Jul 22

How is Cybersecurity Spending Changing?

I’ve been speaking to a lot of CISOs and founders of cybersecurity companies, and thus far the current macro environment doesn’t seem to have had much of an effect. Cybersecurity budgets appear to remain healthy and founders aren’t seeing a slow down in purchasing.

This is probably due to the fact that attackers aren’t going to be hacking less due to a recession and as such companies can’t afford to cut budgets. I would expect that some amount of spending will be put off for new large projects, think replacing your current endpoint solution, but lower cost startups might actually be gaining share because of belt tightening.

Either way, it’s something that I’m keeping a close eye on.

If you’re going to be in Vegas for the BlackHat cybersecurity conference or the annual DefCon hackers conference drop me a line, I’d love to meet up with you. You can reach me at: lucas@lyticalventures.com or @lucasnelson on Twitter.

Jan 21

VC Craft – Analysis of Venture Unlocked #4

Week two of listening to Samir Kaji’s podcast, this one with Jodi Sherman Jahic of Alignment Partners. Again, there are good notes on the podcast in that link, so what’s below is simply what I thought was interesting along with my comments and analysis.

They discuss how LPs are really attuned to partnership dynamics and how it’s a long term commitment. Frankly we’ve struggled to put into our deck the magic that exists in our partnership and the way we interact as a team. I’ve worked with plenty of teams, some are great, some less so. But every once in a while you manage to get that great blend that is special. Trying to put that into a deck has been tough.

Jodi states that fund sizes, large funds, are driving the power law dynamic in venture. If you don’t know about the power law argument here is a great article by Clint Korver, yet another Kauffman Fellow, discussing it. The statistics she uses are that the average venture funded company exits around $70-80M and so it’s possible to create a rational portfolio where you don’t need billion dollar exits to get a 3x or better return.

While that portfolio math is true, I don’t think it means that power law outcomes are driven by the fact that large funds need them to win. She mentions that one of her companies is on track for a billion dollar exit with only $3M of investment. If large funds were really the driver then this shouldn’t’ be happening. To me it seems that the power law is a function of winning a large market and becoming dominant and has little to do with the fund size investing in the company. Having said that, I still agree that it’s possible to create a firm that doesn’t need to rely on power law companies to make great returns for its investors.

Jodi makes an interesting point about why funds tend to grow in size. Her two reasons are management fees and social pressure. This second reason is intriguing; funds grow because money is available rather than to fulfill a specific strategy. I love the quote “The world doesn’t ever need another venture fund.” In fact, that’s what I said to my partner Craig when he first suggested we form a fund. The only reason that becomes untrue is when you can find a real reason that a new fund fills a hole that others aren’t filling. Obviously I think we’ve done that, but I may be biased. 😉

Jodi ends with a single piece of advice for new firm: There is something magical about LPs being there solely because they believe in you rather than from a legacy of a fund you joined. I couldn’t agree more so I’d like to say thank you to all of our LPs.

Jan 21

Venture Unlocked #3

I’ve decided to spend some time each week in Q1 trying to work on the craft of venture capital. While I’ve been doing this for close to a decade, I’ think there is always room to learn more. To that end, I’m going to be listening to Venture Unlocked by Samir Kaji, a fellow Kauffman Fellow who is looking at venture from a unique angle given his seat at First Republic.

Since I’ve already listened to the first couple episodes I decide to start with episode 3, Roger Ehrenberg.

Given the notes provided in the link above, I won’t bother telling you what’s in the episode, instead I’d like to give my analysis.

  • To find his partner Roger took 1000 applications, did first calls with 100 people, interviewed 20 and whittled it down to 5 finalists before choosing one person. I’m a fan of such a rigorous process.
  • They actually found fund size growth painful. The fund sizes went 50M, 105M, 160M, 160M. That’s a pretty quick progression up to a steady state.
  • They are pretty aggressive about recycling but that has gotten easier since they invest cross fund. A series B in a later fund get’s liquidity earlier than a seed and makes recycling in that fund easier. I really like that observation a lot since cross fund investing is a controversial idea.
  • When it comes to flexing to get into a deal, they keep capital at risk steady and instead take a lower ownership with an eye towards buying more later. I’m a fan of being disciplined about check size, especially for smaller funds.
  • Their biggest learning was essentially the power law rule: Great companies can get much larger than you could have ever imagined out the outset. Even though everyone believes this, it feels like you have to experience it for yourself to really grok it.
  • Once they had the returns to be picky they were very deliberate about their LP makeup. It’s not often you hear about funds breaking up with LPs, so this is some good insight into what they looked for. Not surprising mind you, funds that are in it for the long haul.

Overall, this is a really good conversation about the growing pains of taking a fund from proof of concept to steady state. My big takeaways were that they learned a lot on the fly and try to do small experiments to keep improving over time. Seems like a team with a real growth mindset.

Dec 20

My Top Beers of 2020

For the last couple of years I’ve logged almost every beer I’ve had on Untapped. It’s both been a fun way for me to learn more about beer and my own palette. For example, I’ve learned that I particularly like Mosaic hops.

The data also allows me to know what my favorite beers of the past year were. And I thought I’d share the top five for kicks.

Untapped ranks beers with the same score by the number of times you had them, so it probably shouldn’t be surprising that local breweries that I can easily get are over represented. As an example, I actually like Smooth Beats Miami more than DDH Oh, but it’s not as easy to get, so it came in third rather than second.

Anyway, this was just a fun little post to get me started blogging again. See you in the new year.

Jun 20

Cyber Thoughts May 2020

Well, I’ve forgotten to put the last few of these up here. Instead of putting the content here I’ll just put a link to the newsletter and let you signup below if you wish.

Cyber Thoughts May 2020

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Mar 19

Cyber Thoughts March

Here is the latest Cyber Thoughts Newsletter.

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Feb 19

Cyber Thoughts February

Happy V day. Here is the Cyber Thoughts Newsletter I wrote for February.

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Jan 19

January Cyber Thoughts

As part of communicating with investors and friends of our new fund, I’m writing periodic newsletters about what we find interesting in cybersecurity. Below is the one I wrote for January.

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Jan 19

Lytical Ventures

Wow, time flies.

About a year ago I launched a new fund with a great group of partners. I’m not going to write to much about it here at this time but it’s an early stage venture initiative, targeting the cyber and corporate intelligence landscape. You can look up more about it on LinkedIn.

Suffice to say that I’m really excited about it. Hopefully, now that we are well on our way I’ll have more time to write posts here.



Dec 17

NYC Mesh

Given that it looks like Net Neutrality is going to be killed shortly I decided to look into find a non-censored Internet Connection. NYC Mesh is a pretty interesting volunteer project doing just that.

I signed up and one of their team came out and did a site survey. It looks like I’m a bit too far from the Brooklyn Supernode for a direct connection, but hopefully we can find a 1 hop solution in the coming weeks. If you’re interested in having a net connection not controlled by a media conglomerate I suggest you check them out and get involved.