I watched a few videos of MLK yesterday before going to bed yesterday, on MLK day. They were queued up in my email and social feeds. This year on MLK Day, I noticed more people sharing videos and images of MLK, much more than in the past. Maybe with better and cheaper data coverage, more phones everywhere, access to YouTube and other image galleries, and social networks allowing not only more customized distribution but also different channels (and therefore content) to capture our attention. I think most people who could took some time off yesterday to be with friends and family, and I also wouldn’t be surprised if they watched an MLK video that was shared or read up on some shared articles.
Then, I noticed someone shared the homepage for Apple.com. Here’s the screenshot, below. Apple is a company that has soul, in the sense they put meaning into their products. Now, not everyone may like that approach and this is also marketing, but it’s effective marketing:
It reminded me of the 2014 Holiday Season ad by Apple that showed a young, black girl using an iPhone and Mac products to upload old audio from her grandmother and then using Garage Band to remix the sound. The result is a gift for her grandmother that reminded me of the Private Press segments used in DJ’s Shadow’s album, “The Private Press” — click here to hear a sample of that. Powerful, powerful sounds.
It wasn’t too long ago that race and Apple was in the news. Remember when news started to leak that Apple would buy Beats by Dre? Everyone had an idea about the angle, the rationale — some liked it, some thought it was dumb. Most shocking to me were the sneers when it was floated Dr. Dre could be an executive at the company. Well, why not? Funny that was even an issue. But now look back at some of the best Beats commercials out there — I picked this one from Colin Kaepernick (see below). This is what Apple is also interested in, expanding from fanboy culture into different products (like headsets) to put their sensors into (like Apple Watch, etc.).
Being gay has given me a deeper understanding of what it means to be in the minority and provided a window into the challenges that people in other minority groups deal with every day…I don’t consider myself an activist, but I realize how much I’ve benefited from the sacrifice of others…We’ll continue to fight for our values, and I believe that any CEO of this incredible company, regardless of race, gender, or sexual orientation, would do the same. And I will personally continue to advocate for equality for all people until my toes point up.
All of this, in just the last 4-6 months. It isn’t discussed often, and maybe it’s marketing, too — but there’s a pattern here, and a clever one at that. Apple is using powerful images, quotes, videos, and other forms of media created by black artists and orators. And, while it’s great PR, I also believe it’s quite genuine and surely consistent. The company is obviously intentional with how it interacts with the public at large. Many companies may try this kind of PR, but they wouldn’t be able to pull it off. When you step back and look at the language in the letters, the imagery and messages on their site, the cultural strategy in acquiring Beats, and the 2014 holiday video spot, the threads tie together tastefully to portray a different side of Apple not often covered in the tech blogs.
A concept that’s come up often lately in conversation revolves around “running a process” in fundraising. Even though I’m a small number on the cap table for any company I work with, my #1 goal is to help the team evaluate existential risk, which usually comes down to funding risk. Eventually, some get to the point where they’re ready to go for the next investment round. It’s an exciting time, but the change in game dynamics from seed to institution is so drastic, I see lots of founders getting tripped up, wasting precious time, enduring extra mental taxes, and most tragically — losing control.
The CEO position is about control. The most successful founders I’ve seen (with respect to being efficient at fundraising from bigger institutions) run a process. They have a game plan tied to a calendar. It’s like Bill Belichick who coaches the New England Patriots. They have a start date, and an end date. They over-communicate their timelines to prospective investors (in a friendly way). They’ve already socialized things before the process even begins. They send subtle reminders. And, they’re unafraid to cut off a discussion if diligence takes too long or investors are hovering around but not digging in. Their entire body language, email language, and overall communication style oozes “I am in control.”
The cost of not creating and executing a process can be brutal. What should take a few weeks could take months — or worse, end in a bridge situation with existing investors. It’s hard to regain any deal momentum (should one be lucky to have it in the first place). It can sow doubt and worry among current team members, e.g. “Hey, do you think ___ can actually raise the next round?” It can even dampen future discussions if the company has to go back to a firm where the process wasn’t there or fell apart. Investors are implicitly looking to invest big money into who they perceive to be leaders — leaders with a plan. There’s no playbook, so the trick is to create one’s own playbook.
I’m not theorizing here. I’ve seen this happen a bunch now. There’s a pattern. This is likely one thing (not the only thing) that starts to separate the haves from the have-nots. Plan accordingly.
I’ve been talking a bit more recently in private conversations and a few tweets about Twitter lists, and I was surprised that people would ask me “How do you use them?:” or more interestingly, “What are they?: Ugh, Twitter UI regression. There’s a long history around “Lists” that isn’t worth going into, but essentially, Lists are user-generated lists of accounts — either public or private — that provides a different feed to the user, separate from their main feed. For instance, someone can create a list that includes @justinbieber without having to explicitly “follow” @justinbieber.
It’s a bit confusing. Twitter Lists are a power user product, and I’m sure many people who use them do so in different ways, so I’ll share mine briefly:
I keep about 4 public and 4 private lists: https://twitter.com/semil/lists
One of the private lists is max of about 100 accounts of friends, colleagues, or feeds I don’t want to miss — for me, it’s the max number of accounts I can really pay attention to without feeling overwhelmed. Most of the time, I’m in my main feed just seeing what’s most recent in the last hour.
I will scan the other lists if I have time, but it’s really a scan. Could be a few seconds. I don’t visit the web directly much more — I see the web through Twitter. And, as that increases, creating lists (like I recently did around cyber attacks) helps me quickly get up to speed on what’s happening. Think of it like the print WSJ front page that has those two columns of headlines on the left — lists are those, but entirely customizable.
Ultimately, Twitter lists are a great feature, but they’re hard to access and use (it’s even hard to build a list, to be honest — it takes time), and just like DMs before it, or the newsfeed in general, the overall decline in information density on Twitter web is why I don’t use Twitter native products anymore. On mobile, I use TweetBot (great list views) and TweetDeck in the Chrome Browser for my laptop, which also has great list views. I’d probably be blind without lists.
Lately, I’ve been thinking there are some real threats to the microVC model (say, sub $50M funds). This isn’t to say some won’t do very well — and especially the recent news from Dan Primack in FORTUNE about the first Lowercase fund, which will soon be the stuff of legends and, scarily, isn’t done collecting returns just yet. So, Sacca took about $6-8M and turned it into well over $1B.
Could that happen again? It could, but the glut of small funds (full disclosure — I am part of this problem!) need to show returns to survive. And, therein lies the rub — returns. There are some things going on in the early-stages that threaten the return profile of funds, such as:
Pro Rata Rights: This has been discussed at length over Twitter, on the blogs. Dave Lerner has a good summary here. Essentially, early investors who are granted pro rata rights often are asked to relinquish them at the next round of financing. In my experience, this can be about 18% dilution per round. If the model of a fund is driven by returns from the outlier (should a fund be lucky to have an outlier), the lack of strength in retaining pro rata can directly impact IRR and overall fund performance.
YC Alumni and YC Itself: A company can take $120k or so from YC, find product market fit, and go right to a large VC firm. I’ve seen it happen a few times. Amazing companies in those examples. Elsewhere, the strong network effect described by Elad Gil in his post allows this new and growing network to fund current students from alumni tithings, except here the investments are direct and can be quite meaningful. Going from seed to A to B for a YC founder or alum as an investor could show unrealized markups of 20x in about a year (I’ve seen this). The point here is — they have access before the micros.
Crowdfunding: This has been written about often. A good source here is Matt Witheiler’s blog “Bits of Cents.” Briefly, founders can use crowdfunding platforms like Kickstarter to test demand, take a range of pre-orders, and then go right to a big VC if there’s a strong team, market, and evidence of consumer demand.
Syndicates: This is a form of crowdfunding on AngelList, but worth mentioning separately here. Even raising $500k right now can take lots of time, and while it’s not totally easy, the money is everywhere. If an individual investor with a Syndicate wants to just put in $25k and has enough in the Syndicate to fill out the round, the founder may elect — in the interest of time — to just take the money, the one line item from AngelList, and go forward. Here, speed is the issue — instead of meeting a bunch of micros, just take the initial money and see what happens.
Big VCs and Companies With An Appetite To Go Early: VCs are incubating companies. They’re doing seeds in great teams because they have bigger funds and money needs to be put to work. A great team will be funded. Oh, and big companies are playing, too.
The common thread here is to isolate groups, dynamics, or vehicles that have access to early-stage deals before micros can get in (or want to take the risk). There are some glimmers of hope for microVC, however. One, small funds can be more nimble, creative, and cobble together returns as it’s easier to return smaller funds. Two, the “Sacca Effect” will surely ripple not only among GPs (it may have already), but also LPs who will start to see the hidden potential of strategically placed micro funds. And, three, the microVC firms are getting bigger (some of them) and now leading rounds around $2-3M, which is new Series A. I go back and forth on this myself. Sometimes, I think investors can get trapped in seed, yet sometimes I think, this is where all the important relationships get formed.
For most of the second half of 2014, I tried to find early-stage companies doing interesting things with smart contracts. I was lucky to find one (still very early), and I’ll write about that more later in the year. Then, another thought occurred to me — this is what eShares could do. So, I searched AngelList, saw a mutual friend invested, asked for an intro, and emailed back and forth with Henry until he agreed to meet.
It took about 4-6 weeks to meet. When I walked in, he said they closed their round with a larger investor (which is why he was so quiet) but had a bit of room left for a few individuals. I waved my hand. He laughed.
For anyone who has had to deal with startup stock certificates, shares, and dispersing (or receiving) funds upon a triggering event, there’s a lot of complicated, messy, and oftentimes confusing rules and procedures. In the abstract, I’m sure we all understand the pain. While many people want this stuff on the block chain (vis a vis smart contracts), it may take time for the technologies to mature to the point where a company like eShares verifies the certificates and transactions, not entirely peer-verified. eShares has that chance to win the ledger business.
Months after investing, I was talking to Henry offline about stock certificates, and tweeted this out. That tweet, surprisingly, turned into a firestorm, ended up in a great blog post by Henry on Medium (over 50k views), Fred Wilson wrote about it, and TechCrunch covered the issue thereafter. That has the makings of a real problem startups (founders, employees, investors) face collectively, and eShares may just be the right idea at the right time to help solve it.
In conversations with friends in the community over the last 4-6 weeks, the same questions seem to come up, so I thought maybe I should just blog a quick “FAQ” in case many more people are also interested in the same topics — alert, this is all highly subjective, and usually what I relay to others in person, so I’ve just written it down here — much of it could be wrong or misguided. Fair warning:
“How should I think about investing in startups?”
Many people have fallen into liquidity over the past few years. Now, what to do with is? I’ve been approached by tons of friends, peers, etc about this. Here’s my general response, then followed up by something specific I believe in: Talk to friends first who have experience with wealth management. At some point, you may elect to put aside a small percentage for investing in startups. Think about whether you’d like to do that directly or through another fund. It’s really hard to know what investor or what fund is going to catch the best investments. The past is not necessarily indicative of how the future will shake out (with respect to funds), yet in most funds who are fortunate enough to return funds, there’s usually one investment as an outlier which drives all the returns. There’s a lot of randomness and luck and I’m not sure how safe investing in this category is, so just do so if/when you’re ready to roll the dice. (For those who want to start funds, just be prepared for a lot of legal stuff and accounting stuff, and usually those things are uneconomical (ie foolish) when dealing with a small fund. However, raising a bigger fund is not easy, either, and requires some kind of track record.)
“How should I get started writing, blogging?”
It depends on whether you’re (a) actively trying to build an audience or (b) writing for yourself first and sharing it with the world. Most people, when asked, will say (b) but when you dig into it, they really mean (a). So, the first step is to be honest with the pursuit. There’s nothing wrong with (a). If you’re trying to build an audience in technology and startups, get onto Twitter and Medium and keep it short, precise, different, and smart. Easier said than done. If you’re more motivated by (b), then just start writing about things that you care about and sharing it (briefly) with the world. Keep pieces short, unless you want to go deep. Assume people have short attention spans. If you look at the best, most-read people in tech and investing blogging today — Fred Wilson, Om Malik, MG Siegler, Chris Dixon, Marc Andreessen, and Mark Suster — the one thing they all have in common is: They’ve been writing forever, constantly, never stopping. It’s more like a disease or habit than something one just does.
“How does one crack into venture?”
I laugh a bit here because I don’t consider myself having cracked into the industry. I usually point people to this short video discussion I had with David Hornik, it’s a 5-min clip that’s worth watching. To paraphrase him, he said the best way to get into venture is to pick something else you’re interested in and do that (and be great at it), and then maybe some day you’ll crack in. A mistake I made was to try to go in directly, way before I was ready — if only I had known then ;-)
Over the last week, I’ve been posting about minorities in tech, startups, and investing. The core issue here is while most investment capital for startups resides in the Valley and SF and while most deals originate through referral networks, using curated lists on Twitter could (theoretically) help foster conversation outside traditional networks — especially with folks who are not often represented.
Since then, Intel announced a huge $300M diversity fund initiative, and Fred Wilson wrote about what folks in investing and startups can do to help. Last weekend, I created a public Twitter list called URM, for “underrepresented minorities” in tech, startups, and investing — Kristy Tillman (@KristyT) from Boston helped out a ton! She created a hashtag for this called #URMList. You can check out and subscribe to the list here. What’s cool is that there are already more people subscribed to the list than on the list (for instance, Marc Andreessen, Fred, my colleagues at GGV, and many more now follow the list) — though I want to keep adding more and more people. I received almost 50 different emails from folks with ideas on how to get investors to engage with #URMList on Twitter:
People who are on the #URMList likely don’t know each other. The list is public. Please subscribe to it even if you’re on the list.
Please keep sending me suggestions and twitter handles for more people to add to #URMList.
Second step in this plan was for me to create another public Twitter list of SF/Valley investors (plus a few others) who engage often on Twitter. Here it is, subscribe here.
So, here’s the next thing I’d suggest people do — begin conversations with people on each list, both the VC list and the #URMList. I’ve started to a bit when I’m on desktop using TweetDeck. There are about 200 members on #URMLIst and I know 2 of them personally, and the rest I’m just listening to. I think it will take lots of time to find overlapping interests, but Twitter isn’t going anywhere and either are any of us.
I made my live TV debut yesterday on Bloomberg TV. I’m hoping I’ll do more video moving forward. As someone who has done lots of video (but not live), I’m looking forward to it. I’d love any feedback you have. Clearly, I need a wardrobe refresh and dammit – I wish I was in better shape and had some fashion sense! Ugh!
The interview with Cory yesterday was about Instacart. You’ve probably heard a bit about them already, and you should prepare to hear much more about them soon. Americans spend almost $700 billion annually on groceries. The pull of the market is very strong. There’s a lot of growth to come, and watching the team launch new cities is fun. As a former cook, I still love going to the grocery store and picking up ingredients, but there are just times I can’t go — and Instacart works every time I need it to. Easy and simple. And, very soon, quite big, too.
It’s been an interesting couple of days. On Friday, I posted about women and minorities in startups and investing, and yesterday, I followed-up with a more targeted post focused on underrepresented minorities (URM) in startups and investing. I’m trying to listen and focus on small things I can do in my limited capacity that may have leverage. The main argument I’ve found most compelling relates to networks and information theory — that if any investment pipeline is a product of an individual’s or firm’s own network, and if the Silicon Valley and SF proper (where most venture capital resides) is — let’s face it — not racially diverse — then the pipelines may only be tapping certain wells.
So, I started thinking about this last night. Here’s my thought process: 1/ Twitter is the single-greatest networking tool for folks in startups and investing. 2/ Most investors either are on Twitter (or should be, in my opinion). 3/ Underrepresented minorities in general make up a significant portion of activity and culture on Twitter (especially in America). 4/ Twitter facilitates conversations with the least amount of friction, seen lately around conversations I unassumingly started on pro-rata rights, physical stock certificates, and this topic, too.
And…there’s my idea to start, to kickstart more lightweight, organic discussion that’s outside the normal everyday networks and routines for investors. So, here’s what I did:
First, I created a public list on Twitter called “URM” which is a list of underrepresented minorities in startups, tech, and investing on Twitter. So far, there are over 100 members I’ve put into the list and I’ll make it my small contribution to keep adding to this list until my fingers bleed. You can follow the list by clicking here — note lists strip out most conversation @ reply mention tweets, so it will be higher signal.
Second, if you’re an investor on Twitter and reading this, please subscribe to the list and make a concerted effort to engage in conversation with people on the list. There’s no requirement to follow anyone and this should be more about getting to know other people over time and engaging in discussion versus investment pitches. Right now, I see about 30 people have subscribed to the list, and when I check it next week, it would be nice to see 100s of investors subscribed, too.
Twitter seems like the perfect first step here. It’s lightweight, easy, conversational, and if you’re reading this, you’ve likely met many of the strongest people in your network using Twitter, so what’s to say that it can’t continue? There’s no travel required, no email, no pitches…just a public dialogue…and likely an easy way to make new friends. In just 24 hours, I know I have.
Yesterday, I wrote a post about “women, minorities, startups, and investing.” I expected it to drum up some discussion, and though it took some time, it did today. I’m using these blogs and conversations on Twitter as a chance to learn. It’s not easy. What I’m learning so far is often obvious but worth repeating. One, lumping “women and minorities” works but only up to a point. I’ll use “URM” now to talk about “underrepresented minorities,” which are mainly blacks and latinos/as, among others. For women, though I’m starting to personally see more female founders and investors, most of them are white or of Asian descent. Where I think I can add a small bit of leverage and maybe make a difference would be related to URM, so that’s what I’ll focus on.
What Do Basic Demographics Say?
Some of this stuff is obvious but worth writing out. While the U.S. is evenly split on gender (about 50.8% females, but growing), census data shows 77.7% who are white, 17.1% who are Hispanic or Latino/a, about 13% who are black, about 5.3% who are Asian. According to PEW, both Hispanic and Asian population rates have been growing in America, but for different reasons — increased birth rate for Hispanics, and immigration for Asians. The black population in America has been growing just a tad faster than the overall population, while Latinos are growing so fast in some areas, they’ll surpass whites in total population — see California. [Outside America, of course, with mobile platforms growing like weeds and new ones like Xiaomi on the rise, entrepreneurs worldwide can now "go global" a lot faster and attack markets far away from home.]
What Are The Key Arguments?
I’ve heard many great arguments as to why the current financing setup doesn’t work for all parties. Too many to list here, so I’ll try to summarize the best ones here in the spirit of getting to quick agreement and hopefully action below. First, investors love large, growing, dynamic markets, so if that holds (which is certainly true), then at minimum, the Latino growth rate points to a massive market and network (again, obvious) and a huge number of black citizens which jointly represent enormous buying power. Second, most private venture investment which happens early at the seed stage involves people with money or small funds (like me) who meet people through networks, referrals, and groups — however, at least in the Valley, which is not racially diverse in the technology sector, and since most investment seems to happen locally (I know I prefer to invest locally), it’s hard to even see URM founders, let alone investors. As a result, we have to actively seek them out, outside already formed networks and probably outside the geography.
What Can I Do In My Capacity?
I have spent the last 24 hours trying to come up with concrete ideas of things I can do. I am a small investor (writing $25,000 checks) but try to catalyze investment rounds when I have conviction. My personal preference when investing very early in people I don’t know personally is to get to know them over time. I have done this with 5-6 founders with whom I had no connection to, and after a few months, I got to a point of conviction. I write a lot here and on Twitter, though I don’t have a big platform — for any random post I write here, on average it generates about 1,000 page views. Not bad, but it ain’t going to move the needle.
So, what am I going to do? I’m open to suggestions, but so far, I’ve thought of the following: (1) I’m going to focus on URM and to start, created a public Twitter list called “URM” and will start adding to this aggressively (Link to my URM Twitter List. It’s small right now, but please forgive me as I’ll add to it over the next few days. I’m going out to run an errand now but will get back to it). My hope here is that I’ll listen and learn the landscape over time and hopefully make some new friends. I don’t have much of a social life these days but Twitter is a great place to meet people, I’m convinced of that. (2) I’d be happy to work with any conference organizer on making sure larger, open events have a URM-style carve-out or scholarships for people to attend. I know first-hand it’s hard to get parity up on stage with panelists and while the crowds are getting more diverse at events. Maybe the solution is like an “Intel Inside” sticker but one for URM at events. (3) While I stopped Sunday Conversations, I’d be happy to partner with someone on a podcast series focused on URM. I don’t want to commit to this myself given my schedule this year, but I will happily work with someone who cares about this, has demonstrable podcast experience, and set up the show for success. I want to involved in shaping it, so please consider this an open invitation to get in touch.
Finally, as a very small and usually inconsequential investor who has little to no leverage and doesn’t even get pro rata rights in rounds, people in the conversation over the last 24 hours encouraged me to simply state that I will fund URM-led companies. I feel weird writing that because, shit, of course I would (and have)! It never crossed my mind that I should state it publicly, but one, the life of startups and investing invariably involves a ton of “no’s” as answers, as frustrating as that is, and those “no’s” come for a variety of reasons that are fair and unfair; two, that doesn’t mean any and all pitches with me will end with a “yes” because I tend to be a picky person, but all I care about is meeting dynamic people who have already started something that is being used. I would prefer to meet new people without the pressure of an investment decision. My email is listed on my site and I’m quite open about my interests, networks, and style. Hope to meet you soon.