Today Salesforce announced the acquisition of Slack for $27.7 billion. The deal was leaked last week, but now Salesforce has officially confirmed it, along with the deal price. The sale is for cash and Salesforce stock. The is the biggest acquisition to date by Salesforce and a huge win for Slack employees and investors. A few quick thoughts on this deal:
- Hot market – There’s been lots of M&A activity in tech over the last few months. I’ve noticed it at a local level with private tech companies at various stages. This deal is at an enterprise level and involves two publicly traded companies.
- Majority cash – Notably, Slack is getting a considerable percentage of the purchase price in cash. It will receive stock too, but more cash.
- Growth strategy – Salesforce has acquired a number of companies over the years, including Tableau for over $15 billion last year and Mulesoft for over $6 billion in 2019. Growth through acquisition is a serious part of its strategy.
- Integration – I’m curious about how Salesforce will digest and integrate such a big deal. It clearly has experience integrating companies it acquires.
- Valuation – Slack didn’t benefit from the pandemic as much as some other publicly traded tech companies that facilitated working from home, such as Zoom. From a valuation perspective, Slack may have seemed less expensive in the current landscape.
- Public – Slack went public in the summer of 2019 and had a valuation of $24 billion after the first day of trading on the stock market. Today’s deal price is 15% higher. Slack was a public company for about a year and a half before this deal was announced.
I’m very familiar with both companies. I used Salesforce heavily in the past and currently use Slack every day to communicate. This is a huge deal, and it will be interesting to see if other big tech players announce acquisitions of their own.
Private versus Public Company Liquidity
Today I had a good chat with a friend about valuations of tech companies. A lot of capital has been raised in Atlanta and the Southeast over the last six months. I’ve read about acquisitions, venture capital rounds, and private equity recapitalizations. Our conversation began with private companies and moved to public companies. Both have seen valuations increase rapidly this year.
One of the points I made was the difference between private and public liquidity. Public company stock shares tend to be very liquid. They can be bought and sold in a matter of minutes. The liquid nature of the stock market means that market capitalization (i.e., valuation) of a company is always—for the most part—known and agreed to by a large pool of people (i.e., the market). The market cap reflects all known information about a company and the macro environment at any given time. A large pool of people reach consensus every day.
Private company ownership usually isn’t as liquid. Most owners can’t decide to sell private company shares and complete the transaction in the next few minutes. It’s more of a process. Parties interested in ownership in the company usually take time to become familiar with the business’s performance and other factors they deem important. Then they agree on a valuation with the owner and a transaction is completed. The business’s performance or the macro environment could change after the transaction, but the valuation of the company is usually pegged at the most recent transaction. And the valuation is usually agreed to by a small number of people.
I don’t have an opinion on the current state of tech valuations. I do think that the difference in the liquidity of private and public tech companies affects their valuations. I view one is a snapshot in time and the other as a daily consensus that incorporates the latest information.
There are lots of other differences between private and public tech companies that I won’t get into. I’m curious to see how valuations of both trend, and I’ll be watching them closely.
Sometimes You Just Need Breathing Room
I’m often asked why I didn’t raise capital from investors at CCAW, instead choosing to bootstrap. I think people expect to hear some strategic thought-out reason. The truth is much simpler. I didn’t know any better. That may sound ridiculous. Let me clarify a bit.
Not raising capital forced me to be capital-efficient, but it also resulted in challenges. Most of them I didn’t recognize until much later. We had customer revenue from day one, so I viewed us as different from companies that burn cash for months while they build a product. Customer cash flows were fine in the beginning, but as I started to think more strategically it wasn’t enough. We had enough money to pay salaries and other operating expenses, but sometimes we didn’t have enough left to invest in strategic projects. And if we did, we didn’t have enough for the entire project.
I found myself in a situation where I couldn’t afford the appropriate resources for the entire time it would take for these projects to pay off. This resulted in a start-and-stop rhythm. We’d start, run out of money, and stop until we got enough in the bank to start again. This extended projects unnecessarily and frustrated the team. Really big projects can require people who work on nothing else. With some of them, it takes a year or two before you see an ROI. That means paying salaries for two years without a contribution to revenue or profitability. We couldn’t afford to carry salaries on the books that long if they didn’t result in revenue. Our large projects were understaffed at times or simply never happened. Strategic projects are what move most companies forward. We never had enough runway to execute properly on our strategic projects. We had too many conflicting draws on our limited capital.
With the benefit of hindsight, I’d do lots of things differently. Mainly, I’d think hard about the resources needed to implement my vision. That would take time, but I’d identify the first major milestones. The milestones would be early indicators of success. For CCAW, that would’ve been early signs of increasing revenue. I’d determine what people and resources were needed and what the time frame was. I’d put all that into a simple budget. That budget, along with my vision, would have been great tools for soliciting investor capital. Had I gotten an investor, it might have given me the breathing room we needed to start working toward my vision. Notice I didn’t say it would’ve been enough capital to make the vision reality—just enough to show others that my team had what it took to make progress. If we were successful, I’m sure additional capital would have been easy to come by.
Hindsight is 20/20, and I wouldn’t change anything about my journey. The situation I’ve described isn’t unique to me. I regularly speak with entrepreneurs in similar situations. They just don’t have enough breathing room to begin executing.
If you’re in that situation, considering identifying short-term milestones that will show you’re headed in the right direction. Couple them with a timeline and budget and you’ll have a powerful tool that will help others understand your vision. Asking for a small amount of capital (just enough to allow you to make some progress) de-risks you as an investment. You will still hear “no” from lots of investors, but you’re more likely to find one willing to give you a shot. There’s a lot to be said for breathing room!
Figuring Out My Next Chapter: Venture Capital
I’m happy to announce that I’ve joined Outlander Labs as a venture partner. Outlander is a new venture capital firm in Atlanta. We’re focusing on investing in early-stage entrepreneurs in the Southeast.
So, How Did I Get Here?
Nineteen months ago I began thinking about my next chapter. I was ready for something new but unsure what it would be. I wanted to work on something significant and figured it would be worthwhile to take my time figuring it out. I had no idea what this process would look like, where it would take me, or how long it would take. It’s been full of twists, turns, frustration, and uncertainty, but overall it was a great journey. Here’s how everything transpired:
Phase One: What Am I Great at and What Problem Do I Want to Solve?
Months 1–8 (Feb. ’19–Sept. ’19)
- Unique Ability – I read this book years ago and was intrigued. The premise is simple. Everyone is amazing at something that comes so naturally to them that they don’t realize how unusual their talent is. People close to them have to point it out. I followed the steps in the book and asked those close to me for their insights. This sparked once-in-a-lifetime conversations. So glad I did it! I heard lots of “I’ve always seen this in you, but never shared it because you never asked.” Just as the book predicted, I saw a pattern in this feedback.
- Problem hunting – I researched problems that I noticed and talked to venture capitalists about problems they saw in real estate, business communication, e-commerce, and a variety of other areas. The conversations with venture capitalists stuck with me and I began researching more about early-stage investing in my free time.
- Experience sharing – I reached out to entrepreneurs who had begun new chapters of their lives after building successful companies. Lots of lunch meetings and coffee chats over many months.
- StrengthsFinder – I participated in a retreat where I was introduced to this concept. What I learned about myself and how I operate was surprising. The approach was different from the one in Unique Ability, but I saw similarities in the results. I wanted to dig deeper into this.
- Giving back – I began connecting with rising entrepreneurs to help however I could. I usually made introductions and shared lessons I had learned over the years. Mainly this was in informal chats.
I felt scattered during this phase. I wasn’t able to clearly articulate what I wanted to do, which was frustrating. I’m sure people I spoke with thought I was all over the place, but they listened and I appreciate that. It felt like things were moving really slowly. In hindsight, I think that was just a function of the stage I was in. Things were coming together, but that was hard to recognize. My activities helped narrow my focus. I ended phase one clearly understanding what I’m great at and the problem I’m most passionate about solving (and qualified to solve).
Unique ability: Identifying and analyzing improvement opportunities so potential can become reality
Problem: Some early entrepreneurs in Atlanta fail unnecessarily. They’re capable and have good ideas. But they’re hindered by big knowledge, relationship, and capital gaps (I call them the big three). It takes them significantly longer than people with comparable skills but smaller gaps to achieve meaningful traction. They often run out of runway (money and/or time) before they find a solution customers will readily pay for (product–market fit).
Now I needed to figure out how to use my unique ability to solve this problem.
Phase Two: How Can I Solve This Problem?
Months 9–10 (Oct. ’19–Nov. ’19)
- Coaching – Because I wanted to dive deeper into StrengthsFinder, I engaged a coach who specializes in this area. I’ve never had a coach before, and the experience far exceeded my expectations. My coach is a great sounding board and accountability partner. And she’s pointed out seemingly small things that I should dig into. I’m still working with her.
- Giving back – After identifying the big three, I wanted to focus on helping early entrepreneurs overcome them, but I wasn’t sure how. I continued sharing my experiences and making introductions. I started working more closely with founders and I gained valuable insights into specific hurdles and how they’d tried to overcome them. This ended up being customer discovery, in a sense.
- Capital – I looked for ways to fill this gap for early founders. I researched angel investing, venture capital, crowdfunding platforms, etc. I connected with local investors and attended investor group meetings.
- Community – I attended community events aligned with early-stage entrepreneurship and investing. The biggest events in Atlanta happen around the same time, so this was a whirlwind. The ability to connect with many people at one large event proved clutch.
- Relationships – I continued meeting with other entrepreneurs and began meeting with angel investors and venture capitalists as well. I shared what I was learning and the big-three problem I saw. My thoughts were still rough, so their insightful feedback gave me lots to mull over.
I ended phase two with a few key learnings. I enjoyed working with early-stage entrepreneurs and helping them think through ways to overcome roadblocks. But while I found this fulfilling, I questioned the impact I could have on my own. I wanted to help entrepreneurs in a more scalable way and recognized that I would need to include others.
Investors are uniquely positioned to help founders fill the big three. They have capital, vast networks, and knowledge amassed from evaluating and advising numerous companies every day.
Angel investing is interesting but would be difficult for me to optimize in Atlanta as an individual. I wanted to fill the capital gap through a team approach.
Helping entrepreneurs by providing capital sounds easy, but it isn’t. A lot happens between meeting a founder and writing a check. Even more happens to support the founder after the check is cut. I was able to quantify how much I didn’t know in these areas.
Working alongside investors to help entrepreneurs felt like a good fit. We could collectively solve the big-three problem and I’d get to use my unique ability. I needed to fill my investing-knowledge gap, though.
Phase Three: Learning about Investing
Months 11–13 (Dec ’19–Feb ’20)
- Relationships – I shared my views on the big three and asked for perspective from other entrepreneurs, investors, and anyone who would listen. Some agreed with me and some didn’t. These conversations were helpful. I learned that I needed to do a better job of communicating the big-three problem with conviction.
- Venture capital – I needed to begin filling my knowledge gap. I reasoned that working closely with a fund or investing in a fund were the two best approaches. As I met with funds, I realized that I probably wouldn’t get the opportunity to work alongside an established fund because I lacked venture experience (my knowledge gap was too high a hurdle). I became a fund LP instead (that is, I invested in a fund).
- Giving back – I continued to mentor and advise. At the urging of others, I decided I would begin sharing my experiences in a more structured way via daily posts.
I ended phase three with an enhanced understanding of venture capital. Venture capitalists can invest in any one of many different stages of a company’s life cycle. I concluded that venture capitalists focused on pre-seed-stage investments are best positioned to help entrepreneurs overcome the big three.
Investing in funds ended up working out well. I got an education on fund performance metrics, investment thesis, investment team experience, etc. It was eye-opening and a great relationship-building exercise. But there was still a ton I needed to learn. I also lacked wide-ranging relationships in the industry. I determined that filling both gaps would likely require a multi-year commitment.
I concluded that working alongside pre-seed venture capitals would position me well to solve big-three problems. But I first needed to fill my own gaps and learn more about investing. There were more funds active at the pre-seed stage outside Atlanta, specifically in Silicon Valley, L.A., New York, and Boston. I set out building relationships with individual venture capitalists in those areas. I wanted to learn from them and also make them aware of investment opportunities in Atlanta.
I knew I wanted to work closely with pre-seed venture capitalists from the coasts and needed to build those relationships. I didn’t want to leave Atlanta, though, so it would be an uphill battle.
Phase 4: Finding the Right Partnership
Months 14–19 (March ’20–August ’20)
- Venture networking – I began sharing my views on Atlanta investment opportunities and how addressing the big three could accelerate success in Atlanta. I was surprised to learn that there’s a strong desire by venture capitalists on the coasts to invest in Atlanta.
- Giving back – I continued to work with founders and became an official advisor (unpaid) to a few founders. I made good on my promise and began sharing my experiences via daily posts.
- Founder networking – I shared my desire to help early founders by transitioning to venture capital. Some founders were supportive; others were skeptical. As builders, most of them wondered why I don’t just build another company. I enjoyed having these conversations with my peers at this stage of my exploration. Debating the merits of building versus investing in a company was enjoyable.
The first week of March, I shared the big-three problem and my desire to connect with experienced West Coast investors with a founder friend. He suggested that I meet with the Craigs. Leura and Paige Craig had recently moved to Atlanta from L.A. They’ve jointly made over a hundred early-stage investments in startups, most at the pre-seed level. A few of their early investments (Twitter, SpaceX, Lyft, Postmates, Bird, and Wish, among others) reached unicorn status (a value over $1 billion).
Over many conversations, we shared our views on Atlanta’s potential. It turned out that they overlap in many areas. There are many founders capable of building amazing companies in not just Atlanta but the entire Southeast. With the right support, the sky’s the limit for them. The right support at the pre-seed stage is the missing piece. We talked a lot about solving for that missing piece.
I enjoyed hearing their perspective because they’ve helped founders overcome the big three and go on to achieve large-scale success. During these conversations, I again realized how wide my gaps were.
Paige founded an L.A. venture capital firm and has intimate knowledge of launching L.A.-based accelerators as well. Leura and Paige see a venture capital fund with enhanced accelerator-like support as the missing piece in the Southeast. I liked their idea.
Over many months they executed on their vision to form Outlander and invited me to join their team.
And here we are today.
I’m excited to be part of a team focused on accelerating founders’ success. I’m hopeful that we will help usher in a new wave of successful entrepreneurs in the Southeast!
Disclaimer: This may look like a well-thought-out process, but it wasn’t. To write this, I reflected on the journey and broke it into phases to make it clearer. I wasn’t conscious of phases while I was living it; rather, I was figuring it out as I went along and adjusting as I learned. It was an extremely iterative (and sometimes disorganized) process until the very end. Continually speaking with others was critical to making the right adjustments, and it led to unexpected events (like meeting Leura and Paige).
Entrepreneurs Investing in Entrepreneurs
I caught up with a fellow entrepreneur today. We talked about the obstacles we overcame and how our large gaps slowed our progress. We both come from great families, but they’re not entrepreneurial. Not being exposed to entrepreneurship meant we had knowledge gaps. We didn’t know anyone who had the knowledge we lacked or who could open doors to decision makers, so we had relationship gaps. And our families aren’t rich, so we had capital gaps. Because of these gaps (I call them the big three), it took both of us two or three times longer to achieve success than it might have. We’re thankful we made it, but it was a long, rough journey. Now that we have the knowledge, the relationships, and some capital from our first companies, we could build another one much faster.
We also talked about different ways we can help emerging entrepreneurs who are where we were years ago—early in their journey and hampered by the big three. In my opinion, both of us are perfectly positioned to help. I think entrepreneurs with a desire to give back could be amazing investors. Entrepreneurs turned investors can fill the big three gaps and also empathize. They truly understand what early entrepreneurs are going through because they’ve walked in those shoes. Other investors can offer some of this, but the combination of all of it is rare, which is why I believe entrepreneurs can make terrific investors.
Of course, entrepreneurs must learn the nuances of investing in companies to do it successfully, but assuming they do, they’re ideal accelerators of the success of newbies.
If you’re an entrepreneur stymied by the big three, consider reaching out to an experienced entrepreneur in your space and asking them to invest in you!
Good Investors Offer More Than Capital
Today I had a great conversation with a rising founder. One of the things we talked about was her experience working with investors who fight hard for founders behind the scenes. She thinks the right investor can be a game changer. I didn’t raise capital for CCAW and fought an uphill battle on many fronts. It was tough, but in the end, with a little luck, it worked out well. I wouldn’t change anything about CCAW’s journey, but I think she has a great point.
Founders unfamiliar with raising capital or the world of venture capital may not realize it, but good investors often add much more than capital. Here are a few examples:
- Portfolio peers – Professional investors have a portfolio of investments in many companies. Good investors will connect the founders of their portfolio companies so they can form a peer group and learn from each other.
- Elusive customers – Relationships are currency and investors know everyone. They often can open doors to help their portfolio companies land customers they otherwise couldn’t (limited partners in their fund, other portfolio companies, etc.).
- Experience – Investors are wise in the ways of entrepreneurship. They’ve been around the block many times and seen companies succeed and fail. Their experience can be invaluable to a first-time founder. The right investor can tell a founder what’s around the corner, helping the founder avoid land mines and serious setbacks.
I know a successful founder who raised a few million dollars for his startup. But here’s the catch: he never spent a dime of it. His company was profitable and he didn’t need to raise capital. He needed something else. He raised capital to gain access to experience and wisdom. He knew he wanted to build a huge company and therefore wanted people around him who had done just that. Yes, he gave up some ownership in his company, but he achieved (and far exceeded) his goal. His investors’ experience proved invaluable.
Raising capital isn’t right for every company, but when it is, choosing an investor who can add more than capital can be a game changer!
Enjoy Every Last Bit of the Upside
Yesterday I listened to a podcast on which Bill Gurley was interviewed. Bill is a partner at Benchmark, a highly regarded West Coast venture capital firm that made early investments in companies like eBay, Uber, Instagram, Zillow, and Snapchat. It’s in the top tier of U.S. venture firms because of its outsize returns to investors.
Bill has been a technology investor for many years. He experienced the dot-com bust and the financial crisis. On the podcast, he shared what he learned from previous downturns: “the best way to protect against the downside is to enjoy every last bit of the upside.” I was surprised. To summarize his explanation, he said that the biggest returns usually come from investments made at the very end of a cycle. If you pull back too early because you’re anticipating a downturn, you’ll miss the best investment opportunities. He didn’t say this, but I assume he thinks that timing a downturn is nearly impossible so people should stay the course until the downturn happens.
Bill is embracing the current reality. He’s accepting his situation and investing accordingly until trends turn and there’s a new reality.
I’ve thought about this and debated with others it over the last day, and I think Bill makes a good argument. Accepting (rather than fighting) a trend positions you to take advantage of whatever opportunities it presents. So what if you don’t like the trend? The trend doesn’t care. If you fight it because you think it’s wrong, you don’t understand it, or you think it will (should) change, you’ll miss out.
This isn’t applicable to everyone or to all situations, but it’s an interesting perspective and food for thought from a wise and experienced investor.
Modernizing B2C and C2B Communication
Last year I observed something about small and medium-sized businesses (SMBs) that got me thinking. Consumers communicate with each other differently than they do with SMBs. They text, FaceTime, and direct message via Instagram, Twitter, and many others all day long. Yet they call, email, or physically visit SMBs. Thinking this was a problem, I did some research. What I learned was that it wasn’t a problem. Customers weren’t asking for different communication methods and SMBs were growing, so they didn’t need to change. In hindsight, it might have been a timing thing. I might have been too early.
The world is different now. Consumers are hesitant to visit physical locations. They’re stuck at home trying to work, watch their kids, and do a host of other things. They’re adapting to a different way of living and searching for new ways to safely satisfy their needs and desires. This changing landscape has caused many SMBs to lose customers. They’re trying to offer the same products and services they always have in ways consumers are comfortable with, but they’re struggling to connect with consumers in this new world. SMBs are facing serious challenges and a massive shift in consumer behavior.
I see an opportunity in the midst of this turmoil. What about a platform through which an SMB and its customers could communicate in ways that resonate more with consumers now? Convenient, effective communication would attract customers. What if you could text the grocery store a picture of the orange juice you want to add to your delivery order? What if you could receive a 10-second video from the UPS driver showing where he put your package? What if you could talk to Alexa or Siri to place a dinner order for delivery?
I’m not sure how difficult it would be to build this platform or how it would work. But I think there’s an opportunity to improve how SMBs communicate with customers. Wouldn’t it be nice to rebuild the connection that’s been taken away?
Getting Investors Isn’t the Goal
I chat with rising entrepreneurs regularly. Some have nothing but an idea. Some have built an MVP and are fine-tuning it based on customer feedback. Almost none of them have validated that customers are willing to open their wallets and pay for their product or service. Translation: they don’t have product–market fit.
These founders usually ask me about raising money from investors. A few hundred thousand is what I usually hear. To be clear, there’s nothing wrong with raising money. Progress requires capital. Building an MVP and modifying it based on customer feedback takes time and energy, which requires people. People don’t work for free. Customer revenue this early in a company’s life cycle is minimal. This means founders need capital from other sources, such as investors.
I usually ask these rising entrepreneurs a few things:
- Do you have a working product or service?
- How many paying customers do you have?
- How do you plan on spending investors’ money?
These questions usually spark a good conversation. My objective is to get them to focus on their goal and see if raising money aligns with that goal.
Raising investor capital is important, but early-stage founders should focus on developing a product or service that customers are willing to pay for. Investor capital should be viewed as a tool to help them reach their goal, not the goal.
The Pattern to Success
I recently connected virtually with an investor based in San Francisco. He said the area has an extensive network of investors with early-stage experience who are willing to invest when a company is two people and an MVP. There’s a deep bench of subject-matter experts who have firsthand experience with a company going from an idea to a material liquidity event (I define that as $250+ million). And because there’s a lot of capital available for entrepreneurs, investors compete.
He’s visited Atlanta a few times, attending events like Venture Atlanta and trying to get to know more about the city’s startup ecosystem. His first observation was that his assumptions were completely wrong. He assumed the Atlanta community of investors would be more diverse than San Francisco’s, but he found them to be similar. He thought the ecosystem would be united, with everyone working together. Instead he found the city to be somewhat fragmented by geography. Overall, he likes Atlanta and thinks there’s lots of opportunity here. Unfortunately, he found it difficult to locate great Atlanta companies to invest in without physically being in the city.
I think most of his observations are accurate. The city can be challenging to navigate if you don’t live here. However, I believe Atlanta’s entrepreneurial ecosystem is on the cusp of something big. Just a few things are needed for it to be top-tier.
Every city has unique qualities that make up its identity. Copying a successful city won’t yield the same results. That said, I believe there is a pattern to success. Certain foundational elements are common to cities with strong entrepreneurial ecosystems, and they should be implemented by cities that want to replicate that success. Here are some of them:
- Abundant knowledge about the entrepreneurial journey that’s readily available to everyone regardless of their background
- A desire to establish bidirectional relationships with people, even if it means going outside one’s comfort zone
- Available capital and mentoring for talented and capable entrepreneurs of all backgrounds
I’m hopeful that Atlanta (and other cities) will add these foundational items. Doing so could change the trajectory for the city and all the people who call it home!