Entrepreneurship And The Immigrant’s Experience

I got into an enlightening Twitter discussion yesterday with a few friends, and the conversation centered around the intersection of the immigrant experience and the entrepreneurial experience. It’s common topic that’s been studied, and people who live in and around the Valley recognize how critical immigrants are to the creation of new companies and becoming part of the workforce. Lately, it’s been taken up as a key policy tenet of the tech leaders who have ties with politicians and those who have political clout.

But in this discussion (click here to open it), I realized something about the intersection of immigration and entrepreneurship — we often talk about “immigrants as entrepreneurs” coming to the U.S. from another country, but that’s just one definition. My friends mentioned how the same hunger, drive, and motivation exhibited by entrepreneurial immigrants map almost in-line with other cases where the protagonist has struggled to overcome some type of disadvantage. We conceive of the origin needed to be a different nation, when in fact it could be a different socioeconomic situation; or an underrepresented race or ethnicity; or a physical, mental, or learning disability; or any other physical state or state of mind that once trapped someone from reaching their destination.

When you unpack what those destinations can mean, it can broaden your definition of what it means to “immigrate” to a place like Silicon Valley. For instance, a black friend on the thread revealed that his family originally hailed from Alabama, moved up to the northeast, and from there struggled to grab whatever he could get his hands on. We tend to connect that kind of entrepreneurial hunger with someone coming from overseas, but people can immigrate to a state of entrepreneurship just by crossing state lines. On top of the racial divide he had to deal with, there was also a socioeconomic one, and now that he’s here in the Valley and building his own thing, he is in fact drawing upon two reservoirs of immigrant-fueled entrepreneurial energy.

From the context of having the relevant skills needed to survive and thrive in Silicon Valley, I also felt like an immigrant to this land. I didn’t know what to do here. I am not a technologist and I did not have an investment background. I immigrated here from a nation where those skills didn’t exist or weren’t valued, and when I got here, I realized everyone had them, so like a stereotypical immigrant would, I had to fight through numerous assimilation attempts.

The common thread in the stories is not about skills, or education, or where one comes from — it’s what does one overcome and continue to overcome. That may be the essence of what makes those who immigrate to a new place so formidable, their constant paranoia to keep trying to overcome what is ahead of them if not for any reason that, in their own heads, they don’t have any other choice.

Uber’s Long Drive Into Google’s Self-Driving Moonshot

Tiger Moonshot

Google just reorganized its entire corporate structure, putting the business “Google” we all know into a bigger company, Alphabet, which will be the holding company of a number of other Google business lines and projects. Some observers have remarked that this will instill more discipline within all of Google’s famous “Moonshot projects” to be judged somewhat independently under Alphabet’s CEO Larry Page’s watchful eye. Certainly, on paper, it sounds like a more logical structure with which to manage a growing behemoth like Google and all of those Google X and moonshot projects.

I don’t know all the moonshots are, but my first reaction in hearing the news was to think about Uber (where Google invested) and the specter of self-driving cars. I had figured out of all of its moonshots, self-driving technologies may be the one that’s ready for a huge market next. Uber’s rise in part was made possible by leveraging Google’s mobile platform (Android), and across platforms, by leveraging Google’s Maps product and API. Now, as Uber is growing like a weed all over the world, could it be that Uber, just a few years ago considered a “startup,” have taken investment from Google and, in that time, wedged into the most market-ready moonshot project and built a network on top of it (leveraging Google Maps, to boot)?

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As I was saying, I don’t know what all the moonshot projects are, but luckily someone sleuthed this and came to an interesting conclusion: That Google X moonshot projects very much have a mixed record. The USA Today’s Jessica Guynn wrote a piece with the headline “Google’s Mixed Record On Moonshots Means Alphabet Could Flunk,” revealing some long-term concerns about the likelihood of a second act as elegant as PageRank. Guynn writes:

Google has been under pressure to look to the future and to the next big moneymaker. The Internet giant relies on its main advertising business which makes nearly 90% of the company’s total revenue. That business is still growing, but it’s growing more slowly — and it’s facing rising competition from Facebook and others.(Google shares closed up 4% to $660.78 on Tuesday as Wall Street digested the Alphabet news.)

When Guynn wrote that Google “relies” on its search advertising business, it reminded me of an old post by Chris Dixon, who asked “What’s Strategic For Google?,” making his point succinctly:

Google makes 99% of their revenue selling text ads for things like airplane tickets, dvd players, and malpractice lawyers. A project is strategic for Google if it affects what sits between the person clicking on an ad and the company paying for the ad…At each layer, Google either wants to dominate it or commoditize it.

If something is strategic to Google, he argues, they have strong incentives to dominate it or let it get commoditized. But, that’s for their core business, and even though the stock has been surging this summer, the best tech analysts in the word raise valid concerns. Ben Thompson of Stratechery came out with a strong post earlier this year, “Peak Google,” subtly arguing that the company has peaked in its dominance:

Google is quite safe when it comes to search, and that they will be a very profitable company for the foreseeable future. I just suspect we will all think differently about that dominance when it’s a small percentage of total digital advertising, just as we thought differently about IBM’s dominance of mainframes in the age of the PC, or Microsoft’s dominance of PCs in the age of the smartphone.

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If you believe in Peak Google, and if you believe Google will try to dominate whatever is strategic to them, and if you believe that out of all the moonshots in their portfolio, the next one in line will be self-driving technologies, a curious thing may have happened along the way: A little startup from San Francisco may have leveraged Apple’s (then) new mobile platform and Google’s own mapping technologies to create a network within which they could acquire and own the customer relationship (Uber). Eventually, of course, Ubers will be self-driving, and while it may have been logical to assume that technology would’ve been supplied by Google, it now seems like Uber not only doesn’t want a part of that, it’s also that (to a degree) technologies related to autonomous navigation have started to commoditize a bit. This may put Google on the short end of the “dominate or commoditize” framework — after years of doing it to others, Uber’s wedge into their moonshot portfolio might turn around and do it Google.

Weekly Curated Email Newsletter About Uber

As many of you know, I blog about Uber a lot. It’s a fascinating company. I have no financial interest in or connection to the company or any investors. I just think the company is fascinating to follow, so much so that I thought I’d write a book about it, but then life happened, and then I said I would can the book, and, well, I’ve been thinking so much about it (and writing and tweeting more about it), so with the help of a friend, decided the best compromise was to just do a simple, weekly, curated email of links with some commentary about each item. This is really for me to keep tabs on what’s going on, and if you find the Uber trajectory interesting as well, you can follow along, too. Here’s the email sign-up link: https://uberinsights.curated.co/

Corrective Medicine, Just What The Doctor Ordered

As it relates to startups (and investing in them), the past week’s stock market correction (which still may be going) is just what the doctor ordered. Who knows why it happened exactly — sending a message to the Fed, international market fears, people realizing P/Es were too high, blah blah blah….

The net effect now after some stability is the correction was medicine everyone needed. More specifically, I think the correction and intense social & traditional media focus on it actually makes this better for everyone in the startup ecosystem:

First, writers, analysts, bloggers, and arm chair Twitter economists now have more to write about that timely, global, and more hard-nosed. They can go up to a founder or investor and simply ask “Well, did you crap your pants?” The press has been somewhat reluctant to balance cheerleading entrepreneurship with asking key fundamental questions.

Second, investors can now leverage recent market gyrations to negotiate down valuations. For years, investors couldn’t do this at the risk of losing a deal or offending a founder, but now everyone understands that a bit more balanced has been restored to the ecosystem, and investors (may) get some lower prices.

And, Third, founders avoided catastrophe. If the market kept sliding, many investors would’ve been fine (with bruised portfolio metrics), and writers/bloggers would’ve had a field day, but entrepreneurs, founders, and very early-stage employees (and frankly many rank and file) would’ve been in a real jam. Runways could’ve started to compress. People could’ve jumped ship to work at a safer job. This jolt was a nice reality check and doesn’t seem to affect the long-term positive outlook for technology seeping into the world.

For these three reasons, the recent market volatility may just have been exactly what the doctor ordered.

Mobile Messaging Platforms As Internet Gatekeepers

By now, we all recognize that the dominant and growing mobile messaging clients are more than just chat apps — they instead have transformed into a mobile browser of sorts, the gateway that helps billions now access the Internet. Whether with FB Messenger or iMessage or basic SMS here in the west, or juggernauts like WeChat, Whatsapp (FB) or Line in Asia, these apps provide the sandbox where billions of people communicate with others all day long. They’re so big now, they’re platforms, and because mobile app distribution is such a bitch, they are also gatekeepers of the Internet.

A generation ago, lawsuits were filed against web browsers about fair practices — but in a mobile world, where messaging apps are now the dominant mobile platforms, there are no boundaries. These apps can do whatever they want. They can experiment with new services (like Facebook launching “M,” its AI assistant), or they can block access to another service (like in the case of WeChat blocking Uber in China). With mobile being the largest technology market the world has ever seen (and growing), how do entrepreneurs leverage the ecosystem dynamics to piggyback on the distribution potential of these platforms?

Unfortunately, I am not sure there is a good answer. Wit.ai was purchased by Facebook, and was only seed funded. One could argue all the messaging platforms will build their own full mobile app stores (beyond what FB did), as others have begun to. The apps could start using deep linking to push people to apps and charge for the toll, but then they’d be pushing people outside their apps — this is another reason people are trying to build AI bots to pick up on natural conversations and keep things going inside their apps.

Ultimately, I wonder if the messaging platforms have too much control and no incentive to open up or threat of legislation, as mobile – like Batman – has no jurisdiction. While it may be convenient to think of messaging apps as the core command line interface for search and services on a mobile device, I believe that argument holds up better for work-collaboration apps like Slack, where people are also on laptops working and trying to get tasks done quickly. We spent the last few years marveling at iOS but also learning (the hard way) how tight a closed system can be for software distribution. Now, we will really see how a closed system at scale will hammerlock use of other apps and services.

We’re Finally Learning More About Uber’s Platform Strategy

UberEATS

In the SF/Valley bubble we live in, we are finally learning more about Uber. For years, we have debated: Will the on-demand industry consolidate? As part of that eventual consolidation, what will Uber’s role be? And, if and when they expand the platform from rides to X, Y, and Z, will those services be branded as Uber’s or a sub-brand? Will they be housed inside Uber’s core app, or as a separate app in a constellation of interrelated apps? (Read this old post on these questions vis a vis Uber.)

Of course, Uber could change in the future, but just in the last few days, we have learned a few things: That Uber may elect to build things themselves (because they can execute) versus paying higher prices and going through the trouble of integrating; that Uber will likely place more buttons on the top nav bar in the app (see picture), perhaps even an integration with mega-popular dating app Tinder (which makes sense); and that those experiences will be managed inside the main Uber app container, controlling the brand experience (and checkout, payment) for the user.

As I wrote a few days ago re: UberEATS launching in San Francisco — which is noteworthy given this is also the epicenter of (too?) many food-delivery startups, many of them richly backed by venture capital. Not since Facebook have we seen a company execute at the level Uber has. They react to market opportunities and PR crises with incredible speed and precision. Now, they’re bringing the Uber brand to you in more ways than one.

Many people by now have heard the line that “Uber wants to have a second business line by the time it IPOs.” It remains to be seen if food will move the needle for them, as this is more of a lead-gen model in the likes of Postmates, DoorDash, and Caviar (powered by Square) versus the full operational costs of an integrated model like Sprig or Munchery. Beyond the “food button” on their app, it’s fun to imagine what other buttons we might envision. Beyond food and transport, it’s hard to imagine what is needed on a daily basis and in the moment — though the suggestion of Tinder is appealing, and one can see the connection from early Uber backer Benchmark Capital, which recently became an investor in Tinder (with Matt Cohler joining the BoD). Maybe after that, they open a store, or provide sundries, or anything you’d order from Amazon, or Target, or Whole Foods?

Facebook scooped up Instagram prior to their public offering during a time when pre-IPO concerns included the company’s mobile exposure. For Uber, which should now go public in 2016, the question to ask is: What is their Instagram? What is the move or market needed to show long-term public investors the promise of the underlying platform beyond transportation? And, will it be acquired or built from within? I don’t know what the answers are, but I do believe these are the questions to ask.

[As a post-script, you may tell I’m back talking about Uber more. For years, I’ve been fascinated by how this company intersects with our physical world. I was going to write a book about this, and then canned the idea, but I’m going to pick up the idea again in some form — maybe not a book, but just more posts about it. I hope you don’t mind.]

The Chilly Freeze For On-Demand Startups

We will talk about this topic among others at The On Demand Conference in NYC on September 15, Register Here. We are also running our second contest for the best B2B on-demand startup, more details here!

My, how things can change. When we did the inaugural On-Demand Conference back in May 2015, everything was hot. Now, gearing up to the second installment in September in NYC, things are — shall we say — a wee bit chillier. And, rightfully so. In a few months, we’ve seen high-profile companies broadly in the sector nearly fold overnight, we have yet to see the big rollup consolidation strategies that people wish would happen, and the culture of copycat models is bringing more and more founders into red ocean markets like food delivery.

Investors are applying more scrutiny toward on-demand startups, asking flavors of the following questions: How frequent is the consumer use case? What is the payback period when opening a new geography? What do the unit economics look like, and can they modeled at scale? Does the team understand they should balance unit economics and growth by city to make sure they don’t run out of money? We haven’t seen much M&A in sector, so can this company go the distance? How can the team expand the product/service offering if the service grows? With UberEATS now in San Francisco, the backyard to many well-funded food delivery apps, could Uber crush the opportunity entirely? And, who might follow into the next round of funding should the team set out to do what they want to do?

These are MUCH harder questions than VCs were asking before. Welcome to the new world. Now, that’s not to say there won’t be some companies which continue to fetch large rounds, or that there won’t be on-demand concepts that attract funding in different parts of the world or in different product categories (like healthcare). The concept is bigger than food and transportation, though those two are clearly the consumer drivers.

Luckily for us, the purpose of these conferences isn’t to promote a sector, but rather to gather the most thoughtful minds among company builders and investors to tackle the most pressing issues of the day. So, in September in NYC, that will be no different. You can learn more about the NYC event on September 15 here, and on the VC panel in particular, friends Steve Schlafman (RRE), Kanyi Maqubela (Collaborative), Anu Duggal (Female Founders Fund), and David Tisch (BoxGroup) will debate these and other issues facing on-demand startups in the seed and Series A/B stages.

Register here for the September event in NYC. Unfortunately, I am unable to attend in September now, as I was very much looking forward to seeing everyone, meeting all the new founders with new concepts, and kicking off the day’s activities with a fireside chat with USV’s Albert Wenger, but I can’t make this trip. So, I will give away my ticket to one person who really wants to attend. What I ask for is this — tweet out a link to this event and mention me @Semil on twitter, and my co-organizers will pick one lucky winner to attend the event in my place!

Reimagining The Restaurant With Robotics

I grew up working in restaurants. I have been a dishwasher, host, bartender, waiter, line cook, and regular cook. I’ve delivered food to people, and then cleaned those tables. But, that was a long time ago. Then, last week, I went to YC Demo Day, and there were food-related robots, and it got me thinking about how the last few years has seen all sorts of innovation in modernizing or entirely replacing the concept of restaurant. This is important because restaurants provide a space and service that people can use many times a day, and critically because it employs many people, both full-time and for those looking for extra income to make ends meet.

Briefly, here are some ways entrepreneurs are reimagining the restaurant experience.

Mobile, web lead-gen: Companies like DoorDash, Postmates, OrderAhead, Caviar (inside Square) and others are funneling more orders to restaurants, and fulfilling delivery either with their own staff or via 3rd party logistics (3PL) providers (more on those below). Like Grub and Seamless, using mobile for call avoidance to order and schedule with a few taps on our phones. (Oh, and now UberEATS is in the game!)

Vertically-integrated: Companies like Sprig & Munchery make and deliver their own food, bypassing the restaurant experience entirely, but getting fresh food to customers. This allows them to control their COGS and potentially have better contribution margins, though it takes longer to rollout to new cities — that’s one big tradeoff.

3PLs: Companies like Homer, Deliv, and Sidecar offered delivery services to other businesses.

Decentralized, peer to peer: Companies like Josephine Meals envisions a future where people become home-cook entrepreneurs (a la Etsy) and sell directly to people in their neighborhood…and they may even use 3PLs to power delivery.

New Disruptors: There are too many list to here, but just when you think food is saturated, companies like Tapingo, EnvoyNow, and Fooze (among many others – and please don’t ping me about them!) are finding markets to attack.

Franchise Model: Like Domino’s Pizza, a franchise network perhaps isn’t a terrible idea to get around the cost of expansion. A company in this recently YC batch (Wheely’s) wants to help others create mobile coffee shops.

Robots and Automation: Now, this is why I wrote the post. Restaurants and the food service industry employs LOTS of people. But, now, Robots are coming! TeaBot, coffee bots, sandwich robots, and other robots or automated devices (like e la Carte). KQED had a feature on Eatsa in San Francisco, an automated restaurant. Next time you’re in the coffee shop, count how many employees are there. Probably 7-10 per 500 square feet. Why? We are used to it, but it’s entirely possible for the next Blue Bottle to just be a station of iPads and robots making your stuff. Zero human interaction. The only question is — how long will it take to come? Based on what I’ve seen this year, perhaps sooner than we all think.

 

Seed Founders, Beware The Syndicate Shenanigans

As any reader of this blog would know, I am a huge AngelList fan. I have run a few Syndicates now over the past two years. Most of them have cleared, but a few haven’t. I could’ve run a lot more, but I intentionally elected to be very careful about how and when I bring syndicate opportunities to the platform (1) because I’m simply new to investing overall, and I didn’t want to bring people into the fold with me too early; and (2) because I needed to learn AngelList’s platform myself, over time, and learn in between each syndicate to get better.

When I present the AngelList option to a founder, I always educate them first on all of their options for their fundraise. I like to lay out the options and let the CEO decide. Many times, the CEO has elected to forego the AngelList option, citing either privacy concerns, or signaling concerns, or wanting to wait; at other times, they dive right in, want to learn the process, and have so far been very happy.

Lately however, and why I’m writing this post, I’m encountering investors in the angel and seed stages who are up to some tricks, what I like to call “The Syndicate Shenanigans.” The classic move goes something like this, with the investor offering to the founder: “I would like to invest X, but conditional upon me taking this to AngelList and putting it in my Syndicate for 4-6x.” The founder in this case is faced with a dilemma, and this post is targeted both at the founder and also those who participate and follow Syndicates on AngelList. To be clear, these can work well if done right, but it’s smart to understand the risks before jumping into the fray:

To Those Who Follow Syndicates: First, determine if you want to automatically follow any deal of a Syndicate leader, or whether you want to pick deal by deal. If you blindly follow, your money gets priority, so just know you’re along for the ride; if you go deal-by-deal, try to understand why the Syndicate lead or founder wasn’t able to fill up the round privately. Second, generally speaking, you may want to monitor the deal pace at which the Syndicate lead is bringing opportunities to the platform.

To Founders Offered Such Terms: This may put you in a tough spot. You want the money, but the conditions attached to it could be confusing. Sometimes investors will say they have a “minimum check size” to make the math work in their own fund model, so when an investor offers to commit with the condition of bolting on a Syndicate, this is another flavor of the line: “We have a minimum check.” In this case, they likely have an economic arrangement on AngelList that gives them a percentage of carried interest on top of the money they collect for you. You have some options here. First, learn about AngelList and Syndicates, and make sure you know whether the particular Syndicate offered to you would be private or public; understand the process and how long it could take (2-4 weeks to clear); and understand how the Syndicate lead (who will be named on your cap table directly) will market your company to those other investors that you’ll never meet.

I want to be clear that (1) I love AngelList and (2) have done this myself, but (3) that making AngelList a condition of an early-stage check isn’t bad behavior, but should be done so in a way that educates the founder about his or her option, and less about throwing down a conditional on the team. Happy to answer any questions you may have and/or refer you to CEOs I’ve worked with who’ve gone through the platform for a Syndicate.

The Confluence Of Trends Making esports Go Mainstream

Like many others nowadays, I’m fascinated by the phenomena around “esports,” which can mean watching other people play video games or code or do both, either in person, or online, or on one’s phone. I had to laugh when Startup L Jackson tweeted “If one more VC discovers eSports this week & starts tweeting about it, I am going to come up with an ultimatum. And it will not be pleasant,” because it’s true…but there is good reason. I was catching up on some reading today and realized there are actually a confluence of non-connected trends which form to make the present day fascination quite logical:

One, the youngest millennials are now right in the middle of their teenage years, right around when they can almost drive a car. This generation entered the world when mainstream gaming consoles hit the market and started to invade the home, with the Nintendo Entertainment Systems coming to the U.S. in 1986, the Sega Genesis in 1989, Sony’s Playstation in 1994, and the XBox in 2001. Like I did, many folks owned or tried every system, and they popularized casual video game play.

Two, the culture around these home gaming systems is that only 2-4 people could play at a time. If you grew up around these consoles, you would clearly remember waiting your turn, and while you waited, you would watch other people play the same game you wanted to play. You’d just sit there. You didn’t have a phone to distract you or the Internet at home to jump on. Turns out “watching other people play video games” is randomly engrained in millennial muscle memory because everyone exhibited the behavior. This turned out to be inherently social behavior, waiting in tournaments to play the next round of EA Sports Madden or NHL, or trying to win Zelda or Metroid.

Three, over half of millennials grew up in an age where network TV was on the decline. Today, for many of them, network TV is wholly irrelevant. Instead, they stream content online, pay for subscriptions, buy individual shows, and watch shows on-demand. While mobile phones and networks take the place (in terms of attention) of TV, there are hours in the day folks can devote to this and they certainly do.

Four, the infrastructure required to support a range of esports activities has become robust enough to handle the traffic. People can now broadcast and/or consume esports media from home, networks like Twitch.tv and others have cropped up and amassed large audiences. Mobile phones, data networks, and video channels are also more robust, of course. MLB recently announced it was spinning out its quietly robust digital streaming and hosting business, a unit which could be worth many billions of dollars more than it is today. As livestreaming technologies have demonstrated this year alone, social networks like Twitter are ready to provide users with live content (a la Periscope) and to support those streams as a piece of audience development and engagement.

Five, the cultural interconnectedness from a tech point of view between Asia and the U.S. is also responsible for the trend hitting the west. The culture of watching others play video games in larger audiences began in parts of Asia, which made sense because that’s where the home consoles were originally developed and released, before shipping to the west. Like messaging platforms today, the esports behavior is older and just took a bit longer to incubate here in the west, but now these micro-cultures have converged.

Sixth, the global rise in the importance of and celebrity around computer literacy is timed in such a way that it doesn’t make the act of participating in esports seem like a waste of time. Rather, it can be seen as both educational and social, as both entertainment and interactive.

And, there you have it, all of these forces put into a blender, and it all explains why esports is so popular, why sports and media networks are not only allocating mindshare and budgets to it, but also doing this for derivate products, such as gaming networks which let fans bet on esports participants, among other parlays. It’s been almost a year since Microsoft acquired Minecraft and when Amazon acquired Twitch, and with most technology investors being a bit older than the millennial generation, most of them have enough nostalgia to understand the behavior and recognize the power in the mass audience aggregation when they see events like this one. Like Facebook and Instagram and Snapchat aggregate audience attention on the web and on phones, esports is starting to do the same thing in the same channels, but also in real life, where kids of all ages collide, compete, and make new friends. It’s almost like an entirely new social network, and that’s what gets people excited — and rightfully so.

Haywire is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2015 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus