Technology Archives

A Local Fragmentation Tax: Labor, Capital, and Attention

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.

The Story Behind My Investment In Joymode

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.

Make Series A’s Great Again

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.

Venturing Along With GGV Capital

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.

Reflecting On My Investment In Chariot (Acquired By Ford Motors)

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 JournalThe 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 [1] — 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 [2].

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.


[1] 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.

[2] 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:

The Story Behind My Investment In Saildrone

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).

The Story Behind My Investment In Mux

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.

The Story Behind My Investment In Shaper Tools

Earlier this year, a seed investor I co-invest with frequently offered to introduce me to one of his favorite companies. This startup raised a small seed round a year ago, and in that time, they brought in a new CEO, sharpened their focus, and — lucky for me — I was able to be a part of their next round of funding.

As those who have been following along, I’ve been spending more time in and investing more in what I have called “Industrial Software and Robotics.” The thesis, simplified, is that many of the world’s cutting edge technologies today will first interact with the outside world in the commercial space, specifically in heavy industry. To that end, over half of my portfolio in Fund III is tuned to this industry, so I am staking a part of my career and reputation here.

That may sound risky from a portfolio perspective, but every time I meet one of the CEOs in this space, I am blown away by the range of skills they possess. And with Shaper Tools and Joe Hebenstreit, that happened before we even met face-to-face. Aside from being a fellow Wolverine (Go Blue!), Joe’s career has taken him from Urbana-Champaign to Ann Arbor, from DaimlerChrysler AG to Amazon’s Research Labs in Silicon Valley, from frog designer to Google Glass. After visiting the Shaper Tools workshop in the Mission, meeting the team, and scouting the market, I focused my diligence on Joe’s leadership. The line that stuck with me most: “Joe is staking his industrial reputation on this team and company.”

Shaper Tools rests in a space that some refer to as “human-involved robotics,” where technology can be used to assist — not automate or replace — human work. In the case of Shaper Tools, that could be seen as large advancements in hand-eye coordination; and augmented-reality fabrication, which ties back into Joe’s experience on the Glass team. This is an interesting play into the forthcoming world of 3D printing, based on the belief that humans will still want some agency, control, and tactile feeling of completion of creating something with their hands, even if assisted with technology.

This week, Shaper Tools formerly launched Origin, a handheld power tool which merges computer vision with real-time motor control. In a world with Origin, imagine being able to create your own desk at home, or buying designs of your friend’s desk and making it at home. Origin enables a cut similar to what a CNC router would offer, but at a fraction of the size (it’s portable) and cost — and without needing prior experience. (Note: Origin is the name of their first product, not to be confused with another Haystack portfolio company, Origin, which is in the 3D printing space for additive manufacturing.)

If you’re into woodworking and machinery, make sure to check out Shaper’s website, learn more about the great team Joe leads, watch their campaign video (which actually made me tear up at the end), and look at the pre-order offers here.

Five Takeaways From Walmart’s Acquisition of, once laughed at — or, should I say, often laughed at — will now have the final laugh. Walmart will announce tomorrow that it has acquired, which has raised upwards of $565M of venture capital from some of the best funds in the world, for $3.3 billion. That is a home run, and CEO Marc Lore is now laughing all the way to the bank. This news will stun many in startup-land because, in some ways, it’s unfair — a negative gross-margin business with a huge capital raise could’ve been a symbol of tech and startup excess — and yet, here we are, counting the ways in which the cap table will get paid off for their risk.

Here are my quick takeaways from the deal:

1/ Teams and Targets Matter: Lore’s history with was already a success. He famously didn’t love what happened at Amazon post-acquisition, so he went all “Revenant” on his former employer and launched, raising what seemed like (at the time) an obscene amount of venture capital. And, he repeated this with a model that was part innovative (help CPG create a channel right to the consumer) and part-silly (losing tons of cash to acquire customers). Lore’s bravado, big goals, and chip on his shoulder helped him field a team and attracted VC money. That’s all those investors needed — a big market and someone who is proven and is on a mission. (Making a few assumptions based on Pitchbook data about the company’s first round of financing, a VC writing a $10m check in the first round at an implied valuation of ~$150M, with ownership maintained pro-rata, would now be returning 20-22x that amount in about two years’ time, though we don’t yet know how much of the total sale price is related to Lore’s and the team’s earn-outs.)

2/ “Climate Change” in The Retail Sector is Very Real: About a year ago, I wrote this post on how the challenges facing traditional retail in the U.S. were so steep, a range of startups could jump in and make very strategic acquisitions. In this post, while I mentioned Walmart’s woes, even I overlooked as a potential puzzle piece for an incumbent. I will admit that I didn’t fully understand the dynamics here and, having never met the CEO and his team, clearly underestimated how much confidence they can inspire, even if their audience is living in fear.

3/ Startup Life is Unfair: Like life, startup outcomes are not fair. I can imagine many founders who haven’t broken through yet and investors who haven’t seen liquidity in years shaking their head in a “WTF” rage. To some, represented too much risk to take; to others, its inherent risk and need for cash was its appeal. Risk, like love, is in the eye of the beholder.

4/ Walmart Isn’t Dumb: Yes, Amazon is very smart. A savvy investor friend of mine (who was in this deal early) recently remarked to me that Walmart is the only U.S. company that had enough cash and heft to make this move to level-up against Amazon. The natural reaction in startup-land is that there’s no way The Waltons can keep up with Bezos, but then again less than 10% of all commerce in the U.S. is transacted online. Who will help the remaining 90% accelerate? (Side note – I like Priceline’s angle here, too. That’s for another post.)

5/ M&A Chatter Turning Into Reality: I’ve been back at my blog writing a bunch lately, all unpacking huge acquisitions. This chatter has increased over the past few weeks. With stock prices at all-time highs and incumbents with huge cash sums sitting around, everyone in the ecosystem is hoping this triggers a 6-12 month wave of consolidation, to move from a “dry bubble” to a more liquid realization of value — in cash.

Five Quick Takeaways From Salesforce’s $750M Acquisition of Quip

These big deals are cutting into my sleep! Another day, another interesting deal in startup-land. This one wasn’t quite as big as the $35b Uber-Didi deal, but it’s still big. Quip was just acquired by Salesforce, reportedly for $750m. Quip raised two rounds of VC totally $45m (per Crunchbase) and was a deal that didn’t really hit the VC market as Bret Taylor has been known and tracked for years as a top-flight product designer and entrepreneur.

1/ Front-End Collaboration: Dropbox has Hackpad, Microsoft has Office Suite, Google has Docs, and so forth. Quip gives Salesforce a well-crafted front-end collaboration tool to distribute to its ecosystem. The common thread here is apps sitting on databases to move higher up the stack for value.

2/ Consumer-Grade Product and Design Chops: Benioff noted in a few interviews that he’s had his eye on Quip’s CEO, Bret Taylor, who boasts a top-flight product design resume from Stanford, Google (Maps), and most recently Facebook, where he was a top exec. Elite product design is the ultimate skill in startup-land. Any one of the enterprise companies listed above would’ve paid up to have Taylor and his team folded into their offering — we can assume most put in a bid and that Salesforce probably bid the highest. (Benioff was also an investor in the company.)

3/ Capital Efficient VC For Top-Tier Talent: Taylor was and is a highly sought-after target for VC investment. If we assume he gave up 33% for $15m up front to work with Benchmark as a lead, that would put the return at 16.67x in 3 years time. Put another way, that $15m turned into $250m in three years. (To clarify, lots of assumptions here — it’s possible the $15m raise was much less dilutive for Quip — I don’t know those details. We also don’t know usage numbers, but Quip had a pricing model similar to Slack’s in that you can use it for free until your team got to a certain size. Benioff may have seen the retention numbers on the product be very sticky and translated that to dollar signs when pumped into the Salesforce ecosystem.)

4/ M&A Echo Chamber Chatter: In the last month, there have been more posts and tweets hinting at more M&A from incumbents, who are sitting on cash, all-time stock market highs, and potentially fearful of the future in terms of product innovation. As news hits every week about a mega-merger in Asia or a huge talent deal like this, the shot of liquidity gets peoples’ blood moving and there’s more chatter amongst investors about potential “special situations” to see liquidity in what’s been obviously an illiquid climate.

5/ Creating Something Simple Is Difficult: I wasn’t an avid Quip user, but many good friends were. They would consistently talk about using the product but never rave about it in the same way as other apps or services. I wonder if that’s because so much of Quip’s elegance in design shielded the user from those details. From the times I used it, I could tell it would sync across apps and servers almost instantaneously (it reminded me of Orchestra) and allowed people to collaborate with many people on a document and use design to strip away the noise.

Haystack is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2016 Semil Shah.

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