Author Archive

The Story Behind My Investments In Booster Fuels and AquaCloud

Oil and water do not mix. When one attempts to mix them, they separate. Despite the laws of basic chemistry, it turns out oil and water do, in fact, mix in the Haystack portfolio.

Oil and water have been in the news lately. Regarding oil, where the price of a barrel has dropped about 75% in less than two years. This caught most of the world by surprise. It will also likely create a big surplus (some estimate $3 trillion), though some believe it can swing back just as quickly — personally, I think U.S. fracking has been the main driver here and this is the new normal.. And, with water, we have a long-term narrative about the dangers of rising, warming oceans, and more recently, of contaminated drinking water in the world’s richest, most advanced country: In Flint, Michigan, tens of thousands of residents have been exposed to water poisoned with lead.

Even in crisis, opportunities arise to find solutions so that we do not repeat history.

Let’s start with water.

Back in 2015, as I began investing more in SaaS and what I refer to as “Industrial Software and Industrial IoT,” I began looking for two types of companies: Those which could build and sell products to either large conglomerates (think: Boeing) or non-corporate entities such as governments and municipalities (such as OneConcern, which you can read about here); and those which used cheap, low-power sensor networks to collect and monitor new data sets. As I was tweeting about it, my friend Matt reached out and introduced me to AquaCloud.

And, after months of getting to know the team, I’m excited to share that I’ve invested in AquaCloud. Check them out here. With AquaCloud sensors, municipalities, water companies, and private companies with reservoirs can use custom sensor networks to measure depth, temperature, pH, dissolved oxygen, and conductivity, along with a host of other ailments, such as ammonia and other nasty elements. With a modern sensor network connected to cloud services, a city like Flint would not only receive real-time alerts about issues, it would also receive predictive monitoring to head off calamity. Specifically, AquaCloud could have protected Flint’s water system by notifying water managers of contamination.

And, what about oil?

Almost a year ago, my friend Boris sent me a note about a company he just committed to in the on-demand space. Having invested all over that category, I was initially disinterested in doing more in the space. Boris still suggested I meet the founder. So, I did, and in the first five minutes of meeting the CEO of Booster Fuels, I knew I wanted to invest.

Booster’s vision is that the manner in which we get our gasoline is potentially outdated. I immediately started the conversation by asking about (1) the shift to fully electric vehicles and/or self-driving and (2) the narrative around declining car ownership. Frank, the CEO, had a great answer on the tip of his tongue — the size of the market. It turns out the average U.S. household spends thousands of dollars on gasoline; that while electric, self-driving cars represent the future, it will still take a long time to make them mainstream; and that car ownership is actually on the rise, despite what one may glance at on Twitter. Even in the age of ride-sharing, falling gasoline prices and auto competition pushed the cost of ownership down that it stimulated demand.

Booster started smartly by targeting large office parks and campuses in the midwest, avoiding the early-adopter crowd in the Valley. By doing so, Booster ensured they would have a viable business model to start with and could operate away from the shine of the tech world’s klieg lights. The franchise model of gas stations which have swept across the U.S. made sense in a world of sprawl, but also added retail, real estate, and infrastructure costs to consumers. Though more complex initially, a network of Booster Fuels trucks can theoretically help consumers save even more on gasoline as the price continues to fall and present larger oil and gas companies with a new retail model for delivering goods and services to consumers.


As I’ve been writing about here, I’m becoming even more thematic in my investing as my fund experience slowly matures. In my current fund (Fund III), I am looking specifically for startups in any of these categories, and sometimes there’s overlap:

  1. Industrial Software & Industrial IoT: I’ve done the most here so far. 3D printing software, drone applications, sensor networks. I’m looking for people who are determined to bring solutions to heavy industry.
  2. Enterprise SaaS & Security: Pretty straight-forward startup stuff here. Particularly, I want folks who are creating new categories and/or who are creating or leveraging a proprietary data set which can hold long-term value.
  3. Consumer Technology and Markets: I’m more open here because it’s harder to predict. I’ve only invested in one consumer play in the last 10 months. In particular, I’m looking for founders who are trying to find ways to help consumers save money on home rental or purchase costs, as well as costs associated with healthcare, such as reducing visits to see doctors and specialists, and so forth.

If you’ve read this far, what would be helpful to me is to see more consumer-focused startups at the angel or pre-seed stage. Thank you for reading.


New Podcast: “Twitter: While You Were Away”

For years, I’ve been wanting to do a simple podcast. However, while I always used to organize them, I didn’t want to do that this time around. I planted a few seeds with friends but nothing clicked. Then, my friend Joel Andren tweeted he wanted to start one, so I DM’d him, we got on the phone, and I loved Joel’s idea: A weekly podcast to dissect the rich conversations which take place in “tech Twitter.”

The podcast is called “While You Were Away.” Think of it as a “Rap Genius” to what people are blabbering about on Twitter. In our first try at this, I found Joel to be a great, natural host and I was right about the fact that I wanted to play second fiddle. This is really just for fun and we hope a small few of you will fire this up in your car or Uber or while you’re doing something else. Feedback welcomed!

The first episode is below. And, there are four (4) threads on Twitter that we unpack, unravel, and dissect

1/ Startup Acquisitions by Microsoft and Yahoo, includes tweets by Jason Lemkin, Hunter Walk (open thread)

2/ VC Funding Slowing Down?, includes tweets from Mike Dudas, Keith Rabois, Hunter Walk (open thread)

3/ No Mobile App Breakouts?, includes tweets from Peter Pham, Michelle Tandler, Ryan Lawler, Josh Elman (open thread)

4/ Being Banned By Tesla, includes tweets from Paul Graham, Stewart Alsop, Elon Musk (open thread)

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.

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