Last summer, while continuing to invest in early-stage seed Bitcoin-related companies, I wrote a post titled “The Bitcoin Crunch.” That post tried to encapsulate and summarize what I saw bubbling up when seeded Bitcoin companies tried to go for their next round of funding. Just like the broadly named Series A Crunch hammered the over-funded seeded companies, the verticalized crunch on Bitcoin companies was brutal but necessary.
Since then, things have stabilized. The price of Bitcoin has steadied, but more importantly, bigger companies building critical infrastructure in the ecosystem were rewarded with larger sums of downstream funding – Coinbase, Chain, BlockCypher, and many others — not to mention 21e6′s mega ambitious round to build mining chips for electronic devices.
Remember “The Series A Crunch”? Well, I think an offshoot of this will manifest itself across what feels like almost 500 Bitcoin related companies. I, myself – I am a Bitcoin believer and Bitcoin junkie. Yet, despite that optimism, I am continuously floored by just how many Bitcoin startups are out there. I don’t know who is funding them or how they’re making money to survive the typical cycles needed to make Series A investing, which I’ve recently heard defined as “when pros invest and set the terms.”
Here’s a brief snapshot of what Bitcoin 2.0 is shaping up to be:
Valuations Relatively Cheaper - With unicorn hunting distorting all sorts of investor behavior, investment firms with smaller AUM and/or a deeper conviction in this ecosystem can bridge or extend funding for quality teams at very reasonable prices. One could argue it’s a better bet for real venture right now vs paying up into a red ocean category where their may be only 1-2 survivors.
Weekend Hacks Not Getting Funded - The quick-release “me too” Bitcoin companies are fizzling out and not getting funded. It is tough for some, indeed, but unfortunately necessary. I hope the emergent platforms consider some of those former founders for operational roles in their companies. The seed market has rationalized on Bitcoin.
Making It Easier To Build On The Blockchain - We all know the 101 awesome things that theoretically “could” be built on the blockchain, but those aren’t being built just yet to a level where we can openly interact with them. In the meantime, blockchain middleware is emerging as a category — people who build systems that make it easier for developers to build on the blockchain.
Core Platforms Getting Funded - Coinbase is now the leading platform, and no one is close (in my opinion). I’m starting to see experienced entrepreneurs build on top of Coinbase with applications that have real world use cases right off the shelf. In the same way Uber wasn’t possible before the iPhone and maps, a new breed of companies that wouldn’t have otherwise been possible without Coinbase will slowly emerge.
It’s been a month since we organized The On-Demand Conference. The folks at TradeCraft were able to capture and upload media from the event, and there’s a great mix of content and knowledge from that day, now accessible to all below. I’ve tried to present the videos in chronological order, the best I could. As an investor in space, I particularly loved the sessions that focused on B2B on-demand (with Managed By Q, and others), the investor panel with Steve, Satya, Simon, and Patricia (which was very lively and touched on some controversial themes), and the panels on customer experience. But, of course, everything was great. Thanks to TradeCraft for organizing and creating this rich media for others to learn from.
My personal favorite was the start of the day — a fireside chat with Shervin. We discuss on-demand stuff, but really it was more of a chance for Shervin to share a rich history and reflection on his move to and time in the Valley. Shervin was one of the very first people I met when I moved here. He made time for me, and it was nice to reconnect and catch up in such a public way.
Finally, I had a chance to end the day with a short presentation on where I see the on-demand space headed. It’s about 10-minutes and has slides, and encapsulates much of my thinking around the topic right now.
There are a small handful of blogs/newsletters I read daily. The first one of those when I started on this path was AVC. About a week ago, Fred wrote a reflective post about the on-demand economy of today and all the startups who are riding this wave. You can read Fred’s post here, and the picture of Gotham Gal wearing the old Kozmo swag is awesome. (Kozmo was available in NYC right when I moved back after college to start working — I remember ordering from it a lot and how much free stuff they gave away.)
One of the lessons threaded throughout AVC is “history doesn’t repeat itself, but it rhymes.” The implication is the same themes emerge through cycles, even if today’s incarnation looks different from yesterday’s on the surface. In the post, Fred writes:
Kozmo pioneered the idea of same hour delivery in 1998, fifteen years before its time. Kozmo pioneered the idea of raising and spending hundreds of millions of dollars a year long before it became fashionable, even normal to do so. Kozmo nailed the practice of scaling while your unit economics are upside down. They took that practice into almost twenty markets before the capital markets turned on them and there wasn’t money available to incinerate anymore.
As someone who has spent a good portion of the time seeding and helping early-stage companies in the space, I wanted to digest Fred’s post and write out a structured POV on it. Briefly, here goes:
On Unit Economics: There’s a lot of truth to this and the arguments/concerns are sound. Early-stage investors have, in certain cases, given entrepreneurs incredible credit in advance of nailing unit economics. The reason they do so, I believe, is because there is some premium to proving, even in one market, that a team can create and deliver a service which triggers a behavior change. The next venture bet is on spreading out that behavior to other test markets. We will know in a few years if that was too much credit.
On Raising and Burning Hundreds of Millions: Outside of Uber, Lyft, Instacart, and a few others, there are more companies making noise about the on-demand economy than raising gobs of money. Sure, some of it is overfunded, but if you look at the base stickiness of those services, in many cases things can be justified, and many of the firms who are already into those companies have deep enough pockets to stay with them in the event of a turn in the market. Speaking of which…
What if Capital Markets Turn Suddenly? Many arguments here, but if it’s a general turn, and people have less disposable income, they may be more sensitive to overpaying for convenience and speed, and that could depress demand while also putting pressure on companies to raise prices, to price dynamically, and to bundle other services on top of the core. For those who are funded, while opening a city is a serious operational cost, most of these teams are expert in figuring out how much capital and time it takes for a city to become self-sufficient. The ones that can’t do that won’t survive.
Despite the froth in the category and acknowledging there will be some ups and down for companies to withstand, two things make me optimistic about the on-demand concept overall, moving forward:
Today’s Overall Competitive Structure: When Kozmo launched, people weren’t used to web-enabled inventory and delivery triggers. Now, we are, and huge companies like Google, eBay, Amazon, Walmart, and even Uber are all actively thinking about offering on-demand or scheduled services to increase the bond with their customers. These companies will certainly be acquisitive in the category (in this arms race) and provide a soft landing for many startups, assuming they haven’t been over-valued and assuming the core mobile and data teams come along for the ride.
Spreading the Concept to Business, Healthcare, etc: I am shifting my focus in this area to on-demand concepts that serve businesses as their customer (like Boomtown, and others), as well as spaces like healthcare and heavy industry. I am already seeing lots of activity, and there are more opportunities for founders to layer in SaaS+marketplace models into these startups given the customer base. Just like the sharing economy has spread to other industries like construction (Asseta, Cohealo, etc.), I suspect on-demand will as well. It’s just a matter of time.
In the absence of living near family or having “help” with our toddler, we have consciously succumbed to, at times, letting her enjoy an old iPhone here, the iPad there. On the one hand, I wanted her to get comfortable with the OS, and it’s been fun to watch her learn so quickly — one of the first things she learned, of course, was how to turn off the Airplane Mode setting her dad would enable. She can consciously take pictures and scroll through photos, but there’s also a cost — try getting any kid to put the device away, and may the force be with you.
Like many kids living away from family and grandparents, our kid loves using FaceTime. She’s more than familiar now with the user interface for FaceTime, the large screen devoted to the other person, with a picture-in-picture for her face. In her mind, I think, she feels that person is real. She’s met them before, but the full screen bleed on an iPad Mini makes their face come alive.
Now, hold on for a minute while I write a paragraph about Elmo. I know, I know. Very cliche, but I was amazed at just how fast our kid heard about Elmo, started asking for him, and then got attached — a stuffed animal Elmo, coloring books, the music, songs. You name it. She’s all in.
Then, a few months later, was with a friend in line waiting to get coffee, talking about our kids (and their affection for iPhones), and he talks about how the “Elmo Calls” app is a lifesaver. Brilliant idea. I downloaded the app for my daughter a few hours later, and it was fun to see her reaction. She immediately recognized the interface of FaceTime, and she immediately knew Elmo, so in her mind, she was just FaceTiming with Elmo. She was so happy, it was a very natural high. To her, Elmo was just another real person to talk to. The software just faded away and she thought she was speaking to a friend.
I tweeted about this a few months ago and had been meaning to write this post. Here’s the thread, which you can open up to reveal the comments. Turns out “Elmo Calls” was a project born out of IDEO, where they originally were designing the app to help toddlers get potty trained, but in their user-testing, they discovered the kids only wanted to talk to Elmo. And, thus, “Elmo Calls” was born ;-)
One of the great stories of our time is the multiple “Arab Springs” that networked-devices and social media enable in big and small forms. One way to think about that shift is: Distributing computing power across citizenries can create a stronger force than concentrated authorities. As centralized authorities lose power with tech distributing among citizens, we may also expect a less orderly transition to what is next — the next order. That “less orderly transition” will be a test for how we all collectively behave when no one is watching yet everyone is watching.
Over four years ago, before I even worked at a real web/mobile tech startup, I wrote a guest column on TechCrunch titled, “The Next Mass Consumer Social Wave: Political Expression.” It’s worth re-reading today as so much has happened since then (click here for link). I wrote this a few weeks after the Arab Spring protests in Egypt. That was a crazy time. As a student of history, I couldn’t believe what was happening in real-time. The future arrived very quickly. I am still in shock this is only four years ago, especially when I see lines like this:
Most citizens in the Middle East do not have these luxuries we take for granted. For them, nations like GMail, Facebook, and Twitter provide that place, a common platform which helps them tap, refine, and express an assortment of pent-up desires, and as we have seen, generate tremendous kinetic energy most levees cannot withstand.
In the old days, centralized or local (or surveillance) teams would gather footage, but then decide editorially whether or not to broadcast that information; today, with ubiquitous data and pocket-based computing, with broadcast television powers in our pockets via Periscope and Meerkat, with social networks like Facebook and Twitter to host and route information, we see a lot more of our world. Capturing, uploading, and sharing 1st-hand citizen accounts is the new voting.
Are we decaying as a society, or just seeing more of what had always been happening under our noses? There’s so much to say, but I wanted to keep this apolitical and brief. I’ll close with two (2) thoughts:
One, so much of today’s discourse reminds me of Golding’s “Lord Of The Flies.” Who has The Conch? We can’t talk about (dis)order without revisiting the symbolism of The Conch. It used to be central authorities or networks — now the conch is distributed, so things sound noisier, and things feel disorderly. because we have to listen to 1,000 conches — not just one. Things may get worst before they get better.
Two, in an optimistic sense, I try to draw personal inspiration from this change, however bumpy and unsavory it is. Back in high school, my focus and ambition was to enter the world of politics in some way. That evolved and refined over time. I wanted to have an international life, to be a diplomat, to serve in foreign areas. I was dealt a setback in the college admissions process, and then turned to (almost) studying law as a means to exercise that desire. Luckily, a former boss stopped me from going to law school. Yet, the dream of international diplomacy still pulled at me, taking me to graduate school and a course of study focused on this — yet again. And, again, I was passed over, repeatedly. The worst experience was having an official from a not-to-be-named central authority request an interview, only to have the civil service employee arrive late, unprepared, and in sweat pants.
I couldn’t have imagined a career investing in technology. I do not know much about investing or technology. But, it is the path I’m on, and the best part is that some of the change I hoped to be a part of via diplomacy may not just also happen via technology, I may in fact be in a stronger position to advocate for it. Specifically, that could mean studying and investing in technologies that (1) increase and democratize web/app access for more and more people; (2) provide alternative, ad-hoc, and mesh networks for people and machines to communicate within; (3) foster new payment mechanisms which lower costs, provide different types proof (time, payment, justice, etc.), and empower the powerless; (4) create new employment opportunities that increase both take-home wages and flexibility around scheduling; and (5) change and improve how we live, work, and get around our physical environments.
An LP I know well pulled me aside recently to point out that investors who raise funds also, like entrepreneurs, have to go through a test — Who are you? What do you believe in? What do you stand for? Not too different from how The Joker described himself in The Dark Knight, sometimes in the pace of work, some investors can just revert to “dogs chasing cars.” I have felt that, for sure. But, after a while, that’s not good enough, according to that LP — and I think he’s right. Being able to invest, even small amounts like I do, is a sort of “Conch.” Diplomacy and statecraft are also Conches, in their own way. Now, everyone has one, and more people are using it — some of the sound encounters deconstructive interference, killing the signal; some, if we’re lucky, will eventually and constructively break through the noise to create bigger and louder waves.
For the past few years, everyone has publicly blogged and tweeted about whether or not the Valley is experiencing a “technology bubble.” The prevailing argument in support of there not being a bubble is that many of the big, growing startups of today have real revenues, solid fundamentals. If we think of the “body” as the fundamentals, things do appear to be in shape. Companies are growing, making money, addressing growing global markets, and we are definitely in a deployment phase of technology infiltrating even the least sexy of industries.
What about the “mind” then?
I started to think about this after watching this short video discussion between @Chamath (Social+Capital) and @JessicaLessin (The Information). I’d recommend watching the video above. Chamath covers a lot of ground about the frustration around mobile apps and why text is surging, or how the next Facebooks of the world will help us curate better content. The most interesting piece in my view, toward the end, is when Chamath starts talking about the potential “imbalance” in the SF Bay Area ecosystem, and specifically he models out why many late-stage private companies are potentially staring a world of hurt when public market prices are more rational. If and when that starts to break apart, he contends, it won’t hurt the general public, but it will likely hurt the rank and file employees at many growing startups.
These people, he contends, in turn, may start to leave the area and feel as if they were taken advantage of.
There’s an “American Dream,” and that’s been under all sorts of pressure as the proliferation of computing power in everyone’s pockets has helped reshape how business is done. There’s also a “Silicon Valley” dream (one that Chamath lived through), and while it appears to be the envy of the world, the implication and warning in this video is while the body/fundamentals are in great shape, the mind may not be.
Is the mind of SF Bay Area’s tech & startup ecosystem healthy? I don’t know the answer, but it’s a great question to ask and reflect on.
It is fight night tonight. Back when I was in high school in college, in the days of Tyson and Holyfield, boxing occasionally surfaced as a big deal. Nintendo’s “Mike Tyson’s Punch Out” became an instant classic video game. In those days, the fights were all Pay Per View broadcast (PPV) and on ESPN they’d show still pictures of the fight during or right after. It would take a long time for the news to trickle out. It was big money for the casinos and PPV, and there were only two ways to access the show: pay for PPV or show up with tickets.
Fast-forward to today, to tonight, hours away from one of the most highly anticipated boxing matches in recent memory. Lately, boxing hasn’t had the cache it use to have in the days of Tyson, and certainly in the hey day of Ali, Frasier, Liston. It’s been replaced with new sports, like MMA, or Ultimate Fighting. Nevertheless, the old is on display tonight, with two great fighters already set with fame and legend (and money) battling for pride. And, as we fast-forward to today, 2015, tonight’s boxing match, but the world is different now — mainly, because of mobile and social media. Consider the following:
Live Streaming via mobile & social networks: Will someone at the fight tonight try to live broadcast the event from their phones through Periscope or Meerkat? Will those people be allowed to do so, or escorted from the building?
Mayweather’s sordid past: This week saw a surge of reports surfacing to mainstream media but really amplified on social media — all about Mayweather’s disgusting regard outside the ring. Boxing’s a violent sport, and Tyson was beaten up by the media during his reign, but maybe this will tip the scales over to promoters and boxing associations being more careful.
Gambling: Boxing is big business for bookey’s, of course. In the days of Tyson, had to call in bets via telephone or show up at the book. Now, it’s text, apps, FaceTime, messenger apps…bigger audience, more gambling, and more interest overall.
Yes, the company name is Onfleet, not “On fleek,” though they are actually are “On fleek” when it comes to providing platform services and routing infrastructure to the on-demand economy. I could bore you with stats such as powering volume growth at a 30% month by month rate (40% scheduled, 60% on-demand), or how they’re growing B2B revenues by 35% per month, but that’s par for the course these days in SaaS.
The interesting part of the story is how I met Khaled, the CEO, and how I came to invest in the company. @Rafer, for those of you who know, is a friend and tireless supporter of the early-stage companies he fosters. Onfleet is one of those. Back then, in April 2014, the company was called “Trak,” and the founders had recently left Stanford and started their entrepreneurial journey.
At the time, I was writing about the on-demand economy and making a few investments in companies like Instacart and DoorDash. Rafer figured I should meet Khaled, and while I liked him initially as a person (we had a great first conversation), I wasn’t sure I wanted to invest because I didn’t feel a personal connection to the company. My first impression was Khaled was too reserved, but I came to learn letter, I misinterpreted that first meeting. We stayed in touch after I said “no,” and in fact, we discussed this very point. It’s not an easy conversation to have, and who I am to make such judgments.
To his credit, Khaled heard me out and, despite that, asked me very nicely for help in getting the story, pitch, and details together — and so I did, as a friend. He responded really well, and over the next few weeks, we traded a ton of emails, texts, calls. Three months in, Khaled was rolling in his round, and he called me up again — asking me to come on board. Now, looking back, I was lucky I got a second chance to invest, and I took it. Khaled has really grown and matured as a technology and operations CEO, building a team of 10 and providing critical platform services as part of the on-demand stack — right in the middle of one of the biggest trends in consumer behavior we’ve seen.
What Onfleet focuses on and where they’re going, you can read about that in all the news today as they launch into the public sphere. For me, what I’ll remember about this investment is that the frenetic pace of seed often doesn’t afford an investor the chance to get to know someone over a period of time. With Khaled, I had that luxury of time and no pressure other than our mutual respect for each other — and I had a second chance to learn that while he may be reserved in person, he’s relentless in his own quiet way. As I mature as an investor and begin to change my own style, I will look back on how I got to know Khaled over time as a potential model for how I operate as an investor in the future.
Last week, I was invited to moderate an hourlong conversation at Stanford as part of the business school’s Sports Innovation Conference. You can link through and see all the great panels, speakers, and topics. While I wasn’t able to stay the whole day, what was clear to me from the energy around the event is that entertainment is a huge, huge business and the management of sports talent and rights within that is a major driver of it. Perhaps that’s obvious to some, but the angle to tech and Silicon Valley isn’t often discussed. (I’ve made one investment related to sports, but what attracted me to this company was their unique approach to mobile.)
My panel was titled “The Future of Sports Content,” and we had Karen Brodkin (WME/IMG), Marie Donoghue (ESPN/Disney) and Dan Reed, formerly of the NBA and now Head of Sports Partnerships at Facebook. Let me say up front that while some folks in the Valley “know the business of sports,” these three blew me away with their breadth of knowledge around the intersection of sports, media, and technology. Here are my high-level takeaways from the panel and Q&A:
Live vs Virtual: I proposed whether VR could dampen the live-sports experience for spectators, especially those who pay through the nose for nose-bleed seating. We discussed how a few people will ever have a courtside NBA experience in their lives, but now with VR, they could. It’s early days, but everyone — the leagues/teams, the networks, and tech companies — are gearing up for this.
Snapchat & FB Mentions vs Instagram/Twitter: An audience member wondered how an athlete/celeb could manage discussions on Facebook (with Mentions) versus being able to easily reply 1:1 on Instagram or Twitter. I’ve got a friend in the NFL who says he only uses Twitter for broadcast but not interaction because, in his opinion, fantasy and trolling has ruined his experience. Instagram works a bit better, but there are still trolls. He hasn’t experimented much with Snapchat yet, but feels like this is where the world is moving for mobile broadcast. (Currently, ESPN produces their daily Snapchat Discover piece, but are looking for ways to create more and automate them over time.)
Talent Management in Sports: I did not wholly appreciate all the various rights associated with sports talent and content.
A New Sports Category? An audience member inquired about “Participatory Sports” as they relate to current sports networks. Clearly on Facebook, people share and organize around sports, but it was interesting to hear WME and ESPN discuss more recreational sports (like this, maybe?) and how they could become mainstream phenomena in the future — I mean, a while ago, it sounded silly to watch people play video games, right?