Unicorpse and The Moral Hazard of Making Unicorns
I’m sure that many more thoughtful than me has written about the moral hazard of venture capital. In economics, moral hazard occurs when one person takes an unreasonable risk because someone else will bear the burden of the negative consequences. In the age of unicorns, the moral hazard in venture capital has never been greater. Moral hazard […]
Kindred Disciplines: Growth Equity and Growth Hacking
Growth hacking is now a mainstream term in tech circles, particularly those that are consumer-focused. Growth hackingdefinitions abound, but generally emphasize a data driven, creative and flexibly opportunistic approach to customer acquisition. Many would argue that growth hacking is simply a new term for an old concept – marketing. While the functions, tools and skills […]
We Sell the Ultimate Commodity – Money
Last month I participated in a panel discussion at Denver University organized by Maclyn (Mac) Clouse. Mac is a long-time educator and supporter Denver’s entrepreneurial community. I was joined by Peter Adams, Executive Director of the Rockies Venture Club. Mac’s setup for the discussion was “dangerous” because he offered both Peter and I the opportunity […]
Founder Liquidity and Growth Equity
I’m seeing more and more growth equity financings come to market with an over-sized component of the financing allocated to existing shareholder liquidity. I’ve seen enough of these transactions to consider it as a trend and to wonder what is motivating it. Founder Liquidity in Context Whereas liquidity isn’t typically a feature of venture financings, it is […]
Finding harmony between advice and self-interest
I just wrapped one of those calls where I had the opportunity to give advice to an entrepreneur that runs counter to my short-term interests. In this case, it is a story of a first-time entrepreneur who has built a $7 million revenue business and is wrestling with the decision whether to take growth capital […]
What is an entrepreneur to do when restrictive covenants become restrictive
Restrictive covenants are standard features of venture capital, growth equity and private equity transactions although each investor type has its own standards. Restrictive covenants are the actions a company cannot take without investor approval. A short list of typical restrictive covenants includes: A sale of a Company or sale of a majority of the Company’s […]
Basics of Unit Economics Analysis
When an investment passes our first-screen at Meritage Funds, the first deep-dive we typically do is on the unit economics of the business. Unit economics are the fundamental financial building blocks of a business. If you can pin down the unit economics, you can determine contribution margins, break-even points and perform ROI calculations all of which […]
Growth Equity Investors are Hedgehogs; VCs are Foxes
Growth equity is increasingly being recognized as an investing discipline that is separate and distinct from venture capital. That being the case, how does one distinguish between a venture capitalist and a growth equity investor. In my mind, growth equity investors are hedgehogs; venture capitalists are foxes. Allow me to explain. Ever since I read […]
One Surefire Way to Screw up Your Lifestyle Business
Some businesses are designed – maybe even destined – to be owner operated. Industry parlance often refers to these businesses as lifestyle businesses. Wikipedia has a nice definition. They are typically small, profitable, generate cash and enable their owner-operator to sustain a well-above average lifestyle. In some circumstances, they may even make their owner-operator filthy […]
An Entrepreneur’s Growth Equity Conundrum: Should I sell stock or sell growth?
Two times in the past year, I’ve been close to making an investment in two separate micro-cap growth equity opportunities only to have the opportunity go sideways deep into the process. The two businesses share a lot in common; they are similar in size, profitability, and growth prospects. Both are capital-intensive; the first being asset […]
