Stealth vs. Hype, and the tragedy of low margins and bad contracts (hint don't take them)

Portfolio Summary:

I wouldn't say we are back to the go-go days of 2021, but things have improved. Even for non-AI companies, which are most of my investments. I have seen a handful of successful financing and see a couple of my non-venture investments really start to scale. In the health services world, things remain tough. But I see some winners emerging. In the agtech world, its hard to contain the growth. All that said, the bar has gone up. The milestones needed to hit Series A, B, C are much higher than 3-4 years ago. So be prepared to level up. I will say it has been tougher as an non-ai native startup to fundraise but there isn't any difference in the performance. Meaning many non-ai companies are performing very well. It just seems investor interest is elsewhere. This happens. As I mentioned a few newsletters ago, DO NOT "pivot" to ai. Just do what you do best. Tigers cannot change their stripes.

Entrepreneurs Corner: Stealth vs Hype, Bad contracts and Low margins

Stealth Vs. Hype: Those of you that know me also know I don't love hype and I especially dislike PR and chest thumping. That said, communicating about your business is something you eventually must do. Yet, I have never seen a company that stayed in stealth too long. I am of the controversial opinion that there may be no value in public knowledge of what you do. Privately you can tell everyone and be very open but why chest thump in public? I have seen many that spew off and then regret it. A few points:

1) The temporary "high" of announcing a fundraise or doing PR quickly erodes- 100% of the time. You will not see a lasting impact. The reason to do it is to create a record in the public of what you are about.

2) Never over hype, especially when you actually have something. Better to dampen expectations and be clear what you are doing is hard, experimental or will take time to get fully right. Setting expectations you can't meet is a fools game.

3) Never, ever talk about others. Talk about yourself or your experience or your intentions. It really doesn't matter what competitors do or others do.

4) Whatever you say or do or promote will be copied. So you better be doing something more than basic software if you are "out there"

5) Finally, if you talk to much hype, talk shit about others or over promise, prepare for the alternate media cycle. People will want you to fail and I promise that one will be much worse.

Just put your head down and do the work. Results and innovations speak for themselves. Self promotion is unattractive and unnecessary. Be legit and your capabilities will shine.

Bad Contracts and Low Margins: Something like 75% of my healthcare company investments have bad contracts. And they are of their own choosing- meaning they accepted a money losing contract on a premise the economics will improve. As a $2M run rate start up you take a contract with a big health insurance company and you think its going to improve in a year or two. Its seriously the most ridiculous reasoning I have ever heard. Its not just healthcare, this happens all the time.

Separately, lots of startups are willing to just sell at a loss. Here is when its ok to sell at a loss- when your product has sustaining margins of 90%+. If your 50% margins maybe you can do it- amazon did, but the point was to stumble into a 90%+ business like AWS. Yet I see startups that are in a 20% gross margin industry and lose money for years. The prize is terrible in that scenario. You have to use low margin ploys to get to higher margins by accumulating a customer base or network. You can't simply settle on being in a crap business. As you move along in growing a company you tend to rationalize all this. I have made this mistake myself. Here are some tips to avoid bad economics:

1) Don't accept a bad contract ever, including when starting because it becomes a habit. Be proud to walk away from a deal, unless it meets your minimum bar. Most startups won't walk away from revenue. I used to be like that. Not anymore. Bad deals and contracts don't get better.

2) Don't rely on a low margin business for growth for more than 2-3 years. Make the pivot off what you built and start growing margins as well.

3) Have courage to step back- this is something investors won't like but sometimes taking a step back for a year or two can change the game in terms of margins or margin potential.

Parents Corner: Cooking and playing and talking, its simple

My kids are now 11 and 13. In the last month I have probably cooked for them and played more board games with them than I ever have. I also have talked with them more than I ever have. I cannot believe how much interpersonal growth comes from these activities. After a long day in the fire of entrepreneurship its hard to come back and hit up the frying pan.

What inspired me to do more was this video. I was at a pizza place on the east coast with my kids and they literally ran out to the car before I was even done eating just so they could get on their device. I posted an impromptu video and went viral.

https://www.tiktok.com/@middleseatentrepreneur/video/7460295473820290350

I had so many users on tok reaching out wanting to hang out wishing their parents did more. Then I realized rather than complaining about what my kids did and feeling sorry for myself, I would be better off stepping up. So I got into cooking meats like chicken, pork, steak and I also got all the versions of monopoly (including One Piece Monopoly) and have been using it to bond. Its working.

I am not a parent who thinks too much time with kids is a good thing. You need to do enough but also to allow them to develop. That said investing the time has such big payoff. I always want my kids to hang out but I got to make the effort too. Take the initiative and you will see the results!