Jews do mourning well. That’s what I’ve always thought from watching family and friends go through it. It’s what I’ve learned as fact since my father died eleven months ago.

There’s a central tension to it. A constant fault line that our customs straddle. It’s the constant struggle of an individual and a member of community. To be sure that’s one of the central themes of Judaism itself. We take responsibility for the commandments ourselves - each of one of us. But we do so many of them as a community. A person keeps kosher, shabbos, honors his parents. The community prays, builds, comforts and protects.

I and Thou, sort of.

1

I found this pattern in the second after my father died. This isn’t where I get specific. But those moments are the loneliest in the world. Even with my mother and my siblings there. These moments are lonely not simply because they are but because our laws tell us that, at that moment, we are forbidden from completing the time bound laws of Judaism. These are ones that are so often tied to community. We cannot eat meals with friends and bless our food. We do not pray with a minyan. There is only one thing, to prepare for the funeral - really the burial itself.

And so I sat alone - with other people, with my wife - but alone with my thoughts of my father. I chose to write a eulogy, though not everyone does. You are alone.

But not for very long. In fact our laws say that you must do everything you can to bury the deceased before the next nightfall. You must do it with others. For a variety of reasons.

The one that gives the most strength is that a burial means saying kadish means getting a minyan together to respond. At the least. I recently listened to a Jew who was raised in the USSR say that the only communal Judaism she knew as a child was when 11 men would gather secretly to say kaddish. 10 to make the minyan. 1 to watch out for the KGB.

I was lucky in this. We had more than a minyan. We had a synagogue full to bursting with people who loved my father, or me, or my siblings or mother or who loved people who loved my father. He was easy to love.

So I crossed - alone to community.

Though you can be alone even surrounded by people. The first kaddish is lonely. At the graveside. But I could hear my brother and sisters and mother and the rabbi. I was lucky. It felt a little less lonely.

7

And then we come to Shiva, the “Seven”. Maybe the greatest thing we do though you only learn that when you are forced to do it. Our tradition does not allow you to be alone during the time that you want to be alone more than anything.

It started after burial. That evening with a minyan at our house. I led services. Haltingly uncomfortably stumbling through words I mostly knew but hadn’t paid enough attention to in years.

Though even there, the tension is constant. I was with other people, but I was also alone. Even saying the kaddish out loud requires you to chant words in dead language - aramaic - loud enough that others can hear you and respond. The constant thought is “what if I mess up.” The answer is that no one will notice and if they do they will give you comfort and gentle help. And you’ll do it.

Each day our house filled with people and we told them stories and they told us stories. I’d speak to the room, and feel…not alone. My siblings and mother would speak, and I could feel the warmth of other people.

There’s a beautiful and strange thing we say when we leave a house of shiva. “HaMakom yenachem et'chem b'toch shar avay'lay Tzion vee'Yerushalayim.”

It effectively means “May God comfort you amongst all the mourners of Zion and Jerusalem.” In this case “you” is plural. Which begs a question: what if you are sitting shiva by yourself?

Our rabbi explained - even when a mourner is alone, the spirit of the deceased is by his side. God is by his side. We’re never alone even when we want to be. There is always comfort.

30

After the shiva comes the strangest period of mourning, the Shloshim or “Thirty.” This liminal period contains many of the restrictions of shiva - no haircuts or shaves, no new clothes, limited interactions with groups, no parties.

For me, the hardest part of it was going to minyan daily. Going three times per day. Leading nearly every service I attended which is meant as an honor but comes with the designation of being a “chiyuv” or a “requirement.”

How strange it is to be in a room with people I often did not know and being told to get up in front of everyone, by myself, and lead services. How lonely.

But, the response to the kaddish. The same everywhere every time. With warmth and feeling. The questions in each new place I went “Who did you lose? I’m so sorry, do you want to tell me about him?” What a forcing function we have to connect to our community to tradition to what we’d lost.

Then one day shloshim ends.

11

The final period of active morning does not have a name I know. What I do know is that for the last 11 months I’ve done my best to go to minyan every day and say kaddish for my father. Usually I made it three times. One time I missed them all. I was lucky and I was determined.

11 months for various reasons though the one in my head is that all souls go to something like purgatory. We say kaddish to aid their progress to the world to come. Only the most evil of humans stay longer than 11. So we stop before the natural 12 months.

My life rotated around finding places to go. Synagogues and offices and houses and one time a cafeteria that was empty. Each time it was a reminder to think of my dad. Each time I raised my hand to say “I’m chiyuv” I felt the fear of standing out, of being alone, of identifying myself. Of remembering that I was sad.

Each time I did I was met with warmth and understanding.

The ends of things sneak up on you. We thought - my siblings and I - that we’d finish kaddish this weekend. My brother did more research and found out that today is somehow the end.

It echoes death. Sudden, unexpected. Less climactic than personally cataclysmic. A sundering and rupture and a quiet fall into the unknown.

I’ll say kaddish as a mourner for my father for the last time this afternoon. The emotions are wildly complicated in ways I didn’t expect. Sad to lose this anchor, happy to be free of the requirement, curious what I’ll do with the flexibility.

Mostly I miss my dad. But losing him bound me more tightly to the community I was born to and to the ones I’ve chosen and made.

This is what our mourning does. It forces the individual to look within and then rebind himself to the many. It forces the many to look at the mourner and offer support and kinship and comfort and place.

12

The final moment of religious mourning will come in a month. It will come with its own struggles, its own moments. We know what to do with it, we have customs for it, for the yahrzeit, the anniversary.

But that’s for later.

There are all kinds of strategies for evaluating startup ideas - investors talk about having a “prepared mind,” others build market maps, I like to think about toys, and we could go on. What everyone wants to do is predict the future. That’s honestly impossible. But we can pretend a bit and use hindsight as a framework to find the kinds of opportunities that are worth working on.

We’re living through an example of how this could works thanks to generative AI.  Roll the clock back five years and ask…just about anyone where they expected AI to have its first big impact. I’d imagine (at least I imagined at the time) most people would have said that AI would rise first in technical fields. We’d see leaps in biotech as computer minds outpaced human ones on drug design and discovery. We’d see vehicles capable of navigating themselves. We’d witness new materials and devices churned out by intuitively leaping machines. We wanted these things to be true because they’d be cool and also would produce huge financial returns.

But we all knew, as we’d been told by countless works of fiction, that the creation of art would be the last realm to be conquered, that it would be the thing after AGI emerged because of how important the creative spark is to novel artistic endeavors. The patterns there don’t matter, we told ourselves; the soul is the thing.

Whoops.

In hindsight, of course the first truly breakthrough moments of AI came roaring out of creative fields - from art and from writing. The patterns were there, even if we pretended they weren’t. Look at a great photograph. It is not great at random. It is great because of the placement of elements in the frame, because of the balance of light and shadow, of negative and used space. Compare a photo from Henri Cartier-Bresson to the average selfie and your brain knows that one is great and one is bad even though you don’t know why. But feed a gazillion images to an AI and it will find those patterns once it can process enough of them. And then it can spit those patterns back out.

The key to figuring this out, at least for an observer (and ok an investor and probably a founder thinking about what to do) is the hindsight bit. The English idiom has it that “Hindsight is 20/20” meaning that all the mistakes are only ever obvious when you’re looking backward. But we’re not looking for mistakes, we’re trying to figure out the next big thing.

I don’t think anyone can accurately predict the future, but I think of this…hindsight game as the startup version of Albert Einstein’s Gedankenxperiments - his thought experiments that started with an impossible thing like “imagine you are riding a beam of light.” It’s a simple tool that most people will simply fail to either use or have enough imagination to find useful. It will also, probably, throw out lots of false positives.

For thinking about technology and businesses, I find that the hindsight game looks a little something like this: take an idea that’s been presented to you. Rather than find all the things wrong with it, or the ways in which it will obviously be interesting but not huge, ask a simple question “what if everything about this is true, but only more so?” That’s the first part of the game. It requires you to imagine the future with one big change - don’t try to change everything, that’s too hard.

Now, once you have that in your head, the next question is “ok, so what else is possible?” That’s the fascinating bit to me, not just what happens if X is true, but what Y exists only because X is true?

It is fun to play this game with AI because of how fast the field is moving. So let’s work through a round of our game - let’s pretend that AI’s generative and analytical ability only gets better such that, in 5 - or 2 or 10 or 20 - years, it becomes painfully clear that there’s no such thing as a public market investor with an edge. The data is all public, the AI can analyze the data and run all kinds of scenarios and understand the relationship between all the assets and consider your needs and what’s logical and probabilistic and then spit out an ideal trade for you. But even that doesn’t matter much because there’s no alpha to any trade since the AIs are so fast and everyone has them.

So what’s the point of active trading? Where do all the hedge funds go? Maybe they go poof and the real value accrues to the exchanges that figure out how to serve the AI trading mechanic and are now ludicrously valuable because stocks and bonds still need to trade. And then there’s a different kind of exchange because people like to gamble - but that exchange has an AI referee that looks for any unfair “edge” the way Call of Duty looks for cheaters. This could be totally wrong, but it’s coherent!

Now you have hindsight. You have a model of how the world looks 5 years from now, looking back. What should you do now, knowing what’s to come? There’s no one answer to it, but it sure does open a lot of ideas on which to make some huge bets.

This is fun! Try it with a different set of conditions in a different market. Use it to evaluate the startup idea you have - if you’re right, do you destroy your own market or create and own a new one? Is your idea as big of an opportunity as you think, or is it bigger?

We’re all guessing what will work when we try to build or invest in something new. There’s no one version that works, but I like having different games and frameworks to think about ideas. Sometimes you just need to think about the founders and sometimes you need to think about markets. And, sometimes, you just need to pretend you’re already living in the future.

I’ll be addressing the topic below along with Alfred Lin from Sequoia and Ilya Sukhar from Matrix on 3/24: https://us06web.zoom.us/webinar/register/WN_qgghYDq4QxCiW9REOOrbmw

It would be challenging to name all the fundraising mistakes that founders make during the many demo days that occur each year. There are certainly broad categories, but rather than focus on all of them, I think it’s worthwhile to consider one specific category of error, which is generally one of omission rather than commission: ignoring demo day as a step toward an A.

This is a big one because, at least when I ran the data at YC, the best companies in an accelerator tend to be the ones that raise a Series A within 12-18 months of Demo Day (or sometimes a month or two before Demo Day). There’s a strong correlation here driven by the fact that the best companies tend to set and maintain a rapid pace of growth throughout their lives, and that trend leads to rapid milestones.

And yet, most founders I talk to treat their Demo Day as a disconnected event. It’s worth thinking about why they do this, what behavior it causes, and how to correct it.

On the why: I think it’s fairly simple. Demo Days are stressful and are built and run around the idea that the sole purpose  is to raise seed funding. This is true but also misses the point because seed funding isn’t the goal of a company - building a big company is the goal of a company. From that lens, Demo Day and seed funding are part of a larger story, and are tools for executing on a larger vision. Now, many founders will say that they don’t have time to think about their A when putting together a seed, but that’s short sighted. Founders should be thinking about every round they do as it relates to the next round and the next set of milestones the business needs to achieve.

You can add to this that most of the advice founders get from various advisors around Demo Day is to close money fast and go “back to work.” But again, this is short sighted. A Demo Day is the only time where many investors are hyper focused on an early stage startup. Squandering that attention is a mistake.[1] Of course founders shouldn’t constantly be actively fundraising, but they sure as hell need to always be thinking about where the money they need to build is going to come from. On top of that, they need to act in a way that increases their chances of raising that money.

One more thing - last time I ran the data, it turned out that having a Series A investor in your seed was, on balance, a positive signal for your ability to raise a quality A. I’m sure the numbers have shifted a bit since then, but I’m willing to bet that the conclusion is the same.

So, to get to the errors:

1. Don’t ignore Series A investors before or at a Demo day. If you do not plan on raising an “A,” find a way to schedule time with them anyway.

2. Don’t shoehorn Series A investors into the same process that you have for angel/seed investors. They generally work differently, so account for that.

3. Don’t think of your seed round as an isolated event. Think about the amount you raise and the cap you use as a starting condition for your next raise. Limiting dilution is good, on balance, but not if it gives you a cap so high as to impair your ability to raise your next round.

4. Don’t vanish after meeting an investor who seemed interested and who has a good reputation. Figure out how to nurture that relationship and keep the investor interested.

5. Don’t treat investors as interchangeable. It may be true that money is money, but the people deploying it are human and want to build a relationship. You are not trying to make friends, but you are playing a game that is designed to increase the chances of success for your company.

Avoiding these errors isn’t necessary or sufficient to raise an A. I’ve seen companies commit nearly every error imaginable and still raise money. However, founders shouldn’t strive to be uniquely lucky in fundraising. Founders should use knowledge about how fundraising works to constantly improve their odds of success. A demo day is an unfair advantage in that process, and founders should treat it that way.

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[1] This goes for the accelerator as well as for the founder. Accelerators should harness the interest of later stage investors vs. designing fully against their interests.

Let’s accept, for the purposes of this essay, that founders and venture capitalists are engaged in a simple trade. Founders sell business risk for the cash they need to take bigger risks; venture capitalists buy that risk hoping it will one day transmute into reward. Each side does this because they believe that, ultimately, the size of the risk is directly correlated to the scale of the potential reward.

But there’s acceptable risk and there’s unacceptable risk. No sane person is going to invest in a scheme to turn lead into gold, but early-stage startups—and even some mid- and late-stage startups—rarely present such a clear-cut profile. Investors are often under pressure to evaluate seemingly great ideas and teams without all of the information they’d ideally have to decide whether to put their money on the line.

I’ve written in the past about how investors consider the reward side of this process, so let’s focus on the risk side. Some risks are obvious—the market may be too small or the costs too high—not to mention that pesky fact that the future is always ultimately unknowable. But some risks are more idiosyncratic. We call these red flags.

There’s been a lot of talk about red flags recently, mostly in the context of FTX and the diligence that its investors may or may not have done before committing their partners’ funds. I happen to believe that investors did a heck of a lot more diligence than they’re being given credit for having done, but I also think that conversation misses the point. Red flags, when you find them, are rarely deal-killers. They’re just pieces of information, indications of risk. The bigger the reward potential, the more red flags an investor should be willing to accept—or even expect. 

Let’s take a look at a specific type of red flag I’ve seen and the nuances it presents: During the diligence process, an investor discovers that the numbers in a pitch don’t match the numbers on a revenue or income statement. This is, without a doubt, cause for concern. There are two major explanations here—either the founder made a mistake or the founder is lying.

If the founder doesn’t seem to understand the numbers, the investor will probably decline the deal—not because of any specter of dishonesty, but rather because the founder is demonstrably incompetent. If the founder gets evasive when confronted, the investor would probably conclude that they’re lying and walk away. But if the founder recognizes the discrepancy as a mistake and quickly corrects it, provided the error is fairly trivial, the investor may lose some confidence but not give up on the deal. 

There are other classes of red flags. Sometimes the corporate structure is odd (this was true of Facebook, which in its earliest days granted founder Mark Zuckerberg enough super voting shares to ensure his will would go virtually unchallenged), or the company was originally a non-profit (see: OpenAI). Founders get flagged for not thinking deeply enough about a problem and for thinking too deeply about a problem without taking action. Some investors believe that being a first-time founder is a red flag in and of itself, while others see it as a strong positive. 

Remember: Red flags are very rarely outright fraud, and when they are, it’s often obvious only in hindsight. Different investors have different levels of risk tolerance and generally only agree with each other when someone else makes a catastrophically bad and public mistake. Especially in a later stage company, there are so many places for a malicious actor to hide their dirty dealings that it would be incapacitating for any investor to do all the diligence required to definitively eliminate fraud. Such a thing simply isn’t possible. Look at Enron! Look at Madoff!

And finally, on the other side of any red flag is one critical, inescapable question: If the product is selling and the company is making money, how big a problem could it be? What if what looks like a red flag turns out to be a meaningless distraction and the deal you walked away from nets someone else a billion-dollar return? I’m willing to bet that there are investors who passed on Google’s Series A in 1999 because it had almost no revenue—a clear red flag for a company raising $25 million—and are still kicking themselves for it. 

All of which is to say that so-called red flags matter, but not in any kind of mechanistic way. And if you flip that around, there’s an important lesson here for founders.

Every business has flaws that could be considered red flags by someone. (If there are absolutely no red flags, that could be the biggest red flag of all! But I digress…) One of the most useful things a founder can do when preparing to raise capital, therefore, is to take as objective a view as possible of their business and know where those red flags are. For instance, delivery businesses generally have low margins relative to software businesses. Some investors won’t touch delivery for that reason, but most are happy to dig deep provided that margins are improving at a high enough rate that they can turn a hefty profit before the company implodes. 

One of my favorite misunderstood red flags has to do with the default rate of a lending business. Many founders work hard to demonstrate that their default rate is, effectively, zero. This feels smart, like perfect risk-management. But it is also almost always the wrong answer. Lending requires at least some risk, so if the default rate is zero, it means the founder hasn’t stress tested their model on a broad enough range of users. What investors actually want to see is a reasonable default rate within the context of factors like the cost of capital, the ease of scale, the return profile, etc. As long as the default rate makes sense within the overall story of the business—and that the story ends in huge returns—no red flag.

The best thing a founder can do is to draw attention to their red flags proactively and in detail. See this unusual management structure we have? That’s on purpose. See this gap in our revenue over here? We screwed up, here’s how and here’s what we learned from it.

In the end, what matters is context—the way whatever red flags there may be fit into the larger narrative of the business. No red flags mean no risk at all, and that wouldn’t be particularly interesting.

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I originally published this in by The Information on Jan 18, 2023: https://www.theinformation.com/articles/red-flags-are-in-the-eye-of-the-beholder

Let’s all hope generative AI fulfills at least a quarter of the promises people are making in its name. In the meantime, optimism is contagious, which is good for everyone.