The Agony and Joy of Product/Market Fit

As a seed stage investor, our fund is looking for great founders and teams to back that rarely have product/market fit.

Today, it sounds like a no brainer that Robinhood, Kustomer, Narvar and Wag, explosive growth companies in our portfolio, have product/market fit, but at the time of investment there were no users or customers. When you invest at the seed stage you often have to project product/market fit from your own experience and/or gut.

This article by the founder of ‘Superhuman‘ is a must read on the subject of product/market fit. To set the tone:

But of course, the most cited description comes from this passage in Marc Andreessen’s 2007 blog post:

“You can always feel when product/market fit is not happening. The customers aren’t quite getting value out of the product, word of mouth isn’t spreading, usage isn’t growing that fast, press reviews are kind of ‘blah,’ the sales cycle takes too long, and lots of deals never close.

And you can always feel product/market fit when it is happening. The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can. Reporters are calling because they’ve heard about your hot new thing and they want to talk to you about it. You start getting entrepreneur of the year awards from Harvard Business School. Investment bankers are staking out your house.”

For me, this was the most vivid definition — and one that I stared at through tears.

We had set up shop and started coding Superhuman in 2015. A year later, our team had grown to seven and we were still furiously coding. By the summer of 2017, we had reached 14 people — and we were still coding. I felt intense pressure to launch, from the team and also from within myself. My previous startup, Rapportive, had launched, scaled and been acquired by LinkedIn in less time. Yet here we were, two years in, and we had not passed go.

Today, Superhuman is growing fast and gets rave reviews from everyone who uses it (my partner Gary lives on it). I am happy for Rahul, his team and the investors, many who I know (full disclosure – I am an LP in a fund that is an investor).

Every founder and seed stage investor should take the time to read read Rahul’s story and explanations in full and share it with their network of founders.

These are the types of articles from the pain and experiences that, when shared, can make us all smarter and hopefully a little more successful.

Momentum Monday ….The Trumpy Bear Market of 2019?

Before I get into this week’s episode and Momentum Monday gory details – Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Onwards…

It was an ugly Monday in the markets. This is live footage of last week’s buyers.

I will get right to this week’s episode which covers the overall markets, what seems to be holding up (Restaurants and Staple stocks) and how I am changing my main watchlist (20 minutes):

As I wrote last week on the blog, try and panic early (last Thursday for instance).

Now we are back into the abyss it seems.

There have been some horrifying events in the USA in 2018 as gun violence accelerates, the California fires rage, fear mongering comes from the White House, hate crimes and speech proliferates and Nationalism is endorsed by the President. I think it’s clear that Mexico will not pay for ‘the wall’, there is no wall coming, and the troops sent to protect us from Caravans might be of better use helping in Puerto Rico and California.

Rising interest rates, basic interest rate math on our deficit, silly valuations and a bad market mood are not helping.

No wonder the market is heavy.

It seems like the ‘Trumpy Bear‘ is upon us and it really might be vicious. Nobody knows but I go through my homework each night to prepare.

Let me do a quick overview of some specific ugliness you should be paying attention to…

1. Goldman Sachs is crashing and few seem to notice. I take that back…Malaysia notices.

2. Apple is now down 20 percent from all time highs and given back the big run that took them up and through $1 trillion.

3. Technically the S&P and Nasdaq are rolling over and very heavy. I share this chart not for you to panic because like last week, there will be bounces. You need to understand field position and we should be playing defense right now (I call it STFR).

4. Oil prices are in crash mode.

The President has telegraphed his game plan. He is all in on fear with a side dish of the economy. He will take credit for anything good that happens in the stock market and blame the FED and the Democrats for anything bad.

While he tweets away, remember that the market knows his game plan. After the Democrats won the ‘House’ last week, the markets quickly went into relief rally. NOBODY doubts that the Democrats controlling the House is a horrible headache for Trump and the GOP. That was being priced in leading up to the actual election and the only surprise was the Democrats self loathing at the lack of a bigger ‘blue wave’. What is unknown is just how crazy and dangerous a cornered Fat Nixon can get. I liked this post from David Roth titled ‘This All Trump Has Left‘. In short:

Trump won’t stop. He won’t stop because he’s never told the truth in his life and because this is all he has and all he has ever had. He wakes up every day to the mess he’s made and says and does whatever he must, at whatever cost, to get through the day. Like many in his generation, Trump has mistaken the end of his life for the end of the world. He can’t imagine, let alone care about, what will be left after he is gone, if only because no one who matters to him will be around for it. His politics, such as they exist, boil down to this: he is trying to hold on, and will spend the rest of his life trying not to be found out. Every day is like this now. He could do this forever—he talks often about serving for longer than one more term—but that’s mostly because he has so much invested in never stopping. He is over-leveraged as always; he can only ever do more.

In the most basic sense, just in terms of getting off his ass to do the basic boring things presidents do, Trump can’t do the job. He can’t care and he won’t work and he never tells the truth both because he doesn’t know it and is afraid to know it. There is no reason to ask him or anyone who works for him questions—a half-truth isn’t true enough and even a half-lie is still a lie, and they will never do better than either. The work that needs doing, which Trump and his people cannot do or even see, is plain and urgent. It’s all much bigger than him.

This is what the markets are now trying to price in. The market will do this of course, but guessing how and when is why we play the game.

I am always the optimist so I will end with the ‘bounce and or rally‘ scenario from Urban who writes the fabulous (and free) Fat Pitch.

Turnaround Tuesday?

What I Read, What I Pay For, Who I Follow and How to Get Started Investing

There are so many new daily blog subscribers, so first of all welcome everyone.

One question I keep getting asked is about my routine and what I read so let me use this post to try and gather as many of my lists as possible.

You can always search my archives.

For my daily work I rely on always the latest iPhone and the very newest Mac Air. I am loving my new Air and the large iPhone. I have a desktop but never use it.

On the free side, not much has changed since 2013 when I blogged my FREE reading list.

I try a lot of products and talk to a lot of founders which really is a substitute for reading I would do otherwise.

Prices tell me so much and so I look at thousands of prices and charts everyday.

I rely on Techmeme and Nuzzle for technology news and links. My partner Gary pays for The Information.

My Stocktwits mobile notification follows (people that burst onto my screen). I think the right 20 people will get you all the market content, news and idea generation you will ever need.

Robinhood – I have a portfolio with all my main positions so it serves as a great mobile notification engine for big price moves and earnings calls.

Koyfin is my new favorite markets dashboard.

All-time high lists (on Stocktwits @361capital posts these all the time).

I love the end of day, daily email from Stocktwits called ‘The Daily Rip‘.

My short list on Twitter (I do not use mobile notifications or lists but I might start again – mostly financial media)

@reformedbroker
@stocktwits
@charliebilello
@morganhousel
@irrelevantinvestor
@jposhaghnessy
@rampcapital (laughs)

I took the plunge just today to pay for The New York Times. They don’t need me as a subscriber and I do not like most of their opinion and adtech tracking, but I am so pissed at The White House attack on facts and free press that I want to pay. I like Josh’s thoughts on viewing this as his favorite tax.

Other subscriptions (very affordable) I pay for:

Ben Hunt’s Epsilon Theory.

Ben Thompson’s Stratechery

As for idea generation and trading mentorship…I pay up for that.

I am lucky that some of my friends give me free access to their premium products namely:

JC Parets (All Star Charts)
Chris Kimble (Kimble Charting)
Ivanhoff (MarketWisdom)
Marketsmith (charts, relative strength and momentum leaders) (use this code for my discount)

Now that Stocktwits has launched premium Rooms (group chats) I plan on spending $150/month for my favorite traders that set up there.

You have to spend money to make money.

I think you can get away with most financial information you need for free, but I am lucky to be able to pay for great content and mentorship as well.

PS – One other question I get asked all the time on Stocktwits and Twitter is …I am a new investor and/or trader how do I get started?

First – TURN off the TV.

Next…

Short answer here on my blog . Use the latest tools, keep the costs down, follow my lists above and pay for mentorship.

As for books, JC has a great list of the best technical analysis books.

Michael Batnick has a great list of the best investing books.

On the weekend both Joe Fahmy and Brian Shannon have great FREE weekend videos that wrap up the past week and look ahead at the next week. Try them.

As for podcasts – I do not yet listen to them. I want to get into a routine for creating and listening to podcasts and will update this post when I have a great list. A great place to start are the podcast archives of Patrick O’Shaughnessy and Barry Ritholtz’s Masters in Business.

Get a routine going and you will be surprised how fast you learn.

What’s Your BEST Idea?

I love to do Twitter Q&A’s at least once a week. I take 15-30 minutes and let people ask me anything.

It never fails that someone asks me:

1. My favorite stock (or 3 or 5 stocks) to hold forever

2. My favorite stock for the next year

I never answer the question.

I have tons of ideas, but no BEST idea. I have a portfolio that I am constantly adjusting with new ideas and the trimming of my worst ideas.

My biggest single stock position continues to be Apple, but I don’t think it’s my best idea. Many years it has been my best performing stock and looking back it has probably been my best public stock idea of the last 15 years, but tomorrow it could start to go sideways for three years and/or drop thirty percent. If it dropped thirty percent next week, I would likely buy more, but if I called it my best idea the week before, how would that help you today?

The banks don’t feel the same way. They blast out their ‘best ideas’ all the time.

There are NO bank analysts that will…after months of research putting together their ‘BEST IDEA’, put aside fifty pages of research and months of work, if the stock implodes the next day or month, with a one liner that says…’I am a putz, my best idea was a turd so please burn my research and get the hell away from my best idea…now’.

It does not happen and will not happen. It is too hard for an analyst to change their mind quickly after all that work is done.

This year JP Morgan has had a lot of BEST ideas.

On January 1, Facebook was one of their BEST ideas. It’s now down 20 percent on the year.

In September, YELP was added as a BEST idea and it is down 30 percent since.

They no doubt have had some good, even great ideas. That is their job.

I would love it if JP Morgan did some mea culpa’s and openly followed up and talked about their WORST IDEAS once in a while. We would all learn more and I might just trust them.

I am wrong all the time. It is painful. It is worse when I actually have shared the idea.

I come clean here when my ideas shared here go wrong. It is amazing how forgiving people are and more importantly how much better my investing has gotten.

Long story short…ask people what their worst idea is/was. If they answer it, you can trust them a little bit more.

The Pause That Refreshes

I’m back home in Phoenix for the weekend and the kids are coming to see us too which is great.

Ellen has been busy fixing up our Phoenix home and it looks great.

We like modern, simple and clean and Al Beadle created amazing indoor/outdoor living spaces that are very compact and space efficient.

I have had 10 days at our Coronado home alone with our dog Lindzee. I am feeling really refreshed and relaxed. I had dinner with my friends Brad and Amy Feld. Brad is one of my mentors and I can always count on Brad and Amy to give me great advice and help me with strategy. I put a lot of miles on my bike, a few rounds of golf with friends and a lot of reading and writing.

My podcast idea is coming together and I have Fred Wilson offering to do a monthly Video/Podcast AMA with me which I need to make happen as well.

Happy 53rd to my cousin Adam in Toronto who reads the blog. I miss you buddy.

I am ready to hit the road hard the next two weeks as I zig zag back and forth across the country.

I have a ton of half written posts which usually have my best ideas…I should just do a book that has the 200 plus half written blog posts sitting in my wordpress account.

What Did We Learn From The Panic/Selloff

I like to say if you are going to panic, panic early. My friend Morgan Housel has a classic post up titled’ When Things Get Wild‘ which has so many gems but this one about panic stood out:

Your lifetime results as an investor will be mostly determined by what you do during wild times.

Just 10 days ago I was getting blitzed with panic texts and tweets from friends and Schwab emails about the bear market that was about to ravage my portfolio.

We had TWO ‘Markets in Turmoil’ specials from the predictable CNBC. They are the masters of panic. I chronicled the silliness on the blog last Monday.

Apple has since been banged up, but the market as a whole has been in a strong bounce mode.

Tomorrow will be a much better time to panic. If the markets keel back over next week you will have calmly panicked early.

So what has changed since September (the last all-time high in the indexes) and the ‘midterm panic of 2018’?

I have no idea to be honest, but here is a list of stocks at all-time highs tonight:

Mostly yawner companies you have never heard of. Boring is cool at the moment.

A few months ago it was sexy enterprise software stocks. Six months ago it was all Chinese internet stocks.

The good news is the all-time high list was just one stock 10 days ago. Leaders are quickly emerging once again.

I own McDonald’s and Twilio which are on the list. Johnson and Johnson, Disney and Etsy are inches away (I own them as well).

Google, Amazon and Apple have been battered but not beaten.

I look a this chart from Ben Evans and say I am grateful for the panic because I have a good idea where the puck is still going (directionally).

Internet, ecommerce, smartphones….while the players may change, the big trends remains in place.

Fintech (crypto too), weed, gaming and sports betting (more on that in another post soon) will remain massive growth opportunities as well.

Hopefully this gets you up to speed at a high level for how I am thinking.

All that said, I truly have no idea what’s up next for the markets as a whole.

For the last month I have been in STFR (sell the fu*king rip) over BTDF (buy the fu*king dip) mode.

It’s nice to have a panic behind us but I am not sure if that was ‘THE’ panic or a longer drawn out bear market is immediately ahead.

How Do You Measure Investing Success?

I know most of the lines from Caddyshack.

There were so many classics.

Chevy Chase was at the height of his silliness and one of my favorite lines is ‘How Do You Measure Yourslf Against Other Golfers?’

If only life was as simple as Chevy Chase lived it in the movie.

Which brings me to reality…in my business performance matters.

Yesterday, our banker at First Republic banker sent over the Prequin US Venture Capital Update excited that our fund was on the top performing list.

I am thrilled to see our Social Leverage Fund 2 as a top venture fund (vintage 2007-2015).

Tom, Gary and I are proud of our firm, our track record, our LP’s and our reputation. It is good to see our fund returns in context though. We are competitive, so being recognized is cool.

We know some of the firms on the list and they are unbelievable. I am good friends with Roger Ehrenberg who runs IA Ventures and I know he is an incredible investor, so being in any group with him is special. He is an investor in Stocktwits and was an investor in Wallstrip and he is also an LP in all three of our Social Leverage funds. He is winning in every direction.

In private equity investing I have long heard you have to be in the high 20 IRR’s to be considered good. That is a lot of pressure for returns.

Back to the reality of it all…even if the returns are great, it is hard to raise capital and repeat past performance. Just take my word for it. I have been raising capital since my briss.

Back to the grind tomorrow.

Momentum Monday…The FANG/FAANG Blues and Mood Matters

As a reminder, Marketsmith (by Investor’s Business Daily) is now a sponsor of the weekly show. All the charts you have been seeing in the videos and will continue to see are from Marketsmith. They are offering my readers a three week trial for $19.95. Click this link if you would like to try it out.

Here is today’s episode where we cover Apple, the defensive stocks and some new leadership stocks.

You do not have to watch every episode of Momentum Monday, but Ivanhoff and I do them every Monday as our way of doing homework on the markets momentum and to chat about trends that are showing up in our lists.

One thing that has changed over the last six weeks is that the technology momentum leaders started to lose their breakouts and the US started to catch up with the rest of the world’s market weakness.

Ivanhoff sums it up well with this statement

Apple beat earnings estimates again, but it sold off after it gave a soft sales guidance and said it will stop to provide unit sales updates. The market reaction is not unique to AAPL. The market has been unforgiving this earnings season. It has punished the slightest weakness in all earnings reports. This is why we say that the market mood matters. Lower prices are usually the end result of high expectations and sour mood.

If you like boring stocks …all is not lost. Starbucks, McDonalds and J&J continue to lead. I call these 8 to 80 stocks and prefer to buy them when they are down 20-30 percent because they are not growth stocks anymore. Large money likes to hide out in them when the markets are weak and they have to own stocks. Ivanhoff and I believe they will not be immune if the market takes another leg down, but right now the price action is sweet.

If I Could Turn Back Time

I have been home alone on Coronado with our dog Lindzee the last week. Time really slows down on Coronado. This morning I went out hoping to get in a long bike ride, but four miles in I had a double flat and just called an Uber to bring me home.

Before the iPhone, Google Maps and Uber I would have lost an hour or two getting myself home and getting on with my day.

I love all the spare time that technology has afforded me. I am getting better at appreciating it in my 50’s and maybe being an empty nester has made me appreciate time even more.

Time has gone from being on my side to being my enemy in my 50’s. I appreciate time so much more now that I have less of it.

I hated Cher’s song If I Could Turn Back Time .

I hate the question…what would you tell a 20 year old self?

I have an almost 20 year old self in Max Lindzon. He’s very busy being Max. My daughter Rachel is thinking about the Peace Corps after graduating. That’s way more interesting than anything I would have done at her age or could tell her to do.

But, seeing today is daylight savings it’s fun to just think about it.

I joked about it on Twitter today:

I waste so much time, but I have also never been more efficient with my time.

We have never had more time saving tools (smartphone, Google Maps, Uber) and needed more medicine to focus.

Thank goodness we got that extra hour today.

Off to watch Netflix’s ‘The Bodyguard’ and piss that hour away.