Investing Notes From The Upfront Summit (2016)

At the start of 2015, I was lucky to head down to LA for The Upfront Summit. It was a blast, so I was excited for this year’s event, and 2016 was even better. I just got back to The Valley last night after two days in Hollywood, and I wanted to share my big, key takeaways from the event from an investing POV (note, there’s tons of stuff which happened which won’t be listed here — also, as the videos of these interviews get posted, I’ll update them here):

The LP Mood
One of the things which makes Upfront Summit unique is the community of institutional LPs who come to LA for the event. There are a bunch I already know, and then always a chance to meet new ones. They’re all very nice and likely much more open in this setting, and of course, hounded by GPs eager to update or pitch. While I cannot reveal any specifics some of the LPs mentioned on stage at the event (those sessions were off-the-record), I will try to synthesize the larger themes from all of these discussions:

1/ LPs seem to remain very committed to VC category
2/ LPs are currently active in re-upping in existing funds and finding new fund opportunities, though many have remarked to me they want to see Q1 unfold to get a better sense of how the year may look
3/ LPs view microVC (sub $100m) as a morass and many expect consolidation (firms buying firms, or withering)
4/ LPs concerned about generational transition at the established funds

So, while VCs may slow down (and that’s probably a good thing), the folks who back VCs are playing a longer game and see opportunity in the market and with new funds.

The Troy Carter Interview
…video coming…
I have read many pieces on Carter and certainly heard a lot about him and his career (he’s a legend), but I’ve never seen him interviewed 1:1 and talking about his career and how he broke into investing. It was personally the highlight for me. I can’t wait to watch the interview again. He’s a fantastic storyteller and is so clear and forceful when he speaks. It’s really a story of how he was able to identify, align with, coach, and promote talent, and along the way, it turns out he’s pretty damn talented himself. No wasted words. No wavering. No ego. (Perhaps I’ll update this more once the video is up, my write-up won’t do it justice but also it’s also best enjoyed as a primary source.)

The Fred Wilson Interview

As a venture nerd and someone who reads both Dan Primack’s Term Sheet and Fred Wilson’s AVC blog every single day, this interview was the highlight for me. Dan is simply the single best person to interview a pro VC. And, I’ve probably watched or read every single interview Fred has given over the last eight years. I have never seen one like this. You have to watch the interview (when it’s up), and there were many things covered, but what was unusual about this interview is Fred said some things that VCs often say privately amongst each other but never in public, and that’s what makes it so good. Here are my big takeaways:

1/ On Dearth Of IPOs: Many VCs have been public about wanting CEOs to go for IPO sooner and not clog up private markets. Fred came right out shouting “Man up! Woman up!” You don’t often hear this kind of candor as for years many VCs have been cautious about been seen as pushy. The last few years has felt like VC is a helicopter parent for portfolios, swooping in to rescue teams in times of duress but never willing to publicly shine a light when things have gone too far out of control.

2/ On VCs Taking Money Off The Table: If a VC has a chance to take money off the table (and many do), it’s not often reported because the larger VC doesn’t want to disrupt the vibe at the company and among other investors. Fred just readily admitted that being creative about liquidity opportunities is part of USV’s philosophy. He also cited the reality that despite what LPs or the public thinks, VCs have very little control over when liquidity opportunities come their way — so when they do, they should be taken seriously.

3/ On Generational Change At VC Firms: Fred admitted USV is thinking about this issue, and remarked on other firms he felt did a good job of this and some he didn’t. The main message he sent was that many of the larger funds should make sure the older guard steps back from the carry a bit to attract new investing blood. That’s one of many strong reasons why so many people are spinning out, raising separate funds, or not going down traditional VC path at all. For firms that get generational change right, the networks and brand can persist and create opportunity for new types of GPs to get added to the fold.

4/ On Founder Responsibility: This is the part where Fred jumped out of his seat. Primack asked a question about something, and Fred turned to him yelling “If you take money from me, you have a responsibility to return that money. You can’t just say ‘Fuck you.’” Whoa. OK. The issue here is that there’s been so much money in venture and such a hype cycle, many VCs are afraid to have more confrontational debates like this with their founders because they’d be concerned their reputation and deal flow would get hit. (I’ve written about that particular interplay between governance and deal flow, see here.) Fred may have been involved in a situation where a company he’s backed doesn’t want to exit. That’s happening more and more, and after a while, some people aren’t going to like it.

Challenges And Opportunities For Seed Funds (2016 version)

A while back, I wrote a post here on the “5 Challenges Facing The MicroVC Model.” Since then, I’ve added more and more, and now we’re up to nine. Some LPs I talk to frequently have joked “if there are so many challenges, why do it?” It’s a fair question, and you can read through to post toward the end to hear why.

Now, in 2016, I think the market overall has slowed down to a point where I am personally sensing material changes in how I operate my seed fund. What I’m writing below is, more or less, what I’ve communicated to my LPs in the interest of open communication and transparency, and there may be implications for early-stage founders, as well.

The Challenges For Seed Funds (like me)…
-Slower Pace: I’m expecting the flow of money through the system to slow down overall. This could impact funds as they raise, or commitments to follow-through on capital calls given seed funds don’t have traditional LPs bases. As a result, funds may be more cautious with speed to adjust for this risk.
-Playing With Check Size: Additionally, reducing initial check size is a way to maintain pace but adjust for a fund’s runway. With many seed funds putting in a few hundred thousand here or there, playing the fraction game to keep the deal flow going is another move we can expect to see more often. I don’t see this as a bad thing as round sizes in total may come down. Some rounds frankly don’t need to be as large as they are.
-More To Track: Most seed funds have 1-2 managers to track lots of companies. If pace slows, then those folks would spend more time with the existing portfolio, even dating
-Increased Mortality Rate: The larger seed rounds which started in 2012 and continued through last year are going to start seeing churn. There won’t even be seed extensions for many of these companies, and we are all hoping the acquisition market picks up even for nominal transactions, just so the transitions are smoother.
-End Of Quick Markups: This is the key killer change for seed funds. When I started three years ago, I was lucky that a bunch of investments were seriously marked up by big VCs (what all seed funds hope for) within a 12-month period. Shifting to 2016, I am telling LPs that it may be at least 12 months before we could see the nice 2x to 3-4x markups from the seed rounds, as larger VCs are smartly being more selective, more patient, and also focusing more on larger, future bets and newer companies. ** Hunter Walk tweeted a reply which I hadn’t thought of, which is slower pace of markups (assuming they happen) give earlier investors more time and data to choose which investments to continue on with.

I don’t want this post to be all a downer. I think there are also some important plusses here for seed funds.

The Silver Lining For Seed Funds
-Costs Are Still Low: The cost of starting up is still falling in the early-stage. Two people who are talented and have a prototype going and want to keep rolling in customers don’t need more than a $300-500k round to keep afloat, have an office, maybe hire one person, and get their bearings. I’ve done lots of these rounds and love them, especially because it forces folks to not raise too much capital early.
-Modest Promises: Seed funds don’t have to return billions of dollars just to return LP principal.
-Tough Times Produce Tougher Players: I see higher percentage of grittier founders coming across my desk, and I love it. It’s easy to quickly pass over teams who lament things like dilution or other trivial matters. The slowdown is making it a bit easier to test for something that’s been elusive for a while: “Why are you doing this?” The folks who do the $3-4m valuation rounds with product and revenue are often pursuing something greater than headlines, and many seed fund managers are dying to meet more with those qualities.
-Lower Valuations: Let’s face it — the prices have dropped, and now small seed funds can actually get 5%+ ownership in a company (on notes!) with a small check. Things have mostly corrected here, yet are still great for founders. Now going from $4m cap at seed to a $8-10m priced at A, and then talking to bigger for VCs for the B round of about $30M give or take all makes sense and leaves options for everyone on the cap table to be made whole.

So, why do it at all? Why stick with seed given all the challenges?

It’s the best place to build a network for the long-term. It’s the time when founders really need you. It’s where all the action is. It’s because having a line to the top of the funnel will ensure deal flow to come for years. It’s because many of the folks at seed either were at larger funds or could have the option to, but they miss the part of working with people early and seeing new and exciting concepts from the beginning. And, seed is the training ground for the next generations of startup investors to cut their teeth. Some will stay at seed and perfect the lifestyle. Some will graduate up to Sand Hill Road and join an existing platform, and come in with a killer network and deal flow engine. Some will ramp up and start their own new Series A funds, which is already under way. Some will join forces and do one of the above. This will be what the next five years is about from the early-stage financing side, and it’s exciting just to be a part of it.

Navigating The Gap Between Seed And Series A (2016 Version)

I try to help anyone coming through the network gear up for financings. Lately, the famous “gap” between seed and larger VCs for Series A has been exposed again. This “gap” has been written about ad nauseam, so I won’t do that here. Instead, let’s discuss how a founder can properly prepare for this gap, save time, and leverage the market:

How Much, How Long, And What? I’ll often look through a deck for a gap round and rarely see the amount the folks are raising, how long it will last them, and what the key milestones are? This is a sign of foolishness. The point of this gap existing is that the team isn’t ready for Series A, so to get to Series A in a credible fashion, an investor in this round would really need to see and understand an operational plan, the cost of that operational plan, the timeline associated with it, and identification of the key milestones to be reached. If you’re stuck in the gap and don’t know the answers to this, it’s a bad signal.

What About Price? I advise 90% of all extensions I see to raise “flat” to the last price or cap. This is hard because from the founder POV, they see all the progress they’ve made; from the investor POV, they’re looking for real growth. Usually in a gap round scenario, the new investors have to take on some serious market risk. An well known LP in microfunds once told me he cringes when his GPs do these extensions because he feels the data shows that most of these fail anyway. So, keep things flat and simple, because the party of the seed is over. A gap round, should one be so lucky to get one, might seem like a seed but it really feels like an institutional burden. It ain’t no party.

Where’s The Risk? Startups can face tech risk, market risk, or product-market risk. In a gap round, be honest and upfront about what risks are out there. In the angel and seed rounds, most of these are fueled by a hopeful vision of the future. By the time you get to this gap zone, you’ve already spent $1m — what risks have been eliminated, what risks still lurk, and how are they going to be mitigated? An ounce of intellectual honesty goes a long way here.

Insider Support? One easy way to show you’ve got some backing for the gap round is to see if your earlier investors want to invest more in you. Some do this as a policy, whereas some are not set up for follow-ons. It’s a good signal because if you’ve kept your earlier supporters up to date and they actually grow to believe in you move and see your progress, they can cobble together $500k of your $2m gap round and that gives a strong signal of momentum, even if small. It tells a future investor, “hey, his/her earliest supporters really like this.”

Speed Kills. Have a decent deal on the table? Close it. Shopping it is dangerous, if not done carefully. Yes, you will meet investors who may view the opportunity as predatory, or bargain shopping, but the last 5-6 years of valuations have been tremendous, so it’s still better than before 2008-09, relatively speaking. The reason I’m writing this is I do believe there are a class of great founders and companies which simply didn’t raise enough money to get prepared for Series A (and likely weren’t actively coached to get there, either), and there are founders out there who aren’t obsessed with the optics of a down or flat round or recap, and for them, I’m hoping this post helps them seal the deal faster and get back to work building the future.

Investment Criteria, Focus, and Process For Haystack Fund 3

Investment Criteria For Haystack #3

For my third fund, Haystack III, which is still a small fund (but larger relative to my previous funds), I wanted to share a simple and straightforward guidepost for founders, seed syndicate partners, angels, and larger VC firms as to what I’m looking for, what my process is, and what to expect from me if I get the chance to work with a specific startup. (I will continue to update this list based on feedback, so please consider it a work-in-progress and feedback is welcomed.):

Sector Focus

For Fund #3, I will invest in pre-seed, seed-stage, and select Series A rounds. I am investing only in the Bay Area and in three (3) sectors, listed below (old post on why Bay Area only, see point #1). In each sector, I have some specific things I’m looking for, as written below. Please note these sectors are set for Fund #3, but I will likely change them a bit in Fund #4:

SaaS (Enterprise & SMB)

Elements that I’d like to in place see are:

- presentation of an offering which leverages proprietary data and/or brings machine intelligence to the market on top of specialized data; or creates a new category entirely
- demonstrating mastery of — or a genuine interest to learn and master — classic SaaS metrics, such as MRR or ARR, ASP, ACV, Churn, and more (link)
- should have at least have either prototype in beta or product in market
- should have a detailed customer pipeline plan (doesn’t need to be complete) that demonstrates capability of prospecting and prioritizing

Heavy Industry (Software & IoT)

Elements that I’d like to in place see are:

- for software and applications, should be focused on some element of surveillance (drones), design and support (3D printing software, industrial AR)
- for IoT, should be focused on (relatively) cheap, low-power distributed sensor networks paired with corresponding software services; these often run on HaaS (hardware-as-a-service) business models and therefore should be thought of as a variant of SaaS
- should have at least have either prototype in beta or product in market
- should have a detailed customer pipeline plan (doesn’t need to be complete) that demonstrates capability of prospecting and prioritizing
- demonstrating mastery of — or a genuine interest to learn and master — classic SaaS metrics, such as MRR or ARR, ASP, ACV, Churn, and more (link)

Direct-to-Consumer Technologies

Elements that I’d like to in place see are:

- prefer to be able to test and try out product
- specific interest in digital health and wellness
- specific interest in new mobile communications tools
- am curious about VR but will admit more attracted to infrastructure and content generation
- am curious about Apple TV as a platform; would love to learn more
- prefer to see either technology brought to market or potential marketplace/network advantage
- In general, with respect to Consumer, I’m more open-minded and have preferences over criteria; I expect the founders to see the future, not me.


Seeds Is A Process: each process is different because each seed round is different; sometimes, it can take a few days, other times, I’ve gotten to know a founder over the course of months.
Introductions: I don’t mind cold emails (first.last@gmail) so long as people are economical with their communications and have taken a few minutes to determine if they meet the criteria listed above; email is the best and only way I prefer to be contacted. Formal introductions to me aren’t necessary; my job is to meet new people and get to know them.
Diligence: At times, I can tend to ask lots of questions; my hope, in those cases, is that the founders like the questions and enjoy answering them and the ensuing dialog it creates. On the B2B side, I’ll often bring a customer or two to the founder in the process if I’m interested to see how the interactions go and learn more about the product and problem. I prefer conversations stretched across days and mediums versus pitches and quick decisions; I also like to learn more about a person’s background, things they’ve overcome in their lives, and examples where folks have shown great drive and/or resiliency.
Email Ain’t Perfect: I get over 200 work-related emails a day and now have three kids at home; i sometimes will miss an email, so while I can’t guarantee a response, I am pretty good at replying, and i’m hoping the clarification of what I’m looking for will help both sides.
Investment Size: typically invest $100k to $250k as a range, and usually it’s $100k; currently, do not seek or ask for pro-rata rights; that said, I do have reserves in my model and my hope and intention is to provide enough value along the way such that the founder will want me to come along for the ride from Series A and beyond.

Post-Check Interaction

Getting To Series A: In the process above, I try and make sure the founder(s) and I are on the same page about the path to Series A. The main value I add is to help founders develop a framework for what will be needed for a larger, institutional raise, and this cuts across many product and company functions. I spend a lot of time with larger, institutional VCs and, when the time is right, take great care in finding appropriate matches between founders and VCs. I view this as a deeply personal endeavor and one that is hard to match using software and/or spreadsheets of target lists. [see here for more resources on getting to Series A]
Customer Development: On the B2B side, I work with founders closely on sales pipelines and often bring customers to them.
Executive Recruiting: Additionally, I help close senior or executive candidates who are considering joining the startup, but cannot really be effective at helping a founder recruit overall — my intention is to fund entrepreneurs who are themselves recruiting machines and have a pipeline plan to execute against.
On The Personal Side: Finally, I’m available all the time to chat: text, email, phone, or beer and whiskey when necessary. I’d also ask folks not to take a “no” personally. I’ve had to say “no” to friends and that is the worst. I have and will continue to make mistakes as an investor. Lucky for all, there are 3,000+ early-stage investors in the market, so a “no” from me should just be no more than a slight bump along the road.

Things I Won’t Do

- Introduce you to investors if I am not involved
- Consider an investment if main HQ is outside the Bay Area
- Consider uncapped notes or valuation caps that are way ahead of today’s realities
- Participate in unnecessarily huge round sizes relative to operational plans

** I will continue to update this list based on feedback, so please consider it a work-in-progress and feedback is welcomed –

Quick Reaction To PG’s Essay, “Refragmentation”

As Paul Graham usually does with his essays, he makes a deep point with relative ease. Today’s essay, which many of you have read (and if you haven’t, please read it here) is even more intense. I had a sense he would be writing about the relationship between the proliferation of technology and its potential relationship to income disparity, and I know from some of his tweets over the course of the last month, he was likely extra careful in selecting his language for fear of being accused of insensitivity given the consequences if his theory is correct.

I’ve read the essay now twice and, as someone who grew up studying history and still tries to pay attention to how broader themes shape nations, societies, and cultures, I have to say that Graham’s essay is one of the most powerful I’ve ever read. He spends more time explaining “why” the world is the way it is today, and doesn’t wade into the territory of “OK, so what do we do about it?” Those are thornier issues to discuss, and perhaps the first step in addressing them is the acceptance that they’re happening to begin with.

If I had to boil down the essay (which is unfair, because it is very economical in its language already), my big takeaway is that as the 21st century unfolds with the power of the Internet at scale through mobile devices and the proliferation of technology and computing power into every industry, it calls into question The Coase Theorem which, for decades, defined why larger corporations existed — to manage complex transactional costs. Today, based on this essay, one could argue The Graham Theorem is now that networks of smaller companies render Coase obsolete. A step further, these smaller networks of companies (like that come out of YC) leverage technologies (through instruments like APIs) and can be run by smaller numbers of people, yet will likely accrue financial leverage as a result of the ratio of human:computer labor needed to manage and execute those transaction costs. Computers now make it cheaper, faster, and more efficient.

(As an aside, I’m sure there are other factors to consider in the argument that were not discussed. It is his essay and point of view. I am sure land issues could be another factor that drives inequality, or complex issues around socioeconomic status, race, gender, as well as access to educational resources.)

I do mean to imply there aren’t other factor at play, but to me, the more interesting question posed by the essay is — “Let’s assume this is happening. Then, what?”

Graham stops short of suggesting “what.” I understand why. It is too much for this post. The first step is acceptance. Income inequality is happening, and it is (perhaps not entirely?) driven by the accelerating rate and power of technological proliferation.

If society does “accept” The Graham Theorem as the prevailing OS of society (replacing Coase), what should our collective response be? Here are some ideas that are cited, and likely we will need all of these and more:

1/ Education: “We need more access to better education.” Yet, many believe our higher education institutes have been raising tuition while failing to keep students on pace for changes in the workforce. Perhaps YC is one of the first examples of that — forgoing graduate school, for instance, to join an accelerator.

2/ Guaranteed Income: This has been an argument — to proactively set basic income levels for citizens — advanced most notably by USV’s Albert Wenger, and most recently by YC’s current President, Sam Altman. Albert has been writing about the intersection of these issues for many years now, and I believe is writing a book that will touch on the topic. You can read one of his posts (which links to a video talk) here.

3/ Taxation: Graham points out we could theoretically tax economically accretive behavior to slow the effects of The Graham Theorem and redistribute wealth, but if done too bluntly, those creators could move to another nation that has more favorable laws and would want to compete for that talent, just like companies are competing for talent today. (This also is connected to global immigration, see below.)

4/ Immigration Reform: This is a sad topic in America today for so many reasons, especially given what is happening in other parts of the world today and how so many of America’s great entrepreneurial stories are carried through by first-generation immigrants. Many have clearly argued for immediate reform, but that seems politically infeasible in a country where xenophobia feels on the rise and where more and more people are beginning to feel excluded from the pistons which drive today’s global economy: technology. (Earlier, Graham has argued on his blog for U.S. immigration reform, citing global competition for talent as a potentially zero-sum game.)

Graham ends his essay today with the following warning (italics and emphasis added):

I worry that if we don’t acknowledge this, we’re headed for trouble. If we think 20th century cohesion disappeared because of few policy tweaks, we’ll be deluded into thinking we can get it back (minus the bad parts, somehow) with a few countertweaks. And then we’ll waste our time trying to eliminate fragmentation, when we’d be better off thinking about how to mitigate its consequences.

It’s a strong statement by someone who is careful with their words: “we’re headed for trouble.” As a reader of Albert’s blog for many years, I’ve come to admire his academic-style and now policy work to advance the issue. He and I have disagreed on what will actually happen. I admire that he is using his power to advance the issue and writing a book which touches on the subject. I am not as optimistic (sadly), where I see the “trouble” being more pronounced, leading to real conflict, causing many people to feel excluded from the economy and from the means of production, and while I want essays like this and Albert’s book to have a positive impact on policy and legislation, the country’s politics and willingness to make hard choices upfront seems to be running on limited reserves. That is my own personal takeaway from reflecting on Graham’s excellent post.

Quick Follow-Up On Facebook, FreeBasics, And India

A few days ago, I wrote an opinion post on my blog, based on my point of view on what I’ve read and my experiences working in India, about the debate going on India currently between’s Facebook’s desire to push FreeBasics and the impassioned response (among many of the vocal majority) to oppose it. I knew when I was writing it and when I hit publish that many people wouldn’t like my POV, but my philosophy in writing publicly (for better or worse) is to think about my own POV and to share it without apologies, no matter the recourse.

The recourse in this case was a bit more than I had bargained for.

I received many Disqus comments and tweets lashing out at my POV. Some of them were too ad-hominem in nature to even entertain. Some of them had a strong but polite differing of opinion. I also received many private emails, which on one hand is great because I am grateful that people care to read what I write, but also a bit overwhelming as some of them were quite accusatory. That said, a few folks did write to me very thoughtfully and some engaged in conversation over email, which I greatly appreciate — I never write to prove that I’m right on a topic, I write to share the POV that’s inside my head, and I never claim for that POV to be correct.

In digesting all of the attacks and feedback, I wanted to clarify a bunch of things that are either related to me, to the original post, or to the issue in general — I realized in reading some of the comments that I likely didn’t do as careful a job in selecting or framing my language with disclaimers, and I underestimated (despite my local knowledge) how much of an emotional issue this is for many people.

So, in the spirit of continuous learning, of never assuming I’m always right, of being unafraid to clarify or admit an incorrect passage, and in the spirit of defending my own right to share a free POV (which folks can also choose not to read), I offer the following quick follow-up, in no particular order:

1/ I have spent real time working in India. With major universities. With the government. I have been all over the country. I may not be on the ground now or have been yesterday, but I got a lot of messages asserting I’ve never spent time there or know the country. I have also followed the issue at hand, despite people conflating their disagreement with me with evidence of my being misinformed.

2/ I do not work for Facebook. That was a comical assertion among a few. I am a Facebook fan, I own lots of Facebook stock (relative to my overall portfolio), I think it’s the best-run company in the world, and no matter how folks in India or other parts of the world get online, chances are good anyway a majority of them will end up on Facebook properties voluntarily.

3/ The focus of my argument was rural. I should’ve done a better job stating this upfront and multiple times. Yes, people will still disagree with that (which is fine). Naturally, city-dwellers in India of all socioeconomic levels will have access to new or used phones and be able to get online one way or another. I don’t have great confidence in the government’s ability to do the same for rural populations (which are over 600M+ in India), and cited some harsh historical facts to make the argument. Of course, people didn’t like those and saw them as patronizing — I love India and the people and would never say I am better than the country. No patronizing on my part or intent, and I used the term “License Raj” as a historical term applied to rural settings, but I think it was too hot-button to use at all. I should’ve stated the following, too: My preference, of course, would be for the country itself to bring these folks online, but I was just being honest in my POV that I don’t believe that will happen in a reasonable time frame.

4/ I did a poor job of not pointing out that I do personally believe that net neutrality is important. Of course, I do. Rather, I was making an argument out of being pragmatic, out of cutting a corner to accelerate access to wireless networks and the web. Of course, in a perfect world, people should be able to get online and not be restricted of where they surf or what apps they use (and pay for them in proper ways). I see the debate today as a way to kickstart (if even imperfectly) the onramp, and while the majority of responders (who disliked my post) disagreed, that was just my POV. Of course, in a perfect world, I would hope the Indian government and Indian telco’s got the rural folks online. That would be my hope, and again, for better or worse, my honest POV is one of deeper skepticism around that happening in a reasonable timeframe. Yes, I could be wrong, but that’s my POV. My hope wouldn’t be for Facebook or any other company to fill that void, but I do believe we will see more of this in other countries and, given Facebook’s execution prowess, I think they will succeed in cutting these types of deals in other places.

5/ Twitter isn’t a great Medium for conversation. It was much better to have emails sent to me calmly explaining what folks felt or read. I was able to digest and see where my language could’ve been misinterpreted. I appreciated the time those folks took to write to me privately. Thank you for that. On the flip, it was easy to just block and mute people who were attacking or conversing blindly on Twitter, but another lesson learned on the medium. I also got tons of messages of people I’ve never heard from in my life who said they were long-time readers of my blog, but only know felt compelled to reach out to me. I guess there’s no time like the current right now to introduce yourself.

Anyway, I learned a ton through the process, which is always my ultimate goal, and again, I am truly grateful for those few folks who wrote to me privately and shared their POV. Thank you.

Looking Ahead To 2016

Earlier this week, I tried to boil down the top trends that defined the startup and investing landscape for 2015. Next up, I want to think about what will shape our experiences in 2016. This isn’t going to be a post about pontificated predictions like “Digital Healthcare is going to take off!” Rather, I’m trying to anticipate more specific events that I expect to (1) occur within the next 12 months and (2) have a material impact on the early-stage company formation and investment POV. Here’s a short list of things that I believe will impact my work and our early-stage ecosystem over the next year:

1/ Seed Stage Cliff: Now with the market shift hitting private early stage markets, many of the companies seeded after 2011 and that’ve either raised huge seed rounds and/or booked extra fundraises via post-seed or seed extension or second seed or debt rounds will begin to see their runway run out. Not only has the market cooled, many downstream investors want to see real momentum after a seed round and most seeded companies simply just don’t have it. This isn’t something to be ashamed of, this is just how it works. The difference before this autumn is that people felt runways were infinite, whereas now most are starting to realize they’ve been taxiing on the runway the whole time and running out of fuel. There will be more Medium posts. Seeded startups will just run out of money. A few teams may get scooped up by larger companies, but folks can’t count on it. Overall, this is rational behavior and healthy for the ecosystem to divert extension capital from experiments which haven’t worked and allocate them to new areas which seem riper for venture investment. (More on this below.)

2/ IPO Watchdogs: 2015 was a slow year for tech IPOs. The fall and winter came quickly and the end of the year can be distracting, but in 2016, I suspect there will be more intense focus on every single tech IPO filing, specifically with spotlights aimed at what the public market valuations will be compared to what the private growth rounds were for the last two years. The issue now is that even if 1-2 companies go out and have a smashing IPO, they’ll be labeled as outliers whereas the market overall is now expecting the rest of the IPOs to be priced below what the previous private round price was. Those news stories will compound the narrative of multiple compression up and down the stack. This will provide venture investors with even more ammunition to ask for more ownership and keep valuations in check.

3/ Virtual Reality Will Begin To Seep Into Mainstream Conversation: Please note, my dear VR-haters, that I used the words “begin to seep.” The reason I believe this will happen in early 2016 is because Facebook — the best-run company in the world right now — has over 200 people across two buildings on campus working on all sorts of technological and ecosystem issues within virtual reality. Facebook along with other OEMs will start to distribute more headsets to consumers, and there will of course be a wide variety of sophistication among them. There are some people who think either VR is overhyped and will never happen or that it will take many more years, but I’m entering 2016 with the assumption it will happen and that it will happen much sooner than most people think. And with Facebook putting so many resources behind just one flavor of it, I take that seriously. At the same time on the venture side, it’s not being reported (I’ll explain why below), but some of the best VC firms in the world are pouring serious, serious money into VR infrastructure and content creation tools. They’re not even opening the emails about companies seeded three years ago (see Point 1 above) and instead focusing on the future here.

4/ Apple TV As A New Platform: Speaking of next battlefields for at-home entertainment, Apple’s revamped TV will start to see more developers building apps for the ecosystem. This isn’t an area I’ve followed too closely, but I’m planning to spend more time here in 2016. I’d love to read any good posts you’ve read or hear your thoughts on how this could unfold.

5/ Many VCs Have “Moved On” From Yesterday’s News: There’s plenty of innovation and corresponding investment in new areas of robotics, autonomous driving systems, drone systems or application companies, virtual reality and TV (see above), and a host of other areas that rarely show up on the tech blogs or have their financings announced. So people can worry about what they read in the news, but rest assured the majority of the best and most experienced investors are ahead of the market. This will also impact how institutional rounds will get done, or not get done…for example, companies that are doing somewhat well in an out-of-favor category like online-to-offline logistics may get quite a chilly reception from VCs.

6/ The Era Of Promotion Is Over, For Now: It has felt as if the past five years has been about promotion of founders, of companies, of investors, of up-rounds, of valuations, of up-ticks, of raising more and more money, and so forth. Everyone participated in the promotion of technology as a force, and while I personally believe the fundamentals are strong for technology as the foundation for the global economy, the markets finally ended up disagreeing with the pace at which prices were growing. Right or wrong, that’s what happened. Now, people are carrying a more sober gait. VCs realize some of their best portfolio companies will have valuation adjustments or even down-rounds. Entrepreneurs are now internalizing the chilly response they got in the fall and winter and readjusting expectations for Q1 fundraises. After the era of promotion, I believe we are entering a new, more muted era of “results.” Companies, firms, and people with public profiles (myself included!) will be called on to demonstrate output and results. Over the past few months, many of the top VC firms on Sand Hill have been keeping their newer investments quiet, partly out of a market-competition fear, but also — I believe — an implicit realization that the value of investment promotion has a limited shelf-life. Even one of the hottest consumer apps to get rounds of VC funding remains mostly under the radar.


Facebook Meets The License Raj Of India

It’s easy to think of Facebook as the world’s largest social network. It takes a bit more imagination to envision Facebook as the world’s dominant global nation-state, a new type state where citizens can connect and communicate across political borders and where the network’s CEO, who is only currently 31 years old, is on a march to be the world’s richest and most powerful businessperson by a long mile.

Zuck and Facebook have been able to tackle and master most challenges that’ve stood in there way. Today in India, the company and want to use a mix of satellites and unmanned aerial vehicles to provide connectivity to India’s rural population. And, of course, there is a catch, but one worth exploring.


In a previous life, I worked on many projects all over India. For a while, I thought I would move there — I was born in the U.S., first-generation, and grew more and more fascinated with the idea of moving to India during and after graduate school. I don’t want this to come off the wrong way, as I love the country and all the potential, but I got burnt out by the business climate and found myself longing to get back to California.

It’s been a good while since I’ve spent cycles thinking about India at large, but today was a day that jogged many old memories. The background is: Facebook CEO Mark Zuckerberg and his team have devised, with, a way to bring basic web communications and services to the rural poor in India, with the help of unmanned aerial vehicles, micro-satellites, and balloons. The catch is Facebook won’t provide these new users with full access to the entire “heavy” web of YouTube videos and bulky web pages — instead, he and Facebook will offer, in partnership with India’s Reliance, a zero-rated (e.g. free of data charges) service called “Free Basics” which will provide users with basic web and communication services such as email, chat, education portals, and so forth.

Zuckerberg is a savvy technocrat. With one billion users on his platforms today, he knows the two plum global markets to crack to grow Facebook are China and India. ‘Free Basics” is a digital olive branch meant to simultaneously connect hundreds of millions of poor and unconnected citizens across India’s great farmlands.

But, as I learned by catching up on all the news today, no good deed goes unpunished.


Activist groups in India are trying to block the deal. Their argument is (1) net neutrality must be protected on behalf of new digital population and (2)  Free Basics restricts the web for the poor. Activists in opposition to Facebook’s deal believe giving away this audience to Facebook isn’t worth the long-term risk of giving aways keys to the digital kingdom to a California-based company that’s on a path to be the most powerful corporation in the world.

From the POV of Facebook and, their remote data technologies would empower some of the world’s poorest people, in conjunction with Reliance for data, to harness the web for basic functions like learning, communication, photos, and so forth. Most recently, however, it seems like both the media and the regulators are having cold feet about giving Facebook these keys to their citizens. (You can read Zuck’s op-ed he placed in Indian newspaper here.)


The License Raj in India both provides protection for national industries but also presents a roadblock to national economic success. For instance, for many decades, China would leverage the unique tax and economic incentives with special economic zones (SEZs), but India’s attempt to copy them mainly resulted in property scams which marginalized the disenfranchised the poor rural landowner. Going back many decades to the time of India’s independence from The British Empire, U.S. forces and automakers tried to be first to market by offering to build highways and roads for the new country in exchange for the right to sell into these new open markets.

India refused these overtures from “the outside” in the past, a reaction most-likely fueled by a distaste for its own historical memory of colonial occupation. One could argue a host of reasons why India should have acted differently, but it’s worth keeping in mind India has only been truly independent since midway through the 20th Century. There is a deep-seated belief in India, after the Raj, that they themselves as a nation want to address their own problems. India prides itself on its democracy, but even that political system is not wholly their own — it was a parting gift from its previous rulers everyone accepts to be the best system of governance.


What we have today in India, of course, are networks of crappy roads, two-lane dangerous highways, and a government who doesn’t have the will to consider modern infrastructure projects. Will the state of India’s physical roads provide a harbinger of what to expect as the country gears up to have hundreds of million more citizens come online through all the new and reused mobile phones that will be hitting the market?

Given all this context, this is why the news about activist groups in India trying to stop or disrupt Facebook’s negotiations is so tragically comical. After Facebook built up a this service (“Basics”) and prepared to offer this suite of services for free in return for trying to hook the newest of the new potential users, dissenters began to question the impact of Free Basics as it relates to the Net Neutrality debate. To this end, you can read up about India’s possible nuking of this deal and read specifically the op-ed Zuck took out in an Indian newspaper today to make sure his arguments are heard.

In the end, paternalistic activists may end up blocking Facebook from its plans in the name of Net Neutrality, thus denying the over 600 million citizens who live in relative rural poverty the chance to escape the farm, the chance to leave the slums, and the chance to simply communicate with their families, which could by now be scattered across India or other parts of the world.


Personally, if activists in India block this, it will be a sad day for the country. If Facebook’s plans are thwarted, how will the Government of India step up to ensure these rural citizens have the devices, networks, and money to charge their phones and pay data rates in order to surf the neutral net they want to defende? The Government can say “no” to a new project, but would they have the resolve and passion to fund an alternative to universal web services access?

Probably not.

The lingering effects of the License Raj are crippling India when the country needs order the most. The cult of the License Raj drove India to mostly build its own roads and spur help from other outside forces. Today’s roads in India are an outdated relic of the past, and there’s no reason to believe tomorrow’s data networks will be any better.

I wonder if someone polled just 100m rural Indian citizens and asked them, if given the choice between (1) a basic smartphone where they could search Wikipedia, connect with other people, email, and talk on Facebook-related platforms and not have to pay for the data or (2) nothing, I have a sneaking suspicion at least 99m would opt for Choice #1.

Whatever happens here, the larger point is global corporations are the new data networks that society will be built upon, and in the case of Facebook, can provide critical infrastructure and access to a huge population at a much faster and efficient rate than government could. By contrast, India’s government, activist culture, and penchant for arguing nuance may end up losing the forest (a step toward universal access and lifting out of poverty) for the trees (long-term concerns around Net Neutrality).

When I post this, I know it will rile up some folks in India and who are ex-pats who sympathize with the protective benefits of The License Raj culture, but I feel quite confident having access to the web (even if limited to start) is a core human right and an essential ingredient to lifting anyone — in India or other rural places in third-world countries — into a new life.

The Force Awakened In 2015 Startup Tech

Star Wars is all the rage now, as it should be. As I was reflecting on 2015, indeed, the Force (of the market) awakened. Turns out there are a lot of problems in the world to solve and lots of money to fuel those experiments, but there aren’t as many markets (yet) to play in, and the value of those markets are now in question. So, here’s your 2015 round-up — Wait, what just happened? Well, a lot happened in startup tech in 2015, but I tried to boil down a much longer list into the largest them which I believe have the most impact on what we do, day to day. Here goes, and please share other huge themes you think I’ve missed. (I’ll try to look out to 2016 later this week.)

1/ Big, Public Consumer Tech Co’s Got Even Stronger: Amazon is surging with Prime Now, the huge value in its AWS business; Google reorganized to Alphabet is performing well; Apple is the most revered tech company in the world, despite the Watch not being ready for prime time; Facebook is the best-run company in the world right now and on a march (I believe) to be a trillion-dollar company; Netflix is everywhere and a leader in original (and damn good) content programming; even Microsoft, almost 40 years old, is making smart buys, playing mobile well, and has lots more cash on hand to make things interesting; Uber and Airbnb, while still private, are surging into global networks which can continue to grow as the rest of the world gets on to social networks with mobile phones. Given this surge, it’s becoming an even more precise art for founders and investors to find new markets to create or exploit. (Related posts: Makings Of A Third Haystack Fund)

So, where did some of the most creative founders end up looking for opportunities?

2/ Text As A Command-Line Interface: Magic, the text-based startup, is a poster-child for this new wave of services being rolled out on SMS rails without every shipping a native app. As mobile native app distribution continued to choke, founders exploited a channel that was sitting under our noses the whole time — texting and chat apps, which on mobile take the place of browsers. Facebook then announced M for Moneypenny, an assistant which would reside inside Messenger to help a user find information and complete tasks. Other variations of this have sprouted up in text apps and for email, many touting AI capabilities to offer more cost-effective, API-driven services to users. (This trend, among other great moves by the company, has helped (1) Slack penetrate deeper into the workflow of newer companies and (2) newer startups like Operator provide a command-line interface for commerce, powered by Uber’s underlying logistics.) (Related post: Hacking Mobile Distribution And Deployment Via SMS)

3/ Subscription Models, Even For Consumers: As the market has turned (see below), many investors have sought sanctuary in business models traditionally suited for VC: subscription. SaaS companies bringing new, novel tech to the market can see $100M valuations in ultra-competitive rounds even while the product is in a closed beta. This drive to subscriptions has spilled over to the consumer, as companies like Netflix, Spotify, and others have demonstrated, consumers are willing to pay on a monthly basis if they see the value and ease of the model. Startups like Classpass (and even Slack, given its consumer-whimsy bent) exemplify this. (Related post: The SaaSification Of Consumer)

4/ User-Generated Live-Streaming Media: Decades ago, CNN launched a campaign for iReporters, individuals who would go out and act as volunteer reporters to then give their content back to CNN and be part of a story, if one broke. Fast-forward to 2015, the launch of Meerkat and Twitter’s acquisition and integration of Periscope catapulted the category to real-time. There’s also YouNow. While the infrastructure isn’t there yet, it’s easy now to imagine a world where anyone can watch a live Periscope of some event that isn’t broadcast on TV or some other paid channel. My belief is that live-streaming is a very important development, but it’s a feature of a social network, because a user needs a network to provide context before jumping into a livestream. Nevertheless, here we are and it’s a big consumer thing. (Related post: Meerkasting In A Brave New World)

5/ Publishing Into New Media Like Instagram, Vine, and Snapchat: Ages ago, only select few people could have enough resources to create a short movie or show and have it broadcast on TV. YouTube started to democratize that, but now with Instagram, Vine, and Snapchat (and even Facebook Video) on our phones, there’s a whole cottage industry of big-time apps and tools available to help everyday users around the world lip-sync to popular songs, create collages, sell merchandise, and so forth. Instagram, Vine, and Snapchat are the new MTV and Home Shopping Channels, except at a scale we could never imagine.

But, as Obi-Wan Kenobi said to Luke aboard in the Millennium Falcon in “A New Hope“: “I felt a great disturbance in the force, as if millions of voices suddenly cried out in terror — and then suddenly silenced.”

6/ The On-Demand Chill: With some high-profile closures, the private markets began to realize not every good and service needed to be on-demand and funded with venture capital dollars. I see this as a healthy sign in that VCs didn’t keep these companies alive and they were high-profile enough so that everyone saw the damage with their own eyes. This allowed the industry to self-correct a bit, and that’s a healthy thing. Those dips aside, the on-demand sector was definitely a huge trend in consumer behavior (powered by mobile and labor market shifts) and will make many investors who picked the right startups a fortune. (Tangentially, people assumed the “gig economy” would become more of a political issue as we get ready for the race of 2016, but that hasn’t really happened…yet?) (Related post: The Chilly Freeze For On-Demand Startups)

7/ YC and AngelList Shake Things Up: AngelList raised a $400m seed fund, and YC created a full-stack funnel and engine to fund startups. This puts more money into the already bulging seed ecosystem, but also puts more long-term pressure on traditional venture models which haven’t cultivated their own funnels. Building and/or accessing a good funnel is very time- and money-intensive, and most firms can’t afford what it costs to make it. (Related post: AngelList and YC Continue To Shake The Trees)

8/ Market Shift and Multiple Compression: Around Labor Day in 2015, there was a big shift in global markets, which affect the U.S. public markets, which then shined a light on the late-stage private market which has marked-up many tech startups, and fear began to spread among private investors. Yes, VCs are still investing, but the bar has been raised (which is a great thing) and everyone in the system has had to down some corrective medicine. One particular effect has been on “multiples,” the premium some investors would pay for a business or access to a company’s shares. Those multiples have compressed to the point where many of the seed deals I see now are priced around the sane territory of $4m, give or take. Everyone has seen one of their best companies now be effected by this multiple compression, so if (1) someone tries to tell you it doesn’t exist or (2) you think you’re the exception, you’re likely getting or giving yourself poor advice. (Related posts: The Big Chill In Seed; A New Kind Of Draught In The Valley)

In the 2015, The Empire struck back. The force of the market awakened. But in 2016 and in technology in general, I firmly believe there’s so much hope in building and financing new technologies, so much value to create and invest in — depending on where you look, what you read, who and what you pay attention to. More on that and more on 2016 in another post later this week.

Investment Lessons From Howard Lindzon

I love reading Howard Lindzon’s blog. I subscribe to the raw RSS feed to bring the text right to my email, so I never miss a post. It is almost always straight and the point, with Howard’s biases shining through. Truth be told, I ignore about half of Howard’s posts, but that’s to be expected with a character like him — oftentimes, I have no idea what he’s writing about. Perhaps, neither does he. ;-)

Today’s post from Howard was a bit more reflective than usual. The holidays can do that, and his post today also made me reflect today. You can read Howard’s post here. There are a number of strange parallels (over a shorter time horizon) between my journey with writing online and Howard’s. He’s been doing it for much longer. I started this blog officially on July 1, 2012. My first post was about the power of the Uber “brand.” It was a good post, but I really should’ve found a way to invest in the company vs writing that post!

Howard started blogging by finding Brad Feld, who used to link to Fred Wilson, who then both went on to co-invest together for a long time; he also started experimenting with newer mediums like YouTube (and I tried with him and podcasting while I was at Swell — maybe we’ll try again). Howard also throws two awesome annual events, and it’s something I look forward to going to. Everyone who goes says the same thing — Howard makes it happens.

You should read the post yourself, but I wanted to pick up on the 10 lessons he shares at the end and track back to how his lessons (which are excellent) have impacted me in an eerily similar way – these are Howard’s bullet points with my thoughts added in italics:

1/ Everyone should be an investor.

There were a few triggers which fired that pushed me toward investing. One, I wanted to work directly in VC, but that opportunity never presented itself, so frustration built. Two, I knew I had to build a track record before I could have a shot for others to even hope to believe me. And three, I lost a sizable advisory grant to a startup I really helped in the 11th month, and it was jarring enough to make me realize earning shares by investing versus advising would be a much better (and in this regard, safer) path to preserving that equity.

2/ Anyone can learn to speak the language of the markets. Obviously reading is the key, but writing remains undervalued.

I am wholly not from the world in which I currently play in. I don’t have a tech background, or a financial background, or a product background, or a real BD background. I’m lucky that Fred’s blog over the years, Chris Dixon’s blog, and all interviews by folks like Keith Rabois and Shervin Pishevar are free and available. I’ve read and watched them all, some at least 2-3 times. I didn’t know how to speak with the language I currently used, I picked it up through a combination of observation, triangulation, and a dash of mimicry.

3/ The game is rigged, but it doesn’t matter. It may be rigged in general, but it’s not rigged against you specifically. So stop hating the players and learn to play the game.

The basic lesson here for me is that many people I’ll encounter simply won’t buy or believe what I’m selling, often for issues I don’t have control over. It’s not worth complaining about. You just live to fight another day.

4/ Your greatest assets are you and your social network. Invest in yourself and your network. One of the oldest races is the ‘Tour De France’. The ‘peloton’ is a french word originally meaning ‘platoon’. A well developed peloton helps reduce ‘drag’ or as I like to say, speeds you up by as much as 40 percent.

I sort of did this over the last few years, but it wasn’t intentional — I had no choice. Initially, I just wanted to cut in directly. Those doors didn’t open, so I kind of ended up doing this without really understanding the point Howard is making today.

5/ Investing does not have to be a career…it can be a lifestyle. You should invest for profit but there is joy to be had. I started Stocktoberfest in 2011 to push this idea of ‘Investing for Profit and Joy’ forward. This year over 400 people attended on Coronado.

The takeaway here for me is that there are 101 ways to play the game. Everyone may think their way is better, but it’s not true. This point here is one I want to spend more time on in 2016.

6/ Ignore the news. ‘Markets in Turmoil‘ are opportunities. If it bleeds, it leads. The rest of the world talks about failure and pain endlessly. I focus on what is working. Everything’s amazing and nobody’s happy (so funny and true).

Luckily in early-stage investing, very little “current news” matters to the business. Conversely, anytime tech news hits the public blogs, it’s often too late to act on. That’s why information networks, social relationships, and proximity (in terms of physical location and/or depth of relationship) are paramount to success here.

7/ Investing is as much behavioral as financial. The numbers make for pretty charts, but fear and greed are what drive the markets. If you understand people, you have an advantage.

This is a tricky one because every investor is judged by universally-accepted metrics like multiples, DPI, etc., yet what drives an investor to make a decision and have the access to make it are very hard to measure. And, going back to point #5, there’s more than one way to do it well.

8/ Always have a system. I don’t care if your system is investing in the $SPY (S&P 500). I started this blog as part of my system to keep myself honest and then starting StockTwits to find my peloton. Figure out your system and hold yourself to it.

The hard part about this is it takes a while to develop a system. After three years of seed investing, only now for the second time do I feel like I have clear sectors with specific things I’m looking for. Maybe that won’t happen again for another three years. This past summer, I lamented to a friend that I lost my radar and didn’t feel great about the decisions I was making; now, today, I somehow have clarity and a system. Let’s hope it lasts for longer!

9/ Trust in people. As an angel investor my success has not come from discovering the best idea and the biggest markets, but by backing the right people. I have no problem following my gut into an investment on a person I’ve met and taken the measure of.

Yes. Sometimes diligence takes 2-3 weeks, even at seed. Other times, a friend of yours is starting a company, gives you a call, and you hop in your car and go see them ASAP to make sure they know you’re the first check in and will help do anything to set their train cars on the right tracks.

10/ Too Small to Fail. In October 2008, I blogged about the idea and I live by it today. I won’t be the wealthiest person on the planet but it has made investing and my life much more profitable and joyous. I love how Seth Godin picked up on the idea and furthered it.

Tougher times in the market don’t bother me. I was built for it. I am too small to matter. I started my funds small partly because I didn’t feel comfortable managing so much money before being able to prove I can generate returns, but also because the market responded in a similar fashion. For each of the three funds I’ve raised, I’ve tried to go out for X and fallen slightly short of the target. I just keep going because I love investing. At some point, as the seeds of yesterday start to take root and grow, I’ll be ready to make a more interesting move.


Howard describes the act of writing online for him as being the central part of the journey he’s been on. For the last few years for me, I’d have to say the same thing. I don’t have the experience to dispense advice like Howard does, but I can say that writing here has been the single most important, the single most critical component being able to simply have the chance to do what I do. When I started writing online, I did not set out to become an investor; I did not think I’d still be writing here, years later; I did not think I’d not only get to meet people like Howard the other folks listed here, but I’d get to really know them and at times work with them; I did not know whether people would care what I’d have to say and whether they’d even come back.

Turns out, I didn’t really care, so I just kept doing writing, and the act of writing frequently here (and on Twitter) — like Howard points out so eloquently — ends up having a huge impact on the direction you go. Maybe in seven years, I’ll write a post to commemorate the 10-year mark, as well. I hope I stick with it until then, and I hope you do, too.

Haywire 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