My 2025 reading list was more eclectic than in years past—a blend of biography, fantasy, science fiction, and business strategy.
These were my five favourite reads from the last year:
Elon Musk (Biography) by Walter Isaacson
I think it is fair to say that Elon Musk evokes strong emotional responses. There are some who admire his brilliance in entrepreneurship, building industry-disrupting companies ranging from Tesla to SpaceX and xAI. There are others who despise him for his alt-right rhetoric and confrontational approach to, yeah, pretty much everything. He is the quintessential subject for a biography, and Isaacson has delivered a masterwork.
The Hobbit by J.R.R. Tolkien
Though I’ve seen the films, I had never explored Tolkien’s original prose. I started with The Hobbit, as one does, and found the world-building as immersive as the legends suggest.
Ruud Lubbers: Een slag anders by Johan van Merriënboer
Admittedly, you need to be a bit of a geek on Dutch Politics to fully appreciate this one. Lubbers served as Prime Minister of the Netherlands for a 12-year period, from 1982 to 1994, navigating the country through a period of economic recession, the missile crisis, and European integration. He played a key role in negotiations with Reagan and Gorbachev to put a halt to nuclear proliferation. The book is both a biography of a natural leader with an unparalleled work ethic and a historical account of the final decade of the Cold War.
How Big Things Get Done by Bent Flyvbjerg
A mind-blowing 92% of all projects fail to be delivered within budget and on time. When measuring success strictly as on-time, on-budget delivery of promised benefits, only 0.5% (or 1 in 200 projects) succeed—leaving 99.5% as failures in all three metrics. Bent Flyvbjerg is a Danish economic geographer and leading expert on megaprojects. In How Big Things Get Done he shares key lessons from his research on thousands of failed and successful megaprojects. Flyvbjerg explores cases ranging from the Sydney Opera House (an epic failure) to the Empire State Building (a resounding success, finished 17% under budget). A fun and insightful read for everyone whose job entails leading and executing big or small projects.
Project Hail Mary by Andy Weir
From the author of The Martian, this is a high-stakes survival story. It follows Ryland Grace, a teacher-turned-astronaut tasked with saving Earth from a solar-dimming threat. It’s a masterclass in creative problem-solving. And it turns out humans aren’t the only species fighting for survival.
Of the 14 books I’ve read in 2024 these are my 5 favourites, titles I would highly recommend:
The Power Law by Sebastian Mallaby. A thorough and juicy account of the evolution of the venture capital industry, it’s overlords, kingmakers on the rise, and kingdoms in decline. I devoured the passages on WeWork, Uber, Theranos, and Facebook, with their idiosyncratic founders and often hilarious interactions with their financial backers. So good. Business soap opera. Thank you David for gifting me this book.
The Psychology of Money by Morgan Housel. Housel’s writing on personal finance is incredibly engaging and accessible, packed with pragmatic wisdom. I love it when books give you ideas that you can implement right away, or enable you to sanity-check your own approach towards saving, investing, financing, and managing cash. The Psychology of Money is a great read both for finance geeks and noobs. A worthy investment of your time.
The Choice – Embrace the Possible by Edith Eger. A powerful account by a Holocaust survivor, on dealing with unthinkable horrors and long periods of intense adversity. Eger’s story is so wild that her mind’s ability to remain strong almost seems otherworldly. Her book is full of practical wisdom and real-life strategies for overcoming trauma, breaking free from self-imposed limitations, and embracing a life of freedom and choice.
De wereld van gisteren by Stefan Zweig. De Wereld van Gisteren (The World of Yesterday in English) is the memoir of Austrian writer Stefan Zweig, who lived from 1881 to 1942, in a time when the Habsburg Empire crumbled and National Socialism was on the rise. Zweig takes you on a tour through his 20th century Vienna with a level of detail that puts you in the bustling coffee houses where people from all walks of life met to discuss the arts, politics, and city gossip. On the run for Nazi persecution, you follow him across Europe where he meets and befriends some of the 20th century most notable figures, including anthroposophy’s founder Rudolf Steiner, sculptor Auguste Rodin, founder of psychoanalysis Sigmund Freud, and composer Richard Strauss. Written with elegance and humor, De Wereld van Gisteren is one of my favourite books on 20th century Europe.
Today, every team lead or division head is looking for ways to integrate AI into its operations. What many who’ve tried have realized, is that adoption of AI solutions by its teams can be stubbornly hard.
In this article I’m discussing three common challenges in adoption of AI solutions at large enterprises and strategies for overcoming them. These insights are based on 30+ implementations of AI-powered master data management software at large enterprises.
Let’s dive in.
Idea #1: Put dedicated AI ops team in place and engage your workforce
Shocker: AI solutions (still) require human effort and new skills. Plenty of cautionary tales have been written about AI replacing human jobs and as a result, many people seem to believe that once an AI tool has been implemented, the work is done. What is happening instead, is that human jobs change and working with AI solutions requires a new set of skills. Many organisations are unprepared for this. As a result, solutions are half-implemented, under-maintained, and worst of all, not trusted. My guesstimate is that lack of trust is a top three adoption killer.
Business leaders should think about how to embed the management of AI solutions into its operations. There is no single best way to do this and it depends on your organisation, overall tech savviness, and the weight you are giving to AI in your overall business strategy.
There are, however, some common pitfalls.
One is a lack of education on this new technology whose reputation has been shaped by headlines in the media. That picture is distorted, and you want your entire organisation to have a more grounded understanding of what the technology is and what it isn’t.
Another common pitfall is to make the management of AI solutions solely the responsibility of the IT department. What tends to happen is that AI solutions are managed just like any other piece of software but in reality have a different life cycle consisting of a variety of complex components. At a minimum this should be recognised by your IT leaders by updating existing policies and processes.
Wise business leaders do not opt for the minimum, however, and assign a dedicated team with the right set of skills. The skills you are looking for include data engineering (building the pipelines, fine-tuning the models, getting the data consumption-ready), data science (building the dashboards, doing the analytics), and data governance (data stewardship, data curation, data ownership and permissions).
Today, the majority of AI solutions used by the enterprise rely on machine learning (LLMs like ChatGPT rely on neural networks) and a dedicated field exists for managing these: MLOps. If ML-driven solutions are central to your business strategy and operating model, this may be the team you need to build.
It is key that your dedicated team works closely with the data consumers, sometimes called data citizens, to ensure that the output meets user needs and can take feedback to iterate on the results if not. You would be surprised how often there is a total disconnect between the managers of the AI solutions and the users. A recipe for failure.
Idea #2: Establish baseline and acceptance criteria upfront
An interesting insight is that people tend to hold AI decision-making models to a higher bar than human decision-makers. What I mean by this is that a mistake made by artificial intelligence is getting a higher “penalty” than the same mistake made using human intelligence. In other words, people are less forgiving towards AI and are setting a higher bar.
This makes sense for a variety of reasons. To name a few:
People feel less sympathy towards a “machine” and are OK being more “tough” in their judgment
People can be held accountable for mistakes in ways AI models cannot, which specifically matters in highly regulated industries such as banking and healthcare
People may fear replacement by AI and express hostility towards solutions suggested by upper management
How this may manifest itself is that deployment of AI solutions (also referred to as going into production or productionization) is being delayed despite demonstrating superior performance over existing processes. Where 90% accuracy is acceptable for a human-led process, the AI model has to be right 99% of the time.
Voltaire once said that “Perfect is the enemy of good” and the strive for perfection right from the start can strangle AI adoption, where the ability to learn and continuously improve over time are central to the power of AI.
In addressing this challenge, the goal is not to lower the bar for AI solutions. The goal is to set a bar that reflects (a) the situation today, and (b) an ambition level that corresponds with the cost of being wrong.
Companies who understand this and do this well take the following approach, they
Establish the baseline (benchmark)
Agree on the cost of being wrong
Define acceptance criteria upfront, including the performance bar and other metrics
From here, they monitor, identify areas for improvement, and iterate.
Example A common use case in master data management is matching sales leads to existing customers. If it turns out that an incoming lead is already a customer, the case should flow to the appropriate account manager. If the lead is an actual prospect not yet in your customer base, it should be directed to the sales manager for that specific territory or industry. Instead of having a human figuring this out, you can have a trained AI (machine learning model, or ML) do this for you.
After having selected a handful of vendors you prepare for the Proof of Value cycles. First, you establish the baseline: On a given sample, determine what percentage of leads are correctly matched to existing customers by your human curators.
Next, you determine the costs of being wrong. You may decide that incorrectly matching a sales lead to an existing customer is causing extra work by rerouting the lead from the account manager to the sales manager or vice versa, but that the associated costs are modest. (Compare this to a bank failing to match an incoming sales lead to the US sanctions list and the fines it is now exposed to.)
Finally, you define the acceptance criteria. For AI solutions based on ML as in this example you probably want to look at accuracy, and pay attention to precision and recall. Another element in your acceptance criteria may be related to the user experience for your data stewards and human curators who have to work with the tool to (re-)train the model, monitor performance or perform other data curation tasks.
Idea #3: Recognise the importance of model explainability, but establish performance as the critical driver for deployment
Increasingly, LLMs provide sources for their answers, but with neural networks spanning billions of parameters all feeding into the final response the answer to why is not easy to provide. Building on the illustrative example above, even in the scenario where 100 different attributes in a customer profile from your CRM database (first name, last name, email, phone, etc.) were used to train an ML-model to match against sales leads, the answer to why two records were or weren’t matched together isn’t always easy to explain.
It can be difficult to switch from an easy-to-understand rules-based solution to a better-performing probabilistic solution, mainly because it’s harder to wrap your head around. I have seen it hold up go-live decisions where in most cases the benefits of holding out do not outweigh the costs (there are some exceptions, for example where regulators require details on decisions for audit trails). Business leaders should have this on their radar and define priorities accordingly.
In the past five years we have seen model explainability come a long way but there’s still a lot to improve. Given the current speed of development, it is reasonable to expect this problem will be even more thoroughly addressed in the near future.
In the meantime, energy is better spent on monitoring performance, analysing mistakes, and providing feedback to the model to drive continuous improvement. Data is continuously changing and models need to adapt. Most AI solutions used in the enterprise still rely on some form of supervised learning where human subject matter experts (SMEs) provide training to the AI.
While recognising the importance of model explainability, be confident that significant advancements are on the horizon. Let performance be the critical driver for deployment and adoption, and embrace continuous learning and improvement for both your human workforce and AI models.
In 2023, I read some great books, fiction and non-fiction. These were my 5 favourites:
The Wise Man’s Fear (The Kingkiller Chronicle, #2) by Patrick Rothfuss. This is the sequel of The Name of the Wind(The Kingkiller Chronicle, #1) which I’ve read in 2022 and got me hooked on the fantasy genre. For years I’ve only read fiction books and seemingly forgot the positive influence that delving yourself in a fiction story has on creativity. Rothfuss has a way of describing his characters, locations, and magical adventures in such an elegant way that it even inspired some of my business writing. The magical world he creates remains teasingly close to chemistry, physics, and spiritual phenomenons that we all know and are familiar with. As a result, it only requires a tiny bit of imagination to let your mind go along with the story and exist in the fictional world of Temerant.
Leadership: In Turbulent Times by Doris Kearns Goodwin. Goodwin is probably America’s most admired biographer and is specifically known for her biography on American President Lyndon Johnson, who she worked for in the White House. In Leadership: in Turbulent Times she describes four different leadership styles, possessed by four different US Presidents, Abraham Lincoln, Lyndon Johnson, Theodore Roosevelt, and Franklin Roosevelt. The life stories of these men are in itself worth the read, but the leadership angle makes this book a must-read for everyone interested in personal growth and seeking to be inspired to persevere in challenging times.
Freezing Order: A True Story of Money Laundering, Murder, and Surviving Vladimir Putin’s Wrath by Bill Browder. Freezing Order is the followup of Red Notice, and if you haven’t read that book you should do that first. This is a non-fiction business thriller describing the crimes that were committed as part of the privatisation in the Soviet Union. Jaw-dropping at times. A book difficult to put down.
Discipline Is Destiny: The Power of Self-Control by Ryan Holiday. Holiday is a master of storytelling and shares Stoic wisdom through entertaining, inspiring, and impressive accounts.
When Nietzsche Wept by Irvin D. Yalom. Fiction meets non-fiction in this historic novel, in which some of Europe’s most famous philosophers and psychiatrists meet in 19th-century Vienna to fight despair. Beautifully written, you get introduced to techniques of leading psychiatrists Josef Breuer and Sigmund Freud, as well as groundbreaking philosophical beliefs developed by Friedrich Nietzsche.
The pandemic caused many companies to rethink their organizational setup. Are we going to demand people back into the office? Or should we go for a hybrid model or maybe even allow being fully remote?
In our case, the pandemic didn’t have much to do with it: we needed to build a remote team of support agents and support engineers to be able to provide 24/7 support for our global customer base.
The team we have today is distributed over four countries – India, the Netherlands, the Philippines, and the United States. In this blog post, I’m laying out the approach we took to building a remote team.
Why building a remote team requires a well-thought-out approach
Space and time matter, they just do. Communication is harder. Collaboration is harder. Coaching and mentoring are harder.
Being able to meet in person, observing all the subtle non-verbal cues, allows you to communicate more effectively.
Being able to quickly get the team together in the same room for a spontaneous brainstorming session enables more seamless collaboration.
Being able to meet in person for a coaching session makes it easier to connect on a deeper level and build strong personal relationships.
These things are just harder when you are located in different geographical locations and time zones. It is not impossible, but you do need a well-thought-out approach. Let’s move on to the first pointer to get there, define what team qualities you need.
Define what team qualities you need
Tamr provides software that does ML-based data mastering (if you’re interested, you can read more here). Customers include the largest Fortune 500 companies and the data mastered by Tamr feeds into key operational processes such as customer onboarding, sales, and risk management. When Tamr’s software breaks, our customers risk losing money either through missed opportunities or increased costs. What follows is that time is of the essence – there is pressure to solve customer issues as swiftly as possible. Supporting enterprise software is a team sport, as it requires deep product knowledge and a variety of skills typically not held by a single individual.
To be successful, we identified three key qualities for our team1:
Collaborative
Proactive
Inquisitive
You want to think through what is important for your team because you can only focus on so many things. The qualities you come up with will drive the decisions you make as a leader. It will drive what behaviors you encourage, and what activities you organize to achieve your team-building goals.
For our key qualities, we came up with the following criteria:
To encourage people to collaborate, you need trust-based relationships and safe psychological work environments.
To encourage people to be proactive, you need them to feel empowered.
To encourage people to be inquisitive, you need to show how and provide the right tools and training.
What we try to do is spend the first minutes of our meetings on non-work topics. These topics can be super mundane, like what the weather is like on the other side of the globe, or how your puppy dog decided to use your new shoes as a toy. In our case, as young fathers, every now and then we have our babies say hello to the team.
Another thing we did to facilitate team bonding is making transparent how we are wired individually and as a team. Each team member completed a personality assessment. We then collected the “scores” on each of the attributes and looked at how we are wired as a team (the average and median scores). Next, we looked at the (variance in) individual scores, allowing us to zoom in on the diversity within our team and iterating how magnificent it is that we have all these different traits and qualities in one group. It also raised awareness about, for example, that some team members feel comfortable voicing their opinions where others do not. We used the free PrinciplesYou personality assessment and can wholeheartedly recommend this tool.
Connecting on a personal level is important when you want to encourage trust-based relationships and provide safe psychological work environments. Team members need to know that they can be themselves. Building this level of trust requires a bit more effort when everyone is remote, but it can be done.
When it comes to onboarding, you want to be strategic about what information to deliver how and when. Too often, onboarding is cramped into one or two days, exposing new hires to an information overload and thereby making it totally ineffective. To prevent this and also take into account the real problem of “Zoom fatigue” we split the onboarding over a period of two weeks, max two hours per session. We had different “guest speakers” from other teams in the company to do introductions at the same time. Important for us is that the new hires would feel comfortable reaching out to other colleagues for help when needed.
Give autonomy to team members
For people to feel empowered, they need autonomy. Autonomy gives you the freedom to think for yourself, make decisions, and solve problems. We made an inventory of different projects and recurring tasks and divided ownership among the team members. People are encouraged to talk about their projects during standups to share insights and learnings with the team.
Another area where you can hand autonomy to your team members is personal and professional growth. We asked our team to define learning goals for both hard and soft skills. It is up to them which goals to set and how to work towards achieving those goals but we offer coaching and guidance.
Finally, if you have the opportunity to praise your (new) team in front of others, for example during a company-wide meeting, do so. Especially for folks who are remote, making someone feel part of the team requires effort. It means a lot to be recognized when you’re solely based on the other side of the globe and may at times feel a bit disconnected from the HQ.
Deliberately lead by example and get the right tools and processes in place
The age-old adagium, “lead by example”, is a powerful one. It is true for leading teams of all kinds but for remote teams you have to be even more deliberate about it. You will likely have fewer opportunities to demonstrate the desired behavior so you have to be effective during the time you have. Make those meetings worthwhile.
Since communication flows less naturally when you are all remote versus being in the same room, you need to pay extra attention to the tools and processes you have in place. Slack or similar apps can help you lower the barrier to team communication. We developed playbooks describing key processes and other assets (scripted triggers, instruction videos, living collaboration files, etc.) to enable the team to work efficiently. Since our team is 24/7 and shifts only partly overlap it is even more important that people can do their work independently.
Closing thoughts
Building a remote team requires a well-thought-out approach. There is tremendous value in being able to do this well, since the world we’re living in is becoming more technology-enabled and people will increasingly want to benefit from the opportunities that come with this trend.
Based on our experience, even with team members spread out over different continents, it is still possible to build strong personal relationships and an excellent high-performing team.
But building the team is only phase one. In this phase everyone is hyper-focused on making things work. In our case, we even synced up time schedules for the first few months to optimize for the ramp-up of the new team members. In some ways, the ongoing management of your remote team in a state of business as usual is more challenging. In this second phase, you have to think about how to ensure people stay engaged, motivated, and keep growing personally and professionally. We only recently entered that stage and it’s a little too early for a proper evaluation. Our hypothesis on key success factors is this: establish strong communication patterns, give team members autonomy, make sure they are challenged (but not overloaded).
Now it’s time to put that hypothesis to the test.
Notes
1 Note that the qualities you need are very much dependent on the function of your team. For example, the qualities you would be looking for when building a remote sales team are likely to be quite different.
In May 2021, home prices in the Netherlands were 12.9% higher than year-earlier, research by the Dutch Central Bureau for Statistics (CBS) shows. This is the largest increase since April 2001 – yes, the largest increase in 20 years. Compared to the lowest point in 2013, home prices were 66.8% higher.
Being a fresh homeowner myself, stats like these pique my interest but also trigger a feeling of unease. What is driving up home prices to these historical levels?
If you have to believe politicians, it is the shortage of supply, and the answer is in building more homes. But the Dutch Central Bank (DNB) found that the relationship between a shortage of supply and the home price index is actually quite weak (see Figure 2, source: DNB). It is the financing capacity of home buyers that really matters (see Figure 1, source: DNB).
When I think about the financing capacity of home buyers, three components come to mind.
1. Income (growth).
2. Lending conditions applied by mortgage providers.
3. The interest rate.
Starting with income growth: Assuming everything else equal, when people’s income growth is higher than inflation, financing capacity improves. The Dutch CBS showed that incomes in the Netherlands did indeed grow over the past decades (these figures are not compensating for inflation, which has been modest). But we do not see the big movements that would explain the steep increase in home prices.
Lending conditions include elements like the income-to-loan factor: how many times your annual salary can you take out as a mortgage. I believe the current range is around 4-5x. I don’t think there have been any big movements here, either.
Finally, interest rates. Interest rates are at historical lows. In my lifetime, debt has never been cheaper. In the 1990s, interest rates on mortgages hovered around 8%. Today, you can get a mortgage with interest rates of less than 2%. A difference of 4x. Average inflation in the 1990s was also higher than in the past decades, but not 4x as high. Other economic factors come into play as well but the point is that interest rates today are very, very low. Indeed, interest rate movements have been significant and, therefore, are an important factor to watch.
Interest rates are set by central banks, such as the Federal Reserve in the United States and the European Central Bank (ECB). In times of economic crises, central banks typically keep interest rates low, making it attractive for governments, consumers, and companies to take out loans and increase spending. To support the economy during the covid-19 pandemic, central banks did just this.
Everyone, from investors to home buyers, is now eyeing the central banks. Will they be raising interest rates? All else being equal, higher interest rates will reduce the financing capacity of aspiring home buyers. This can be expected to exercise downwards pressure on home prices and may reverse the trend of increasing prices.
The Federal Reserve is expected to increase rates as soon as 2022 in response to higher inflation. As inflation is also picking up in Europe, keep an eye on monetary policy announcements from the central bankers in Frankfurt (where the ECB is headquartered).
The covid-19 lockdown of 2020 caused many of the joys of the city to evaporate. Yes, we live in tiny apartments, streets are crowded, air quality is not great, parking is a nightmare, but think about all those joys we normally have in close proximity! Wonderful dining options, clubbing till dawn, numerous musea with the most amazing art at display, theater, opera and ballet. But, with all that locked down – what remains?
Like many others, I started craving being close to nature. Being outdoors gives great pleasure and is one of the few activities that can continue during a pandemic. I found myself fantasizing living on the country side. I started looking at properties in more rural areas. Wow! Isn’t it great how much value for money you get when you venture outside of the city? Who am I fooling by staying in the city? My eyes were finally openend!
But then I got pulled back to earth. What is important to me in this phase of my life? (And this is personal.) Yes, being outdoors and enjoying nature is high on my list of things that give me great satisfaction. But even more so, I’m looking to do meaningful work, be innovative and creative, and expose myself to inspiring people. Steven Johnson describes it very elegantly and persuasively in his book Where Good Ideas Come From: The Natural History of Innovation.
To make your mind more innovative, you have to place it inside environments that share that same network signature: networks of ideas or people that mimic the neural networks of mind exploring the boundaries of the adjacent possible.
Steven Johnson in Where Good Ideas Come From: The Natural History of Innovation
Johnson puts forward the idea of liquid networks where people and ideas collide to optimize the exploration and utilization of the adjacent possible.
High-density liquid network make it easier for innovation to happen, but they also serve the essential function of storing those innovations. Before writing, before books, before Wikipedia, the liquid network of cities preserved the accumulated wisdom of human culture.
Steven Johnson in Where Good Ideas Come From: The Natural History of Innovation
Reading this reminded me of the energy I get from living in vibrant cities. Having lived in places like Amsterdam, Boston, New York, Austin, and Ho Chi Minh City exposed me to an enormous number of awesome people, organizations, communities, and ideas.
City life is not as attractive right now as it used to be. But the pull is yet too strong.
There is a new rage on Wall Street: going public with so-called Special Purpose Acquisition Companies (SPACs). SPACs are listed shell companies that are meant to merge with a real business, a strategy known as a reverse merger. Due to the simplicity of the SPAC – an entity that only holds cash on the balance sheet and has no real activities – the IPO process is much simpler than for a real business. SPACs are increasingly popular under tech CEOs and VCs, as quite a few of them seem unhappy with the traditional IPO process.
SPACs themselves are not new and have been around for decades, also in Europe. They have a somewhat dodgy reputation as they were used mostly by companies for whom the IPO option is not available (read: investment banks do not see a large enough appetite for their shares). SPACs are created by sponsors, often former business executives or investors who also want to provide their expertise to the acquired business. With more reputable sponsors entering the space, the good old SPAC is dusted off and given new allure.
Pitchbook estimates the combined purchasing power of SPACs that are currently out hunting at around $20 billion. The SPAC of hedge fund manager Bill Ackman represents 25-30% of that. With his $5-7 billion mega SPAC he aims to merge with a private unicorn (Airbnb is said to have rejected the invitation to dance).
In addition to the $20 billion in dry powder, SPAC managers have in their toolbox the option to facilitate a ‘private investment in public equity’ (PIPE). A PIPE is a private placement with accredited (institutional) investors that is subject to lighter regulation requirements than for an IPO. This method can be used to raise additional capital. Once complete, the issuer files a resale registration statement with the SEC to add the shares to the float (i.e. they become publicly listed and can be traded).
Last year, it was the direct listing that emerged as the hottest alternative to the IPO and now there is the SPAC. What is driving SPACs’ popularity?
Drivers of the surge of SPACs
An often cited reason for the rise of SPACs is the feeling that the IPO process is rotten, however, I actually believe that circumstantial factors play a bigger role here. But let’s first look at what the IPO bashing is all about.
Big part of the IPO criticism is about first-day “pops”: surges in share price on day 1 that suggests that the IPO was underpriced and money was left on the table. These pops give investors that were part of the ‘book’ (investors who ‘pre-ordered’ the stock) an opportunity to make very attractive and quick returns on the first trading days (if they decide to sell). These pre-ordering investors are typically long-term clients of the investment banks, and critics argue that shares are purposely underpriced, that way almost guaranteeing attractive returns. The underlying force at play is an asymmetry in relationships: for the investment bank the IPO with this particular company is a one-off, whereas the relationship with the people buying the shares is long-term. The argument goes that the investment bank has an incentive to give more weight to its long-term clients.
But in the end, it is the management team of the company that has to OK the IPO price. Some executives know there’s going to be a pop, but decide to stick with what they consider a more realistic valuation. They reason that when it is time to present next quarter’s results, it is impossible to meet inflated expectations. There is reason to believe there is ‘irrational exuberance’ in the market, with investors (or gamblers?) ignoring company fundamentals and betting that they can sell at an even higher price tomorrow.
Although I do agree that the IPO process needs innovation, I think a more important driver of the surge of SPACs is the volatility in public markets. Volatility creates a harsh environment for companies looking to raise fresh capital through a lengthy IPO process. SPACs – also referred to as blank check companies – can move much faster. No lengthy roadshows, but targeted conversations with the SPAC managers who you know are actively looking to buy.[1]
Finally, there is the ever-present factor of opportunism. Some SPAC sponsors may expect that an ongoing pandemic will drive down valuations of private companies, creating attractive investment opportunities.
Are SPACs a good or a bad thing?
The rise of SPACs is driven by the current environment of high volatility, opportunism and thirst for innovation of the path for going public. The fact that there is a new rediscovered path for private companies to take, in addition to the IPO and direct listing is, I think, a positive thing. Plus, the current trend of (tech) companies staying private longer is undesirable. By staying private, their stock is out of reach for retail investors and other public market investors. If SPACs mean more tech companies go public, I applaud that.
But SPACs have flaws as well. For one, they are not cheap and with an average cost at around 20% of the proceeds arguably more expensive than IPOs (although new players vowed to make the SPAC option more cost efficient).
Then there is the issue of price discovery. Demand drives up the price. In an IPO process demand is tested and possibly created with the help of investment bankers at a large group of investors during the roadshow. If there are more investors who want to buy a large number of shares (demand outstrips supply), the higher the price the issuer can ask. With SPACs you’re negotiating with one potential buyer (or max a handful if you’re negotiating with multiple SPACs). As a result, SPACs provide limited price discovery and are not a guaranteed solution for the first-day “pop” issue that is central in the IPO critics’ argument. For illustration, the share price of DraftKings’ climbed 274% since it listed through the merger with a SPAC in April this year (based on closing price 9/8/2020).
SPACs are not the holy grail, but for companies in a hurry or complex equity story they may be an attractive pathway.
For companies that do not need to raise fresh capital, the direct listing is probably a better option (Slack and Spotify listed this way, Palantir may also walk this path).
For companies with a good equity story and time on their side, the traditional IPO, even with its flaws, may still be the better option, given the factor of price discovery. In todays volatile markets, however, IPOs are subject to more uncertainty than SPACs.
Will the SPAC frenzy also hit European capital markets?
The majority of recent SPACs involved American companies, including tech firms like DraftKings, Nikola, and QuantumScape. But there is also activity in Europe, for example the SPAC merger of UK-based spaceflight firm Virgin Galactic in 2019.
My expectation for Europe is that SPACs will become more common in this period of high expected volatility, but that we will not see the same degree of SPAC-hype play out as in the US. The US has a huge inventory of private tech companies with lofty valuations, and when the crisis hits financial markets, they may come available at more attractive valuations.
Europe today, unfortunately, lacks the products at display to choose from, much like the shop owner who had to close due to a pandemic-driven lock-down.
Notes
[1] Direct listings are not an option as they cannot be used to raise new capital but only for providing liquidity to existing shareholders (this may change under new regulation).
Sources
Pitchbook. The 2020 SPAC Frenzy. September 1, 2020.
The Economist. Buttonwood: The SPAC hack. August 1, 2020.
There is an old Dutch saying that intends to remind people that trust takes time to build, but is quickly lost.
Vertrouwen komt te voet en gaat te paard.
Johan Thorbecke (1798 – 1872) – Dutch liberal statesman and one of the most important Dutch politicians of the 19th century. Thorbecke was almost single-handedly responsible for drafting the revision of the Constitution of the Netherlands, giving less power to the king and more to the States General, and guaranteeing more religious, personal, and political freedom to the people (Source: Wikipedia).
I had to think of this saying when reading an article in The Economist about the two key factors that shape consumers’ views of companies. According to Rupert Younger of the Saïd Business School at the University of Oxford, those two key factors are capability and character.
A company’s capability is determined by the quality of its products or services. A company’s character is determined by how it handles customer complaints and disputes. What’s more, research suggests that “people and organisations alike tend to be judged by the worst thing they do”.
I shared these insights with my sister, who is the founder and CEO of Lindy’s Patisserie and relies heavily on marketing through social media channels. I say marketing, but it is actually more than that. Lindy’s team is actively engaging with customers and followers, responding to comments on Instagram and Facebook. At some point in time, she will undoubtedly have to deal with customers that express complaints through those same channels or possibly even social media trolls who are just being disruptive for the fun of it. When confronted with this, it is important that you stay calm, friendly, and professional in your response.
Trust has to be carefully established by consistently demonstrating the ‘right character’. RentItems, a startup I’m on the advisory board of, hired a Chief Experience Officer to ensure customers have a great experience and issues are handled with dedication and care. It underlines how important it is in today’s business environment, where everything is being reviewed, rated, and ‘starred’, to excel in customer service.
Thorbecke’s saying that “trust arrives on foot and leaves on horseback” was true in the 19th century and even more true today.
Sources:
The Economist, August 8th 2020. Bartleby: Called to account.
Last week I gave an ‘introduction to fundraising’ to the team of a startup where I am on the advisory board. I talked about the different stages of venture capital fundraising and decided to map them to the company life cycle. Doing so provides a framework for thinking about which investors to talk to at each phase of your company’s life.
The company life cycle
The Company Life Cycle is an old concept but still helpful in thinking at a high level about the different phases of a company’s life. There are four:
Startup
Growth
Maturity
Decline
There is no strict definition but think of the Startup phase as the period where you go from an idea to product-market fit. Maybe this happens in the first 2-3 years.
Once you’ve found product-market fit, you go from a small number of customers to a large number of customers. For this, you need to scale the company. It is all about Growth. Growth in terms of your team, revenue, and quality of your product or service. Maybe this is the focus of years 3 to 10. The Growth period can be long and extended, especially if you are in a growing market as is the case for many technology startups.
At some point in time, your company is ‘established’. You have a solid customer base and your business operations are running smoothly. There is definitely still growth potential, but the days of hyper-growth are over. This is when you have reached Maturity. Your primary focus is no longer on growth, but on optimization.
Just as with most things in life, a period of Decline is inevitable. Your innovative edge is no longer defensible and new kids on the block are pushing new technologies and business models at an ever-increasing pace. The disruptor is being disrupted. Think about how Nokia got disrupted by Apple with the introduction of the iPhone. Think about how Walmart got disrupted by Amazon. Think about how Volkswagen and other carmakers are being disrupted by Tesla. Getting disrupted does not mean that life is over, but it does mean that you have to fundamentally change the way how you are doing business in order to survive.
The Company Life Cycle – Source: Thalein
Types of investors
Each one of the life cycle phases is characterized by a different risk and return trade-off, and therefore attracts different types of investors. So before talking about how the different stages of fundraising map to the company life cycle, let’s look at the different investor species that are out there.
I am going to skip banks and providers of grants and focus on financiers who invest in the equity of a company. Banks provide funding through debt (loans) and are typically not interested in financing startups. Grants mostly come with little or no strings attached and you don’t have to issue equity or debt (which is why grants are great for you).
I want to talk about the following types of investors:
Founders, family, and friends (FFF)
Venture capital (VC) investors
Private equity (PE) investors
Strategic investors
Public investors
Founders, family, and friends (FFF)
Although not your typical ‘investor’, this category is often your first source of fundraising. You have an idea for a new business. But who is going to put money into something that is just that, an idea? Exactly: your mom, dad, and wealthy uncle, who have known you all your life and know how talented and gritty you are. As the founder, you chip in your savings and max your credit card. Maybe your family provides the money as a gift, a loan, or they get common stock in your newly founded company. These funds get you started.
Venture capital (VC) investors
Venture capital investors are known as financial investors, meaning their main objective is financial return. (This is different from FFF discussed above, which you could argue, are love investors as they may largely invest out of love for you as a person.)
Venture capital can be broken down into sub-categories known as ‘stages’. These stages can be mapped to the company life cycle, which we’ll do in a minute. The four stages are:
Pre-seed
Seed
Early & growth
Late
Stages of Venture Capital – Source: Thalein
Pre-seed investors provide capital in the earliest days of your company. The types of investors you’ll see in this phase are FFF and angel investors. Angel investors are private individuals who are wealthy enough to make risky investments in startups. What you’ll often see is that these angels are (former) entrepreneurs who have sold a company and got rich. The proceeds from a pre-seed funding round are used to build the first version of your product and test initial market demand.
Your goal with the pre-seed money is to find early adopters and get enough traction to convince Seed investors to give you money to build your minimum viable product (MVP). Seed investors include seed funds and angel syndicates. Seed funds are professional investors, whose day-job it is to make and manage investments in startups. Angel syndicates are groups of angel investors and can be more or less organized. The difference between the two is that Angel syndicates invest with their own money, and seed funds invest (largely) with someone else’s money.
With the seed funding, your goal is to find product-market fit and build your customer base. With enough traction and growth potential, you spark interest from Early & Growth-stage investors. These include your typical venture capital funds, such as Andreessen Horowitz, Union Square Ventures, and Sequoia Capital. You may also see strategic investors, including corporate VC arms. Corporate VC’s are the investment entities of large companies that invest in startups. Examples include Samsung Ventures, Google Ventures, Intel Capital, and Novartis Venture Fund. VC investors often invest over multiple rounds of financing, structured as Series A, Series B, Series C, and so on.
The lines between Early & Growth and Late-stage can be fuzzy, but generally, Early & Growth-stage investors participate in Series A and B rounds, and Late-stage investors in Series C and up. Some VC funds are structured in such a way that they can do follow-on investments in late rounds to roughly maintain their ownership. An early-stage investor leading your Series A round may also participate in the Series B and C rounds, led by a different investor. What this indicates is that relationships with your investors can span many years, so you better choose your financial partners wisely.
Strategic investors
Strategic investors are investors whose main reason for investing is not financial but strategic. An example here is Walmart acquiring Jet.com, an e-commerce platform that competes with Amazon. Amazon is increasingly taking away market share from Walmart, as shoppers increasingly buy online. In order for Walmart to protect its market share and compete with Amazon, it needs digital capabilities. By acquiring Jet.com Walmart gets these capabilities in-house, and the acquisition can thus be seen as a strategic investment.
Private equity (PE) investors
Private equity investors, just like VC investors, are financial investors and their main objective is financial return. Private equity invests in private companies (i.e. not publicly listed and part of an index like the S&P 500) that are in the maturity or decline phase. PE investors are looking to invest in companies where there is an opportunity to maximize cash flow. For mature companies, free cash flow is a key driver of a company’s value and hence the price the PE can sell the company for in the future. PE investors are looking at companies where they can cut costs, that can be broken up and sold in parts, or that can be combined with other companies to achieve economies of scale. Examples of private equity investors are KKR, CVC Capital Partners, and The Carlyle Group. PE investors occasionally invest in late-stage rounds that normally are the playing the field of VCs. One reason for this is the emergence of mega-rounds that require deep pockets, and PE funds tend to be larger than VC funds. Another obvious reason is the attractive returns that can be made in these large tech deals.
Public investors
Public (equity) investors, like you and me, pension funds, and asset management funds, invest in companies whose shares are publicly listed and typically are in the late-growth or maturity phase. This is because in order to go public you have to be of a certain size to handle all that comes with a listing (financial reporting, corporate governance, and so on). A company can go public through an Initial Public Offering (IPO), which is the process of listing the shares of a private company on a stock exchange and offering these shares to the public.
Mapping VC fundraising stages to the company life cycle
Now that we have an idea of the types of investors and VC stages, let’s look at how this maps to the company life cycle.
Where Venture Capital Plays – Source: Thalein
As you now already know, venture capital fundraisings occur in the startup and growth phase of the company. More specifically, pre-seed and seed rounds happen in the Startup phase to get things off the ground. Early & Growth and Late-stage rounds take place in the Growth phase and are used to accelerate the growth of the business.
Mapping VC Fundraising Stages to the Company Life Cycle – Source: Thalein
To complete the picture, the maturity stage is where you no longer see VC investors. Instead, this is the phase in a company’s life cycle where PE and public investors play an active role. The role of PE investors may extend into the decline phase, where they seek to create value through optimization, turn-arounds, or restructuring.
Mapping VC Fundraising Stages to the Company Life Cycle – Source: Thalein
The different phases of the company life cycle are characterized by different risk and return trade-offs. Startups are perceived as riskier than growth or mature companies, but investing in them is associated with higher expected returns. Mature companies have lower growth rates, but there may be an opportunity to cut costs and squeeze profit margins, resulting in attractive pay-offs.
Understanding which life cycle phase your company is in will guide you in deciding which investors to talk to. Fundraising is a time-consuming process that will distract you from your day-to-day responsibilities. You want to make your effort as efficient and effective as possible. Do your homework, get yourself familiar with the different concepts, and increase your probability of success.
THALEIN 