This is my one-hundred-forty-sixth weekly reflection. Here are my takeaways from this week:

• Fundraising season – I talked to several founders this week, asking for feedback on fundraising materials. Some attempted to raise last year, but market conditions were too bad. Some simply delayed raising. I suspect that starting around February a significant number of companies will kick off fundraising.
• Wise people – I researched Charlie Munger and noted some of his lessons learned. He’s got almost 100 years of wisdom. Seeking out the wisdom of highly successful people has such a high ROI. With platforms such as YouTube, podcasts, and good old books that are available online, their wisdom is more accessible than it’s ever been. I wonder if people realize its value.
• Multipliers – Founders who have this mindset are on a different level than other founders. The potential reward of multiplying is worth the risk of betting it all (or most of it), in their mind. I like this mindset, and I’m thinking about ways to identify the multiplier trait when founders are first starting out.

Week one hundred forty-six was a solid week. Looking forward to next week!

Last week, Fred Wilson shared his predictions for 2023. Fred’s a well-known VC and general partner at Union Square Ventures. His thoughts on start-ups in 2023 were of interest to me. A few points that founders should take note of:

• 2023 will be a tough year for start-ups. As money-losing companies, many avoided raising in last year’s difficult environment. They’ll be forced to raise this year as their cash dwindles.  
• VCs have ample capital to invest but will be more selective. Companies with product–market fit, strong teams, and good unit economics will be able to raise. Start-ups that don’t have these things will struggle to raise, regardless of valuation, and many will fail.
• Valuations will return to the levels of 2015 or so. Seed rounds will be around $10m, Series A rounds around $15–$25m, Series B rounds around $25–$50m, and growth rounds capped at 10x revenue.
• Lower valuations will lead to flat rounds, down rounds, inside rounds, and lots of structure in the rounds. CEOs and boards should accept the pain of lower valuations over a lot of structure.

Fred’s predictions come from someone who’s seen a few VC cycles. Things won’t necessarily play out just as he’s said, but his predictions are something for founders to be aware of.

I’ve had chats with a few founders in the last week about their next funding round. Many have accepted the current valuation environment but haven’t processed what impact a down round or one with lots of structure will have on the cap table and start-ups overall.

I’m of the opinion that Q1 will set the tone for 2023. If the rate of decline in public markets we saw in 2022 persists, Fred’s predictions are more likely to be accurate. If public markets are flat to slightly up, I think conditions for start-ups could be slightly better than Fred predicts.

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One of the things I’ve often heard successful investors mention as a founder trait to look for is clarity of thought. Clear thinking about the problem they’re solving and the solution they’ve built or want to build. Thoughts they can articulate clearly and concisely so others can follow along and that show they have great understanding of the topic.

For most founders, clarity of thought isn’t something that happens on the fly. It’s usually the result of taking time to truly understand a problem and thinking deeply about what you’ve learned. Deep thinking helps you organize your thoughts so you can express them clearly. And as you think about the problem more, you build conviction that you understand the problem and how to solve it based on a unique insight that others may have missed.

As I shared yesterday, paying attention to one thing at a time is important (as Charlie Munger has pointed out). Making time to think will help you do that. Making time to think is also important for founders because it leads to the clarity of thought and conviction that usually precede outsize success.

A friend shared a quote from Charlie Munger with me:

I think people that multitask pay a huge price. They think they’re being extra productive, and I think they’re [out of their mind].

I think when you multi-task so much, you don’t have time to think about anything deeply. You’re giving the world an advantage you shouldn’t do. Practically everybody is drifting into that mistake.

Concentrating hard on something that is important is . . . I can’t succeed at all without doing it. I did not succeed in life by intelligence. I succeeded because I have a long attention span.

It’s telling that Charlie attributes his success to concentration, not intelligence.

I was chatting with a very successful person, and he shared with me that he blocks out time to think. He said he’s disciplined about when he checks text messages, email, etc. so he isn’t in a reactionary state. And he’s intentional about making time to focus on important topics.

These days, more distractions than ever are making it harder for people to know how to focus. This person and Charlie are both super successful, and both make a point of setting aside time to concentrate. That isn’t a coincidence.

I’m intentional about making time to think regularly, but not on the level of these two. In 2023, I want to look for ways to multitask less and lengthen my attention span.

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Today it was announced that Vista Equity Partners will take Duck Creek Technologies private. The transaction values Duck at about $2.6 billion. Duck is a publicly traded company that IPO’d in August 2022. Its market capitalization (i.e., valuation) peaked around $7 billion in 2021. The company’s valuation was below $2 billion last week before this deal with Vista was announced.

This made me think about Vista buying Salesloft for $2.3 billion in December 2021. Salesloft was a private company doing somewhere in the neighborhood of $100 million in annual recurring revenue.

We can’t do an apples-to-apples comparison of the two companies. For example, Duck reported $80 million in revenue last quarter, of which $27 million was professional services revenue and likely not recurring. Salesloft is private, so we don’t know the details of its $100 million in annual recurring revenue. But the Duck transaction shows that Vista is buying a public company for around the same valuation they paid for a private company a year ago.

Last year, I thought that low valuations of great public companies would make them attractive acquisition targets. I didn’t see this play out last year, but I suspect we’ll see it this year if valuations stay depressed. Vista’s deal for Duck could get things going. If this happens, great public tech companies trading below a $2 billion market cap could see increased interest.

I hold all entrepreneurs in high regard, but a subset separates themselves from the rest. I call these people multipliers. They’re driven and accomplished like other entrepreneurs, but they go beyond, seeking to multiply their success and impact. The easiest example is financial, but it could also be in other ways, such as impact on society.

Love him or hate him, Elon Musk is an example of a multiplier. He sold Zip2 in 1999 for over $300 million, personally pocketing over $20 million. He immediately rolled that into another start-up, X.com (which later became PayPal). eBay acquired PayPal for about $1.5 billion in 2002, netting Musk hundreds of millions. He rolled that windfall into starting Tesla, SpaceX, and SolarCity. Last year, Elon acquired Twitter for $44 billion.

Most people would be content with $20 million, but Elon wants to multiply his impact (and, I assume, his wealth). He continues to multiply his impact with bigger moves.

Multipliers are intriguing to me. Even among a rare class of people, they stand out because they’re wired differently. When many would focus on preserving what they’ve achieved, these individuals continue to take on risk to keep multiplying.

I wonder why. Are these people driven by something materially different than other entrepreneurs are?

Layoffs are mushrooming in the tech industry. For example, Amazon, Salesforce, and Facebook—big, public tech companies—have all announced sizable layoffs. These are high-paying, skilled jobs that used to be thought of as safe. These jobs were abundant while these companies grew for many years and competed for talent, creating a market where talent always knew they could find a job. Things have changed. These companies are all reducing or freezing headcount at the same time. This is playing out with smaller private tech companies too.

Absent a reversal, I suspect this will lead to a big uptick in entrepreneurship. Until now, employees with safe, high-paying jobs have had a strong incentive to not pursue entrepreneurship. Low-risk, high-reward positions were abundant. But with the market changing, the risk is greater. If you’re laid off, your reward is low (zero pay). For those who have entrepreneurial desire, starting a company now makes more sense. They’ll still be in a high-risk situation, but they’ll also have a shot at high rewards and have more control over their own destiny. Said differently, in an environment where you can’t find a job, what do you have to lose by trying to start a company?

I think we’ll start seeing more people (in tech and other industries) look at the changing risk/reward dynamics and decide to bet on themselves.

Today marks the end of my one-hundred-forty-fifth week of working from home (mostly). Here are my takeaways from week one hundred forty-five:

• New year – The new year is here. It’s a fresh start. I’m really excited about what’s in store in 2023.
• Personal velocity – I’ve been thinking about this concept more as it applies to evaluation of individuals. I’ve also started to think about the personal velocity of people in my circle.
• High gear – The most successful people have a hidden gear, an extra one they don’t use all the time. They shift into high gear when they’re trying to create something new or take something to the next level. I feel like 2023 will be the year that many will kick into high gear.
• Layoffs – More layoffs are hitting the news, specifically in tech. Given the macro environment, some of these people will pursue entrepreneurship; it’s likely one of their best options now.

Week one hundred forty-five was short. Looking forward to next week!

I listened to an interview with James Clear, the author of Atomic Habits. He discussed his own daily habits and shared the concept of an upstream habit. The idea is that by doing this one thing habitually, you increase the likelihood of maintaining other habits or generally being set up for a good day. Working out in the morning is his upstream habit.

I agree with this upstream habit concept. Last year, I identified my foundational habit. Focusing on this single habit gives me momentum for the day and increases my chances of keeping up with other habits and having a productive day.  

What’s your upstream habit?

I caught up with a venture investor and talked about a deal that’s frustrating him. He loves the founder, team, and solution. He’s been working to structure an investment that works for his fund and the company. The company raised over $10 million in venture capital eighteen months ago. That fundraising round was large by historical norms, as was the valuation, considering the early stage of the company. But that was the market at the time, and the founders took the deal. They’ve executed but haven’t made enough traction to warrant an increase in their valuation. Given the current market, this investor believes they’re likely worth the same as, or even less than, they were eighteen months ago.

This investor is walking away from the deal. Why? Given the company’s traction and the fund’s target portfolio construction, the investment would need to happen at a valuation that’s materially below the valuation at the last fundraising round. The founder isn’t open to doing a down round.

High valuations feel great to founders when the deal is done, but founders should be aware that they can come back to bite you. If you received investment at a high valuation, executing flawlessly and realizing material traction is likely your best bet to avoid a down round.