Knowing when to fold ’em or hold ‘em…

Kenny Rogers was a lot of things - a chicken proprietor, a husband (5x), and an incredibly successful country musician. His signature song, “The Gambler”  sold 35 million records and was a “career-identifying song.” But, Rogers was also not a gambler, and “learned a long time ago, I can't win enough money to excite me, but I can lose enough to depress me.” “The Gambler” was not even a song about gambling - it was a song about life. 

I’ve only heard “The Gambler” a few times, and I’ve never had Kenny Rogers’s chicken (though it’s only available in Asia now). However, the lyrics are prescient - especially with a core business concept - knowing when to sell, when to build, and when to buy. I could take this article toward portfolio dynamics - of knowing when to double down on a portfolio company, when to provide life support, or when to let it wind down. However, I’ll save that topic – and focus on something more basic, and relevant.

1999 was a wild time - Tiger Woods won his first PGA championship, a chubby rodent named Pikachu triggered Pokemania, and the Y2K scare captivated the world. 1999 was also a high water mark for exits, and stocks. Exits defied gravity. Acquirers ignored common sense, and chased deals. And, entrepreneurs made massive generational wealth.

Yahoo! acquired Mark Cuban’s Broadcast.com for $5.7B in April 1999...Broadcast reported $13.5m in Q2 (1999) revenue and 570,000 users. Yahoo paid $10,000 per user on a money-losing company - and not surprisingly, discontinued the streaming service after 3 years. Dan Snyder sold Snyder Communications in February 2000 to Havas in an all-stock transaction valued at in excess of $2 billion -- Havas ended up with a $1.4B impairment from the transaction less than 2 years later. Both men clearly sold at the perfect time - at the peak of the bubble. 

2021 was a wild time too - Tiger Woods played his first golf tournament after his horrific car crash, a dragon with a fire tail named Charizard triggered a Pokemon card renaissance, and COVID disconnected the world. 2021 was the exact same high water mark for exits (though not for stocks), and secondary share sales. Exits and IPOs defied gravity. Acquirers ignored common sense, and investors chased crazy deals at crazy terms. And, entrepreneurs made massive generational wealth.

Life generally follows somewhat predictable patterns and pathways - history often repeats itself. I frequently heard “this time was different” in 2020 and 2021 - as if we were living in a brand new world. While I generally suppressed my laughs, the present is usually a twist on a past time period. 2020-2021 was a reincarnation of 1999-2000. Although the stock markets and crypto markets have rocketed right back in 2024, this time is still no different. The historic post-COVID Government stimulus and intervention are still running through the markets - and may take a bit more time to wash out of the system. And while the eventual catalyst that breaks the macro situation is unclear - it’s not “if” things break, but when. 

The founders that sold secondary shares, or their entire companies in 2021 sold at a 20+ year peak. But, I’m starting to see a mini replay of 2021 in venture markets now - some companies can’t raise money to save their lives…and some are raising money at whatever terms they want. I hope these founders take some chips off the table at these somewhat crazy valuations, especially since M&A multiples are still somewhat muted. And, I also hope some of the high flying founders push growth, and raise huge rounds before things crash (then have a giant war chest). 

I’ve always been a bit of a bear and am naturally skeptical – but I’m still a VC. I root for founders, and hope they do well. However, it’s also in my interest to invest in companies at realistic valuations. Right now, valuations are either borderline predatory (for slow growth, previously venture backed companies), or just plain illogical. There is obviously some gray area too - but it’s still a barbell (heavy at the top and bottom) type of market environment. I’ve mostly walked away from deals recently - though it’s still a very difficult hand to play. The current market is a bit like getting a 16 in Blackjack - not very favorable, and challenging. You can take another card, and likely be over 21…or you sit at 16, and hope the dealer has a bad hand. However, I still think the next hand could be epic - maybe not a 21, but a 20. Selling (or holding on to cash) at the peak has its benefits - you also can put that money to work at the bottom. 

Mark Cuban and Dan Snyder not only timed their exits almost perfectly - but invested the proceeds equally well. While the Nasdaq and .com stocks were very much in vogue, both went in the opposite direction - with Snyder buying the Redskins for $800m (selling for $6.05B) and Mark Cuban buying the Mavericks for $280m (selling for $3.5B). Knowing when to hold ‘em, or fold ‘em is a key concept, especially as a founder or VC. I sold some secondary shares myself as an angel in the last bubble, and will sell more shares now - especially if the price is right. And, if the markets do get really ugly, I’ll aggressively put all that cash to work. 

While I’ll never be a majority owner of a sports team, I do hope to eventually own several small stakes in pro teams. I won’t need perfectly timed exits - but I will need to play my hands correctly. Right now, I’m happy to hold some hands, fold a few more, and generally cash in as many chips as I can. After all, I can only start “countin” after the “dealins done.”