About a year ago, my friend in NYC Joel pinged me about a company he had invested in. It was a short description, but I took the intro and met Jeff, the CEO of Tempo Automation, for coffee. We had a great discussion, and he had the right background in hardware, automation, and systems. My shortcoming at the time was that I didn’t totally understand his market, so I kind of asked to just leave the conversation. Jeff pressed me over email and now, looking back, was incredibly gracious and thoughtful in making time for me.
In those subsequent conversations, I saw Jeff’s measured aggressiveness emerge (I mean this in a good way) and he took the time to teach me about his world. I am looking over the email threads right now as I’m writing this, and it’s embarrassing that he put up with my questions. Nevertheless, through his relentless and thorough answers, I finally said “OK.”
Today, Tempo Automation, one of my companies in Haystack Fund #2 announced their Series A led by Lux Capital, where I am close with the partnership. The round was actually done way back in 2015. The news about their announcement reminds me what an unorthodox and lucky story it was in terms of how I got involved with the company.
That turned out to be a good decision on my part. What I didn’t realize at the time was (1) the company sits at a very dynamic point in the ecosystem for manufacturing and (2) Jeff, the CEO, is an absolute machine. As software has invaded the industrial manufacturing process (like 3D printing — which I’ll write more about soon), Tempo Automation’s factory harnesses software to make the business of hardware move faster. Tempo started by automating the most cumbersome piece of the process (logistics) and will expand into other production processes as they grow, driving time and cost savings to hardware developers. This frees engineers designing hardware to focus on what they know best and not have to become logistics experts, as well.
Other investors noticed as well. Tempo ended up going to from “seed to Series A” faster than any other company I’ve been fortunate enough to seed, and I’ve been around some fast ones. Part of that is because investors are starting to recognize the scope of the opportunity in the industrial space, and part of that is because the team’s leadership focus in pursuit of building the company. Now with a team of 25 and growing, it is humbling to look back on all my questions I peppered Jeff with. It is my job to ask questions and listen, but it’s also my job to lean in without perfect information and try to help out. I’m thankful they gave me a few chances to do so.
Disclaimers:This isn’t a doom and gloom speech. There’s tons of opportunity out there. And, this is mainly focused on consumer markets. Also, this post is a little long in the tooth. Please forgive me. I haven’t had time to write with all the little kids running around my house, but I’m devoted to changing that this summer. More soon.
It is fashionable to hold a contrarian position. If everyone believes in X, believing that things will unfold in a different direction than X — if chosen wisely — can be the key to public acclaim, riches, and legacy. Of course, there are many who subscribe to a contrarian script and are wrong — only a very select few end up being right.
In terms of startups and investing in them, it is fashionable to say, even in times of uncertainty or financial restraint, that “great companies can be built at anytime.” It is a contrarian position, in opposition to combinatory external forces — in today’s case, geopolitical risk abroad and at home, financial risk in the form of monetary policy and liquidity crunches, pricing risk as seen in the dislocation between public and private markets for technology stocks.
So, we must ask of the contrarians, are they right today? Is this, indeed, a good time to start a new technology startup? Of course it is. Time doesn’t matter. There will always be new technologies to bring to market, new teams forming that can drive value and change the world. In this narrative, many often cite companies like Airbnb, Uber, Whatsapp, and other companies started around the financial crisis of 2008 as examples that, in fact, it’s possible to start great companies during dire times.
What’s missing from that storied contrarian stump speech, however, is the fact that, at some point early in the lives of these companies — they found a growth vector. They may have spent some money acquiring customers, but they didn’t rely on paid acquisition entirely. Since 2011, when these three companies began to take off and caught the eye of some of the best venture firms in the Valley, the timing coincided with (1) a rush of cheap capital flooding into the technology startup sector and (2) a restructuring of the global economy toward technology and networks.
The result was that, in an effort to chase the growth curves of the companies cited above, investors started investing even earlier in the life of a company, sometimes just in the people themselves. Traditional venture capital firms grew in size and morphed their DNA to go beyond active board management, building batteries of portfolio services in the same vein that a private equity shop would bring with it to a portfolio company. There’s nothing wrong this shift, and many companies and LPs believe it was the right way to get the inside track on an investment (a competitive arms race) and the right way to help manage an investment beyond the limited scale of a single general partner in a fund model.
One issue, however, is that era of larger institutions making multi-millionaire investments before looking at data (including growth curves) is coming to a halt. We thought, back in January and February of 2016, that the time had arrived, but not just quite yet. At seed, companies are still being funded left and right, and even some Series As occur, but most of them are closed on the back of some type of demonstrable growth vector. It’s pretty clear for the past few months that while there’s enough to seed most people who want it, the next round requires bringing some meat to the table. Most don’t have it. They’re just chasing growth. It’s a noble pursuit, but the lifelines to support these experiments has shortened.
Put another way, there’s a slight decrease in the number of experiments being funded (it’s still huge on an absolute basis), and the amount of time allotted to those experiments will shorten. As a result, I believe the following will be ripple effects:
1/ Fewer Seeds: We’re going to have fewer quality seed deals, relative to before. Most investors downstream won’t notice this because they will only see the quality that bubbles up. People those who play in the very early stages already have been living it.
2/ Slower Rounds: As a result, the rounds will take longer to unfold. The only triggers that make a round move ultra-fast are when one of the very few credible leads makes a move and those who syndicate fawn over them, and/or when the founder knows how to play the fundraising game. The rest are much slower.
3/ Extending Runway: As most teams will spend more time fundraising and have read enough about market conditions on blogs like this (sorry), I suspect founders will be more careful about burn rate, especially as it relates to vendor burn, office rent, and most critically, headcount.
4/ Financing Extensions: These are harder to get done. They actually require real relationships with the earlier investors. I’ve participated in a few of these recently, and I’ve let many just go. The ones that work are involving investors and demonstrating progress in an authentic way. These also take a long time to get done because some people get hung up on price.
5/ Point Break: After a startup gets through 1-3 (or 1-4), it’s judgment time. Is there a Series A with a lead investor who joins the Board? Is it time to look for a strategic acquirer? Or is it time to call it a day?
And, this is where things in the future will get much clearer. One could argue it already has. There are still Series As happening, but definitely not as much. Nowhere near levels from 4-5 years ago. More founders are open to the idea of landing the company for acquisition, but even though we read about the good stories in the press, most won’t find soft landings like this. I spent all of the first quarter this year meeting with corp dev departments and M&A teams at all the big consumer and enterprise companies. They have mandates to buy companies, but probably not at the rate you’re thinking of.
To underscore, this is not doom and gloom. This is all very healthy for the ecosystem. I am still investing and excited by new stuff. But about 18 months ago, I started investing in entirely new stuff — I am excited to write more about those companies this summer as I catch up on my writing and on life. I started to invest in more frontier technologies applied to industrial and commercial settings — sensor networks, software for 3D printing machines, commercial drones, and technologies that could play a part in helping people deal with climate change, rare diseases, or even large regulated industries like insurance.
As we slip into summer and investors slow down a bit (yes, despite what they say — they do!), I suspect the fall — like every fall — will be a frenzy fundraising pitches, and that after a summer break, the investors downstream will be looking for simple evidence: Is there demonstrable momentum? Or, is this is a hot team in a big market? Or, is this on the frontier of what could happen in the next decade? If you’re a founder or early investor in a company preparing for Fall 2016, it would be wise to ask these questions and, depending on the answers, to plan accordingly.
The first notification which caught my bleary eyes Monday morning — Microsoft to acquire LinkedIn for $26 billion. Much has been written about why this may make sense for Microsoft.
What’s less clear is: What motivated LinkedIn to take this path? I’ll attempt to answer this at the end.
In my short time in they Valley, most M&A shockwaves include a large incumbent (like Microsoft) buying a small or scaling private startup (like LinkedIn buying Slideshare, or GM buying Cruise, or Google acquiring Nest, or Facebook buying Instagram or Whatsapp). In the time I’ve been here, the size of these and other outlier exits have been huge. Yuge! Unprecedented, even, and all driven by different motivations — incumbents scrambling for talent, quelling threats, or chasing the innovation frontier.
No matter the motive, the flood of liquidity unleashed by these seismic events helps keep the Valley’s startup engine humming, especially in an era when public market offerings are (for whatever reason) less desirable. We have been taught that “going the distance” in entrepreneurship is what the journey is about, to keep going as long as possible, up to the very end — to never give up. In the context of money, however, “going the distance” can often be code for “go public and let’s drive a big exit.” There’s nothing wrong with that, but the mentality changes a bit once a company graduates from startup to scaling giant to public company. Does a startup still need to keep going the distance once it’s public?
LinkedIn was one of the first in its era to go public and pave the way for its brethren Facebook, Twitter, and others to take on Wall Street road shows. Since then, as we all know, the company would, from time to time, report good quarterly earnings, but everyone in the Valley understood the product evolution and experience for LinkedIn not only didn’t improve, it devolved. There was little to no product innovation. There were Facebook-like misses on the transition to mobile, but no Facebook-like turnaround to get things right. As it went public with a bit over 100M members in the LinkedIn network, the company’s room to grow in the developed and developing world was potentially huge. It was the ultimate “data moat” company. We may not have liked the UI, but we all needed an online resume.
So, in steps the new Microsoft. Satya Nadella has proven himself in a few years at CEO to be forward-thinking, to push his company toward the dominant mobile platform (iOS), to snatch up good mobile product startups to help modernize the office suite (Accompli, Sunrise, Wunderlist, etc.), and to creep into the frontier with moves like the $2 billion purchase of Minecraft. With so much cash on hand and a mandate for change, Nadella is playing his own game of chess to help bring Microsoft into the 21st Century, to inject it with new talent, to fortify their position in mobile, and — with this latest move — to build an outpost right in Silicon Vally and get into the professional/work graph.
But, why did LinkedIn go for the sale? Why not continue to go the distance, in Valley parlance?
We may hear press release tidbits like the company is going to operate independently in Mountain View, or that the hooks into Outlook and LinkedIn will be good for users and customers, etc.
I have a slightly different view:
1/ Talent Drain: Outside of a huge acquisition, could LinkedIn have reinvigorated its ranks with new product talent to tackle head on all the product debt accumulated over the years? Talented operators want to work at Uber, Slack, and so on. It’s not clear they had the right horsepower to handle the road ahead — let alone deep linking on mobile.
2/ Product Stasis: As a result, the product became brittle and stale. Attempts to infuse it with a newsfeed or expert content didn’t produce fruit.
3/ Fragmentation of Professional Identity: The next generations of talent, in various industries, are building their reputations in non-traditional ways, through varied experiences, and don’t (yet) feel they need to go to LinkedIn or give it all of their data.
4/ Company Leadership: Much has been written and studied about founder-controlled/led companies versus those run by a professional CEO. In this case, the CEO at the time of acquisition was a professional brought in to lead the company through IPO, and while a founder was still the Chairman, one has to wonder if he weighed the choices of going back to CEO versus selling the company. It likely means the CEO, Chair, and BoD didn’t have the desire to keep going. It’s worth noting this given the cultural history above. Things end and that’s OK.
5/ Private Equity vs Acquisition: As a technical footnote, one also has to wonder if the company considered private equity as an option, though this would be a large transaction and would still result in a loss of control. By going for M&A, all cash, LinkedIn realized they’d stay around a $15-20B public company so engineering this offer would be the best they could get from any route. (Additionally, thanks to Dirk de Kok on Twitter, some outlets reporting LinkedIn had been issuing stock-based compensation at a rate that was too fast given the company’s overall slowing growth. This may have created an extra liability for the company that would’ve depressed the valuation further as accounting rules caught up with them.)
Meaningful exits of any kind in startups are rare. They often get reported when they occur, and there are so many startups and news sites to cover them, so it appears to be more common than they really are. And, while I believe LinkedIn’s move here was to package this up for another exit and stop the current journey, engineering this outcome to be so quiet and all cash was a masterstroke of strategic genius. It’s hard to imagine a $15B LinkedIn scaling again, or capturing the imagination of the next generation or even folks in the Valley.
[Quick Aside:LinkedIn is a very successful company for many constituents and shareholders. Yes, it didn’t realize it’s full potential (yet?), but by all economic measures and odds, it is an outlier. And, despite that, they opted to sell the company and give up the fight as a public entity. This may be a harbinger of sorts for other private tech companies which are valiantly trying to go the distance and become public. As we know already in 2016, it’s set up to be the lowest number of IPOs in any year. For a while, public markets valued LinkedIn almost at $50B, then slashed them to around $15B in Q1 ’16, and the private M&A market valued them at a 47% premium to the public market. If LinkedIn couldn’t draw and keep the leadership and talent needed, what shall we expect from other companies which will never even reach the $10B market cap zone? Will public markets really care about owning stocks in any companies that aren’t FANGAM or licking their chops for forthcoming outliers like Uber, Airbnb, Snapchat, and Slack? Right now, it seems doubtful, and the reality of this dislocation between public prices and private M&A will likely be the last hope for exit for many companies.]
Instead of trying to right the ship on its own, LinkedIn taking $26B cash to give up all control is a great deal for the company, shareholders, and employees. I would go so far as to say it is a fantastic display of stewardship for the company’s shareholders in working this deal to maximize a return and put an end to their current struggle. LinkedIn is lucky because the road ahead would’ve likely been boring or even bumpier than they experienced this past January.
It is also symbolic, in a way, that we mark and acknowledge the reality that the mantra “going the distance” isn’t always supposed to be a never-ending path — there are very, very few companies which can thrive for decades, and even some of the greatest economic outcomes (like LinkedIn) ride off into the sunset. Or, as Neil Young might have sang, “It’s better to cash out — than to fade away.”
(Disclaimer:Before a writer rips me apart or tweets this post without reading it fully, I used to be a long-time columnist for TechCrunch (the most frequent contributor they’ve ever had, over 100 posts and nearly 100 videos over a three period. I’m also a small, early-stage investor in Silicon Valley.)
A few days later, and the lava flowing from this week’s media eruption at Mount Gawker is still red hot. As I’m sure we all know by now, it was revealed that a multibillionaire founder, operator, investor, and board member of Facebook — the largest publisher in the world — secretly financed a citizen’s legal bills against an online tabloid magazine which outed the financier a decade ago and, more recently, took a very intimate video of the plaintiff in this case and published it to the web. Since then, a jury in Florida awarded the plaintiff over a $100M settlement and essentially rendered the online tabloid bankrupt, out of business.
Twitter has been aflame, where journalists spend lots of time tweeting before this eruption, with writers’ expressing concerns and fears over (1) the ability of one person to finance litigation against anyone, including media companies; (2) the potential threat to the future of free speech; and (3) a defensive backlash against claims from others that the online media model shouldn’t reckless chase page views. Targeting journalists as a victim can inflame an issue. This is a tactic disruptors used right after September 11, when different media outlets received packages laced with anthrax. The news this week was interpreted by many as if it were like digital anthrax.
As someone who is both pro-technology and invests in its future, but also as someone who has spent considerable time publishing online, here are my quick reactions to the furor, which I hope add a perspective and move the conversation forward:
1/ People Hate The Financier And Company He Represents: Imagine the plaintiff bankrolled his case by leveraging crowdfunding. He still would’ve won the summary judgment of over $100M. Some are saying the financier should’ve disclosed his backing, but that may have also affected the jury’s ability to assess the case on the merits. The plaintiff had a legal right to sue for damages. What’s clear now is the hatred for the financier and the growing fears of Facebook felt by the publishing world. We would be having a very different conversation if a big political backer financed this litigation.
2/ Protecting Privacy Trumps Freedom Of Reckless Speech: It’s almost like everyone forgot why this case went to the courts. Someone had private videos of them in compromised positions published to the Internet. Think about that. Someone could hack into your Dropcam feed at home and publish that to the web. There has to be a line of what people can publish without recourse and what is punishable by jail or fines. People also forget the courts will always uphold freedom of speech so long as the speech in question is of material public benefit. This case doesn’t threaten free speech, but it sure does make people think twice of posting immaterial, private personal information and trying to ruin someone’s personal life.
3/ Publishing Power Is Real: For over three years, I could post anything I wanted to TechCrunch, just hit publish and go. TechCrunch has huge distribution and many of those articles are syndicated around the world. I was never under oversight. I could hit publish without recourse. As a result, I was always hyper-careful to never make public information which was shared with me confidentially or in private. I’m not saying I was a “real journalist” as I was working in the industry at the time, but even then I would still get nastigrams for three out of every four posts I’d write because someone didn’t like it, but it always felt utterly reckless to cross the line of going after someone. There are some tech blogs that have done that (in addition to the defendant) and in the cases where it is material information (say, someone did something illegal), I’ve never seen anyone get mad at the respected tech and finance journalists. In fact, many of them are respected for bringing this information to the public record.
Finally, a personal thought:
4/ Writing As A Career Is Scary: I am not someone with marketable skills. I always enjoyed writing for fun, and for years, people would always say, “Why don’t you just write?” But I knew what that would entail. This case exposes deeper fears and anxieties many who have been stuck inside the journalism establishment feel deep down inside but rarely confront head-on. Many journalists work for media brands whose influence wanes in a digital world and/or are themselves bankrolled by a successful tycoon or family. Many of them (not all!) cling to a belief they’re independent or that freedom of press and speech need to be protected to the point where they can write about someone else without sticking the facts, without going to the videotape.
Writing online for a living is sort of like the taxi industry — an industry already under attack and waiting to be further disrupted by a Swiss Army knife of changes in the digital landscape: Facebook’s newsfeed, hosting, and algorithms; ad-blockers in iOS; social network products delivering information to users rather than media brands; and so on. Yes, some people will make it work, but aside from those who have the brand and digital-formula to carry through, it will be hard to carve out a career here, and as the courts have declared — it’s probably not a good idea to publish someone’s very private information unless it’s truly material to the public record. A tech investor who embezzles or a tech CEO who falsifies medical tests should be pilloried by the press, but publishing videos of them engaging in infidelity isn’t germane to the higher task at hand.
Despite what many people say online, there’s definitely a place for a Valleywag-style or new publication to act as a smart check against the tech and startup ecosystem at large, to take the other side on the merits and bring the hype down to the earth — it just so happened that this particular case was the fault line that was tested, but it was bound to happen at some point. The proper way to extrapolate from this event is to assume the lawsuit was self-financed or financed from the crowd — what then? I’d bet the conversation would be very different.
I intend to shift most (not all) of my focus back over to consumer investing in Haystack 3.
In my first fund, it was dominated by consumer. That wasn’t intentional. I was just starting out, I was a dog chasing cars. In my second fund, most of it was consumer, but I started to go a bit deeper into enterprise SaaS and industrial IoT. That exploration led me to start focusing on enterprise and industrial IoT in my third fund, which I’m currently in the middle of. In this current fund, I have focused my investing in two areas so far — enterprise SaaS, security, and infrastructure, and industrial-focused software and robotics. I’m finally able to write more about these so expect some “The Story Behind My Investment In _____…” posts over the next few weeks.
Along this way, in Haystack 3, I have been looking for consumer-focused companies but have ultimately passed on all the opportunities to date. Those were hard decisions, and I’m sure I made some mistakes. So far, in 8-9 months of investing Fund 3, I have only invested in one (1) consumer-facing seed-stage company, and it’s not yet launched and may shift its model to an indirect B2C2B model.
I would like to do more on direct consumer in this fund, and it’s been nagging at me for a while, so I finally wanted to post on it. I do not have a laundry list of categories to hunt down or chase after, and I have a small handful of ideas of where I think interesting consumer behaviors may emerge, but I’d rather see what’s out there and be surprised. Yes, I have thought about areas of consumer spending (insurance, rent/mortgage, self-improvement, health etc.) and consumer attention (VR, AppleTV, apps etc.) and I’ve written about live video and esports and bots… but I would say the pattern I’m looking for is as follows: Something I can experience/test myself or observe others doing; a company which is obsessed about creating and building a direct relationship with a consumer; a team that is obsessive about acquiring customers and users and their CAC numbers; and a team that has a vision for a future on a global scale — doesn’t need to be today, but eventually. A product vision and desired roadmap goes a long way.
I am going to focus on this now more intently and really dig into it over the summer. It’s OK if you’ve already raised a pre-seed or seed or whatever fund. And, I likely won’t make any investment decisions very quickly on this, so am looking to engage more and get to know more people before selecting a few to work with. I’d appreciate it if you could share this with people you like or find interesting in the consumer space, and thank you for reading.
The State of California recently unveiled a plan to increase minimum wage in the state to $15/hour by 2023. Currently, America’s national minimum wage is $7.25/hour, which hasn’t increased since 2009. The concept of minimum wage is complicated, and I don’t want this post to be focused what is fair or isn’t about such an increase. I certainly don’t condone workers having to see most of their take-home pay go to rent and most of their free time eaten up by commuting. That said, I do sense aggressive increases to minimum wages will come with deeper consequences, ones that our society will now wrestle with on a daily basis and for years to come.
Increases in minimum wages will accelerate a massive shift to automation.
I see it on a weekly basis with startup pitches. Name any manual job currently booked at around $15/hour or so, and I’d bet there’s a 50% chance that task will be automated, either with pure software, enabled hardware (in the form of a robot), or some mix of both. Automation via software has been underway for a few years, but when it’s combined with hardware, the results will be astonishing. The components needed for such robots are now readily available and getting cheaper by the year. The hardware/robots can be differentiated by software and the vertically-specific applications they are designed for. The robots become a vehicle by which new technologies and services can be delivered, and of course done so at a fraction of the cost without the additional overhead (like healthcare, etc) that can saddle a balance sheet.
I know this is coming — and fast — because I myself use products on a daily basis that replace traditional human labor with automation and learning.
The way that I describe this trend in general is to imagine your local Starbucks. Say it is about 2,000 square feet total. At a busy time, you may see 8-10 workers in the store. Why? Shouldn’t I just be able to walk up, have a beacon notice my presence, and a robot makes my drink. The machines to do this already exist. It is coming.
We can expect to see the consequences of minimum wage increases (which I acknowledge are extremely complicated) take root in automation, robots, and corresponding services. Some solutions will appear like vending machines, whereas other solutions will mimic human movements and behaviors, just in different shapes and forms. The technology and builders are already here, working on these solutions — the turbulence in the bifurcation of the economy, the force-changes driven by technology, and the slow response to build enough suitable housing and transit may combine to usher in this robot-led era with greater speed. Minimum wage, maximum automation.
Bots. They are everywhere in startup land. It feels like a gold rush — a bot rush. And, there is a backlash, as well — a botlash. Whether it’s more and more people using Slack and other messaging apps and come across these new bots and features, the trends set by Y Combinator’s Demo Day (where, by my count, four very interesting companies launched in this space), or one of the 101 pitches investors see from founders, bots are everywhere.
In this rush, there is surely opportunity, and also noise. At a high-level, “bots” are attractive because it is a lightweight format by which a startup or messaging app or Amazon Echo can deliver services to users on the simple end of the spectrum, and perhaps one day automate, predict, and conduct work for us as it learns from our interactions and behaviors, as well as learning from other APIs they interact with.
The noise created by today’s frenzy makes it hard to find signal. As a I result, from an investment point of view, I see the bot world in three (3) categories:
1/ Vertical-focused B2B platforms w/ SaaS business model: This is targeting a specific end users (usually businesses) that need to create a bot for news, or commerce, and pay the startup for a suite of tools to do so. 2/ Selling picks & shovels: When you sense a category is going to be big/important, but don’t know what the end-users will use, one can invest in the developer platforms and services that the bot creators will need to make their bots. 3/ Direct to consumer (or prosumer) plays: This can be seductive because messaging apps are huge (easier to get users, distribution), but also dangerous because today’s platform can become tomorrow’s gatekeeper.
How do I think this will all unfold? I have no idea, but I think the three investment strategies above make sense, all for different reasons. I have an investment in 2, looking at 3, and looking for 1. I’ll let you know when I find out.
Separately, on the consumer side, I’ve been thinking about what I want personally in a bot service. I wanted to write that below in case anyone has built it, is building it, or is looking for an idea. Here’s what I want:
1 – I want to create my own personal bot, Semil-bot.
2 – On web or mobile, I go to your page and authenticate with Facebook. This has to be ID-based.
3 – I connect a range of services and accounts, beyond financial like with Digit etc. Definitely Gmail and Google Calendar, like Paribus.
4 – If I give Semil-bot the keys to my digital kingdom, I want it to not only dive in and learn everything about me beyond Facebook, I want it to crawl a network of specific APIs for financial services, insurance, digital media, social networks, etc. and constantly be on the lookout for my best interests, to save me time and money without me having to think about it or execute any actions.
5 – Semil-bot would send me a daily update email with actions that it’s taken an easy way to reverse, pause, or suspend commitments. It would work for me, on my behalf, 24 hours a day. I would pay $10 or even more for this service.
6 – But, this isn’t just a weekend hack project. As the system gathers more information about me and other APIs, it needs to learn and form a real brain. It needs to learn over time and make inferences. It needs to anticipate things. It needs to deliver a service that saves me both time and money, reducing cognitive load and becoming a trusted digital agent to act on my behalf.
I caught up on Lefsetz’s blogs from the past two weeks yesterday. A few stuck out, like always. In particular, he wrote something about his history of Springsteen concerts, which you can read here. His recounting touches on all sorts of nostalgia triggered by following The Boss over the decades, and while I’m not a huge fan of Springsteen, I hold him in high respect — I once saw him perform, without breaks, to a crowd in California for almost 3.5 hours. No stops. It was one of the most authentic musical experiences I’d ever seen. Maybe I’m more of a Springsteen-the-person fan than a fan of his music.
Re-reading Lefsetz’s journal entry, I remembered I had myself written about the concept of nostalgia intersecting with technology. I don’t know why I write about nostalgia, or why I’ve got a few tabs open for an unplanned afternoon of where I should be stack-ranking investment opportunities and focusing on work. It may be that nostalgia, for me, is even more powerful force that interrupts my ability to (attempt to) think rationally.
“…while you can scroll down your Facebook Timeline and travel back in time, a service like Timehop could present older pictures to users in a way that strikes upon a deep emotional chord. It is this element of nostalgia that interests me. It is a product I’d want. I can imagine Timehop simply running in the background on my iPhone, sending me a gentle notification…”
Later in 2012, it occurred to me sharing photos to the right people at the right time can, in fact, trigger nostalgia. In the next post, I invoked the now famous scene from Mad Men, “Carousel,” where Don Draper, tasked with coming up with a pitch for a slide carousel, paints a picture of moving back and forth through time by pictures. This nostalgia, he says, has the power to create a close bond with the consumer. While Timehop can’t compete with Facebook, and while what Timehop pioneered might become a feature of how we all use Facebook in the future, it is fun to look back on how it presents us with nostalgia:
“…it simply gives people what they want in a new form — the place where you can keep your memories. The carousel of old slides, the cigar box of warped pictures, and the Instagrams you’ve taken, now in your pocket, delivered to you in just the right way.”
Nostalgia even led me to join a startup company, Swell. A few years ago, as someone who grew up as a radio and audio junkie, I got swept up by the old memories of listening to transistor radios and studied how radio and radio imagery influenced the brands, lyrics, and sounds of some of my favorite musicians. In writing about Swell’s product:
Radio fills the dead time in my life, when I am free to be more at ease, more relaxed, and as a result, my brain seems to expand a bit more to let in more information. Yes, we are visual and textual creatures, and images are central to how we process information, but audio is equally important for me, and when it comes to knowledge, the ambient awareness provided by radio is perhaps the most powerful.
And all of this went through my mind watching the Boss at the Sports Arena. My life slid by. People my age are thinking of retirement… But once upon a time we were the youth, we were the cutting edge, there were no social networks, cell phones were a “Star Trek” fantasy, we had to leave the house to connect, to feel alive, and where I felt the most comfortable was at the show… It was completely different. No one stood, except for maybe the encores. There were seats. You didn’t go to be seen, you went to communicate with the music, bond with the gods. And it was like that Thursday night. And it won’t ever be that way again. It can’t be. Mystery is history. You can see it all online. And scarcity is a thing of the past.
To connect, to feel alive, and places where we feel most comfortable — I’ve been thinking about that passage in particular. Today, Oculus Rift virtual reality headsets are shipping. eSports, where fans worldwide watch other people play video games. Legions of EDM or Taylor Swift concert-goers are recording their experiences through Snapchat Stories. The web and mobile devices are empowering people who may have once felt lonely now connect with likeminded people across social classes, political borders, and beyond.
And now that everything is recorded and documented in real-time, accessible by search, searchable on billions of devices worldwide, it is both empowering and unsettling from the point of view of nostalgia. Growing up in the 80s, most of my memories are locked in a few videos, many still photographs (that haven’t been put online), and in my mind — but what about my daughter, who is almost three years old, who is the adoring subject of thousands of photos? She will be able to see so much of her younger self in digital form, but where will her nostalgia reside? In digital form? In the corners of her mind?
I’m not sure I have a great conclusion here. Perhaps there isn’t one. I’ll end with one of Andy Weissman‘s old posts, back from 2013, where he writes this passage about the idea of putting old videos from his youth on YouTube:
When I tell people this story, they mostly have the same reaction. “You need to put the shows on Youtube!” The video tapes – cartons of them – are spread out. Maybe in California. Maybe at my mom’s place. Some in Woodstock. Maybe they are gone. These requests usually set off a flurry of internal emails amongst ourselves: should we do this? Have you watched them? Which one should we digitize? This year we will really get around to it, yes this year we will, right And then when I think about it, I realize we probably shouldn’t, and most likely won’t, digitize them and put them on Youtube or Vimeo or wherever. It would ruin the memories.
The last big wave which helped generate huge returns for technology investors was largely driven by phones. Building apps and services on top of phone sensors, connected to the network, gave us new media apps like Instagram and Snapchat, new communication tools like Whatsapp and Messenger, and new ways to travel like Airbnb and Uber (thank you GPS sensor and Google Maps API!). The mobile wave was/is big enough to create opportunities for others, as well, though these are the biggest outcomes.
In early-stage investing today, a bunch of friends and peers who invest at seed always wonder — what’s next?
Lately, when I’ve been asked this question, here’s the analogy I use to the answer the question:
Imagine we are all surfers in a surf competition. During the day, we each are allowed to pick a set number of waves to ride and are scored on them. There are lots of surfers doggy-paddling in the open ocean, and the goal is to identify, pick, and line up to catch the biggest wave of the day. The problem, of course, is that in the moment, from your vantage point with your head bobbing on the surface of the water, it’s hard to identify and commit to the wave at the right time. If you move to soon, you may pick the wrong wave; ff you wait too long for the wave to take shape, you may not have enough time to catch it properly.
The goal, of course, is to pick the right wave and time it perfectly. Picking the right wave will be scored well and rewarded by the judges, will give the surfer an unforgettable ride, and will pack enough kinetic, nautical energy that will propel the surfer to reach new speeds. That is the goal.
In reality, right now in the early stage, everyone’s wading in the open ocean, surveying the horizon for promising waves to form. There are waves we anticipate in tech but we don’t know when those waves will reach a point where we can ride them — waves around Artificial Intelligence and Machine Learning; or vertical marketplaces; or SaaS network; or Virtual and/or Augmented Reality; or bots and agents; or autonomous robotics; or…name any other big category. We all just don’t know what that wave will be, where it will come from, and what it will look like.
In the face of this uncertainty, some elect to follow their peers who are known to have a good nose for spotting big waves. Some have studied up on how to pick out a big wave looking at data or other physical properties. Some are happy to pick out a portfolio of a few waves and hedge their bets (that’s what I’m trying to do). Every strategy comes with its benefits and risks. Entrepreneurs, of course, see these waves before most investors do, but both founder and investor can pick the wrong wave or move too late when the big wave is forming. It will be just a matter of time before this next wave emerges — because no one knows when it’s coming — and it will be exciting to see what it looks like and where it comes from.
Where is the early-stage financing market for startups today, mid-March 2016? In my opinion, and depending on where specifically you sit, right back where it left off.
After a few bumps over the last 9 months, with little shocks in July 2015, a bigger shock in August 2015, and a ruthless slashing of very visible and great public technology companies in January and February 2016, many people (and yours truly) commented that the entire environment has “chilled.” Now, as March is unfolding, that is changing a bit. Working backwards, here’s a brief snapshot of what I’m seeing in the SF / Bay Area market — just one guy’s opinion:
Series B (“the second board member”): These are known as the Rounds of Death. As the private late-stage dries up, Series B and C investors, who structurally need billion dollar plus exits to make their models work, know that IPO windows are jagged, brittle, and chilly, and since M&A over a billion is quite rare, many have either held off or suggested flat/down rounds to make new investments. (Yes, I know, some companies still get funded.)
The Series A Rounds (“the first board member”): These are happening, albeit slower, but the caveat is that there are now new kinds of Series A rounds which can distort where a company is. It used to be that a classic Series A is when an institutional VC joins as the first real board member of a company and makes a life-cycle commitment to the company and founders. Now, there are more funds and more people doing rounds the sizes of the old-school A, say $5m give or take, plus or minus. This could be insiders protecting an investment, or LPs coming in to buy more direct ownership — or, it could be one of the many new funds being formed almost weekly to put dollars to work in tech and get ownership.
All The Seed Notes Before The A: This includes pre-seed, seed, second seeds, seed prime, seed extensions….the never-ending parade of convertible notes that we’ve all come to love. It is here, early before the A, that I see little to no change in the market relative to how Series B investors are extremely cautious or Series A investors that are taking their time (yes, I know, and still doing deals). There is not only so much money to be deployed across the seed market, I have learned from being on the fundraising circuit myself that there is more money just sitting on the sidelines, and we will see this in the form of new funds (new ones every week), and they have to deploy those funds, and seed is where most of us play because there is no barrier to entry — there are some barriers to entry to doing Series As because founders want those to be branded and institutional, but at seed, it’s loose, fast, convertible debt that matures in two years or, if you’re lucky, less. Given these factors, founders in the right spaces with good teams raising seeds now can get higher prices, and that’s especially true in/around some of the most successful accelerators and incubators.
This is where I see the market today, mid-March 2016. Seeds are a plenty, and growing well; Series As are happening, but a bit slower; and Series Bs are when founders feel the most friction. All in all, it is still a great time to start a company, but we may find out over the next few years that we’ll have startups turning over quicker and perhaps more replenishment at seed as the larger institutions wait for conditions to become “just right” before making a life-cycle commitment to a new company.