College Baseball, Venture Capital, and the Long Maybe

The Pitch Deck. The deck is often the introduction of a venture capitalist to a company, sent after a warm intro. For the athlete, the pitch deck consists of video and some metrics, posted on Twitter (the LinkedIn of college baseball). In both cases, the best story is (naturally) being told: they aren’t dishonest, but they also aren’t going to emphasize flaws or risks. In my experience, pitch decks are important, but not as important as the underlying business; similarly, terrific video of a bullpen or batting practice can’t turn a baseball player into someone they aren’t. The Long Maybe. VCs need to invest out of a fund (that is, they need to put their capital to work), and FOMO leaves them nervous about turning down companies prematurely — they become reluctant to tell a company "no", even if it’s plain that they will never summon the conviction to invest. VCs call this "preserving optionality", but it is in fact a "long maybe" — and it leads to long paths-to-nowhere with VCs that seemingly always want something else to prolong the conversation, with desultory requests for a new conversation about how the recent quarter went, or perhaps an introduction to just one more customer. (Often with long periods of ghosting in between!) Just as VCs need to invest, coaches need to fill a roster, and baseball players will immediately recognize the coaches that are in and out of their DMs — with slow-moving, swirling processes. Often, coaches will blame external events for their inaction ("we need to wait until the House ruling", "we need to wait until the portal opens", etc.); VCs, too, will blame other events ("we have been busy raising a new fund", "we’ve been in Europe the past month"). The truth in both cases is that the institution just isn’t that interested; both startup and athlete would be well-advised to pencil them in as a "no" and move on. The Term Sheet. When a VC chooses to lead a round, they will write a term sheet that contains their desired structure. Getting to a term sheet is a huge milestone, but the round isn’t closed yet: it needs to be negotiated (and signed!), long-form docs needs to be drafted, diligence needs to be done, and then the investment wired to actually close the round. (To say nothing of follow-on capital that often needs to be raised!) Term sheets are (broadly) non-binding, and many things can go wrong between a term sheet and a round closing. Offers in college baseball are similarly complicated. What feels like an offer may evaporate — and even what feels like the surely binding elements of an offer (e.g., a roster spot?!) are not in fact binding at all. So how does one know the veracity of an offer? As with VCs, one is ultimately dependent upon the integrity of a coach. Fortunately, most coaches — like most VCs! — have high integrity. But it is not all of them, and there certainly exist unscrupulous coaches (and VCs!) who are able to hide their misbehavior, dependent on the fact that there is no transparency in their actions. These coaches routinely overrecruit (i.e., offer commitments for more roster slots than they in fact have) or otherwise rescind offers. These coaches become infamous to players over their careers, and the athletes that they have wronged live for the opportunity to face these coaches and win. (Having seen a dramatic walk-off under exactly these conditions, I can tell you that it was electric to watch mass vindication, a literal dogpile of spurned players who had just proved they were the better team.) The Preempt. An outgrowth of FOMO and preserving optionality are VC firms that want to "preempt" a fundraise — to write a term sheet for a company that isn’t raising. On the one hand, this seems great: it’s really distracting to raise, and if a particularly interested firm wants to frontrun everyone by getting ahead of your next round, why not let them? And while it certainly can be great, it can also be a hot mess: if the preempting firm drags their feet, they may end up distorting the process that a company would have run otherwise — which can be calamitous if the preemption deal falls apart after having implicitly denied the company of runway by wasting their time. For high school ballplayers in particular, the preemption takes the form of coaches making "verbal commitments" to high school students who are not seniors. These really shouldn’t have "commitment" in the name as they are entirely non-binding; coaches walk away from these so-called commitments all the time. Meanwhile, the kid (and they are kids — tautologically under 18!), believing that they have found a home, has stopped their own recruiting process as a junior (or even a sophomore!), depriving themselves of getting the best possible post-high school opportunity. While this didn’t (exactly) happen to my son, I have seen it happen too many times to not channel my inner parent: the NCAA needs to forbid and punish this diabolical practice. (As for VCs that preempt and then walk away from a signed term sheet, the NCAA may not be coming for you — but karma will.) The Exploding Offer. When a VC firm writes a startup a term sheet, it wants it signed as soon as possible. Term sheets therefore often have exploding terms where they are only valid for a short period of time. Offers for ballplayers can be exploding too, and in fact it might be more common: teams have a finite amount of time to put their roster together. In both cases, this is a term that can be easily negotiated away — and it can become a red flag if (say) a VC won’t allow you to reference check their portfolio or a coach won’t allow you to visit a campus (both emanately reasonable justifications to extend the deadline on an offer). Multiple Term Sheets. The fantasy for every startup is multiple term sheets, as it represents leverage to get terms adjusted or to otherwise get the best possible deal. For startups, this certainly happens, but it’s not as common as one might think: getting a term sheet from one VC with the intent of forcing the hand of others may in fact just get others to decide that they can’t get there. (Or worse: slowly decide that they can’t get there!) For college baseball players, this feels more common, but still may be broadly rare. In both cases: it’s a great problem to have, and it’s worth really sitting down to think about the rubric for making a decision. Why would you not just take the economically better deal always? An excellent segue…​ The Valuation Overhang. When you raise a round of venture capital, you do so at a valuation. For founders, a mistake is optimizing exclusively for the best deal economics, which can result in either raising too much money or raising money at too high a valuation. On the one hand, this is a good problem to have: if the valuation for a startup is being driven up, it may indicate a frothy market that an entrepreneur wants to take advantage of. On the other, though, raising at too high a valuation is perilous: the high valuation can create expectations that the company can’t possibly live up to — and the valuation itself serves to deprive a company of options. (As it has in so many other ways, HBO’s Silicon Valley absolutely nails the peril of raising too much.) For college baseball, the valuation overhang would be going to a Power Four conference school straight out of high school. Some extraordinary high schoolers can compete at that highest of levels, but for others, it’s just too big a step: they end up redshirting and then with limited playing time (or none) their second year, they realize that they aren’t going to play — and they enter the transfer portal. Despite being a standout high school athlete, these players can find that their limited college careers may result in them being perceived as much riskier than a known JUCO or NAIA player. The Down Round. In venture capital, raising at a valuation less than your previous valuation is called a down round. In college baseball, the down round analogy is entering the transfer portal with a destination that is a lower division. (To give perspective on the madness that is the transfer portal, as I write this there are 5,700 baseball players in the transfer portal — and there are ~10,000 total Division 1 baseball players.) While a down round is undesirable for many reasons, it means that a company is at least finding a path to survival; for a player going backwards in the portal, they are trying to find a path to play — and that year in JUCO as a bounceback may be exactly what they need to rebuild and return to the highest levels of play.