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@semil's blog, building a technology community

May
15

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Another Perspective On The “Anti-Investor” Mantra @ Y Combinator

Category: Culture, Technology, Venture Capital Leave a Comment

Anyone who knows me and/or reads this blog knows that there is a group of people that I really look up to mainly because of their writing and minds. I was first motivated to write about technology when I was introduced to Chris Dixon. I didn’t know who he was in late 2009, but then realized when I Googled him after our meeting. My blog was on Posterous at the time. It was really bad. I think my first post was a review of Chris Nolan’s “Inception.” Chris got me turned onto Fred Wilson’s blog, which of course is the bible for the intersection of consumer technology, venture capital, and networks. I began to read it religiously. After I moved to the Valley, I read through all of VentureHacks, which was invaluable to me. Then, I became friends with MG and Erick at TechCrunch, and they saw my writing on Quora, and they graciously invited me to post a few times, which eventually turned into a monthly post, which last year became a weekly column, Iterations. MG is making great waves now, which is so fun to see. Now, I try to follow the writing of a small set of reporters and investors, which you can see here. So, it goes without saying, that writing about entrepreneurship, technology, and venture is something I like to do, and ultimately it helps me learn quicker because, frankly, I am not from this world. I need to catch up.

One of the early writers I grew to worship is, of course, Paul Graham. His essays are legendary. Someone recently referenced one of his essays from 2005, The Submarine, which still rings true today, over eight years later. His insights on how startups are formed, how they compete, and how they win is pretty much incomparable. Many of these essays, of course, touch on the tense relationship between investors and founders. There’s no doubt that, in the past, the relationship was rife with tension. Fast-forward to today, and things do feel different — the founder is quite empowered. And, while investors now market themselves and either are or behave in a “founder friendly” manner, the sheer competitiveness doesn’t bring out the best in people. Everyone reading this will have encountered more than one investor who rubbed them the wrong way. There’s no doubt we could use a few more saints.

A few months ago, Graham shared a post mocking investor language, which struck me as too heavy-handed because I had actually seen the opposite behaviors from investors. You can read my response here. I realize it’s not kosher to write about Y Combinator in this manner, but at the same time, I have helped many YC founders through the fundraising process (without ever asking for anything), and I’ve observed how they and others who are pitching behave. The investing game is business, and I would agree it’s unnecessarily tedious. And, the entire process can boil anyone’s frustrations. Believe me, there are some interactions I’ve had myself that still bother me. Everyone knows part of the YC mantra is to help founders navigate once-treacherous waters and not get screwed, but in that training, new behaviors emerge on the part of founders that aren’t always in their best interest. I’ve seen investors back away from a deal they like because of the overt game mechanics. Yes, this is a taste of their own medicine, but I’d argue that in the end, it’s the founder who learns a bad habit and that it’s the investor who is rendered irrelevant.

Last night, this tweet from Graham was retweeted into my Twitter feed. It made me sad. I totally understand that Graham has his own view of the relationship between founders and capital. And, I don’t have enough context or history to draw from. But, I also think he’s made his point clearly. He has ground-rules for his Demo Days. Some people are invited, and others are not.

So, when I read this tweet below, it makes me sad for Graham, that despite all of his successes, and all the great founders he’s helped and will help, and all the investors that have helped YC founders (even when they didn’t invest) that he would use his great platform to throw another cheap dig at a group that’s actually quite diverse. Maybe the founder below isn’t talking to the right people. Maybe the pomp and circumstance of a staged, gated Demo Day attracts those prone to cynical behavior. Maybe he needs to, yet again, remind everyone of his disdain for and disappointment in “investors.”

I don’t know, because I’m not an insider in this specific world nor do I seek to be. I’m just lucky to work with a few YC companies and have seen many, many pitches by them, as well as many of their funding negotiations. So, given all that, when I read a tweet like this, it makes me sad because not only is it petty, and not only is it directionally wrong (based on my experience), and not only does it potentially influence a founder to learn bad behaviors themselves, but ultimately I think one could switch around the words “founder” and “investor” in his tweet below and, perhaps more often then anyone would like to admit, have the quote read quite similarly.

 

May
15

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Putting The Art Back In Venture Capital

Category: Career, Culture, Technology, Venture Capital Leave a Comment

Everyone knows venture capital is going through a long series of drawn out market corrections, adjustments, contractions, and so forth. During this time, people have been innovating around venture, adding more operating partners, creating platforms, raising either really big or smaller funds. There’s also a belief that data will help investment dollars better determine where to go. The theory is that, with more data online, investors can leverage it to better inform investment decisions and, by proxy, their returns.

The problem with this mode of thought — this science of venture, of markets, and of data — is that it doesn’t allow room for the art of venture. I have tried to write about this. Specifically, I’ve tried to come up with my own definition of what is venture capital to me — now, it may not be this to you — and this post generated a lot of comments disagreeing with my definition — but this is what venture capital means to me:

Venture Capital is the aggregation of external capital by an institution (including companies, or even family offices managing their own funds) or individual with the sole purpose of investing that capital (often as a lead investor) into (relatively) early-stage, privately-held companies based on scarce information (imperfect information) with the intent of funding and assisting in the growth of businesses, products, and services that mature alongside markets to the point where the investor can realize a larger return, either through an acquisition, secondary share sale, or going public and liquidating within a 7-10 year time horizon, if not sooner.

There are a few people in venture who currently operate this way. I’d love to find more. One of those people is my friend Bipul Sinha. He’s a partner at Lightspeed. He will find entrepreneurs before they even know they’re entrepreneurs. He will help them. He will guide them. And, when they’re ready, he will prepare them to meet his partners and write a pretty big check, right up front with just a few slide decks and a great team. This is what he did with Nutanix, which is now the fastest-growing enterprise IT appliance company, in terms of revenues. ever. Ever! And, this is what he did with Pernix, which just made a big breakthrough in server-side flash and raised a healthy Series A from some of the most experienced enterprise investors on Sand Hill. Sure, he may do his own type of diligence and market research, but he operates with conviction and courage before due diligence, he operates on intuition and is willing to take a big risk where his peers may not write a check. In an era where many investors are collecting fancy tiles in later-stage growth deals or waiting for momentum to kick-in or scientifically trying to make sense of disparate and oftentimes irrelevant data, it’s refreshing to see someone like Bipul put the art back in venture.

May
13

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Iterations: Snoopify, The Greatest Mobile Photobombing App Of All Time

Category: Culture, Media, Technology Leave a Comment

Here’s yesterday’s column on TC. People really seemed to like this, but the best part is the shout-out from Snoop Dogg/Lion himself on Twitter, which you can see here and below!

“What are the cool new apps you’ve seen lately?” To this oft heard question, lately, there have been lots of answers. So, mobile is indeed exciting and moving fast. And, just recently, a fun new app came out that instantly captured my attention — no, it’s not from a Stanford dropout or from the  ”innovation lab” of a large technology company. No. It’s from Snoop Dogg — excuse me — Snoop Lion. Yes, that’s right, the same artist so many of you grew up with. He’s diversified his musical career into the business of his own branded apparel, a television show, and now he invades the greatest consumer stage of our times — our mobile phones. And, what’s more impressive is just how he did it — the genius to observe and iterate, to pull out the nuggets of lessons we have learned and package it together with marketing that’s both fun, easy, and devilishly derivative yet simultaneously novel.

The app is called “Snoopify.” I think it’s both a noun (the app) and a verb (as in, to “Snoopify” a photo). Essentially, you can take a new or existing picture, and then open up a box of Snoop stickers (that’s right, stickers) and overlay them onto the picture before sharing it on every social platform . Most of the stickers, as you can imagine, have something to do with Snoop and his brand, which makes for a hilarious “Snoop filter” on these doctored photographs. The first time I downloaded the app, I  ”Snoopified” about five times in the span of 10 minutes and shared them everywhere. Snoop has essentially digitized himself and appified a scalable way to photobomb any picture with his signature brand. And, this is the best part — if you want to unlock the 2nd, 3rd, and 4th pages of stickers, pull out your credit card because they’re locked behind a paywall.

In-app purchases. Genius.

From a marketing and branding standpoint, this is all fascinating to me. Look at the intersections of trends here: (1) Photos remain the premium communication currency in our mobile world. Like SnapChat showed with their expiring images, there’s no end to the creative manipulation mobile software can offer to pictures. (2) Influencers with their own global, diverse audiences can leverage networks like Twitter and Instagram to breakthrough the noise and clutter of the iOS app storedistribution minefield. There’s the tactic  of growth hacking, yes — and then there’s the pure organic lift a celebrity can leverage to surpass everyone else. And (3) Stickers. Just a few months ago, everyone was hemming and hawing about Path’s latest 3.0 update which include new sets of free and paid stickers, perhaps influenced by the growth of mobile messaging apps in Asia (such as Line, an app which reportedly raked in US$50M+ in Q1 of 2013 by selling virtual goods in-app).

So, Snoop and his team watch all these trends converge, and steal a page out of the apps like Line and Path. Great artists steal, right? And, what do you know, it worked — I bought stickers, my first in-app purchase of a digital good. Brilliant.

I’ll be writing more about the overall trends I’m seeing at the app layer here in my column this summer, but an app like Snoopify, which rose quickly in the charts earlier this week, breaks convention with how much of the startup world views  how apps are supposed to be made and distributed. Distribution may, in the end, be just as, if not more, important than the actual app. Maybe. The creator of the app doesn’t actually have to do the hard-coding of the software — he or she can commission it, and it can be developed elsewhere. Of course, as I finalize this post, the app has already slipped in the charts. When I started drafting this post a few days ago, “Snoopify” was in the Top 25 trending free apps according to App Annie, but now as I finalize this early Sunday morning, it’s slipped to #36 (on AppData) and #58 (on App Annie) and is ranked #156 for grossing according to the official Apple App Store.

An app like Snoopify was destined to be faddish and not a business. Or, maybe this is just the first move by Snoop Lion to cut into the iPhone, on the app level. At scale, it’s an incredibly clever technique to extend his brand on top of other peoples’ pictures — the greatest photobomb at scale….ever! Perhaps he doesn’t see enough quality engagement on his work in popular music apps like Spotify or Rdio or other myriad music apps. Maybe he’s tired of Instagramming and receiving hearts in return, or maybe Twitter is just for distribution to his fan base. Maybe after stickers, he’s going to open private messaging inside his app, or broadcast scenes from his next concert to a select audience. (I’m having fun with this, naturally, though it’s not out of the realm of possibility.)

The opportunities on mobile are continuing to prove endless, and for someone as creative as Snoop, even a little mobile icon can represent the largest of sandboxes. Of course, not every artist can go to the lengths that Snoop went to in developing and promoting his mobile app, but of the ones who do have this luxury, Snoop’s foray into the  app store was a brilliant move, complete with a built-in revenue model, a platform for showcasing his brand, and artfully blending some of the biggest trends in consumer mobile behavior we have all collectively observed. Well played, Snoop — well played.

Snoopy Steve

May
7

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Iterations: A Youthful Rebellion Against The Permanence Of Facebook’s Walled Garden

Category: Culture, Media, Technology Leave a Comment

Below is my column from last week. I’m not sure it was that good. It’s a difficult topic, but one that has fascinated me for a few months. Truth be told, I haven’t yet wrapped my head around it. I’d love to hear your thoughts…

Facebook’s mission is to make the world more open and connected. Indeed, great things can come from this, and for many of its one billion users, Facebook isn’t just on the web — it is the web. It is where images, biographical data, and every speck of a connection to a person, place, or thing lives, both the dream of a doting family spread miles apart and a marketer close by. It is a place where generations of people now reside, hang out, fawn over public statuses and peek into the lives of others. Ironically, while Facebook’s aim is to make the world more open, they themselves are building a new web within their own closed garden, inaccessible and (mostly) unexportable to all. As the saying states, “what goes on the Internet is written in ink,” so what goes onto Facebook is etched in stone walls.

Yes, much of Facebook’s traffic comes from mobile now, too. For most people who don’t care about all the latest and greatest apps, Facebook works splendidly for them, simply yet powerfully connecting them to exercise the habits they’ve picked up on the web version. Yet, at the same time, mobile platforms (phones and tablets) have presented newer and younger audiences with new graphs of people, folks whose first computing device may have been of the latest iPod touches (complete with Facetime), folks who live in other countries with exploding mobile growth adoption curves. As working professionals have come to use the Internet to help define, cement, and reinforce their perceptions of their own identities, younger generations in search of their own identity can use a battery of new services and mobile apps which containerize their activities, isolating them from the permanence of the web, a permanence embodied by the likes of Facebook and Google+.

These ascendent generations may have a Facebook account for the web and to use Messenger, but they seem to be disinterested in a network where everyone hangs out, where their parents or schoolteachers may be lurking. (To be fair to Facebook, Google seems to invoke similar fears of permanence given all the apps data they have on us, combined with their integration of Google+.) The emergence of this trend isn’t an implicit criticism of Facebook, though the company sure does push its users to adopt certain behaviors — rather, this trend is merely the world evolving alongside the rapid spread of personalized computing interfaces, giving rise to services which snap, share, and explode digital pictures (SnapChat), allow users to buy disposable phone numbers (Burner), or to assume various pseudonyms and tag pictures associated with negative, potentially shameful, or embarrassing feelings to an audience who will empathize with them (Whisper) — and pay a monthly membership fee for the right to send private messages. (There are services which go steps further, encrypting information — such as Bitcoin or Wickr — allowing people to move without a trace.)

What I’m writing about here is not new or original. I have read a lot about this and have simply grown fascinated by the trend itself, the trend whereby more and more people enjoy the ease and shelter provided by lightweight mobile applications, ones that seemingly never touch the web and spread like a Facebook share. For a brief selection of items I’ve read on the topic, I’d suggest: PandaWhale’sAdam Rifkin on why teens are flocking to Tumblr over Facebook; TechCrunch’s Billy Gallagher on the “impermanence” of new mobile apps; Branch’s Josh Miller’s look into technology trends among teens; and USV’s Andy Weissman’s personal essay about how he doesn’t want to bring video memories from another era on to YouTube.

All in all, the questions this trend trigger are equally fascinating: Is this just the beginning of a big wave, or this simply a trendy byproduct of a world obsessed with social networking? If this is a trend, does it have the legs to provide the foundation for a company or set of companies to form around this organizing principle? What does this mean for the future of the Facebook newsfeed and its relevance to users? Will Facebook be reduced to a utility for public sharing backed by real identity, but miss out on all the texts, snaps, and other bits of mobile messaging exploding these days? Is this a new type of movement, or simply the ebb and flow of behavior as generations pass? And, as the trend continues, will the younger generation of users who grow up “app-first” seek to bypass the web and explicit social networks altogether, or will they join the masses as they mature?

I’ve been talking about this trend with knowledgeable folks for a few months now, and everyone has a different, interesting point of view. I certainly don’t know the answers to any of these questions, but questions themselves are undeniably fascinating. It’s not even been an entire year that Facebook has been a public company, and they are on track to make lots of money (especially on mobile), but there’s no denying that despite their growing mobile metrics and revenues, mobile apps that provide all varieties of private messaging seem to challenge Facebook’s immediate relevance. As these mobile apps grow, and as Facebook approach’s it’s 10th birthday next year, the next 10 years will likely be defined by a whole new set of what is considered “social networking” — and that might already be the new reality today. What is clear, however, is that while on the web, Facebook’s walled garden enjoys a captive audience already trained to do what it wants — on mobile, that walled garden is relegated to the size of an app icon alongside a sea of competing icons with very different or non-existant “sharing models,” and if today’s currents provide any trustworthy bellwether, the next 10 years for Facebook could present quiet a thorny challenge.

May
4

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Off Peak, On Line

Category: Culture, Media, Technology Leave a Comment

I prefer to do things at “off-peak” times. “Peak” hours, or rush hours, are the worst. They literally attack my will to live. After years of going to sporting events and all sorts of live concerts, these peak gatherings also lost their charm. Some people find excitement in the gathering of crowds, and I once did, too. No more. For the past few years, I’ve tried to arrange my life and schedule such that I rarely have to commute when everyone else is, and I’ll avoid all the events (and trappings) that seem to shut down parts of the city. Once, my lovely wife wanted nothing to go to Hardly Strictly Bluegrass in the park — since we now live outside SF, I drove in, dropped her off to meet her friends, and proceeded to look for parking for 90+ minutes before I got lucky. I’m usually in SF now about two times per week, but I always leave after each rush hour and plan my day around it. Not doing so just ruins life.

I try to operate online at off-peak times, as well. I’ve been using Twitter now for almost five years. I use it a lot. It’s how I “see” the web. But, during the day, it’s just mostly people pushing their own work agenda. It’s mostly about professional broadcasting. That serves a good purpose, but it isn’t always fun. Late at night or on the weekend, however, Twitter has a much different flavor, so whereas peak traffic in my world may happen from 7am – 7pm, I try to be active outside of those hours. I don’t plan it that way, but it tends to happen. One of my favorite things to do recently on Friday nights (I hate going out on Fridays) was to cook dinner, unwind with wine, catch up on the email I ignored, and once everyone was asleep, chat with others on Twitter about things I was thinking about, and interacting with the other “off-peakers.”

This is just me. It is not normal behavior, but whatever. I just like being online and engaged when others put away their devices and unplug. I’ve been working out of different companies during the days and in dealflow meetings, so I miss all the news or instant commentary. I even disabled the “read it later” options. Peak traffic isn’t my thing.

May
3

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How Downtown Palo Alto Has Changed Over The Last Three Years

Category: Culture, Public Policy Leave a Comment

I have lived in downtown Palo Alto now for about three years. I love it here. I used to live in San Francisco proper in another life, right on Dolores Park. I actually worked as a cook at Bi-Rite, which gives me some SF cred, I hope :-) But after moving back here, I do love being in Palo Alto and my wife works for the University, so it’s convenient for us now. All that said, the startup culture that was once here just three years ago has essentially vanished. Startups like Quora, Pinterest, Pulse, Zimride, and countless others have fled this storied, leafy suburb for other places, mainly San Francisco. There are countless reasons why young startups leave (rents driven by school districts, for one), the greatest being the draw of the greatest city on Earth.

But, there is another reason — it’s because one company, Palantir, is growing fast, has lots of money, is very, very particular about how physically close it remains to the best pool of talent for its business — Stanford University. I often see building and security guards from Palantir around town, and every now and then, I’ll chat them up and ask about how things are going. Back in February 2013, I asked one how many buildings they have — he said around 11, but going to 14 soon. I’d imagine they’re at 14 now.

Yes, of course, some startups are still here, like Ayasdi, Tune-In, Wealthfront, among others, and it’s nice to see some friendly faces, but it’s simply nothing like it was three years ago, and I can only imagine well before that. I don’t know what will happen moving forward. Maybe Palantir will get so big they’ll need their own big building (maybe Page Mill?), but I doubt they’ll want to let go of their Stanford gazebo. Or, maybe they’ll lobby for more office space, like the new building going up at Lytton and Alma (I know SurveyMonkey will be there, too).

Personally, I’m a renter and into my last year in Palo Alto, which is fine. I don’t matter, it’s the startups that matter. Maybe this is just the free market at work, no rent control, a dispassionate level of supply and demand. Or, maybe zoning laws and construction permits need to loosen up for more moderate priced housing. I know, incidentally, that Stanford itself has a hard time recruiting professors because many hailing from other locales wonder if they can afford to buy property anywhere close to The Farm. Recently, right behind Page Mill, Stanford finally unveiled another set of row houses earmarked for faculty, kept neatly under $1m per lot. (Stanford owns a LOT of land, so eventually, they’ll be under pressure to develop it, but not anytime soon.)

Anyway, not sure how to end this other than to say it’s just different here, and I can imagine how different it was from 5, or 7, or 10 years ago. And, maybe that’s just fine. I don’t want to single out one company because there are many forces at play here and no rules are being broken — one could argue the city should zone for more buildings. For now, at least, Palo Alto’s downtown is a very different place, and when I ask friends who want to meet up “When are you coming down here in the future?,” the answers are usually in the form of a laugh.

May
3

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Three Reasons Venture Capital May Be Roasting Coffee Beans

Category: Culture, Media, Venture Capital Leave a Comment

Why is venture capital being deployed to niche, artisan coffee chains in the Bay Area? In 2012, a group of celebrity investors pooled capital to buy equity in Blue Bottle, and in mid-2013, Philz Coffee received venture capital investment as well. What could be driving such investment? Briefly, here are some possibilities — but tell me about others below:

  1. Anticipation of beverage M&A, consolidation: Starbucks bought La Boulange for $100m. Not bad. Perhaps there will be more, either by Starbucks or other groups who want to enter this space. Additionally, on a global scale, the large beverage distributors (see: beer!) are fighting to consolidate and gain market share in emerging markets. Alternative drinks (sodas, coffees, teas) could be part of their product mix plans.
  2. Online brands for e-commerce: Craft coffee sources and mails subscribers beans from around the world every month. There’s room for more in this space and Blue Bottle and Philz have big brands already. Folks say they want a “Blue Bottle” or they want a “Philz,” not just a coffee. It can be like “Kleenex.”
  3. Portfolio diversification in bricks & mortar consumer retail: Individual and/or venture investors have experience in consumer retail and there are still are opportunities. Back in the day, Trinity Ventures, for instance, funded Starbucks and PF Changs. Today, those may not sound like “venture-scale” spaces, but new franchise chains can be created every year. And, if firms are spreading their bets across consumer (web/mobile), enterprise, and others, consumer-offline may be part of their strategy.

Apr
23

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Iterations: How Founders Can Fight Through The Great Fragmentation Of Talent

Category: Career, Culture, Technology, Venture Capital Leave a Comment

Earlier in 2013, as I’ve been working with a small handful of CEOs to build out their organizations, I grew even concerned about the overall climate for technical recruiting in the Bay Area. As a result, I wrote this post on TC about tactical ideas founders could consider in the face of such competition for talent…

The #1 request I hear when talking to founders in San Francisco is: “We are hiring engineers. Know any?” We all know this is a big issue that’s only getting worse, and so do most of the investors. But, I’m now starting to hear this so often, I’m beginning to worry that all the conventional tactics simply won’t work. Early-stage startups that don’t start experimenting with new ideas to source, recruit, and close engineers and other technical hires may end up running out of money or never achieving the product traction they need to get to the next level. I don’t have data to support this, but my intuition is that technical talent is so fragmented right now, all options need to be reexamined and placed on the table.

In that spirit of investigating all available options, here are 10 tactics your startup may consider given today’s conditions. And, while we often read high-level posts about how to hire people, the on-the-ground reality is that so many early-stage companies are being funded every day that when the founders close that first round, they often turn into (near) full-time recruiters, and many of them don’t succeed at it because they either don’t understand the weight of the issue before them and/or because they aren’t willing to consider these kind of options below, some of which require a serious change in thinking:

  1. Hire Remote Employees: Conventional wisdom says that your team should all be together, in person. Unfortunately, there are many great potential hires who are not located in NYC or SF and, for a host of reasons, cannot move.
  2. Hire Contractors (onsite or remote): Conventional wisdom says that this can backfire and cause more work because of incongruous development, but some great people may not be in the mood to commit to something so early and may want to work on other side projects for a host of reasons.
  3. Hire Qualified Candidates And Help Them Relocate: Early-stage companies don’t like to get into the game of relocation expenses, but if that’s the only thing stopping the close of a great potential hire who doesn’t live around here, it may be worth considering breaking that rule.
  4. Referral Systems: I’m sure most startups do some form of this, whether through gifts or cash incentives. But, maybe they need to be more robust and creative.
  5. Pay More Money and Share More Equity: If it’s that hard to land good technical talent, maybe a startup cannot afford the market price, or maybe the conventional wisdom around 15-20% option pools and current salary bands are not in line with this reality.
  6. Acqui-hire Teams That Can’t Survive: The Series A Crunch is real and might be just beginning. For companies that have raised more growth capital and/or those who are making enough money to warrant reinvestment into their core business, there are lots of teams out there who can be slimmed down and gobbled up, usually for a salaried offer, some equity, and a modest bonus.
  7. Open A Second Office: To get around the fear of remote and/or contract workers, there could be situations where a small group of qualified candidates reside close to each other but far away from your HQ. If this core group is open to setting up a new office and could hire more people through their own networks, it may not be a bad approach for a startup that has enough cash runway to handle it.
  8. Publicize Your Infrastructure And Stack: Talented folks want to see what your company has under the hood, so one approach is to invest the time and resources into a real engineering blog and sharing what goes on behind the scenes. This kind of openness attracts others who may be like-minded and could send a strong signal about how differentiated your approach is.
  9. Hire Less-Developed Candidates And Train Them: What if a founding team found raw talent and made the decision to hire these folks and train them? Without reducing the bar on quality, these teams may be able to hire folks like this and devote time and resources to developing them into full team players.
  10. Everyday Improvements: It’s obvious, but any list like this would have to include options like making your office the best place to work, by spending more time on recruiting, or actually hiring an accomplished recruiter who can demonstrably earn the respect of good candidates, or organize more tech talks, or more hackathons, or more competitions. [And, continually learn from experts like Dan Portillo, who captures all of his knowledge and tricks in this great slide deck.]

Naval Ravikant tweeted a great line last year: “It’s never been easier to start a company, but it’s never been harder to build one.” This fragmentation of talent is the other side of the coin in this bubble we are in — and yes, it is a bubble, but the bubble isn’t where you may think it is. Today, the asset that is overvalued is the amount of funds and shares of equity that founders are in control of and chose to hold on to — to recruit the right people, founders now have to work extra harder or be even more creative and daring to fill in their open slots. Put another way, in order to win in today’s game, many founders are going to have to make uncomfortable decisions, especially with respect to money for salaries and equity as incentives.

I am not an expert on all of this. And, I know it’s not cool to suggest these tactics because everyone says it’s all about “team” and because you want to protect your culture and because you don’t want to manage people remotely or hire contractors or spend time training a diamond in the rough, but for many early-stage companies in a flooded market like San Francisco, the harsh truth of 2013 is that everyone and their mom has a tech startup now, and everyone and their dad has a new seed fund, and you, as a founder, are caught right in the middle, forced to make suboptimal tradeoffs between quality and speed. It’s not a pretty choice, but in order to survive or succeed in this environment, I simply don’t see another way.

Apr
21

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Hosting Greylock’s @DavidSze “In The Studio”

Category: Career, Culture, Technology, Venture Capital Leave a Comment


“In The Studio” this week hosts a special guest who doesn’t typically go on camera that often. As a result, I decided to make this particular episode of the show longer to capture my entire discussion with Greylock’s David Sze. For anyone who follows the ins and outs of venture capital, Sze’s name looms large. By now, most everyone knows of Greylock’s impressive run over the last decade, a firm which originated decades ago in the Boston area and has, thanks in large part to Sze, successfully transformed to one of the premier Silicon Valley shops. Over the last decade, he has helped lead the firm to write early checks into consumer-focused companies such as LinkedIn, Facebook, and Pandora, as well as startups attacking the enterprise, such as Workday and Palo Alto Networks. More recently, he made his largest investment ever (in terms of dollar size) in NextDoor, a company which fits into larger societal trends he’s observed.

What’s not often discussed, with respect to Sze, are the careful moves he’s made to position the firm where it is today. This is the focus of our video conversation, and while it’s a bit longer than most, I would encourage anyone interested in venture capital, Silicon Valley history, and those embarking on a career in technology startups to spend the time to watch this. In this video, Sze and I discuss the following topics: The early stages of his career, when he graduated from college and went into consulting; His move out to the west coast, going to business school, and jumping into the technology world; His first operational role at a real startup; How he paired up with former classmate Aneel Bhusri to join him at Greylock; How he began investing in enterprise and was, admittedly, not that good at it; How he went back to his consumer roots and began investing in consumer companies, such as Pandora; How he met Reid Hoffman, invested in LinkedIn, and eventually recruited a team of operators; and advice he would give young folks who are interested in venture capital and/or who coming to the Valley.

Apr
16

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Iterations: How Five Real Economists Think About Bitcoin’s Future

Category: Culture, Media, Public Policy, Technology Leave a Comment

Last Sunday’s column on TechCrunch did surprisingly well. I still can’t believe how much chatter there is about Bitcoin, but I also felt that it would be nice to have some real economists weigh in. I emailed a large number of my former professors, but most of them hadn’t heard of it yet. Here’s the post.

There isn’t just a bubble in the Bitcoin economy, there’s a bubble in the number of posts about Bitcoin. I’ll pile on, even after this week’s mini-crash, but with a twist. A few weeks ago, I wrote some brief notes on what I thought about Bitcoin, but the over-arching feeling I had was that I couldn’t put my finger on what could become of this currency in the future. Perhaps that’s part of the reason this phenomenon is so fascinating to us all. So, instead of trying to determine future scenarios in a world I don’t understand and because Twitter has turned everyone into armchair professors, I reached out to a number of practicing economists who were either former professors or classmates, or had friends make introductions, and asked them to chime in briefly on a future with Bitcoin. Please note I requested a rather informal, fun submission from them — nothing too serious. Interestingly, most of my former professors hadn’t yet heard of Bitcoin and subsequently elected to pass on this opportunity — perhaps I’ll follow up with them later in the year. Luckily, I was able to corral a few economists to participate, and I’ve reposted their thoughts below:

Chris Robert, currently a Professor of public policy and economic development at Harvard:

It would really be something if intelligent people chose to invest more trust in a currency system built and managed, in large part, by anonymous computer hackers than they did in currency systems built and managed by governments of the people, by the people. Fortunately, we are not there yet. Today, Bitcoin is mostly just a matter of media speculation arising from the continuing financial turmoil and growing distrust in the global financial system. This media speculation may well lead to a protracted period of financial speculation, however, during which techies are joined by increasing numbers of financial sophisticates seeking a new bubble to exploit.

Compared with corporate securities, futures, or even derivatives, Bitcoin is even less inhibited by any underlying sense of value. The bubble can just grow and grow, so long as demand increases faster than supply — and so long as the network doesn’t crash, a new cryptographic exploit doesn’t unravel everything, the fundamental lack of anonymity doesn’t bother anyone, those who lose private keys and thus potentially small fortunes don’t complain too loudly, improvements (or hacks) to “mining” don’t lead to sudden shocks to supply, etc. Profiting from a bubble of any sort can be a risky business, but our global economy is not at all lacking in people willing to give it a go. Thus, as a potentially exciting new vehicle for financial speculation, Bitcoin may be with us for some time.

Robert McMillan, a former economist with the U.S. Federal Trade Commission and Stanford economist, currently Head of Portfolio Management and Director of Quantitative Research at HNC Advisors AG:

Bitcoin is dead. Long live Bitcoin. The value of having an easy-to-store, hard-to-steal, and hard-to-counterfeit medium of exchange is substantial. Especially one which doesn’t lead to the extermination of species (e.g. cowry shells, ivory) or direct environmental degradation (e.g. gold). Unfortunately, as those familiar with Paul Krugman’s writings on liquidity traps know, Bitcoin’s known and finite supply dooms it as a workable replacement currency. Furthermore, as it has no apparent use-value (unlike, say, Platinum), this kills it entirely. Nevertheless, the flaw lies with the implementation, rather than the idea itself. I expect Bitcoin (“BC”) will soon see competition in this space from “Currency 3.0″ entrants that fix the flaws in Bitcoin and thus have a better (i.e. nonzero) chance of achieving the “gold standard” of currency acceptance, namely a liquid market in Forex forwards with another major currency. At any rate, be on the lookout for Awesome Drachmas (“AD”) using newly-discovered prime numbers as units of exchange. They’re costly to “mine”, in infinite supply, and even have use-value (e.g. cryptography). Coming soon to a money-changer near you!

Matthew Bishop, currently the U.S. Editor for The Economist, where he’s been for 22 years:

As I wrote in my recent ebook on the future of money, “In Gold We Trust?“, the resurrection of gold and the emergence of Bitcoin are two sides of the same, er, coin. Both are a response to falling confidence in the soundness of government-backed ‘fiat’ money in an era of quantitative easing. I think the algorithmic approach to controlling the money supply used by Bitcoin and other digital currencies being developed in Silicon Valley could go a long way to creating a sound store of value. The biggest risk to these currencies may turn out to be government action to destroy an alternative to fiat money. But what if a sovereign state was to issue an algorithm-based currency? Would that drive fiat money out of business?

Brett Gordon, currently a Professor at Columbia’s Graduate School of Business:

There are two scopes for discussion about the future of bitcoin. First, the short-term: if this is a bubble, when will it burst? It’s notoriously difficult to predict the end of a speculative bubble. Those lucky enough to time it correctly can make a lot of money, but that won’t be true for the rest of us mere mortals. The price chart for bitcoins reminds me of the Nasdaq from 1995 to early 2000. Clearly, these are vastly different, but I think the Nasdaq plot is representative of many yet-to-burst bubble prices. The Google Trends chart for bitcoins is similarly shaped, which suggests that when the media frenzy over the digital currency subsides, so too may much of investors’ interest. Second, the long-term: what will the bitcoin market look like in 5-10 years? That’s even harder than calling the peak of a bubble. I think a significant contribution of the bitcoin market is that it serves as a proof-of-concept for a decentralized crypto-currency. Two benefits are that bitcoins are inherently deflationary and transactions are anonymous. Given the recent slew of fiscal crises and increasing concerns about online privacy, these are two strong points in bitcoin’s favor—or whatever future crypto-currency arises.

Peter Rodriguez, currently a Professor at Virginia’s Darden School of Business:

At first blush Bitcoin is nothing special. Virtually anything can be used as a pseudo-currency. And, there is nothing new about a profound fear of fiat currencies and all manner of efforts to avoid the risk of relying on central bankers. Indeed, the prevalence of fiat (paper) currencies in a post gold-standard world is flat-out amazing. But, when the confidence underlying fiat currencies falters folks resort to recognizable and reliable stores of value and it’s not that hard to manage in such a world. After the fall of the Berlin Wall, Russians and others in FSU states resorted to a highly functional trinity of currency substitutes: cigarettes for the small stuff, Vodka for the medium and Cognac for big ticket items.

In some ways, Bitcoin is just a virtual pack of smokes. But in other ways, it’s revolutionary. Cigarettes have inherent value and alternative uses, like cotton and even gold. Bitcoins are valued in and of themselves. They have even less alternative uses than paper currency or baseball cards. So, if they can establish their worth and hold the confidence of investors long enough, the institutions that can eventually convert Bitcoins from a fad-like store of value to a real currency might just begin to develop. And then, Bitcoins could become a reliable medium of exchange and index value that has some real place in the world. Even it they just serve to measure the value of goods ultimately transacted in ‘real’ currencies, Bitcoins will have become something entirely new: a true, stateless, virtual currency rooted in nothing other than confidence in the set of rules that surround them. It could all implode, of course, and that’s not unlikely. But, currencies are always tested and all of them have gone through existential crises. The real question isn’t whether Bitcoin will falter, plummet or take us all on a crazy ride, it’s whether it will actually survive its inevitable test. If it does, even at very low values, it will change the way we think about stores of value, finance and the independence of the virtual economy.

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