If you still follow me on Twitter (sorry if you still do), you may have noticed that I’ve been working out some thoughts related to the impact of how much money is not only in the Bay Area today, but how much more may come in. Yes, I know that global interest rates are low and that some unforeseen event could make people pull back, but the scale of money looking for direct and indirect investment is so large, it may take a few huge events to rattle those markets to the point of clawback.
If there’s a lot of money here, then, what are the various motivations of those money sources? And, how do those motivations potentially affect and/or alter the scope of what startup companies and early-stage investors have traditionally done?
Financial Motivations: When the investor, like traditional VC firms, are looking purely to maximize the financial return. At the end of the day, VC firms are judged some standardized fund metrics like IRR, distributed cash, and so on. As a variant, we also have investors with “Direct Motivations:” Some folks who traditionally didn’t have access directly to companies would use VC firms to help gain access, to help them attract deals and pick good deals, and then manage those investments to exit. Over the past few years, many of these investors who were once indirect are becoming increasingly more direct, bypassing the fees and gating structures of VC firms to invest right on the cap table of a startup. These are still financially-motivated investors.
Strategic Motivations: Some investors, like corporations with cash on their balance sheets, are looking for earlier access to cool companies, teams, and technologies — I have seen them starting to co-invest as early as the Series A (alongside a VC firm they know or recognize) and even in some cases leading what has traditionally been a Series A round, in terms of size. Usually in these cases, the financially-motivated investors (above) have passed on the opportunity, as these rounds can at times contractually restrict the startup in some way.
Deal Access Motivations: As I mentioned those with “Direct Motivations” above, some of those money sources are investing in new, smaller funds to pick off deal flow before it gets to the traditional financially-motivated VC firms, many of which have grown over time to the point where they need larger outcomes. Some of these smaller funds (under $50M) have investors (LPs) which prioritize “turning over lots of cards” in order to discover deals earlier in the company lifecycle and potentially pick off the next winner.
Educational Motivations: Like those investors who are strategically-motivated, some are interested simply in learning more about a certain industry (perhaps focusing on a vertical fund in a certain industry) or a specific geography — for instance, an LP from overseas who wants to learn more about the Seattle startup ecosystem, or the space startup ecosystem, or maybe the space startup ecosystem in Seattle.
Diversification Motivations: Outside the U.S., other countries with growing or shifting economies may have an incentive to seek out diversification (such as currency diversification), where that local money is looking for alpha outside its own borders.
These myriad motivations add up to help create an environment in the Bay Area that’s different from the past. Not all money sources are motivated by pure financial return — depending on the source, they’re looking for a different kind of alpha, for deal flow, for earlier access, for talent, for companies to acquire (but not at VC prices), to learn more an industry or ecosystem, or to diversify their cash positions. And these myriad motivations of the money sources may change what their managers elect to invest in, how often they invest, and so forth. I need to think more on this topic and its ramifications, but wanted to share in case others had an opinion. I’d be interested to hear your take. Thank you.
As if working in venture capital wasn’t already a great job, my colleagues from my venture partner role at GGV Capital surprised me with an extra ticket to this week’s WSJ Live event down in Laguna Beach. It was also great to see some of my WSJ reporter-friends like Rolfe, Geoffrey, and others at work — though didn’t get to bump into Mims or Scott Austin, sadly! Despite some weather and Presidential tarmac delays, I made it down for all of Tuesday’s programming, ran into old friends, and made some new ones in a gorgeous setting — have never been to Laguna before, and even folks from LA commented that they often leave their own paradise to jet down to see the coastline a bit further south.
With a few days separation now, I wanted to capture the top three takeaways I gleaned from the event:
1/ The Future Bundling In Content Delivery Networks: This isn’t a topic I pay close attention to because my media sources are pretty narrow and defined, but I know for the majority of 330M Americans, they consume tons of media through cable networks, satellite, social networks, and more. The WSJ folks had sessions with AT&T and Time Warner to discuss their merger and new offering, as well as execs from Facebook to chat about how they balance self-expression against sharing too much sensitive information (such as questionable live video feeds). What occurred to me in overhearing these chats is that, when you step away from all the verticalization and mergers of carriers and growth of social networks, what we see is that the tech incumbents (FB, AMZN, GOOG) and traditional carriers (ATT, VZW) are on a collision course to deliver us content in a bundle. And, they could compete so much that it drives the price down so far, it will create huge new markets for new ad models and networks. Absolutely huge. It’s not a sector I know well, but there’s no doubt about the size of attention and money at play. (Personally, I think Amazon is in the strongest position with a strong Prime membership base that they can shove more services into and distribute Echo in the home to penetrate further.)
2/ The WSJ Audience Is Very Curious About China: From about 8am to 5:30pm, minus lunch, assume there was about four (4) hours of chatting with guests on stage. I’d say that of that total chat time, about 20% of it somehow touched on what’s happening in China. Tuesday kicked off with a 1:1 session with Jean Liu of Didi (see below), ended with a fun panel on financial markets with Benchmark’s Bill Gurley and Fang Bao of China Renaissance, who touched on the desire among investors in China to invest outside the country for RMB diversification, and in the middle, included a discussion with GGV’s Jenny Lee (who I am very lucky to work with) on the global ambitions of large technology companies in China (expect more overseas acquisitions for talent, brand, and chip- and machine-level innovation), as well as how it’s really business model innovation that’s driving the disruptive companies that are emerging from China — business models which are borne out of a different environment given the scale of China’s domestic market. The WSJ team organized a very tight schedule, so I’m guessing this was a carefully considered editorial decision to draw out new perspectives on China for their audience. In fact, this interest in China is one of many reasons I was excited about the opportunity to be a venture partner with GGV, as I can be slightly more exposed (second-hand, of course) to what is happening across the Pacific and learn from those who know it well.
3/ The Definition Of A “World-Class Operator.” You may have heard someone mention this adjective to describe a tech exec – “he or she is a world-class operator.” It’s a term that can just be thrown around without stopping to think about what that actually means. After I saw Jean Liu from Didi speak, it hit me — SHE is a world-class operator. She is someone who can natively operate in two large foreign markets, handle press, deal with employees, recruit execs, strike deals, and seamlessly move between extremely dissimilar economic and cultural environments without skipping a beat. So the next time you hear someone brag about so-and-so being a “world-class operator,” make sure that person can actually operate like Liu.
As you know, each December a small group of investors (which includes me, Bullpen, Vator) produce a conference, “Post Seed.” I’m excited to announce and share that the 2016 version of this conference will take place in San Francisco on December 1st. For more information here: www.postseed.co
I know there are thousands of events in the Bay Area, so Paul Martino (from Bullpen) and I thought long and hard about if we should do another one. We ultimately decided “yes,” but on the condition that we would produce and deliver a high-quality, high-signal, no-BS and no self-promotion event.
And, I am confident we have succeeded.
Everyone speaking at Post Seed 2016 will deliver “real talk” and we are working closely with our moderators from The New York Times, Forbes, The Information, and The Wall Street Journal to keep people honest and lively!
We have carefully set the agenda for Post Seed 2016 to feature some of the most outspoken and successful founders and investors — consider Aykin Senkut, who in a decade built up his angel firm into Felicis, now on Sand Hill Road; or Chamath from Social Capital, an operator-turned-investor who isn’t afraid to challenge local, conventional wisdom; and a special fireside chat with the founder and CEO of this year’s hottest tech IPO, Twilio, Jeff Lawson. On top of this, we have a great list of founder panelists, as well as VC panels with GP representation from firms such as Sequoia, Greylock, Accel, Thrive, and many more.
You won’t want to miss it. Paul and I respect your time, and the entire day’s agenda and participants reflect that commitment. We hope to see you there. (I have some passes set aside for post-seed founders as well as non-GP investors who’d like to attend. Ping me and tell me why you’d like to go. Will do my best to accommodate.)
As I’ve been musing about on Twitter, oftentimes in the current Bay Area ecosystem, I don’t understand how very early-stage companies recruit teams to join them because there are so many opportunities (which is great) and so much capital in the ecosystem. At the seed-stage, when investing in a small team, oftentimes those founders turn into near-full-time recruiters. Even when a startup approaches product-market fit or even scores a larger Series A investment (and therefore, more cash, runway, and security), teams struggle to fill their open roles because talent is so fragmented.
But it’s not only human capital which is fragmented — financial capital is also fragmented. One way to sum up the current environment? Mass Fragmentation. We are currently in a state where both human and talent capital is hyper-fragmented.
My bias is that, overall, I think it is bad for innovation. That said, there are some strong arguments as to why it may be a net-positive. For instance, on the human capital side, having more money in the ecosystem empowers more people to start companies, to own their equity, to embark on new experiments; it also encourages new capital bases to invest in the ecosystem, to invest so early as to invest in teams and people who are already known to them. There are valid arguments to “let a thousand flowers bloom” and the participants (and maybe society, at-large) could benefit from.
I am in the camp that this Mass Fragmentation is a net-negative.
Let’s start on the financial capital side. We’ve all seen the tweets and articles about the continued explosion in microVC funds, vehicles which are less than $100M. More and more people are starting funds and acting as access points to help a wider base of LPs sell money to entrepreneurs. As a result, there are more companies forming, which means the “hot team” that could’ve formed five years ago with a core of 8-10 people may now result in three separate startups forming with $2M in seed funding each. At the same time, as many of the traditional VC funds have grown in fund size, they largely haven’t been able to recruit the types of folks they want or need because the best investing talent either has the option to create their own fund (and this is continuing) or work as an executive in a high-growth company and make a ton of money.
On the human capital side, startup culture is fully mainstream — social cues from The Social Network, Shark Tank, and others encourage everyone to start companies and to be an owner. And there’s plenty of capital to supply them with oxygen, as we see on TV and Twitter each day. Yet, many startups cite “recruiting” as their #1, #2, and #3 core challenge. The traditional VC funds (and even some of the newer ones) have recruited their own “Recruiting Partner” or talent head to help with this function, an arms race where all of them are likely fighting for the same pool of talent.
All of this would be somewhat OK, but location matters, too. While the Bay Area is an incredibly dynamic place, the cost of living here, the cost of mobility here, and the cost of attention puts new pressures on the forces above. When large tech companies and the big growing startups can offer enough compensation and $1M RSU grants at hiring, many folks may opt for this path in order to cover their rent, mortgage, and childcare, among other expenses. To compete, growing startups have to pay salaries which somewhat compete with incumbents. We’ve all by now read about the housing crisis in the region. It’s also difficult to physically move around in the Valley, with more people moving here, more cars on the road, no real increases in public transport capacity, congestion, rubber-necking, and transit choke points are starting to look and feel like LA sprawl on Google Maps.
And finally, there is the cost of fragmented attention. The “salon culture” of conferences, events, private dinners, happy hours, and coordinated social media campaigns is all with good intentions, but we may be at the point where the increase in the number of new companies with cash to spend and new investment vehicles eager to brand themselves for deal flow. To be clear, the intentions here are mostly pure, but in aggregate, it presents the ecosystem with an “Attention Tax.”
And, when this tax is combined with fragmented financial capital and fragmented human capital, it creates more noise and makes it harder to find the signal. Consider startups working on the blockchain, for instance — while many have been seeded in the local ecosystem, on a global level the communities of developers working on the most interesting projects are more likely to reside in places like New York City, China, and Europe. Or, consider that some of the best VC firms in the world have quietly amassed portfolios with a concentration in non-Silicon Valley companies, choosing instead to hunt for deals in the corners of Europe, China, or across America, where the entry price makes more sense for VC-style returns. These founders and investors face other challenges by not being in the Bay Area right now, but they also enjoy some timely advantages in this time of Mass Fragmentation.
On occasion, I have had the good fortune of purely investing in a person, usually someone I know well, usually someone I call a friend. I have happily done this with companies like Trusted and EaseCentral. And, I did the same thing with Joe Fernandez and his new company out of Los Angeles, Joymode.
I first got to meet Joe because I wrote about how his previous (controversial) startup, Klout, was actually on to something counterintuitive. Klout was controversial for many reasons, the biggest being that its seemingly arbitrary ranking of social profiles seemed to fly in the face of the democratizing force of social media. It went so far to the point where influential Tech Twitterati would publicly tweet their distaste for the service, even though Joe and his team (run by friends like Don, Matt, and others) attracted institutional investment from some of the best firms on Sand Hill.
I never understood why people hated on Klout so much, so as I was writing about it (see here), it gave Joe and I excuse to meet, hang out, and over the years, become friends. Fast forward a few years, was hanging out with Joe and he informed me that he was packing his bags, headed down south, leaving the Valley behind. He was about to become a dad, and he wanted a change of scenery. Knowing Joe, i can’t blame him. As he was leaving, he was thinking about a new company (originally called “Funship”!) with his cofounder, so I immediately made sure I was meeting him a lot and part of those chats. I was personally bummed that Joe would be leaving town, but also excited about the prospect of getting to invest in Joe.
In the summer of 2014, I wrote a check into Funship and shared the opportunity with a few friends who grew equally as excited as me. For the past two years, Joe and his team have quietly been building Joymode, building the consumer app experience, getting the operations right, and testing a new consumer concept in downtown Los Angeles, a world away from San Francisco’s saturated consumer culture. It’s early days, but I never worry about Joe’s drive.
You can read more about Joymode elsewhere. Here, on this blog, the story is really about what kind of person and entrepreneur Joe is. Joe is someone who just does things without wasting time. When he needs to find a technical solution, he knows how to gather expertise or build a team to address it; or, when he needs to get something elusive, he knows how to cut corners and cut deals. He doesn’t ask for too much advice, instead relying on his entrepreneurial instincts, which I believe are sewn into his DNA and upbringing in Las Vegas. It’s worth noting that Joe and the Klout team drove that company to quite a meaningful exit to Lithium, an exit in today’s environment people would kill for — including many of those in the chorus who didn’t care for Klout and found it gauche.
But, Joe loves the haters. It fuels him. And that kind of fuel makes an investment a no-brainer decision.
Over the past few weeks, I’ve caught up with and hung out with some of the larger investors on Sand Hill and beyond. At the same time, I am helping lots of seeded companies begin to think about and/or prepare for their Series A. As every seed investor and firm touts their “value add” as being a bridge from seed-to-Series A, the realities of that pitch are now being tested — the bridge is longer than one imagined. Many of the large VCs I’ve talked to have remarked that not only has their own investment pace slowed down (and not just in 2016, but even back into 2015), that this is true within their funds at large. Yes, Series As are happening, but the shape of them has been contorted — smaller (or healthier) check sizes, more ownership for the VCs (and more risk), and fewer and fewer deals coming by with fundamental momentum.
I don’t mean to write this in a negative light, as I think it’s healthy. It’s just where we are now. I know that everyone will say they’re still active and willing to invest, and that is true, but based on what I’m hearing from founders on the street and what the deal pace is for larger checks, the market seems to be waiting. I’ve been thinking about why we are here and how it happened. My list so far:
1/ Valuation compression from over-valued Series Bs: Many good companies raised at valuations that were too big. They’re now coming back to market and new investors don’t want to be the bad cops and suggest recapping the company. That realization of overfunding at B has trickled into the Series A consciousness and slowed the pace down.
2/ At the same time valuations at Series A have come down (with less momentum), many of the larger funds on Sand Hill have gotten much bigger in the last year. As the funds hold more money under management, but the check sizes they can justify for smaller As are smaller, some funds have decided to wait, to elongate their investment period, and make sure to deploy capital at the optimal point on the risk-reward curve.
3/ The excesses of capital in the seed market and plethora of companies makes it easier for new companies to be started, but also harder for talent pools to form around an early company. Talent is incredibly fragmented. Everybody wants to be an owner. A hot team of 5-10 core builders who could’ve formed a strong unit 5-7 years ago could today spawn three (3) new startups inside, each of them fighting to recruit the same talent from a dwindling pool.
4/ At the same time, many seed investors, most of whom are newer, younger, and less experienced in fund management (including yours truly) spent most of 2014-15 seeding companies with other peoples’ money earlier in the company lifecycle, at the point where traditionally friends and family or even founders would be putting in most of the cash. Now, many of these companies need extensions or bridges or prime rounds or second seeds, or whatever you want to call them.
5/ The end markets seemed to be tightening up, too. Yes, yes, I know, something will breakout and we will all be surprised, but if you think about what share of the consumer wallet is left to grab or if you consider how every enterprise application or infrastructure product takes on a SaaS model, every single SaaS startup is fighting with each other to get a share of budget using the same business model. (SaaS overload is so real that I just funded a startup whose mission is to help CFOs at large enterprise companies identify and manage their various SaaS subscriptions.) This may be why folks have gravitated to the frontier stocks, investing in new emergent technologies and spaces.
Again, to repeat, this isn’t a negative post — I think it’s all moving in a positive direction. It’s taking a while for the tide to go out, and new things will emerge that will surprise us. But for fund managers who have seeded companies, the reality of the gap between seed and Series A is beginning to look like a canyon, and it will take more time, money, and grit to get to the other side — some of those teams will score their Series A, but that checkpoint isn’t the end all, be all — some will also begin to partner earlier with larger companies in their industries and/or even be acquired. It will be interesting to see which teams and investors hold the right map to traverse the course.
As many of you know, I have been a venture partner to GGV Capital. Today, GGV Capital announced me, along with another Venture Partner (Denise Peng, formerly of Qunar) and a new EIR (and and my old friend), Jason Costa. More precisely, I have been a Venture Partner with the firm for about a year now, after years of being a consultant to the firm (as well as other firms in the past). For someone like me who is just starting out in their investing career, a dream opportunity.
Yes, I know — it is an unusual, unconventional split-role and association for someone to have, but when I look back on my work history and timeline, my career has simply never fit neatly into a LinkedIn profile. After years of struggling to find a way to cut into the investing industry, I had the fortune of choice last summer. While still raising and deploying Haystack, the early-stage VC fund I started and currently invest out of, the six managing directors of GGV — all whom I’ve known for years — were creative in finding a way for me to join them on certain key projects while supporting me in my own efforts to build up the Haystack franchise.
GGV has been, from its first day almost 20 years ago, a differentiated venture fund. The firm was founded on the thesis that the interconnectedness of the world’s two largest economies — the U.S. and China — would increase over time. Throughout its history, the GGV Capital team has been fortunate to be associated with some of the most iconic global companies and operated seamlessly, at scale, across the Pacific Ocean.
It’s worth noting GGV and Haystack operate at slightly different scales ;-)
Haystack is roughly $10M in the current fund, Fund III (and is only 40% invested). GGV just raised its sixth fund at $1.2B. As part of this special opportunity, I spend my Mondays at GGV and participate in a variety of the firm’s internal meetings. As someone who hopes to create a franchise fund, I am fortunate to have a front-row seat to learn how a large, global venture capital firm operates at scale, makes decisions, builds relationships with limited partners, and works directly with founders and entrepreneurial executives at startups.
This is all the professional stuff.
On an individual level, like many other VCs in the ecosystem who have helped me and individually been an early backer of Haystack, all of the six MDs of GGV have all been personal investors in each Haystack fund. They have even gone so far as introducing me to some of their LPs so I can build relationships with them over the long term — a very generous gesture. When GGV debates a large investment, the MDs will sometimes seek my counsel, and it feels great that they would care to ask my opinion. On the flip side, when I am stewing over a small investment in a very early-stage startup as a single-GP fund, I can always call or email one of them and have them spar with me about why I should or shouldn’t do the deal. Like with their founders, they will always make the time for me.
Almost a decade ago, I was on a path to finish graduate school and move to Asia. As part of that process, I spent many years traveling to and working in India and China on a variety of projects for the university. Ultimately, I chose to come back to the Bay Area, but those experiences in India and China still live with me vividly, and I learn so much via osmosis at GGV about how technology and consumers in Asia are building the next new things.
As we saunter into the final months of 2016, and as I set out to raise Haystack IV in 2017, I am thankful for all of the opportunity that’s laid out before me. As someone new to investing, there is no playbook and guidepost on how to do all of this stuff they call venture capital. Now, I get the benefit of working with two platforms and that is both exciting and liberating.
I woke up on Friday ready for a day of back-to-back to meetings. Scanning my email, a few reporters had sent short emails asking about some embargo related to Chariot. I texted Ali, the CEO of Chariot, with a casual “Hey man, what the…?”
Then around 10am, my iPhone started to buzz. As with any type of acquisition of a consumer product or service — and especially one in the transportation space, which is red-hot this year — the news that Ford Motors had purchased Chariot (via it’s Ford Mobility Solutions arm [official Ford press release]) was of keen interest to folks in the echo chamber and beyond, as evidenced by the fact it was widely covered by The Wall Street Journal, The Verge, CNBC, Recode, Business Insider, WIRED, and more.
Investing in Chariot was a different sort of move for me, and it ended up being a different type of investment. Initially, I thought Chariot was a joke — as in, it couldn’t be real. Then, I received a very nice email from Ali, the founder, and poked around a bit more (see below). We agreed to meet. Over the course of a few months, we met a number of times. We didn’t have any mutual friends. I had to check his references. I even had to call his lawyer to verify his company’s bank account, records, and other items. Everything checked out.
I still didn’t invest because it was so early. In that time, Ali and I became friends (spring and summer of 2014), and eventually I told him that I’d like to invest a little but mainly introduce him to everyone I know. At that point, Ali had raised some money from friends and family, had gone through the local Tumml accelerator, but couldn’t get past that milestone. Notably, Ali put down nearly $100,000 of his own money to lease the initial vans to get the service going. It may not sound like a lot given all the money floating around the Bay Area, but when you hear a pitch from Ali, you could feel that cash commitment was more than just a pound of flesh.
Chariot careened onward over the years, getting to the point where so many consumers would use it frequently (it had incredible retention rates), riders would spend over half a million dollars per month just along a few routes in San Francisco. It turns out that lots of people just want to get to work and back home without hassle, and they’re willing to pay a bit more than Muni for that comfort, but a bit less than UberX. Chariot added some interesting twists to its expansion model, most notably that it would encourage commuters to organize themselves and crowdsource their demand for new routes and “tilt” a new line. Along the way, Chariot outlasted nearly all of the other well-funded competitors in the space, and while we all know it’s hard to raise funding, imagine for a moment pitching Chariot during a time when Uber is surging worldwide and in your backyard. That is another level for degrees of difficulty.
I finally got to talk to Ali late last night, the day of the news of the acquisition. He told me the whole story of how it unfolded, and how he drove it to a close. It’s not my story to tell (more on that soon), and those details are a bit beyond the point. What’s most important to me — and when I’m writing this now, I don’t even know the size of the outcome  — is that working with Ali never felt like work — we were and we are friends. Work has evolved to a point that in some special cases, you are just hanging out with and helping your friends. As Ali was building up Chariot, he would periodically reach out to me, to ask me how I was doing, how building up Haystack was going. He even went so far as to ping all of his old banker friends and big families in New York City (where he’s from) on my behalf. Ali has called me countless times expressing his deep frustrations with some aspect of his quest to give birth to and nurture Chariot, and we have had our share of difficult conversations. There was a time where we didn’t really talk for a quarter or so, but we always remained friends. That made it even nicer to chat with him last night and hear the details — I could hear in voice that he was both excited and relieved, that a part of the race was over and he could energize for the next challenge ahead with Ford, which frankly sounds like an incredible opportunity for him and his team .
Some of the “exit” blogs from the investor-side can veer over into analysis — I could’ve have written how Ford is perhaps transforming from an automobile manufacturer to a transportation company. Or, some of them veer into the realm of how much work the investor did to help build the company — I did the syndication stuff, the YC stuff, etc. and I helped close some candidates, but to me, the real story is that Ali and I became friends through the process, and that’s what I’ll remember when I look for the next investment to make.
 I received over 50 emails and texts yesterday from friends. All asked about the price, too. I have no idea! I wish I did, believe me. Ali is a vault. What I learned from this process is sometimes even larger firms don’t know the final price of a deal until the wires hit.
 Ali wanted me to mention that he is continuing with Chariot, full steam ahead, now with more resources at his disposal, and he is aggressively hiring: www.chariot.com/careers
Years ago, I used to work in Oakland, commuting downtown daily while living off Dolores Park. That seems like a lifetime ago. Now, entrenched with work and family in the Valley, I rarely get to make it over to the East Bay — I wish that wasn’t the case, as I do believe many great founders emigrated across the Bay Bridge for slightly more sane rents and in anticipation of the changes coming with the spillover effect of entrepreneurship, as well as Uber’s new building in downtown Oakland. Perhaps the promise of gritty new founders and food with real taste will lure me back over time. I hope so.
Earlier this year, I invested in a small company in the aviation defense space. The founder of that company works closely with various agencies associated with DARPA and the Department of Defense, and even before the ink dried on my investment in his company, he told me about another “drone” startup in the East Bay — but this one built autonomous drones for the ocean. What? He couldn’t remember the name, so I did some web sleuthing and finally stumbled upon the company, indeed located in Alameda. I had a number of mutual connections to one of the co-founders, and reached out to him directly.
He wrote back right away.
In a few days, I rearranged my schedule for the day in SF and took a trip across the Dumbarton Bridge, up 880, and snaked my way to Alameda, out to the shore, and into the old hangar that now houses Saildrone. I got to meet the team, toured the facility, and saw the construction of various sizes of bright, buoy-orange seatless catamarans, outfitted with a neat onboard sensor panel, solar panels, and an unforgettable dorsal fin. I went through the motions in meeting, but in the back of mind, I was mainly thinking, one, “How do I get into this company?” and two, “How can I help them raise the round they need to?” I immediately assumed the former would work out, so started working on the latter, and am happy to have brought along a great VC firm into the syndicate around the Series A.
There are so many things Saildrone can do, but perhaps the most interesting is in its cost-efficient capabilities to continuously collect ocean temperature data down to the fractional degree in various ocean microclimates. For those who know how climate change models are built, one of the largest assumptions in those models concerns ocean and sea temperatures — a vessel like Saildrone can capture a granular-level of temperature data that can hopefully better inform and bolster those models. And, this is just the tip of the Saildrone dorsal fin, so to speak.
Saildrone is an exciting investment for me that touches upon three seemingly unrelated themes I believe will play a part in defining the future: (1) The market for industrial robotics, including autonomous drones (whether aerial or water-borne) will be enormous — I have a future post coming on this topic and my various investments in the space, stay tuned; (2) That local governments and municipalities will be under financial pressure from lower tax bases to reinvent their operations and services with software (which lines up with my investments in Remix, OneConcern, and Seneca); and (3) The rate of climate change is actually accelerating faster than even most liberal models can predict, and will force many coastal nations to set aside billions of dollars for FEMA-style funds to pay for all sorts of technologies to help deal with the effects of rising sea levels and atmospheric change — this lines up with OneConcern, and now Saildrone (check out a video here and see yesterday’s coverage in The New York Times).
Earlier this year, Mark Zuckerberg stood in front of a deceptively simple and elegant slide that laid out the future of what Facebook will focus on. In that slide, we see everything from satellites to artificial intelligence, and beyond. In addition to far-out technologies, we also see a heavy emphasis on the power of video — delivered on the web or via mobile. And as 2016 has unfolded, we see mobile video exploding across brands like BuzzFeed (with Tasty), new brands like Arsenic, and of course, Facebook and its various mobile properties getting into the game alongside players like YouTube and Snapchat.
As everyone knows, increased video consumption in general is large consumer trend. While there’s certainly opportunity to invest in new brands emerging built on top of social networks, I am also interested in what founders will help power the underlying infrastructure of the growing market. Relatively speaking, watching video online or on your phone today is still relatively a new thing — and the experience isn’t great. We know a huge wave is coming — across America, most video consumption at homes is still via traditional cable — the Rio Olympics had 26M prime-time broadcast viewers in the U.S. versus about a half-million or so streaming viewers. Eventually, this will flip. Who will make that so?
On the Friday after the W16 YC Demo Day, I reluctantly took a meeting at 4pm, right before picking up my daughter at daycare. A friend recommended I talk to Mux because he also invested. Ten minutes into the chat, I was very glad I did, and 90 minutes later, as I drove away, I was figuring out how to squeeze into the deal. The founder of Mux, Jon Dahl, and his team are known in both the video (Zencoder) and open source communities (VideoJS) for bringing a deeply rich and technical background to their field.
Earlier this week, Jon asked me if I would write something in conjunction with Mux’s funding announcement. “Of course,” I replied — I am proud to be an investor in Mux, but I don’t like “timing” my posts with the onslaught of news, so I’m writing this today on a lazy afternoon where fewer people will see it. That’s no matter. Additionally, Jon pummeled with stats about the online video industry and technical jargon to include, but that wasn’t why I invested. In invested in Jon because the depth of his experience in his field is self-evident, because he received a strong recommendation from a close friend, and because the initial core of the company he’s building has started out with his friends — he doesn’t have to turn into a full-time recruiter to get off the ground, and within their long-lasting network, Mux can snap its fingers and get to millions of ARR when its first product hits.
Jon’s background and his team’s background give them a headstart in what will be a large, growing, and dynamic market. I simply believe that Jon and his team can do what they say they’re going to do, and it’s been fun to provide a pinch of help along the way. But the truth — the dirty secret — is that Jon and his team don’t need much help to get out of the gate. And, I get to go along for the ride.