Transparency Is Coming To Venture

Today is a big media day at Haystack Fund! Just kidding, but for some reason, previous discussions I’ve had with reporters and media all seemed to surface online today. As I was reading through them and figuring out how to share them, I noticed a theme running through the conversations.

Why all at the same time?

If I had to pick a reason, it would revolve around the idea of transparency in venture. Now, I don’t mean transparency for transparency’s sake, as many people leverage it for their own branding or marketing — and there’s no harm in that. For me, I am thinking about the future of how private companies are discovered and get financed. Part of that future, I believe, will be operating in an environment with more regulatory oversight over how reporting is conducted in the private sector. That means, how do companies report to their venture investors, and how do venture investors report to their investors, the limited partners? And, as more information is shared, how do all parties ensure the information isn’t shared more broadly without a record of who has keys? These are all pertinent yet thorny questions, and with political change in the air, I see these coming.

That theme comes out in the conversations I’ve had below:

1/ Katie Benner of The New York Times: Katie is a friend and a darn-good reporter. She has written before for Fortune, The Information, Bloomberg, and now The Times. She also wrote a great piece on how employee options work at Good Technologies, shining on a light on a topic that affect so many in the ecosystem. Recently, I spoke with her and am quoted in her article today, titled “Making Startups’ Financial Data Free And Open,” which appeared in the July 25, 2016 Times.

2/ Guesting for StrictlyVC: Each summer, I get the pleasure of writing for StrictlyVC while my friend Connie takes a much-deserved break and searches the shores of coastal Maine for rare sea glass. Last Friday, for my column, I wanted to share more details about what I’ve learned in raising three small funds. You can read the FAQ on StrictlyVC here. For some reason, I get a lot of questions about it, and I’ve committed to sharing the lessons I’ve learned (with a grain of salt) here in an open way. The angle of transparency I’m going for here is that it’s really hard to get the funds up and running. Just this weekend, I talked to a friend who has been a founder and had a huge, notable exit as an investor, and is still having trouble raising a small fund. More on this below.

3/ Interviewed by Harry Stebbings on The Twenty-Minute VC: You have probably heard one of Harry’s podcasts. This guy is a machine when it comes to creating, editing, and distributing podcasts. And, he really prepared for our conversation. In the discussion, we chat about topics such as: defining “founder-friendly;” branding in VC, experiences in raising a fund, and more. I want to stress again that Harry did a great job editing this down to 20 minutes and you can listen to my soothing voice, but not when you’re driving, please — you may fall asleep at the wheel! (Link to Apple Podcast here.)

Venture Capital as a Hyperlocal Game

A few weeks ago, Chris Mims of The Wall Street Journal wrote a great piece on the struggle between entrepreneurial energy spreading across the country while the dollars allocated by LPs in venture capital funds increases in concentration in the Bay Area. Specifically, Mims reports that while the share of U.S. VC dollars allocated to startups in L.A., NYC, and Boston roughly amounts to 20% overall over the past two decades, the share going to Bay Area startups has ballooned from around 30% two cycles ago to over 50% in 2016, when we saw many large funds scoop up massive LP dollars.

This is a touchy subject, because for a variety of reasons, the Bay Area isn’t the most welcoming place considering the costs and cultural corners, yet as the country emerges from the Great Recession stronger in aggregate, the “cap table” of that rebuilding has shifted dramatically to the coasts (and a few coastal cities in particular), and especially, to the Bay Area. Additionally, before I begin this post, I want to disarm the chorus in advance — I know that companies can be built anywhere, and that there are plenty of examples of VCs in the Bay Area investing outside their market, as well as great VC firms which are headquartered outside the Bay Area. There’s an advantage to being local, and those who breakthrough outside this chamber deserve extra credit, for the odds are more difficult.

The point of this post, however, is to share some observations on how location — either via proximity or distance — drives so much dealmaking, and then to share some ways to overcome geography. I’m reminded of the lyrics of a Tina Turner classic: “What’s love got to do, got to do with it? What’s love but a second hand emotion?” Just replace “love” with “location,” and the answer is: A lot.


Why is location so important to LPs, those who invest in VC firms, and the VCs themselves?

1/ Only way for VC firm to exit is IPO or exit (or selling shares in future rounds). IPOs are rare, and becoming tougher given the startup narrative to stay private as long as possible. Exits are also rare, and most of those big exits (per CB Insights) occur in California. If location drives M&A, location will also then impact where a VC allocates dollars. (Location also helps drive a closer bond between VC and founder, which helps in cases like special liquidity events for an early investor to sell shares, among other techniques.)

2/ Proximity affords VCs more time to track a founder or investment. Whereas the seed world moves on quick decisions, I’ve seen many VCs track potential investments for about a year, either waiting for the timing to be right and/or to gain a better picture of the company and team. Here, proximity drives familiarity and eases the fears of an investor who may not otherwise have enough time to get comfortable with the risk presented to them.

3/ LPs want their GPs to be active managers of their investments. It’s possible yet still hard to be an active VC or Board Member when the company is a 6-hour flight with a connection away, but yes — I know — many do it. But, that right has to be earned. If you look at the folks who do this well, they are considered rainmakers by LPs. And, there aren’t tons of them.


Ok, if this generally the reality, then what? Here’s how I briefly breakdown what startups at various stages should consider about Bay Area capital:

Seed – If you’re outside the Bay Area, raising seed capital in the Bay Area is hard. Seed capital is mostly institutionalized now, meaning those investors are investing other peoples’ money, and in order for them to get a return, they need to see a large potential multiple on what is a smaller check, and one where their stake will get smaller with success via dilution. For founders in ecosystems like LA, Boston, NYC, Seattle, Chicago, seed ecosystems have emerged thankfully to pick up the slack. Those funds can theoretically be more “active’ with their investments by being local, and theoretically help prepare those seedlings for future rounds, where the Bay Area may come into play. For those who are pre-seed or in the seed stage without much traction, it is really hard to raise a seed round in the Bay Area because local investors here have so many options to invest locally.

Series A and Series B “Classic VC Rounds” – Because of the economic incentives of traditional VC funds (firms managing $150m to $1 billion or so), those GPs have to allocate their dollars to the best economic opportunities they see, regardless of location. It is already quite difficult for a Bay Area company to get a Series A done, so imagine how that risk increases for something out-of-market. That said, and no one will say this publicly to you, but the bar is exceptionally higher for a Bay Area VC to make an out-of-market investment. Yes, they will miss good companies (as I wrote last night about Dollar Shave Club). Luckily for founders, non-Bay Area VCs will invest out of their own market, as we saw with Dollar Shave as well, or with east coast firms that invest in Europe, and so forth. For those founders who are outside the Bay Area and seeking a classic Bay Area Series A or B round, the formula to score one is to (a) demonstrate exceptional growth, where you will be offered multiple term sheets, or (b) invest in a long-term relationship that eases the fear of location in the eyes of your target VC.

Growth VC, Pre-IPO or Pre-Exit Rounds – At this point, more people want to give you money than you have room to take, and regardless of your location. So if you make it here, location doesn’t matter.


This is a tough subject to write about. I know it’s unfair, especially as so much of the rebuilding from the Great Recession is seen through the opportunity of building a business. Everyone wants to be Zuckerberg or be on Shark Tank. Everyone wants to be CEO or an investor. And while it is possible, location drives a lot of it, and that particular location isn’t an easy one to physically crack into.

I myself have flirted with the idea of not living in the Bay Area given the increased traffic, congestion, and cost of living, but then I see the power of the local network effect and get nervous. So much of what I do is a local game. Hyper-local, in fact. I’m in awe of those who do it outside the physical network because it means they are even stronger. We moved back to the Bay Area in 2011, and I wonder how hard it would’ve been even if that was pushed back a year. As I’ve shared with you all here, I’ve had a very hard time finding a space in the ecosystem and generally believe my proximity to the epicenter helped me increase my “surface area of luck.”

I wanted to write this post because this issue has come up a bunch with founders I interact with outside the Bay Area, and I know reporters or larger VCs won’t write about it because most reporters don’t understand the nuance to the financial issues like Mims detailed out and the investors don’t want to cut off any potential flow of deals.


There is a silver lining, however: With billions more people coming online worldwide over the next decade, with new geographies emerging with their own capital bases, with traditionally underrepresented minority groups begin growing into the dominant majority, and as larger Bay Area firms grow even larger fund sizes, the types of opportunities created over the next two decades may look different than what occurred over the last two decades. And, thankfully, there are plenty of LPs and VCs (even in the Bay Area) who see the opportunity and are positioned to take advantage of it — or have been taking advantage of it for quite some time (more on this in a future post). You’ll hear about those returns over the next few years.

The Unconventional Wisdom in The Dollar Shave Club Exit

Like any big startup acquisition, there is a rush to unpack it, especially when the price tag is rumored to start with a “B.” There’s a lot of bragging rights and credibility wrapped up in that number, and the ecosystem will even fudge numbers a smidge to make sure it’s in the headline. The most recent Big B exit in the startup world, like the ones before it, caught everyone by surprise: Unilever purchased Dollar Shave Club for $1 billion.

[I will not be able to recount all the fascinating angles of the event, so would kindly point you to the great posts by Ben Thompson on Stratechery (an angle on industrial strategy and disruption) and David Pakman, a Dollar Shave board member, who led an investment in the company’s Series A and Series B financings. Please make sure to read their work.]

I wanted to focus on a different angle, more narrow and as it applies to conventional wisdom peddled around the Bay Area or the blogs. I have done in the past in analyzing Snapchat and Whatsapp through this lens of challenging conventional wisdom with cold, hard facts. Dollar Shave Club presents me with another opportunity, so here goes:

1/ “Big outcomes are more likely to originate in the Bay Area.” This is an old one, and it’s directionally true, but they have been happening outside the Bay Area more over the last five years — Oculus was also in LA (as Snapchat waits in the wings), Minecraft and Spotify are in Sweden (among others). New York has had a few and will have more.

2/ “We solve big, technical problems.” You hear this a bunch, like a badge of honor, or the old skit, “How much do you bench?” Dollar Shave tackled lots of different technical (and operational) problems, but most traditional investors didn’t perceive it that way (more on that below). Dollar Shave also rolled out their own branded butt wipes as a product alongside shaving accessories. Butt wipes.

3/ “There are too many incubators and accelerators.” Sure there are, but that doesn’t mean new “co-creation” models shouldn’t be tried. Credit to the team at Science for incubating the idea and helping the company grow from the early stages. The co-creation model in venture (like Science) gives the investors (potentially) better economics in originating ideas and helping them get off the ground, not to dissimilar from how some (not all) firms treat EIRs with GPs helping. It is an antidote to the increasing competition among venture firms and LP dollars which have rushed in and spread out across the VC industry — a way to co-create ownership thresholds.

4/ “Consumer is closed-off.” It is getting harder to find consumer breakouts. I hear this from many of the top firms, and it is probably true. I touched on this in my Feb 2, 2016 guest post on Stratechery. But, channels exist, they just need to be discovered or dug — like the channel Dollar Shave created to a young, male demographic.

5/ “Bay Area VCs usually catch the big out-of-market companies.” Now that large companies can start anywhere (right?), there’s so much VC in the Bay Area, the VCs there will be able to catch the inflection points of those who are growing — especially if it’s just an hour flight south to L.A. Dollar Shave, by contrast, was likely turned down not once but twice by its blue chip VCs who participated in the seed round, but scooped up by Venrock’s David Pakman out of NYC — he not only led their A, but also did their B. There’s a lot of conventional wisdom around thinking every good deal has to, by law, have competition around it — but then we see examples where everyone had a crack at the A and B, and the lack of competition created the opportunity for an inside round and more kwan for Pakman. Well-played, sir.

6/ “Worry about marketing after product-market fit.” I have lived it, it’s true — most of the Bay Area startup scene either pushes off traditional marketing to the point where it’s too late, doesn’t take it seriously at the outset, or invests in it too much before the time is right. Dollar Shave, on the other hand, leveraged changes in social media to market itself at a lower cost and invested the resources in building up its brand. As we see with the Pokemon Go craze of late, a recognizable brand can soar and effortlessly reduce customer acquisition costs in its wake.

7/ “E-commerce is dead, with Amazon as the Grim Reaper for those startups.” After what happened to Fab, Gilt, One Kings Lane, among others, investors in the public and private markets got real skittish about e-commerce. Another reason this deal was passed over at A and B is because of a fear of going up against incumbents like Amazon, or in this case, the big CPG companies. There are, however, things that Amazon can’t do, and while it is one of the best companies in the world (and will still grow like crazy), we will see more of this trend play out in the headlines with startups over the next few years. (As an aside, larger VC fund sizes come into play here — it used to be that having one billion dollar exit would make a fund, but now some funds need a few of them, hence rendering a company like Dollar Shave, in their eyes, not big enough.)

It’s an uncertain world, and especially true for the startup world. We mostly don’t know what we’re doing, so conventional wisdom is attractive — it is the institutional memory of lessons passed down so that we can make better choices or preserve order. But, conventions don’t necessarily last forever, and they certainly don’t apply to everyone. Congrats to the Dollar Shave team and their investors for writing and acting out their own conventions.

The Story Behind My Investment In Myra Labs

This is going to be a fun story to write about Myra Labs.

About a year ago, my good friend Nakul told me I should meet this guy spinning out of Bloomreach — Viksit. I happen to know one of the founders of Bloomreach, who quickly pinged back to endorse Viksit as one of his top engineers. We met up last summer, and at the time, he was developing a bot for chatting inside Whatsapp. We met for coffee in Palo Alto. A few weeks passed, and we met again, and during that time, Viksit had single-handedly built integrations into other chat apps, made friends with folks who were working for Telegram, and had somehow smiled his way into developing some relationships with more closed mobile messaging platforms.

We met a few times and while I initially didn’t think it would work at scale, Viksit always had a non-obvious and insightful rebuttal to any areas of doubt. He is relentless in this way — and I will come back to this trait. As the summer ended, I hadn’t gained enough confidence in the specific application (going directly to consumers with these bots), but I had gained confidence in Viksit. This was right around the time I started my Fund III and was writing what would be larger checks (for me, relatively). I committed to Viksit that I would invest and also open my entire syndication network to him. I gave him a strong recommendation and made a ton of intros. I was searching my email for the exact date and text: August 31, 2015. In the email, I wrote:


Round: $300-350k open on $5m cap, 20% discount; Small round, just me, a Waze co-founder, and early Whatsapp eng, and the two founders of Bloomreach, where he was previously (this may be best-suited to individuals).
Background: Myra is an intelligent assistant tied to a phone number and virtual machine for each user. Viksit himself has already built integrations with Whatsapp, FB Messenger, regular SMS, and Slack.
Risk and Fine Print: I know what you’re thinking – “uh, another bot. Won’t the clients just own this like Moneypenny and FB?” So, I dragged my feet on this for the same reason for weeks, but Viksit handled every strategic question I pummeled him with for weeks. He is a very deep systems thinker and strategist, in addition to being an incredibly productive engineer. I know his former boss (Bloomreach CTO) very well and he also is investing and remarked on his drive and intellect. He’s been obsessed with all the messaging platforms, and that’s essentially why I am investing — the sheer size of all the world’s messaging clients and their restrictive power and influence over how those billions of people will use the web is super interesting to me.

Then the round started to break down. Viksit and I had a number of hard chats. I don’t mean to imply that I could save everything as I have a very small fund and rely on the broader network to syndicate and co-invest. As I replay those conversations, I know Viksit was nervous and there wasn’t much I could do except give harder advice on how to keep going, raise less, lower the cap, etc. To his credit, Viksit stayed with it. He eventually caught the eye of one of the best seed VCs out there (as well as this little, new enterprise tech company called “Slack”), and after a month of deliberation, got a larger seed round with a fantastic investor. It took much longer to happen, but it happened.

That’s the relentlessness I referenced earlier in the post. During those difficult investor meetings, Viksit slowly digested the feedback from the community — mainly that the opportunity to go direct to consumers inside siloed native messaging clients would require too much permission and, therefore, too much friction. Viksit shifted course and moved Myra away from direct-to-consumer and, instead, focused on empowering developers, big or small, to build conversational interfaces in a platform-agnostic way. In this manner, when messaging clients break out, or when new interfaces (like voice) emerge, Myra is flexible and extensible enough to handle the terrain. Additionally, their architecture can recognize similar users across applications, so that you (as a user) don’t have to worry about resubmitting your preferences within each silo each time. The machines actually learn who you are within the context of your interaction. (You can read more about Myra and link to their site here.)

In the time that we’ve gotten to work, I would say that Viksit and I have the most “tough conversations” I have with any startup. It’s partly because we are comfortable with each other and I have now known him for a year, partly because we are both prone to debate and argue in a mild yet relentless manner, and at times, it has led to one of us getting frustrated. I am sure he’s frustrated with me right now in reading this! But, ultimately, we are friends and have built up trust, as well, and he can really create a rich product and evangelize his vision to a degree that’s rare to find. I’m lucky to be a small part of it all.

Since that initial email above, the attention toward bots has exploded, this past April 2016 to be exact. I wrote about the craze here. As I surveyed the market, I was lucky in retrospect to pick Myra early because it is in the #2 category I outlined (“picks and shovels”) and, so long as they can woo developers to build with them and help them scale, the company can grow as the more activity goes inside messaging clients and interfaces, and/or becomes more conversational in nature. Ultimately, no matter what does happen, I know the Myra team will always bob and weave their way to the best opportunity — and I want to publicly congratulate Viksit on not only putting up with me, but also staying the course during a challenging market for fundraising. It all paid off for you.

The Story Behind My Investment In ScopeAR

Back around the holidays in 2015, one of my LPs (who is also a friend) sent me a note about a YC company from the most recent batch, S15. I had been at YC and saw the company, but hadn’t been thinking about the “AR” space. I know they’re unrelated, but previous to this, I had made one small investment in a VR infrastructure company, but it isn’t a space I would claim to know well. As a few months passed, however, I had picked up interest in industrial software and robotics, so learning about ScopeAR again proved out to be excellent timing.

Discovering and investing in a company like ScopeAR is yet another case of where the founders guide me (the investor) to learn about their technology and market in real-time. Within a few email exchanges and conversations, it was apparent to me that Scott (the CEO), David, and Graham would be easy to work with as co-founders. On top of this, I liked their enterprise and/or industrial focus (which fits within my themes), and it was immediately clear how their solution would save companies money from Day 1.

Luckily for me, by the time I had invested, ScopeAR had already won the business of companies such as Boeing, Lockheed Martin, and Honeywell, among many others. ScopeAR boasts two products to date — WorkLink (a platform to create smart instructions), and Remote AR (powering remote collaboration via AR) — which help their customers increase savings from industrial hazards, operator errors, and operational inefficiencies.

When I invested, the main interfaces were largely considered to be iOS or Android platform devices. In a serendipitous turn, I was invited by friends at SVB to a small drinks reception and conversation with Satya Nadella, who during that chat specifically called out Hololens as a major core focus area for the company in enterprise settings, and that in such settings, AR might be the first technology to be adopted on the platform. Once I heard this, I ambushed him (in a friendly way), called up the ScopeAR site on my phone and he deftly introduced me to his SF-based Corporate Development Team — I was able to follow-up and got the team in touch with Microsoft on this initiative.

That’s about all I’ve done so far, and as I write out this story, I realize just how fortunate I am that my friend tipped me off to the deal, that enough time had passed for me to develop an interest in the space, and the founders were extra nice, kept the same terms from their round, and let me slide into the deal. They did me a huge favor, and for that I am grateful and want to work extra hard for the team. I recounted this story last week at an industrial hardware meetup I co-hosted with Lemnos, and we joked that the deal was sort of like a “booty call” at the end of the round. As they say, a seed round is never closed — and thank heavens for that.

It is crazy that within a year of ScopeAR’s time in YC to now, AR has gone from a concept to something millions of consumers interaction casually on their phones, either through Snapchat or Pokemon Go, among others. In a work context, it is easy to envision how processes can be improved by using connected cameras with information overlaid on top. Given the way the winds are shifting, I look back on this investment decision with a smile. It’s easy to imagine a world in which ScopeAR’s current customers use new platforms and go deeper into various industries. And, lucky me, as I was able to hop on the train just as it was leaving the station.

By Bits And Pieces, Giving Back And Paying Forward

Over the past few months, a number of people I know well but maybe haven’t seen in a long while have resurfaced in life. It is great, and I can’t explain the timing. Maybe it’s summer. Maybe I have more time and am not traveling. Whatever the reason, it’s a nice change of pace. And, this wave has had a consistent theme — many people are thinking about what they should do next.

It feels a bit funny that old friends are coming to me in their quest for their next stop. For years, I was on the other side of that conversation — hundreds of those conversations. And, people here gave me tons of their time and ears. It would take me a year of just focusing on helping others to pay back that debt. So, even in a small way, it feels nice to be part of another’s counsel. By bits and pieces, I get to give back (to those who have been immensely helpful to me) and to some new folks.

Just a few years ago, I may have tried to come up tons of “solutions” when I got these kind of questions. But, now, I try to listen to what my old friends and new acquaintances are saying, both verbally and their non-verbal queues. I ask lots of questions and then I try to actively listen. Yet, I end up giving the same bland feedback, which goes something like this: “I am sure you’ll do great at whatever you pick. The challenging part of this — it seems — is what to pick to focus on. At least with me, I’ve found that over the last three years, as kids have entered the equation, and more companies are in the portfolio, and inbound emails compound, I’ve found that with each passing day, time becomes more expensive. That feeling also compounds. And, if I wasn’t energized by what I do for work, it would be a disaster. What energizes you?

It’s a tough question. For years, people would ask me that, I had nothing to say. Yes, it is a luxury to be able to pose that question to yourself, but focusing on it and cracking the nuts makes life more interesting, and that is something to strive for. The derivative question, then, is: In the absence of knowing what energizes you, how does one figure it out? The best answer I came up with is: “Pay attention to play.” It’s easy to network all day or surf job boards or all day, but that is a linear endeavor. What if, instead, one just tries to do what they want to do, and takes the time to pay attention to what captures their attention? It does take some time, but for those surfing across different entrepreneurial experiences, sometimes we get a break in between and we can ask ourselves this question.

To make this work, one has to be open to ideas that challenge one’s identity or preconceived notions. It also requires a level of intellectual honesty to say, for instance, “Yes, I want to do ____,” which has no direct connection to what you have done in your past. People may judge your choice, or talk about it with their friends after congratulating online for it. But in the end, the energy which comes from self-direction and self-motivation helps protect against general boredom, which is its own prison. Given that framing, it seems like a wise question to pose to ourselves every now and then, if for anything, as a reality check for how we spend precious time.

Marching Into 3D Printing: The Stories Behind My Investments In Origin and nTopology

When I started my third fund, Haystack III, back in August 2015, I thought I was so organized — I would build a portfolio that was evenly split across three areas of interest: SaaS, the backbone of many portfolios; consumer products and services, which are risky, yes, yet always promise the highest beta; and the world of industrial robotics, manufacturing, and sensors. Little did I know back then that, as the year unfolded, I couldn’t find the right consumer-facing opportunities for my specific tastes, while I started to go deeper into the industrial side. The result so far has been a portfolio weighted toward the industrial sector, and I’m excited to share more about the stories behind those investments as the companies begin to get their sea legs.

One of these areas is 3D printing. To those who follow, 3D printing and startups isn’t something entirely new. Companies like Shapeways and MakerBot have attracted some of the best investors in the world, and thanks to their efforts, have created the space for startups to continue to innovate in the space. Over the past year, I have met with over 30 startups focused on some angle of 3D printing, and as I started to imagine every industry potentially being transformed by having 3D printers on every shop floor, it opened my eyes to other opportunities in world of ubiquitous 3D printing.

That path inevitably led me to finding software creation and collaboration platforms for industrial 3D printing, otherwise knowns as “additive manufacturing.” I am lucky to have found and made investments in two companies: Origin, based in San Francisco; and nTopology, based in New York City. You can learn more about each company on their sites (links above), but I’ll spend a quick minute talking about each one.

Origin is a 3D printing software platform that empowers other companies to rapidly prototype products with true commercial-quality and other advanced capabilities. This is just scratching the surface for what Origin hopes to accomplish by freeing industries from having to use specific printers and/or specific materials in their additive manufacturing processes, leading to dramatically lower printing costs. Overall, the Origin Platform is designed to make manufacturing easy and inexpensive instead of the difficult and capital intensive experience it currently is. They’ve found that making manufacturing easier, as well as breaking down many of the barriers from traditional manufacturing (for example, minimum unit quantities for a product design), their customers have been able to develop entirely new business strategies. On the 3D-Printing front, Origin even “pilot” manufactures many products in-house on their own process to help inform platform development. Going forward, they’re going to release a lot of the tech they’ve developed on the actual printing process front so other manufacturers and companies can use their platform to manufacture real products.

nTopology is software company that helps engineers design better 3D printed parts. Specifically, the company makes CAD software for designing complex, engineered lattice structures. While lattices are difficult to create inside CAD systems, lattices are critical because they allow for the creator to manipulate material performance by changing the structure of the lattice. To start out, nTopology targets design engineers at industrial companies who are looking to harness 3D printing for production. In most cases, these designers have already been using 3D printing for prototyping and have felt firsthand the pain in developing lattices for printing. nTopology has attracted interest from some of the most technical industries worldwide, including aerospace, medical implants, and chemical processing, and has helped traditional companies (such as footwear and apparel) leap into the 21st Century by bringing them the power of 3D printing faster and more efficiently.

Companies are moving from using additive manufacturing for prototyping to production because of the performance improvements the process allows, mainly that with 3D printing the user can make parts that were impossible to make before. In industries where highly complex or custom parts are the norm, dramatic increases in performance lead to massive economic value. Tons of investment dollars are going into printer hardware and printing materials, causing printing costs to slowly drop. However, one of the major problems is that the software that’s used to design and print parts today was never intended for mass production. This means that trying to make better performing parts is extremely time consuming, if not impossible, with current solutions. It should be no surprise, software is the key to the explosion of 3D printing as a manufacturing process.

For me, these two investments also go beyond the analytical. I’m proud that two friends helped me find both Origin (thanks Hunter) and nTopology (thanks David), and that I get to work with syndicate investors who are great friends and easy collaborators. On top of this, working with the leaders of each company — Chris and Joel at Origin, and Brad and Spencer at nTopology — is pure joy for me. We text and talk all the time, we have real conversations, they listen to my perspective, they’re really focused on building long-term relationships in all aspects of their businesses, and they are patient in teaching me how their industry works. By now, folks may think of me as someone who writes and invests, and maybe before worked on mobile apps, but way back in my high school days, I was living in math and physics classes and (now antiquated) CAD systems, perhaps dreaming one day of doing what these CEOs are doing. Instead in college, I went down a different educational path, and I’m very fortunate that somehow I can meet and work with folks who took those CAD classes all the way to the point of reinventing how major industries manufacture. Lucky me!

The Most Important Sensor In The World: The Mobile Phone Camera

Long before Instagram was created, nearly every technology observer realized the massive potential of mobile phone cameras. Kevin Systrom, the famous CEO of Instagram, once remarked on stage, paraphrased: “When the iPhone 4 launched, most people saw a phone with a great camera — we saw a great camera with a network.” Since the rise of Instagram, the race to leverage the mobile phone camera — the most important sensor in the world — has been furious. While connecting a phone’s GPS sensor to the network has given rise to a company like Uber, the mobile phone camera sensor has helped catapult Facebook into a $300B+ company; it has given rise to its notorious competitor, Snapchat; and it has given rise to, as 2016 unfolds, unprecedented effects on consumer behaviors.

Only about halfway through 2016, the harnessing, manipulation, and augmentation of the world’s most important sensor has been stunning to watch. Some effects have been a joy, such as the new app “Prisma” which uses a form of artificial intelligence (neural networks) to transform our normal camera pictures into prisms of art. The app is a creative hit, taking what is traditionally an Instagram feature and turning into something beyond what just a few engineers can build and distribute in real time. And, sadly, some effects have shown us pieces of humanity that we have often been shielded from — specifically authentic, unfiltered video evidence, in the form of livestreaming, of unnecessary brutality toward defenseless citizens and the authorities who are authorized to keep the peace. While Prisma distorts reality, Facebook’s livestreaming clarifies the dangers society faces with raw purity.

As Prisma and Facebook reshape and illuminate our physical reality, as told by our phones’ camera sensors, the latest consumer sensation to burst onto the scene — Pokemon Go — also leverages the most important sensor in the world (and also the GPS sensor, to boot!) by empowering its users to augment their reality to play a simple game built by a team with a not-so-simple story.

I remember first hearing about Ingress, the first app by Niantic Labs (which created the Pokemon Go game for Nintendo) from Liz Gannes, who I was chatting about mobile apps that could be Android-first. Back then, Niantic’s Ingress could have only been created on Android as it gave the developers root access to GMS maps. Ingress was pioneering in that it pushed players to play a massive location-based game to hunt for things by using their cameras to augment the maps on their phones. Loyal Ingress users, whether they were in a big city or a sparse suburb, could find joy in firing up the game and going on a treasure hunt, linking to new fields and players, encouraging users to travel outside into the real world, phone in hand, and as the Niantic CEO stated in this fantastic interview from 2015, to deliver “differentiated client experiences that interface into that same game world.”

Sound familiar?

There’s a significant amount of mobile product and marketing detail for me to dive into on Pokemon Go, not to mention the implications of this new consumer behavior and the newer generation (Generation Z) to follow the current favorite (Millennials) — I will write more on Pokemon Go later this week. It has reminded me of this old post I wrote.

For now, I need to catch my breath and just sit in awe of how powerful and transformative the tiny camera and location sensors in our pockets are when connected to the network, connected to other things (real or imagined), connected to latitude and longitude, and to other people we know well or we hardly know. With cheap data, robust infrastructure (to handle video transmission), cloud computing (to process precise navigation), open source software frameworks (to harness neural nets), and the creativity and courage of creators and broadcasters (whether playing a game of Go or broadcasting raw reality in the face of danger), we are collectively distorting, focusing, and augmenting our realities and reshaping how we interact with the real world.

Notes From The Field: Summarizing Dozens Of Meetings With M&A Teams

Last December, I got into a longer conversation at a social event with someone who had lots of corporate M&A experience in tech. She said something to me that lodged into my brain: “Generally speaking, we have no interest in VC prices.” As that quote snaked its way around my brain, it dawned on me how, when considering the VC “business model,” M&A is one of the two traditional exit routes and critical to making the VC model work. Of course, this should be obvious, but replaying this quote in my head made me think, perhaps, it was forgotten during a generational transition. And, as companies stayed private longer before IPO, and as valuations rose beyond what many companies were willing to pay, I thought to myself: “I need to more people who have done this work.”

So, I spent the first quarter of 2016 trying to meet and learn from as many corporate development and M&A groups at various consumer tech and enterprise tech companies in the Valley. People were very gracious with me, making time to meet face to face or at least by phone, and being quite candid in their responses. Of course, I would never share the details of any conversation and/or tie them to a specific company, as strategies differ quite a bit between companies.

As I’ve reflected on those conversations, I’ve tried to find parallels among different companies and distilled the key takeaways as follows:

1/ Core, Adjacent, or Irrelevant: Acquiring companies are mostly interested in acquiring small teams (not taking on huge CapEx) where those team members will easily integrate into a core area for the company (say, for Facebook, live video) or an adjacent area that could be emerging over time (say, for Google, open source software). Companies view small acquisitions of talent here as an accelerant to traditional recruiting done 1 by 1.

2/ Types of Landings: Larger, material acquisitions over $100m (that need to be reported by public standards) are a different matter, which I’ll address below. For those under $100m, most of them are for specialized talent (say, cloud infrastructure experts who land at Amazon), but the smaller acquisitions of, say $20-30m, are not as common anymore. The landings are a bit harsher, say $1M or so for the key staff at a startup — i.e., not everyone on staff. Often these offers are below what the startup has raised on a theoretical “cap” in a series of seed rounds and extensions. (Some companies mentioned to me that they wanted to meet small teams who were just raising seed rounds to offer them a buyout right away — I actually referred one company to an enterprise buyer after passing on the round and they were scooped up by the company despite having trouble raising their round!)

3/ Pulling the Strings: Who makes the larger acquisitions happen? Either strong product execs from these companies, or the executive leadership itself. Benioff famously told his M&A team that he wanted RelatedIQ, and the team executed to fulfill that desire. Catching the eye of a CEO can move the needle in a very different way; for the product teams, it usually requires a bit more strategy and time, which I’ll address in #5 below…

4/ Anchored Prices Are Irrelevant: I mentioned earlier that many soft landings offers come in below what the seed stage company has mentally anchored around re: their price or value. This can continue and magnify once a startup has taken on Series A funding and beyond, especially over the last 4-5 years. In short, M&A departments have essentially zero regard for these prices, but the psychological anchoring around these prices from companies and their investors — not to mention a board’s ability to block an offer — can put the company on a path to nowhere.

5/ Relationships Matter: In #3 where I mentioned product leaders at companies holding court in M&A direction, those discussions usually start off with a relationship between the high-level execs and the particular product team. That requires a relationship. It could be a BD deal, or an API integration, or simply a cultural fit. The marketplace approach many companies have used to raise their rounds to date won’t really work here. This was an interesting finding because so much of the startup narrative is to avoid partnering with companies — and while there’s no doubt truth and limits to this, it also can grease the wheels for a better landing down the road.

“Having The Hard Conversation”

Earlier this summer, I was catching up a friend who’s at an early-stage fund. He said something which has stuck with me, paraphrased: “We try to tell ourselves all the time — we need to be the folks willing to have the hard conversation — with everyone.”

My wife is counseling psychologist and, I remember when she was in graduate school, she brought home a book called “Difficult Conversations: How To Discuss What Matters Most.” She wanted me read it, and of course, I resisted, but I did sneak in some passages. Of course, she was right — I should’ve read it, but the point was delivered: The ability to start and maintain a difficult conversation is essential in life as it is in business.

Now with some time logged on the investor-side of things in startupland, it is remarkable how many conversations I engage in as an early-stage investors. I am constantly communicating with people of all stripes — new founders, current founders, company executives, business executives while conducting diligence, other investors in my syndicate or downstream, members of the press, people who ping me cold, and so forth. The number of conversations I have on a weekly basis make it so that on the weekend, I go into a shell and hide to recharge.

Out of all of these business conversations, the most intimate chats involve founders that I’ve made an investment in. In the limited time I’ve been here, the culture has been to treat all interactions and communications as “founder-friendly.” That seems like the right thing to do, not just with founders but with everyone (right?), and also makes business sense — an investor’s reputation is his/her most important asset, and treating people directly or indirectly disrespectfully is difficult to hide from. People will find out.

Despite this common sense, the cult of “founder-friendly” may have also morphed into something beyond the realms of respect, honor, and civility — there has also been a loud, consistent narrative over the past few years that most investors aren’t helpful, that most can be a neutral or net-negative contributor to the ecosystem. Surely, not everyone is an angel. This has snowballed in many cases to the point where “founder-friendly” has transformed into a mantra of the “founder can do no wrong,” to the point where others in the ecosystem walk on eggshells. The risks are real — for instance, as I’ve written about before — sometimes investors don’t have an incentive to participate in difficult corporate governance conversations out of risk of contaminating their deal flow or creating de-positioning fodder for their competitors in the next competitive deal.

I was interviewed for some podcast you’ll never hear about this topic, where the host described me as a “founder-friendly” investor. I interrupted the host and said, “I am a company-friendly investor.” Of course, I am investing IN the founders to build the future they envision, but part of that commitment (I hope) is to build a company that takes care of its responsibilities beyond founder equity and terms — to be a steward of its customers, its employees, and people that matter to their ecosystem, however small.

When I started investing, I was lucky in that most everything began to work out of the gate fast. That’s not been the case over the last year. As I’ve been in conversations with founders, if I felt like something should be examined, or challenged, or questioned — I’ve done it. I have grown more comfortable with reaching out and broaching a more difficult subject. It can’t be done right away — it has to flow as part of a natural conversation, and that often requires more frequent communications. Of course, it’s done with as much respect as possible , but some topics are impossible to bring up without being unfriendly in some way. Thankfully, all of the conversations have been productive, even if they’re hard, and I’m glad that I’ve mostly picked people who are open to and willing to have difficult conversations.

To be clear, this is and should be bidirectional. I want founders to give me homework, or tell me to go hunt down something for them. I enjoy that work and wish more would take me up on it. If I’m not living up to a promise in their eyes, I want them to tell me. And, that goes for other people I work with, co-invest with, and so on. Feel free to have the hard conversation with me.

I wanted to write this post after reading a post by Rebekah Cox titled “Higher Standards.” I always follow Cox’s writings, and while I don’t agree with everything she writes, her incisiveness and keen insight into startupland is incredible. She not only addresses topics others are often too afraid to touch, she tackles them in her own style and uses a few well-placed words to do. In this particular post, Cox challenges everyone in the ecosystem to challenge everything. She writes:

VC is incapable of raising the bar and enforcing higher standards. It’s up to founders and startup employees to insist on pushing themselves even harder. To craft and execute against wildly ambitious visions for the future. To fall ass backwards into potentially revolutionary discoveries. To tinker and play…Push back on everything, even—especially—yourself. Every drop of common knowledge you fail to question. Every time you find yourself reading from the script of approved answers because you know doing so will not cause any trouble. Look with suspicion upon every comfortable moment. Find your own vision for the world and test it. Then, test it again and again. The world pushes against you? So what? Push back with your full force even if it’s only to see what will happen. No one has the right to be an amateur in the matter of mental training. It is a shame for a person to grow old without seeing the beauty and strength of which the mind is capable.

I love this passage so much. It is so true on many levels. Investors cannot build the future and can certainly not police the ecosystem, but everyone should be willing to push others we work with to be better, to have harder conversations, to help out and move forward. Cox’s rally cry at the end is not to just founders — it’s a challenge to everyone in the ecosystem to foster this kind of atmosphere by having hard conversations with those we work with and ourselves. Sure, some feelings may get hurt along the way, but we’re all adults here. It’s something I’ve been thinking on in my role and an area I want to get stronger in.  Thanks to my friend for the quote and to Cox for her powerful writing.


Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2016 Semil Shah.

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