all come with a different balance of upside vs. downside and risk vs. certainty that require careful consideration.
2) You want to try and learn from every outcome (good, bad, or ugly), but you also must be very careful about drawing broad conclusions or making fundamental changes to your investment thesis or process based on a sample size of one.
3) No one will be happy, everyone will be assigning blame to themselves and others (even if it’s unspoken, or even subconscious), and everyone needs to balance protecting their interests, the interests of those to whom they’re responsible, and their reputations, relationships and (hopefully) basic sense of human decency.
Tackling these one at a time…
1) The Bird in the Hand
Startups fail for various reasons beyond just running out of money, but let’s face it, no founder is admitting they’ll never have a product-market fit (or any other insurmountable flaw) if they have a year of runway in the bank. So chances are good your startup-on-the-brink will be trying (and struggling) to raise. Fighting a disinterested market might be the only option, but if your company has material IP (proprietary tech, a great UI, highly skilled founders/team, etc.), you may have interest from potential acquirers to at least return your capital, and this is a choice to weigh carefully.
We’ve been in this position a couple of times. While no one is excitedly emailing their LPs about a 1x return, it’s often the better choice, potentially even in a situation where you’re highly confident that a little additional runway is all the company needs to clear any short-term speed bumps.
For this last-gasp raise to succeed, you need the founder(s) to be 150% committed to finding the money and the subsequent grind it will take to fix their near-term issues. In some cases, they absolutely will be committed, but it’s also not unreasonable (nor rare) for even the Gary V-est of founders to be running on fumes by the time they get to this point, and if you can see that they’re spent, we’d recommend you take your 1x and run because everyone else who matters (investors, customers, staff) will see it too, and you’ll likely end up at zero eventually, anyway.
2) How Did We Not See This Coming?
As we noted earlier, you want to learn what you can, but you need to be careful about seeing patterns that aren’t there, mainly because you can’t really have patterns in a single data point (how’s that for data science?).
For example, if you missed that a founder had a criminal history that later came out and lost the company all of its customers, it would be entirely reasonable to add background checks to your DD process. On the other hand, if a robotics company failed because they ran out of money before they could get their prototype to market, amending your core thesis to exclude robotics would be completely unreasonable. One’s a glaring hole in a DD process, the other is a basic risk you take with all startups.
Also, sometimes you (the VC) and the founders did everything right and then Covid happened (or any other exogenous shock that comes out of nowhere) and your otherwise great hospitality/event/travel SaaS company’s customer base disappeared overnight.
3) Who Do I Blame?
Absent outright fraud or some other openly nefarious action, this is easy. Don’t blame anyone. Most of the time, you, your colleagues, the founder(s), and their team all did their best. Were there things they could have done better? Undoubtedly, but how many things did you do this week that you could say the same about? And what’s the upside to pointing fingers or taking your frustration out on others involved?
As a VC, in particular, you need to remember that this is much worse for the founder(s) than it is for you. You’re losing 1 of 20/25/30 companies, they’re losing 1 of 1. The best thing you can do is be respectful of all parties, take your lumps, and move on with your .
One last thing to remember for GPs (and LPs) out there. While over the full life of a fund, you may have a great ratio of successful exits to failed investments (maybe significantly better than that widely cited 25/75 ratio), but they won’t be evenly distributed over time. The failures will mostly come early, and the successes will mostly come late. So if all you see in the first 2-4 years are some failed investments and middling returns on (too) early exits, just know that your remaining companies have already defied some very long odds (the 25-percenters?) and are setting you up for some future years when you only see good results.
Now, while Matt heads out to pitch Startups on the Brink to the USA Network (to slot in alongside Real Housewives of Buffalo, Snapped: Vegan Cannibals, Pug Life, and When Old People Attack), we’ll move on to talk about our latest investment.
New Investment
As the US embarks on a massive expansion of electric vehicle (“EV”) charging station infrastructure necessary for meeting aggressive EV adoption targets, one of the biggest challenges is the compatibility of the electric grid itself, where the 3-phase power required for commercially viable charging speeds is generally only available in urban centers.
While there has been talk of upgrading the grid, with current costs around $100,000 per mile, this isn’t even close to feasible. The solution thus far has been to use large batteries with inputs compatible with the grid and outputs that allow for rapid charging; however, this is at best, a highly flawed model, as these batteries can generally only charge 4 cars before needing 8 hours of downtime to recharge from the grid.
Enter EdgeEnergy, whose proprietary (and patent pending) technology continuously converts single-phase (grid-sourced) power to 3-phase (rapid charging) power, allowing for highly efficient, uninterrupted rapid charging, regardless of local infrastructure limitations.
In addition to this vastly superior performance, the high cost of batteries (which are headed significantly higher due to acute resource shortages) also allows Edge to charge 20-30% less for each installation than the most efficient of the current players in the market while realizing materially higher gross margins.
C2V In The Trenches
We are excited to share that Chris will speak at the Fierce Founder AMA Event in October. It will be a candid discussion about what female founders need to know to Fundraise in the Current Economic Climate. A lot has changed this year, and the economy's impact is directly affecting fundraising for startups.
Snow Owl founder, Steve Heyman, joined Matt in the Founder Interview hot seat this month to discuss his career as a serial entrepreneur and why he chose to create software to help simplify networking for developers. Steve also tells us about his worst business idea. It involves a joke site, Obama, and Yo Mama…
PrimeTime VC Battle
Coming off his previous win, Chris was ready to take on the stellar panel of VCs at PrimeTime VC this month. The battle was fierce. Chris made it to the final round, but Erica Duignan Minnihan brought the heat and took home the belt. Chris will be back to throw down another day. Check out the live event recording here.
TMI With Kevin Ryan
Kevin Ryan was keen to get Chris’s perspective on the current VC market, so he invited him to guest on his podcast, TMI With Kevin Ryan.
Here are the key takeaways:
[4:02] Chris discusses C2V and how they invest in verticals that have had stagnant productivity but are products and services we touch and utilize every day of our lives.[
6:57] What do Silicon Valley and Shrek have in common?
[7:24] San Francisco is oversaturated and overpriced, with deals overvalued.
[10:00] It’s not just about the talent, but looking at the problems and how they are going about solving those issues.
[14:08] Is it really mature to be investing in Web3 and NFTs?
[15:40] Chris talks about the process of finding companies to run.
[18:40] How has remote work and going virtual shifted things?
[19:31] Chris discusses deal flow and how they select the companies.
[24:01] Your deck is your best friend and will then be the next step to possibly get you a 30-minute Zoom or phone call.
Portfolio News
Civ Robotics Raises $5M Seed Round for Autonomous Surveying System
Civ Robotics has developed the CivDot unmanned ground vehicle to mark coordinates on construction sites precisely. The demand for surveyors today exceeds the supply of consultants ready to fill these jobs, driving the push for automation such as CivDot. “The construction industry faces worker shortage challenges, and CivDot is empowering efficiency and safety on the job while driving projects forward from the start,” stated Tom Yeshurun, co-founder and CEO of Civ Robotics.
Civ Robotics has also been featured in TechCrunch’s Humankinda article, discussing Humanoid robots, tiny robots, construction robots, and robotic pets. why a humanoid? It’s something I’ve discussed with several roboticists over the years. Our brains are wired to think of robots as mechanical versions of ourselves. Decades of science fiction have seen to that. But a roboticist’s approach is — more often than not — pragmatic. The right form factor for the job is a good rule of thumb. By going beyond that, you’re introducing more potential failure points while raising the price tag. Read the article.
Phalanx has been busy this month
Co-Founder Ian Garrett was featured in GRCOutlook with his article “Manage Your Data Blindspots with Zero Trust Data Access (ZTDA),” highlighting the use of ZTDA to track data that resides outside of databases.
Phalanx has been selected as a Finalist in the NoVA Chamber of Commerce’s Distinguished Service Awards in the Emerging category.
Ian will be traveling to Deadwood, SD, to present at Wild West Hacking Fest with his talk titled “Honey, I Shrunk the Perimeter” on the changing landscape of cybersecurity.
Partnership to Offer Dash Cam Discount to Rideshare Drivers
Stable is offering its insurance for rideshare drivers at a discount of up to a 20% lower premium for those drivers who agree to use a dash cam. In addition, rideshare drivers will lower their collision deductible from $1,000 to $0 if the driver was using a dash cam at the time of an "off app" accident. Through this partnership, Stable Insurance will offer the premium version of the Driver Technologies Inc., Driver: Dash Cam, and Safety app to all its insured drivers. As part of DriverPremium, drivers can access their DriverCloud to view all of their telematics data and videos to receive automated coaching and share any videos for claims. Read the article.
Arajet selects the revenue management system developed by Kambr
Dominican low-cost airline Arajet has selected the system supplier, Kambr, to support its revenue management operations. As reported in a press release, the company opted for software Eddy, developed by Kambr, a Dutch company specializing in developing revenue data inventories for airlines. Read the article.
Olive Technologies Has a New Website
The team at Olive Technologies has spent months looking into how they can create a better online experience for their customers and partners and clearly communicate what they do. Find out what’s updated here.
Rumby’s new Bengals sponsorship deal
The Cincinnati Bengals have inked another sponsorship deal ahead of the 2022-2023 season, partnering with a local tech startup that’s seen fast growth since first establishing its home base in the city in 2020.
Rumby, which has developed an e-commerce platform to take dry cleaners and laundromats online, is now an official partner of the 2021 AFC Champions.
This Entrepreneur Built a Business Designed to Help His Parents Live Happier Lives
The genesis of Hank came from a sort of conflation between two different parts of my life: the professional and the personal.
When I started thinking about Hank, I had spent over a decade working in the tech industry, where a common rule of thumb is to "design for yourself" — meaning someone under the age of forty. There's this ingrained misconception in tech that older generations don't understand or want new technology, so we rarely design solutions with older people in mind. Read the article.
Job Opportunities
Magellan: Senior Software Developer (Fullstack, remote)
Paladin: Product Manager, Product Designer, Full Stack Software engineer, Head of Data and Analytics Engineering. Visit their site.