Navigating Turbulent Times with Venture Capitalist Steve Schlafman
In the very first episode of Forcing Function Hour, Steve Schlafman joins Chris Sparks to talk about startup fundraising, the anatomy of leadership, and executive performance. Steve has been one of the most respected and prolific seed investors in NYC for the last decade. He is also a highly sought-after coach for CEOs, helping them lead more authentically and effectively.
See below for the audio recording, resources mentioned, and conversation transcript.
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Resources mentioned:
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Topics:
(04:23) The selection process of coaching
(12:05) Developing leadership skills in times of uncertainty
(18:58) If you want to look at what you value, look at your calendar
(31:06) How to set up for the future
(42:50) Where the innovation is happening
(51:58) Asking VCS for debt flexibility
Conversation Transcript
Note: transcript is slightly edited for clarity.
Chris Sparks (00:05): Welcome to Forcing Function Hour, a conversation series exploring the boundaries of peak performance. Join me, Chris Sparks, as I interview elite performers to reveal principles, systems, and strategies for achieving a competitive edge in business. If you are an executive or investor ready to take yourself to the next level, download my workbook at experimentwithoutlimits.com. For all episodes and show notes, go to forcingfunctionhour.com.
Hey, guys. Welcome. Very excited to have you for the inaugural, first Lunch Hour. And what a guest to begin with. I've been really excited to have this conversation with Steve. I mean, many of you might know him, but just in case, I'm going to give a quick introduction. So Steve, in my opinion, is one of the most respected, helpful, and just downright great people in the New York Tech ecosystem. He's been in the venture game for about a decade now working at RRE, Lerer Hippeau, Primary, and now he manages his own seed fund. And most interesting to me, Steve is now an executive coach. He works with founders and executives to help them become leaders, and you know, listening to Steve talking about coaching and how mission-driven he is made me feel really proud to be a coach, and really honored to have the opportunity to talk to him and hear about some of the things he's learned in the trenches.
Obviously, given the timing of this call, we want to keep this very event-driven. What's useful for you guys right now. It's a pretty turbulent time, especially for small business owners, and so we're definitely going to be talking about you know, Coronavirus and how it's affecting your business, what you can be doing to set yourself up, as well as you know, what you can do to help yourself become a leader, whether that's finding the right coach or developing yourself. What that takes. So Steve, before we jump in, anything you'd like to say about yourself? Anything that's top of mind right now?
Steve (02:29): Well, first and foremost, thanks for having me, Chris. I've been looking forward to it. It's too bad we couldn't do it in person, but hopefully we'll be able to in a month or two. What's a good place to start? Well, I've been in technology my whole career. I'm probably dating myself at this point, but I spent the first eight to nine years of my career working for a variety of organizations as an operator at first. Spent the first chunk of time at Microsoft, and then at the New England Patriots/The Kraft Group. They operate the Patriots up in Boston. And then a number of startups, most notably Turntable.fm, where I was effectively the first hire, first business hire there. So you know, there was a team of like four or five of us, helped run the business there.
And then about a decade ago I became a professional seed investor, as Chris mentioned, first at Lerer Hippeau here in the City, and then spent about four years as a principal and partner at RRE Ventures, which is one of New York's most I guess storied and pioneering venture capital funds, and most recently I was at Primary, though it was a pretty short stint, because I ultimately decided that I wanted to spend a lot more of my time behaving and acting more like a coach and an advisor to startups and founders, rather than being an institutional investor/board member. It just wasn't the role that I wanted to play. And so you know, I became a coach about two and a half years ago when I left RRE Ventures, and I haven't looked back since. So that's . . . You know, there's a lot more detail embedded in that quick overview, but I think for now given the time that's a good place to start.
Chris (04:23): Sure. You know, I would love to know, who do you work with? That could be what type of companies that you like to invest in, or you know, founders that you like to work with as a coach. What are you looking for?
Steve (04:38): Yeah, so that's a good question. I think they're slightly related, but a little bit different. I would say I have a boutique leadership development company in New York called "High Output," and I typically at any given time, I work with six to eight clients. So pretty small set of founders that I work with on the coaching side. Oftentimes there's sort of like three main engagements. Sort of the first is one on one coaching. I also am trained in giving 360 reviews. So you talked about earlier how leaders can develop themselves, and so the 360 review is a really effective tool to do that. And finally I have facilitated and host a variety of workshops. I actually on most of those workshops, I don't like working by myself. I'm a big believer in collaboration. It's one of my core values. And so I tend to partner with other coaches to deliver a range of workshops. Everything from Mission, Vision, and Values all the way through strategic planning sessions, to a number of other areas.
And so for my specific coaching clients, you know, there's definitely a set of things that I look for. You know, I think the first is definitely like an ambition to build something great. And as I like to say, my mission is to help founders bring their wildest visions to life. And so I love wild visions and ambitious ideas, and so I think that's definitely the first one that I tend to look for. I would say the others that are really important is (A) desire for personal growth, and just a history of personal growth. That doesn't mean that you have to be the most personally development-oriented person, but certainly someone that's committed to excellence and growing. I think self-awareness is also really important, someone that's willing to take a look in the mirror and figure out how you can grow. So that's also something that I tend to look for.
And then I think there are a few others, which is . . . Certainly integrity. Is it someone who I believe is a good human and someone that I believe is honest and just generally has a good compass? And then I would say the last is for me, which is my own criteria, which is is it someone that I believe in and want to root for and support on their entrepreneurial journey.
As it relates to investing, I think there's a lot of similar qualities that I look for in an investment. As Chris mentioned, I operate a pretty small angel fund that I recently closed. It's about five million dollars. And the way that I sort of characterize my investing is more as . . . There are a lot of advisers out there that take equity for free. And so the way that I tend to characterize it is think of me as an advisor that rather than getting free equity I tend to invest a small amount. So around usually a hundred to a hundred fifty thousand dollars, often, at the pre-seed and seed stage. Occasionally I will invest in a series A opportunity if I love the founder and the opportunity.
But to me, I've always predominantly been a founder first investor, although I will be frank and say that the market opportunity is equally as important to me. So like a good example is a few weeks ago, a founder that I've wanted to work with for a really long time approached me. And this person's truly exceptional. We've tried to work together in the past in his previous company, and ultimately I didn't love the idea. And so I just said to him, "Look, this is really hard because I love you, but like . . ."
So to me the founder and the idea, but to me the attributes that I look for in founders and certainly values, certainly those that are customer-centric, that are deeply, deeply focused on the customer, which then sort of leads to an obsession about product, and really serving whatever the needs or the experience that they want to deliver. So customer centricity, having a very sharp focus on the product. I like to say I look for "we" leaders. I tend to get turned off when I hear founders say "I" or "me" a lot. You know, I love founders that communicate as they're building something bigger than themselves, and sort of a bigger . . . You know, they're not just creating a company for themselves, but a larger movement.
And then there are sort of three other attributes that I look for. Some demonstrated tenacity and grit. I think that's really important, whether it's someone coming from another part of the world and immigrating to America, or not taking a salary or a large salary for a long period of time, and to bring their vision to life, or just some demonstrated moment in their life where they've had to overcome adversity. And then I think the last two, which I've touched on a little bit, is some self-awareness, and then, you know, a life-long learner.
So those are really the attributes that I look for in a founder. And then as it relates to the market opportunity, I like to say that there are . . . I do look at impact, and I don't say "impact" as like, you know, all of us sitting around a campfire and singing "Kumbaya" and like just for the social impact.
Look, at the end of the day I'm a capitalist. But I sort of view impact across three vectors. The first is impact. Social impact. So yeah, that could be like real, demonstrated social good, which I think we're going to see a lot more of that, especially now. I think the second is sector-specific impact. So having a very unique view about a specific industry. And then the third is technological impact. And so like an example of that is a company that I've invested in in the past, is Boom Supersonic. They're trying to put a super-sonic airplane in the sky, and to me that's a pretty audacious and big goal. That doesn't mean . . . You know, I'd say that out of a percentage of the kinds of the companies that I invest, those kind of large moonshots is probably ten to twenty percent. So I'm not just filling my portfolio or my community with entrepreneurs that are built that are taking moonshots, but I love companies that are trying to really push the envelope forward. And so that's basically what I look for. Did I answer your question, Chris?
Chris (12:05): That much and more. I loved it. And a common theme that came up as far as who you like to work with is someone who has a track record of continuous improvement, of overcoming. I know personal growth is really big for you, that you've gone a long way as far as investing in your own personal development. For, you know, a founder and executive, I mean especially today as there's a lot of uncertainty, who wants to develop their own skills as a leader . . . How do you recommend they go about doing that?
Steve (12:40): Yeah, it's . . . You know, I think it's a good question. You know, I'm going to answer it, and my first answer's going to be a cop-out, which is in some ways I'm not wearing my investor hat here, I'm wearing my coaching hat. Whereas I think everyone is very different, right, and we all have different needs and values and lived experiences. And so for me to just give a one-size fits all approach to how to go and develop, it's such a personal thing. Now, that said, for me I always . . . I sort of look at it in two ways. The first is what am I already really good at, and how do I double down and develop that expertise? And so there's a form of organizational development called "appreciative inquiry," which I'm a huge fan of. David Cooperrider out of Case Western, which is like, you know, he sort of looks at it more from an organizational perspective, but I think it can absolutely be applied to the individual level, which is you know, "What are the things that I'm inherently great at, and then how can I continue to develop those?"
So rather than seeing, like, "What are all my weaknesses?," it's like, "How do I really double down and focus on the things that I'm great at and really build that sort of expertise and mastery over time?" So I think that's sort of one aspect of it, which is not to focus where am I deficient, but like, "What am I really great at and how can I really start to flex those muscles even more?" And then on the other side, you know, certainly there is areas of development. And you know, for me I think it's a reason why I'm such a big fan of the 360 review. You know, I was certified and trained in a technique and a methodology called the Leadership Circle Profile. There's a bunch of them. But the whole idea behind this is helping you see your blind spots through the eyes and feedback of others.
And so for me I actually wrote about it on my blog. It's at schlaf.me/thoughts. And I probably wrote this back in October or early November, but the whole idea behind it is, you know, seeing where there are opportunities for development. And I won't go into details around the Leadership Circle Profile, but basically there's like twenty-eight different dimensions of leadership, and the way that I viewed that opportunity was that there were a few that I ultimately wanted to flex on in terms of areas that I could focus, and then I went in and created a development plan, which is like, "This is how I'm going to focus on the next one, two, three months, and then see how I make progress on this." One of them was definitely around focus, and saying 'no,' and I've worked very hard with my coach on those, which is like reducing people-pleasing and more being more mission-aligned towards the things that I want to bring into the world.
And so you know, I would say that always getting feedback, that doesn't mean all the feedback . . . You should . . . And then a point that I was gonna make is there's almost like a third lens, which is like if you think the first lens is what are my strengths, how do I double down on those, second is what are some areas of development based on some feedback that I've gotten, almost like looking in the mirror, and then I think there's a third which is just like, "What am I naturally pulled towards?" Like you know, based on where I am in my life, and what I value and what I need. And so for me I was pulled to coaching, and you know, I really pushed myself . . . I didn't have to push myself, because I instinctively wanted to go in that direction, but like listen to that voice inside of you that's encouraging you to start to explore.
And it doesn't need to mean that you go and become an expert overnight, but like let me give you an example. Like appreciative inquiry, right? Like for me it was an area that I'm really fascinated in because I spend a lot of time thinking about leadership and how companies evolve over time. And I just started going online and reading as much as I could about it. And so I just follow my inner curiosity and desire to learn and grow, and you know, see where it goes. So, did that answer your question?
Chris (17:31): Yeah. It's something that I think about a lot, is that the speed of improvement is proportional to the tightness of feedback loops. And there's so many unknown unknowns, right? What we're best at, what our blind spots are. And really key to solicit feedback from others, in a form that makes them feel safe to give us things that might be hard to hear but that we need to hear. But also, what are the things that we're not paying attention to but should? And you know, you had mentioned that you have a coach, and that you have a lot of these conversations as well. I know for me that that's been instrumental to illuminating my own blind spots. When we were at a breakfast together about a month ago, someone had asked you, you know, "How do I find the right coach?" I think we're both convinced that it's very, very important for someone to, you know, shine a mirror, to cast a light on those invalidated assumptions that we have. But it's hard to know, and it can be scary to reveal ourselves to someone who we don't know if they are the right fit, and I thought you gave one of the best answers that I've ever heard as far as what is "fit" and how that's determined.
Steve (18:43): Yeah.
Chris (18:44): So I would love to hear, you know, if you would want to share a little bit about how do you find someone who's the right fit for you
Steve (18:49): Sure. Can I actually make one last point related to the last question, and then we can dive into talking about fit?
Chris (18:57): Yeah, of course.
Steve (18:58): So I . . . You know, I forget who said this, but someone once said, "If you want to look at what you value, just look at your calendar," right? And how you spend your time. And to me I think looking at our calendar has always shed a light on what we actually value and how we spend our time. And so that's another thing related to someone's development, is whenever I kick off a relationship and a partnership with a founder, I always say, like, "Let's open up your calendar. Let's see how your days are structured and what you're prioritizing." So I would encourage all of you that are listening to do the same, because the reality . . . It's like we're all busy, we're all trying to do a million things, but if we're not actually making the time to like develop ourselves, then we're never going to evolve.
You know, I've ultimately become like a student of . . . And by "student" I mean like a novice. Like just scratching the surface in adult development theory, which I believe is arguably like one of the most important fields that . . . I don't, I personally don't believe that it's permeated, but like, we have the capabilities to change. And it's just like how much do we want to change and where do we want to invest our time, and how do we want to grow? And so you know, for me I believe that all of us . . . You know, and I think that's going to be one of the differences between our generation, for those that are, you know, millennials, and those . . . And our parents, is that you know, we're not done growing in that you know, life-long learning is really a thing, and that instead of having one or two careers like our parents, I actually think our generation are going to have a lot of different careers and paths, and so that's why really tuning in to your own development, I believe, is a huge investment, and a good investment, in your time and energy.
So, I'll get off my horse now, but I did . . . I thought it was important to mention that. Now to transition into the other question you were asking, Chris, about how do you find a coach, again, I have a great post about this. . . Actually, your question at, or the entrepreneur's question at that breakfast inspired me to go and create a post. And because I'm a little crazy and I'm Type A, I actually am in the process of putting the finishing touches on like a ninety-page slide deck on helping entrepreneurs find a coach.
So you know, it basically will lay out the entire process. Even it goes so far to like define what a coach is, what are the various skills and experiences that a coach should have, you know, what's the difference between coaching and therapy, how to actually go and think about finding a coach. I actually highlight a lot of coaches in this guide. And so that's probably going to ship in the next twenty-four to forty-eight hours. And so I encourage you to all follow me on Twitter if you're not. And you can, that will be live. But to answer Chris's question directly, I think there are a number of variables that go into determining "fit" with a coach.
And as I like to say, this is a very personal decision. We are all extremely different. And so you know, I think that the sort of the key filters that I always encourage people to think about, is the first is the context of the situation. Right? Does the coach have some familiarity with my situation. That doesn't mean they need to be an expert. But you know, that they at least can understand the basics of my situation and the language. The other is the experience, right? What experience does the coach have, and how is it relevant and ample, right? Based on my situation. The third is philosophy. Right? Does the coach's philosophy and values resonate with me? Right? As I like to say, everyone should talk with three or four coaches, and just based on those three attributes alone, you're going to get a full spectrum. Right? The fourth point is around developing an expertise. You know, I specifically coach early-stage founders, predominantly post-pre-seed round, to usually about series B and series C, and then I drop off. Right?
There are other coaches that love working with leaders that have massive organizations. You know, I . . . Like if a company's larger than a hundred fifty to two hundred, usually I . . . It doesn't mean that I don't have any clients in that bucket. Like, I certainly do, but you know, I tend to go early-stage. So that specialty is really important. You know, I would always encourage you is that a red flag is you talk to a coach and they're not very crisp and clear with exactly who they serve.
The other is connection. Like, is this someone that you feel incredibly connected to energetically? Right? Is this someone who you really want to spend a lot of time with and that you're drawn to each other? And I hate using this analogy, but in some ways I sort of view it similar to finding a partner. It's like, is this someone who I just feel we're on the same wavelength? And somewhat related to that is, do I trust and do I feel with this person? Like, can I really open up to them about what's going on so that we can like get underneath the surface and really you know, work on the juicy stuff. And then I think there are a few others that I think are less, that I would say like deep-core stuff and more like, you know, proximity. Do you want to work with someone face to face, or is it okay doing it over Zoom or on the phone?
My coach is in South Carolina. She's been coaching for twenty-five-plus years. You know, she . . . For this point in my journey, her skill set is very specific, where I'm not just getting coached by her but she's also mentoring me, and so like for me, I valued other things above proximity. But to some people having a coach in person is really important.
And then the last two I would say is cost. Does this fit within my budget, and is it something I can afford? And then the last is gender. Do I prefer to work with a man or a woman? And again, I should note that this list is by no means exhaustive, but like hopefully it should provide a little bit of insight into how you can assess fit. And then this is again a super highly personal decision. So a coach who is a good fit for me might not be a good fit for you. Right? Like my coach, Elizabeth, I bet . . . Like for her, for maybe half of you if not more she's probably not the right fit. And so that's, you know, a big reason why it's important to get referrals and talk with a variety of coaches in your process.
And like I talked . . . I actually talked about this example in the blog post that I wrote, but a few months ago I was talking to a founder who recently closed his seed round. And he went above and beyond, but I think he interviewed something like six or eight coaches, and he narrowed the field down to myself and one other coach. And he called me up, and he said, "You know, Steve, I ended up going with this other coach because they have specific industry and domain expertise in the . . ." And you know, for him, that experience and context was super important, and he really highly valued that.
And honestly, like I view coaching as a game of abundance, not a game of scarcity. When I walk around New York, you know, I actually see everybody as a potential client. So at any given time I have up to eight slots to partner with. And so for him, I was actually genuinely happy because he had found someone who was a great fit for him, and I want that for everybody. And so you know, at the end of the day, like coaching is such a huge investment in time, energy, resources, right? And so ensuring that fit is there is just really important. So that's . . . I'll shut up, but that's the gist of it.
Chris (28:05): I love that framing of relationships as investments. Right? And what you said about finding the right coach extends to finding the right co-founder or making the right hire or even just a friendship, in knowing what qualities are important to you, what you're looking for, and really identifying . . . You know, is this person a fit with the qualities that are important to me? And to be relentless in seeking out the people who are a fit, but at the same time coming in with the perspective that everyone you meet is a potential client, is a potential customer, is a potential friend, and being open to anyone to see if they might be a fit.
So we're exactly at the halfway mark. I'm going to ask one more, and I'm going to hand it off to audience for some Q&A. So if anyone has a question, there's a button at the bottom. You can raise your hand and I'll unmute you, and allow you to ask your question. So while you guys are getting up the courage, I know everyone loves to be the first one to ask, I'm going to kind of transition to current events a little bit. So I think you are maybe the person who helped me realize that the next couple months were going to be difficult ones. I, you know, about two to three weeks ago when we were planning hosting this here in New York, I was still very much in the camp of, you know, everyone is overreacting to the news, you know, it's very easy to be a bear on things. It's very easy to point to things that aren't going wrong, but historically everything has been, you know, has blown over. And especially for the last, you know, decade or so, it's been very quiet.
But I think you know, thanks to you and then you know, going down my own rabbit hole, realizing that we are in the midst of history right now. The classic, "Some weeks, years happen." And the days have been very long. And my conversations with founders have taken a very different turn, where we're having a lot of discussions around, you know, runway, and reducing burn, and who is essential on the team. These types of very difficult questions as far as how can . . . How can companies be in a position to survive this no matter what comes? And I know that both operationally and being in the trenches as an investor, you know, when companies are going through tough times you have a lot of personal experience with this. And you know, I would love to know, you know, how should executives be thinking about setting their companies up for the next couple of months?
Steve (31:06): Yeah, again, I think it's . . . It's hard to give a canned answer, because it's unprecedented times. Pretty much every . . . So let me sort of just set the context. So I've been talking with a lot of investors, but I've also been doing a lot of coaching. So I think the perspective that I have is actually coming from both like the entrepreneur ones . . . Also I should say my wife is a founder. She runs a company with north of fifty employees. So I'm also, you know, seeing the way that she's leading her company today through this.
So I would say like, you know, I think the investor view, right, is . . . And I'll start with that, is one that, you know, if you look at sort of Twitter and the general sentiment everyone is like, "We're open for business." Like, forging ahead, don't . . . Like, we're issuing term sheets, all this stuff. And you know, I think that that attitude has been hampered a little bit in the last week or so. I'm just going to be completely honest.
And a lot of the creditors, specifically like the venture debt lenders, like Silicon Valley Bank and some of these others, they're also like tightening big-time. And so I think we're in a period where you know, funds are assessing where their portfolio is, truly, and really getting like a super-detailed snapshot on the health of their portfolio, specifically from a cash position. You know, and I think like, where the investor had it, how do I ensure that the company can survive a minimum of twelve months without having to raise any additional capital. And then ideally eighteen months, to be able to ride whatever we're about to experience through. So you know, like I definitely sense that.
The good news to all the audience, there has been record amount of venture capital raised, and for a lot of firms there's a lot of money on the sidelines, which I think is both a good thing and a bad thing, because if people start to tighten, I think you're going to start to see some bad behavior where investors are going to know that the pendulum . . . You know, the pendulum has been in the founder's favor for nearly the last decade, right? You can look at it round sizes are going up, evaluations are going up, like that's going to swing back into the investor favor now. And so, you know, it's just recognizing that and it's just . . . These are realities, I think, of the situation. Unfortunately. And so I think if you've already raised money, I think getting alignment with your investors is going to be really important. And if you already haven't, like running the numbers to figure out what do we need to do in order to get twelve to eighteen months of runway no matter what.
Because you know, I think anybody that . . . Without unreal traction or in a "hot space," like future work, or whatever. If you're a video streaming app platform or, you know, remote work, or maybe you can get it done. But what I'm hearing is everyone's like, "Let's go back to your existing investors, raise as much as you can, or enough to be able to survive this winter that we're about to enter into." So that's a combination on the investor side. You know, on the founder side the range of conversations that I've experienced in the last ten days, it's unlike anything I've heard certainly in the last decade. You know, I was exposed to the financial crisis, but the scale and the size of the startup ecosystem today relative to them, it's like night and day. It's like orders of magnitude larger now. And so, you know, I think it's . . . A lot of it is around, and I know this is easier said than done, but a lot of self-care. You know, I think over-communicating with your executive team and your investors is a good thing right now, and really . . . If you have a finance team, like really leaning on them to run the numbers in the different scenarios so that you truly understand all of the levers that are at your disposal.
And I think one of them is like . . . You know, I'm actually pretty public about this. I've been sober for about five years, but there's this saying in sobriety which is like, one day at a time. Like we're in a really unprecedented time. And my wife and I talked a lot about this as it relates to her business. It's like, you know, there's only so much information that we have right now at this moment, and so we need to make the decision . . . You know, or you all have to make the decision right now with the best information that you have, whether it's revenue or traffic or you know, expense data. Whatever those drivers are in your business, you know . . . And then as I worked with one of my clients, who was saying, "I can't see through the fog. It's really hard." And we actually spent a lot of time in this session like first going into like, what's that feel like, to be in the fog, and that uncertainty?
But then like, I'm a huge Andy Grove fan, that's actually why I named my boutique coaching firm "High Output," is because you know, Andy Grove talks about cutting holes into the machine and being able to see like leading indicators. And so you know, I always encourage you to look at what are those leading indicators and those KPIs in your business that can start to tip off certain things that are happening? And so really taking it one day at a time is like one of those things. But like at the end of the day, like getting twelve to eighteen months of runway if you already haven't raised is like . . . I think twelve months is what I'm hearing from every smart person that's smarter than me in terms of where you need to be, because the rest of this year is going to be very difficult. Even if they put money into the hands of Americans, which it sounds like that's going to happen, like if we can't leave the house, right, it's still going to have ripple effects.
So when we go back, you know, when we start walking around the city and you have . . . My wife said today that already one out of ten small businesses have already gone under. And so we have to imagine that that number's going to be more, so when we get back into the community and the streets, like you know, it's going to be a different reality. It's going to be a new normal. And so what are all of the things that you can do to prepare? Now I've taken a few . . . I've put some hours, some coaching hours, on a platform called Superpeer and I've dropped my rate pretty extensively so I can start to . . . It's superpeer.com. But I'm basically going to drop it to near-zero, because I want to be able to serve and support entrepreneurs going through it right now, but also those that are starting to think about creating new companies.
And one of the things that . . . You know, I think in this market, unless the team is incredibly credible or there's real traction, I think it's going to be tough to get funding. Seed funding. Because I think everyone's tightening their belts. And that doesn't mean that like there's no capital. But I think what we're about to witness is a period where it was really easy . . . I wouldn't say "really" easy, because it never is easy to start a company, but it was easier than previous times to start a company, both from a technological standpoint, but also an abundance of capital. And because the capital is going to dry up and there's going to be less opportunities, what I think is going to happen is it's going to weed out certain entrepreneurs that aren't really in it for the mission, and the belief that what they're building has to exist in the world. And so in some ways I think we're going to see . . . It's very Darwinian of me, but like a weeding out of entrepreneurs that kind of were just in it because it was like the time, and it was like cool to be an entrepreneur, and it's hot.
Now I think what you're going to see is the level of entrepreneurs . . . There's going to be fewer companies pitching, but I do think the ones that decide to go this path, it's going to be higher-quality entrepreneur.
Chris (40:24): Yeah.
Steve (40:25): Sorry, I'm sort of rambling, but those are some of my thoughts on it.
Chris (40:30): It's an important message. And yeah, thanks for sharing the perspective from both sides. I think it's important to recognize the seriousness, but also to make it actionable. Right? What are the key drivers in your business, and what steps do you need to take today that you're in a position to weather the storm in terms of runway, in terms of understanding where your revenue is going to be coming from. I want to hand things over to the audience, I know we've got—
Steve (41:02): One last point that I think is important—You know, one of my companies basically cut the bottom third, performing. They were just like, "We're not going to survive. We basically have to get to break even to basically weather the storm, and we're going to be stronger as a result, but we're just gonna . . ." So I've seen companies do everything from cut the bottom like twenty to thirty percent, I've seen companies already take pay cuts across the board so that they can keep the team, and nobody has to get laid off. I've seen companies literally fire everyone but the executive team and lay off . . . No one's traveling, so T&E is basically dried up. But just like, really through like a, trying to renegotiate contracts, right? Not paying like critical payables. Literal . . . Like obviously trying to collect on receivables. Like there's a lot of tools in order to play with cash, but like now's the time to be looking at all those levers to figure out what it is that you can pull. I mean I think pretty much everybody's been focused on this for the last two weeks.
Chris (42:22): Yeah. And all the options are on the table. So let's hand it over to audience. I know we've got some hands up. I'll go in order raised. So I'll start with Steve Dean. Steve, you should be able to unmute yourself and ask your question.
Steve Dean (42:44): All right, awesome. How's my volume right now?
Chris (42:48): You're great.
Steve Dean (42:50): Excellent. So I guess my first question is as far as your thinking with your fund, given that you sound like you're thinking there's going to be a big contraction, there's going to be a lot more prudence with where investors put their money, what is it that you're most excited about right now? I know you mentioned the kinds of founders and the kind of project in general, but are there any areas that you're super, super bullish on right now in light of potentially seeing people stay home for the next foreseeable future?
Chris (43:23): So, it's like where is the innovation going to be happening?
Steve Dean (43:26): Yeah, I'm curious what your personal perspective is, and like what you'd be most excited to see happen in the world, given that we are facing a time when anything could happen. Like there's a lot of space for innovation. You take like a hundred million people, tell 'em to go home and don't do anything, they're going to get creative. So I'm curious just like, what would make you happiest to see come about
Steve (43:45): Yeah. Yeah. Well I, listen. Even though I am an investor, I don't pretend to have a crystal ball. It's actually why I've been historically a . . . Historically I have been a generalist investor, is because I'm not smart. I don't pretend to be smart enough to know where the world is, where it's going. Now that said, I do think that there are a number of incredibly interesting opportunities that are emerging. Right? And so I think like, we're clearly seeing . . . And Telehealth isn't anything that's new, but I think if you . . . I think investors had soured on Telehealth for a really long time. And I think that like what I like to look at is like, what are the tailwinds? Like clearly COVID, but also the Trump administration announced last week that they are basically dropping the state-by-state licensing requirement for patients to be seen through Telehealth. So historically if you lived in Connecticut you would have to be seen by a doctor, even if it was over the web, by a doctor in Connecticut.
So that, now you could be seen by a doctor in California. So I think that is going to be a really major factor. So I think that's certainly one. I think remote . . . Like we're seeing the importance of like remote diagnostics. And so, you know, I don't know what that looks like, but certainly like things like Everlywell At-Home kits for testing, and other like biometric tools to be able to start tip-off whether . . . Like, how our health is. Like the other day, I'm not just saying this, like I actually tweeted about it, I almost had a full-blown anxiety attack, and my heart rate went up to a hundred twenty beats per minute, which is like . . . You know, for me I wear my Apple Watch. I'm a pretty healthy guy. Like when I'm on my bike and I'm going hard, I'm like a hundred fifty to a hundred . . . And I threw on my Apple Watch, and I was like, "Wow, my heart rate is abnormally high." My average is under sixty beats per minute. And so I've heard stories of people wearing like an Aura Ring that like tipped off that their temperature was increasing.
So I think like, how do we monitor our health in a smarter way, I think, is going to continue to be interesting. Certainly the one that I'm really excited about is online education. I think that we're now about to see . . . I think for the longest time, online education has been one of these things that a lot of people have talked about. And sure, there's like Coursera, but I think we're going to start to see more people thinking about homeschool, online education. You know, obviously there's going to be an explosion of remote work tools. One of the things that I do think will come of this is a lot more companies are going to have flexible work arrangements. And so this is obviously going to . . . It's going to increase work from home. And so I think more companies are going to start to adopt policies that allow people to work remotely. And so I think there's going to be some explosion happening. Like clearly, we're doing this over Zoom. Zoom isn't anything new, but I think the most exciting thing about this is that, you know, now that everybody is experiencing this and everyone is like . . . We're going to see a ton of innovation around video streaming and collaboration and social communities coming online.
So I would expect to see an explosion in the next, call it three to six months. I would say even sooner. I would say in the next month or so, and maybe even weeks, because I'm sure teams are working night and day to push things out that are leveraging video in a range of communities. So I wouldn't be surprised if you start to see like Zoom show up, but Zoom is sort of like a general-purpose platform, where you start to see more like vertical and sort of niche type of applications that don't, aren't built on Zoom, but are built on other protocols like daily.co, which are . . . They're basically like, you know, an API to build video streaming apps. You know, certainly things like creator tools. Like, people are going to be really creative in this time, so things like Superpeer that allow people to monetize their time and expertise through video calls, I think that . . . I made that angel investment actually before this happened, which is . . . But I think products like Superpeer are going to be really important.
And then I think the other is around like audio. I think in terms of creating audio content, and certainly . . . You know, we all have these in our ears. I think tools for like hands-free hardware . . . So like, when we all go back, like are we all going to sign the square reader of the square payments with our finger? Are we going to want to open the doors? So I think like hands-free hardware, and then also audio. I think like, you know, I think some of this is already happening in China and other parts of the world, but like I think I would see definitely an acceleration of voice commands and things like that. And you know, there's a bunch. I think what we're seeing is small business are going to get crushed through this, unfortunately. And I think there's going to be new financial products that emerge. I would imagine that a new kind of Kickstarter, if it's not already in the works it will emerge that will help small businesses be able to fundraise through their communities to save really important institutions.
So like, I know one that just launched in New York called "Main Street," and that allows people to buy gift cards on behalf of businesses. But there's so many ideas. I actually tweeted out last week, I'll drop it in, about . . . I was half-joking, half-serious, in terms . . . You know, I said "coronafund.vc is available, you should go buy it." But it's like we invest in all these areas, and there's . . . I think I had something like seventy-five different comments in that threat of just different ideas. So I guess what I'm trying to say in all of this is that . . . I think there's going to be an explosion of innovation, and it's impossible for me to really predict, but I think those are some of the tailwinds and sort of areas that I sense will be ripe for some innovation. And obviously there will be things that none of us can predict, and where it will come from. The thing that I find most fascinating about the Web is that the innovation always comes in the most unexpected places, whether it's, you know, on the campus of Harvard with Facebook, or even Bitcoin that was born out of thin air.
So I guess the reason why I bring that up is it's . . . Again, I'm not going to try to predict, but it's fun to think about all the different ways that the world is going to change as a result of this.
Chris (51:46): Thanks, Steve. That's great. Tyler, you're able to talk if you want to ask your question.
Tyler (51:54): Okay, great. Can you hear me?
Chris (51:57): Yep. Loud and clear.
Tyler (51:58): Awesome. Well first of all, just thank you, Steve. There's a lot of stuff happening right now to help different types of communities, and I haven't seen anything like this, that's helping founders kind of figure out the difficult questions that we're facing, so we really appreciate you taking the initiative and putting this together. Curious to dig in a little bit more on the funding and runway extension side, and get your advice, and I'm sure it would be beneficial to other folks on the phone. So we are a company where we've gotten our burn down significantly, and we see a path to profitability, but we want to kind of go back to our VCs and our venture debt with SVB, and kind of make the case with venture debt to kind of give us flexibility on the debt we're paying down, and then with the VC to think about a cash infusion.
Like I was just curious to kind of pick your brain on, like if you were in my shoes, you know, how would you go about having that conversation?
Steve (52:56): What I would say is why don't you email me and we can have a call offline for thirty minutes?
Tyler (53:00): Okay.
Steve (53:01): Because I think it wouldn't be doing that question justice by quickly answering that question. I think it's . . . It probably requires a little bit of ninja work.
Tyler (53:17): Sounds great. I'll do that. Thank you.
Chris (53:23):Cool. Melissa, do you have a question?
Melissa (53:27): Yeah. It actually is roughly the same as what the gentleman before me was—
Steve (53:34): Okay, so maybe we can dive in. I can attempt to answer it at a high level. How does that sound?
Melissa (54:40): Sure. Okay, yeah. I mean, a bit of details just for some context. I stretched my runway. I haven't raised since a pre-seed in July, 2018, and I was going to raise in October and then didn't, and now I'm like, "Oh, excellent."
"Great, this is so great, I've been so frugal with my cash, wonderful. Terrible." So basically I'm just trying to determine . . . I mean I think it's still strategically in my best interest to carry forward and do kick off the seed round. I know that the stakes have changed, I know that investors are nervous, however, we have been able to maintain a lower evaluation because we had such a low evaluation way back then that I think that we would fit right in with going forward. I guess the specifics of the question is I had an angel deal on the table, like a super angel putting in six figures, and I don't even know if it's appropriate to go back and be like, "Hey, so are you still going to cut me that check? Because I've heard that—"
Steve (54:40): When did that happen?
Melissa (54:42): We were in final diligence with docs probably two weeks ago, because I fled San Francisco last week to Toronto. So it was I think the Monday or Friday before that that I sent a whole bunch of docs, and I haven't even, I don't know. Because I don't even know what to say.
I think funds are okay, because funds just raised a ton, but I've heard that angel individuals have seen huge wipeouts of their portfolio, and are probably—
Steve (55:15): It depends on the kind of angel. For example, you know, I went and I raised very small pool of capital, put a bunch of my own money in, but raised predominantly from friends and friends of friends. And there's a lot of people like me out there. They tend to partner either together or with other, with more traditional funds. And so I would say I think it largely depends on the kind of angel. Right? Like I would view Ryan Hoover, over at Weekend Fund, as an angel.
Even though he has a pool of capital. And so I would encourage you, if you don't know the source of the capital, you know, that might be something can tip you off as to whether they might continue to have an appetite. But I mean, I think at this point the question is how bad do you need the cash, and you know, how do you think about reaching out to them, and overall—
Melissa (56:15): Well how would you feel? If I can turn around, how would you feel if a company that you were like in diligence with had their docs, and then all of a sudden this just hit within a couple days of getting all the docs. How would you feel if the founder reached out and was like, "Hey, so we still doing that?"
Steve (56:29): Well, I mean here's what I would say. If the person committed to invest, you know, I think . . . Listen. There are going to be people who back out in these kinds of times, but if they've committed to invest, and you've spent the money and the time with the lawyers to draft the docs, I don't think it's unreasonable to reach out and say, "Hey, listen, the docs are ready. Like, is this on?" Now with that said, if they were truly in diligence, still, then I think that's a slightly different story, and I think the question . . . Like, what I'm seeing a number of entrepreneurs do . . . Like there was, I talked to a company in London yesterday who pitched me . . . They had raised like two hundred to two fifty pre-seed round literally like three to four months ago, and they are now sprinting to raise four hundred K. That will get them twelve months. And they're just like, "Okay, we were going to raise two to two and a half in three months? Fuck it, we're going to go, we're going to sprint, we're going to try to raise three to four hundred, and that will allow the team to survive, and we'll continue to iterate on this."
And so, you know, I think the question is, is how much do you need, and you know, is this angel still like, have they fully committed or was it like, "We're doing our work, we'll get back to you"? But you know, I think at the end of the day it doesn't hurt to check in and see where their head's at.
Chris (57:59): Awesome. Thanks, Steve. So we're right about the one hour mark, so I'm going to wrap the recorded version. And I'm able to stick around for a few minutes if anyone wants to chat afterwards. I don't know if, same for you, Steve?
Steve (58:15): Same here. Yeah. Same here.
Chris (58:17): Cool. Cool. You know, for anyone watching this, we're going to put out this recording later, if you want to review. Anyone who wasn't able to make it today. Steve, if anyone's interested in continuing the conversation, whether it's about investing or becoming a client, what's the best way to get in touch?
Steve (58:36): You can find me at schlaf.me, though I just put out highoutput.co as like kind of like a splash page, so you can also check out highoutput.co. But you have to bear with me because I'm going to be iterating on that in the coming weeks.
Chris (58:55): Constant improvement. Well thanks, guys. I appreciate you attending the first lunch hour. So this is Chris Sparks on behalf of The Forcing Function. Thank you so much, Steve, for joining us. We're planning on having these Zoom calls on a monthly basis, so if you want to subscribe to our newsletter at theforcingfunction.com, we'll give you a heads up when the next one's going to be in place. Got some exciting speaker guests lined up for you. And hopefully you've found today's conversation valuable. I know I did.
Tasha Conti (59:13): Thank you for listening to the Forcing Function Hour. At Forcing Function, we teach performance architecture. We work with a select group of twelve executives and investors to teach them how to multiply their output, perform at their peak, and design a life of freedom and purpose. Make sure to subscribe to Forcing Function Hour for more great episodes, or go to forcingfunctionhour.com to sign up for our newsletter so you can join us live.