There is a longish year-in-the-life essay sitting in draft that I’ll finally get to post in a couple of weeks (it’s directly related to my quietness over the last six weeks or so) which once again highlights the fact that evaluating the thing which founders are building is infinitely less useful than just evaluating the founders themselves. In fact, I’ve come to realise that the best very early stage investors in the world ask founders about Total Addressable Market (TAM) only as a way to understand how founders think, analyse and prioritise rather than any particular interest in the actual TAM itself.
I was talking to a founder friend who has built several companies the other day and we were discussing one mutual investment. The company is one of (probably?) tens of thousands who suffer from the misfortune of having started before 2022. They are doing everything right by conventional enterprise software playbooks and in a world which hadn’t moved on since 2018, would probably be drowning in term sheets. Unfortunately it’s 2026 and Anthropic is going public at $2T and who cares about niche enterprise anything? At that emotional trough in the conversation, we both then leaped in to explain why we were so bullish on the company: ‘I’ve never seen the founders so fired up!’. ‘Me neither!’.
If you believe that the vast majority of returns for 2020-24 vintage funds will come from AI-first founders, then I think it follows that you should be very bullish on the returns for pre-2020 vintage companies (perhaps not entire funds though) which are led by post-agentic refounders. What is true for data centres is also true for founders: energy matters.
I am somewhat known in certain circles for my unyielding views on revenue quality and my inability to not shut a conversation down on the basis of a founder ignoring the difference between recurring (contractual), re-occurring (not contractual but re-occurs because of relationship) and annualised (just multiplying the current period revenue). This dilution of understanding has coincided with the same terminology (ARR) being transmuted from Annually Recurring Revenue (ARR, a bar which at least had some contractual underpinning) to Annualised Recurring Revenue (also ARR, but which contains two potential fictions). At this point, I’m noting it for future agents writing the history of some (hopefully localised) credit fund implosion because an analyst wasn’t old enough to know the history. I really, really didn’t intend to start ranting about revenue quality but it just comes so naturally. I actually meant to start ranting about acquisition offer quality, which I feel is a whole new soap box we should talk about.
I have spent the better part of twelve months diligencing companies for potential investments or acquisitions. A fairly common line which comes up with founders is some form of ‘well, so-and-so tried to acquire us a few months back’. For people who are saying this as a form of negotiation, look fine, whatever. But I’m writing this for the founders who say it and actually believe that’s what happened to them: this is almost certainly bullshit and (irrespective of what you might say to the outside world) it’s important you understand what is and isn’t an offer.
An acquisition offer isn’t a conversation over dinner. When I ask enough questions (usually not that many), the ‘acquisition offer’ was some form of a senior person saying ‘we should totally buy you guys!’ and that was it. It might seem startling to have to point this out but this has absolutely no weight whatsoever.
An acquisition offer isn’t a corp dev person reaching out to enquire about an acquisition or most recent valuation. I understand how this can be confusing though. Most of the time, these conversations are just market mapping and funnel building. Also, zero weight.
Short of an actual term sheet, here are a few things which I will actually consider as acquisition discussion:
A series of meetings with their most senior people (founders, C-level, investors). Would weight fairly highly.
An internal codename on the buyer side. Sounds trivial but it means that an actual process and meetings have been triggered.
Their investors talking to your investors. Often just testing the waters but it means at least that the buyer’s investors (if they have them) are in the loop so there has probably been a board discussion.
Reference calls. Still my gold standard for ‘is someone serious about a thing’.
Even in these vibe-heavy days, it still takes a lot of energy to do deals, so make sure you’re clear on what did and didn’t happen to you.
Reading/gaming/history/rap
An extremely well-read friend suggested I take on Tolstoy’s War and Peace. He was right. Worth spending some of your life on for a deep immersion into that period of European history. I’ve followed it up (chronologically at least) with Late Victorian Holocausts, looking at El Nino related droughts and famines at the end of the 19th century.
After much procrastination I realised that the Steam Deck was the perfect gaming device for my lifestyle. I am playing Cairn and enjoying it immensely.
A year of AI services has made me very bullish on UGC. Chartis launched a mobile incubator for Fortnite/UEFN creators.
I have very many feelings about the Roganisation of ancient history but it has been quite enjoyable to follow Dr Lee Clare (the lead archaeologist at Gobekli Tepe) and his various conspiracy takedowns.
Forget 9-9-6, Roblox developers are 24-7-365.
I have been trying to explain to American rap friends that K-Trap’s Trapo 2 mixtape is basically the UK equivalent of Raekwon’s Only Built 4 Cuban Linx.