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@semil's blog, building a technology community

May
18

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Pedestrian, Rambling Thoughts On Tumblr And Yahoo!

Category: Media, Technology, Venture Capital Leave a Comment

A few Fridays ago, the Valley classes were chattering about Mailbox being acquired by Dropbox. Fast-forward to today, and those same classes are now chattering about Yahoo!’s potential purchase of Tumblr. On Twitter, I suggested that regardless of acquirer, the rumored $1.1B acquisition price struck me as undervaluing Tumblr. SoftTech’s Charles Hudson (who is a friend) asked me a good question on Twitter, one which I could not answer immediately but wanted to eventually, or at least attempt to. Here’s our conversation:

So, we have two questions:

  1. From Tumblr’s POV, is $1.1B too low, a great deal, or just right? and
  2. Is Tumblr worth $1.1B to Yahoo! and, if so, why and how?

Question 1 - If I were an early shareholder or founder in Tumblr, I would think $1.1B undervalues Tumblr right now as an acquisition target. The instinct among many observers is to approximate revenue projections and model a revenue stream, which produces some multiple. The statistic batted around here involved the $13m revenues booked by Tumblr in 2012, and then suggests the company is aiming for $100m in 2013. There’s no way to verify this, let alone it’s just a distraction anyway and probably leaked to the press for future positioning — case in point, this week. So, back to the early shareholders in Tumblr…if I were in that position, I would perceive the acquisition market for Tumblr to assign a value greater than $1.1B given the basic stats of the product today: Tumblr is ranked in The Top 20 highest traffic web sites in the U.S. (Alexa), is ranked in The Top 100 of iOS apps and near the Top 10 for Social Networking (AppData) and probably has tens of millions of mobile downloads (and growing) across iOS and Android, of which I’d assume a good percentage of those are at least reliable weekly active users. For a “blogging” platform, Tumblr’s mobile product and footprint seem unrivaled with the competition no where in sight. Then, there are the intangibles, such as young people using Tumblr as a place to be themselves or assume pseudonyms and avoid the watching eyes of elders, parents, teachers, etc. Yahoo! or not, and despite revenues that would not (yet) impress an Excel junkie, I’d have to believe a company like Facebook, or Microsoft, would want our New York-based team of engineers and designers, our brand, our mobile footprint, the reliable web traffic (which includes data tentacles into Twitter and Facebook).

Question 2 - This is a harder question for me personally to answer. All I can do is infer from Yahoo!’s moves over the last year during the Mayer regime. Buying Tumblr gives Yahoo! a team of great mobile and web designers and engineers based in New York City, where so much of media is bought and traded. It continues with Mayer’s acquisition strategy to help re-infuse the company with fresh talent and slowly siphon out the old guard. It gives them a reliable property with reliable traffic on the web (and trending up on mobile) to serve its ads to, as Yahoo! is an ad-content business without any social or pseudo-social graph. Buying Tumblr immediately puts a Yahoo! mobile property on tens of millions of mobile devices, where its user base is already trained to share their Tumblr content into other social channels where even more millions of people will see it. Charles’ question is a good one from the Yahoo-POV, and I don’t know exactly how they take their core ad business and extend it to Tumblr, but that has to be the crux of the strategy.

Therefore, given all this, I stay away from the numbers and look at the narrative. For Yahoo, $1.1B is a lot relative to their annual profits (especially in an all-cash deal), but I respect this bold move. For Tumblr, it’s a great outcome because they haven’t really turned from a product into a business, and unless one of the other big players wants to play, this may be the best — and only good — chance to exit. I don’t believe Tumblr has the leadership or mettle to really turn their traffic into stable revenue, and this may be outside of their core interests as they seem to be focused on design and engineering. There’s nothing wrong with that, which means this is the time to make the move. Ultimately, the value in a property, whether physical real estate or a web site or mobile app, isn’t what projections say it is, but what a willing buyer is willing to pay for it.

May
15

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Another Perspective On The “Anti-Investor” Mantra @ Y Combinator

Category: Culture, Technology, Venture Capital Leave a Comment

Anyone who knows me and/or reads this blog knows that there is a group of people that I really look up to mainly because of their writing and minds. I was first motivated to write about technology when I was introduced to Chris Dixon. I didn’t know who he was in late 2009, but then realized when I Googled him after our meeting. My blog was on Posterous at the time. It was really bad. I think my first post was a review of Chris Nolan’s “Inception.” Chris got me turned onto Fred Wilson’s blog, which of course is the bible for the intersection of consumer technology, venture capital, and networks. I began to read it religiously. After I moved to the Valley, I read through all of VentureHacks, which was invaluable to me. Then, I became friends with MG and Erick at TechCrunch, and they saw my writing on Quora, and they graciously invited me to post a few times, which eventually turned into a monthly post, which last year became a weekly column, Iterations. MG is making great waves now, which is so fun to see. Now, I try to follow the writing of a small set of reporters and investors, which you can see here. So, it goes without saying, that writing about entrepreneurship, technology, and venture is something I like to do, and ultimately it helps me learn quicker because, frankly, I am not from this world. I need to catch up.

One of the early writers I grew to worship is, of course, Paul Graham. His essays are legendary. Someone recently referenced one of his essays from 2005, The Submarine, which still rings true today, over eight years later. His insights on how startups are formed, how they compete, and how they win is pretty much incomparable. Many of these essays, of course, touch on the tense relationship between investors and founders. There’s no doubt that, in the past, the relationship was rife with tension. Fast-forward to today, and things do feel different — the founder is quite empowered. And, while investors now market themselves and either are or behave in a “founder friendly” manner, the sheer competitiveness doesn’t bring out the best in people. Everyone reading this will have encountered more than one investor who rubbed them the wrong way. There’s no doubt we could use a few more saints.

A few months ago, Graham shared a post mocking investor language, which struck me as too heavy-handed because I had actually seen the opposite behaviors from investors. You can read my response here. I realize it’s not kosher to write about Y Combinator in this manner, but at the same time, I have helped many YC founders through the fundraising process (without ever asking for anything), and I’ve observed how they and others who are pitching behave. The investing game is business, and I would agree it’s unnecessarily tedious. And, the entire process can boil anyone’s frustrations. Believe me, there are some interactions I’ve had myself that still bother me. Everyone knows part of the YC mantra is to help founders navigate once-treacherous waters and not get screwed, but in that training, new behaviors emerge on the part of founders that aren’t always in their best interest. I’ve seen investors back away from a deal they like because of the overt game mechanics. Yes, this is a taste of their own medicine, but I’d argue that in the end, it’s the founder who learns a bad habit and that it’s the investor who is rendered irrelevant.

Last night, this tweet from Graham was retweeted into my Twitter feed. It made me sad. I totally understand that Graham has his own view of the relationship between founders and capital. And, I don’t have enough context or history to draw from. But, I also think he’s made his point clearly. He has ground-rules for his Demo Days. Some people are invited, and others are not.

So, when I read this tweet below, it makes me sad for Graham, that despite all of his successes, and all the great founders he’s helped and will help, and all the investors that have helped YC founders (even when they didn’t invest) that he would use his great platform to throw another cheap dig at a group that’s actually quite diverse. Maybe the founder below isn’t talking to the right people. Maybe the pomp and circumstance of a staged, gated Demo Day attracts those prone to cynical behavior. Maybe he needs to, yet again, remind everyone of his disdain for and disappointment in “investors.”

I don’t know, because I’m not an insider in this specific world nor do I seek to be. I’m just lucky to work with a few YC companies and have seen many, many pitches by them, as well as many of their funding negotiations. So, given all that, when I read a tweet like this, it makes me sad because not only is it petty, and not only is it directionally wrong (based on my experience), and not only does it potentially influence a founder to learn bad behaviors themselves, but ultimately I think one could switch around the words “founder” and “investor” in his tweet below and, perhaps more often then anyone would like to admit, have the quote read quite similarly.

 

May
15

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Putting The Art Back In Venture Capital

Category: Career, Culture, Technology, Venture Capital Leave a Comment

Everyone knows venture capital is going through a long series of drawn out market corrections, adjustments, contractions, and so forth. During this time, people have been innovating around venture, adding more operating partners, creating platforms, raising either really big or smaller funds. There’s also a belief that data will help investment dollars better determine where to go. The theory is that, with more data online, investors can leverage it to better inform investment decisions and, by proxy, their returns.

The problem with this mode of thought — this science of venture, of markets, and of data — is that it doesn’t allow room for the art of venture. I have tried to write about this. Specifically, I’ve tried to come up with my own definition of what is venture capital to me — now, it may not be this to you — and this post generated a lot of comments disagreeing with my definition — but this is what venture capital means to me:

Venture Capital is the aggregation of external capital by an institution (including companies, or even family offices managing their own funds) or individual with the sole purpose of investing that capital (often as a lead investor) into (relatively) early-stage, privately-held companies based on scarce information (imperfect information) with the intent of funding and assisting in the growth of businesses, products, and services that mature alongside markets to the point where the investor can realize a larger return, either through an acquisition, secondary share sale, or going public and liquidating within a 7-10 year time horizon, if not sooner.

There are a few people in venture who currently operate this way. I’d love to find more. One of those people is my friend Bipul Sinha. He’s a partner at Lightspeed. He will find entrepreneurs before they even know they’re entrepreneurs. He will help them. He will guide them. And, when they’re ready, he will prepare them to meet his partners and write a pretty big check, right up front with just a few slide decks and a great team. This is what he did with Nutanix, which is now the fastest-growing enterprise IT appliance company, in terms of revenues. ever. Ever! And, this is what he did with Pernix, which just made a big breakthrough in server-side flash and raised a healthy Series A from some of the most experienced enterprise investors on Sand Hill. Sure, he may do his own type of diligence and market research, but he operates with conviction and courage before due diligence, he operates on intuition and is willing to take a big risk where his peers may not write a check. In an era where many investors are collecting fancy tiles in later-stage growth deals or waiting for momentum to kick-in or scientifically trying to make sense of disparate and oftentimes irrelevant data, it’s refreshing to see someone like Bipul put the art back in venture.

May
15

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The Enterprise, In Lay Terms

Category: Technology, Venture Capital Leave a Comment

The EnterpriseIn 2012, my friend Parth Shah (no relation, but we are brothers) was trying to teach me about “the enterprise.” I mean, I had some idea about it, particularly on the data side, but we started composing this post for non-technical people to better understand. After much work, we’re proud to finally release our co-authored version of that today — see below. The spirit of this document is to be living (so please suggest any changes or additions), and is geared as a basic primer for anyone interested in enterprise IT but who isn’t natively familiar with that landscape. In other words, if you are already an expert in enterprise IT, this won’t be of use to you.

by Parth Shah and Semil Shah

INTRODUCTION

For people interested in technical entrepreneurship, the phrase “the enterprise” can feel foreign, especially for those more steeped in consumer products and services and/or those who do not possess technical backgrounds. Yet, we have found that many people have a desire to learn more about enterprise-level technologies, and to that effect, we have collected and organized this work to be a continually improving resource in lay terms for people to begin learning.

THE INFRASTRUCTURE LAYER

This section will cover datacenter storage; networking; and compute hardware and software. Traditional storage players like EMC and Netapp face two major threats to conventional storage models: Distributed storage; and flash.

Distributed Storage

Traditional enterprise storage is centralized, where multiple servers connect to one large storage device (usually a disk array) through a specialized network (usually the storage-area network, or SAN). This is a very reliable setup, providing features like backup, fault-tolerance, deduplication, snapshot, etc. built right into the storage device. The shift in this market, however, is toward a Google-style model where commodity (read: cheap) storage devices are directly attached to servers instead of being centralized. This shift is driven by the next generation of Internet-style enterprise apps that are “scale-out” in nature. The opportunity here is to make distributed storage as reliable and feature-rich as traditional, centralized enterprise-grade storage while offering the cost-savings afforded by using cheaper commodity hardware. [Reference: (1) see Nutanix’s article on evolution of datacenters; see Nutanix CEO Dheeraj Pandey with Semil on "In The Studio"; (3) see Nutanix investor and Lightspeed Partner Bipul Sinha with Semil on "In The Studio"; and (4) see Nebula CEO Chris Kemp with Semil on "In The Studio."]

Flash Storage

Traditional storage is also facing a threat from startups focused on pure flash storage, such as Nexenta, Pure Storage, etc. Flash-based storage devices are orders of magnitude faster when compared to spinning disks. Most of the current innovation in and around flash is in trying to overcome other constraints such as costs, life cycle, form factor, etc. Just like distributed storage, with flash there is an opportunity to provide enterprise-grade features like deduplication, snapshotting, backup, data recovery, etc. for pure flash-based storage devices. The shift to flash poses a challenge in that most of the technology to invent these features were written for devices with spinning disks. [PureStorage creates the software to manage flash storage, provides similar features as Netapp, and EMC-level enterprise features. Nutanix is poised well to combine the power of distributed storage and flash. Other flash device vendors like Fusion IO, Violin Memory, Samsung, and Hitachi are also in a good position.]

Networking

The networking industry is currently dominated by the likes of Cisco and Juniper, among others. The biggest shift shaking up this industry right now is software-defined networking, or SDN. The traditional datacenter networking provided by a company like Cisco, for instance, carries too much vendor lock-in with it, as well as expensive devices, proprietary networking protocols, and less flexibility in deploying applications. SDN is being pioneered by companies like Nicira (acquired by VMware) and Big Switch Networks. With SDN, companies can use commodity network switches manufactured by any vendor that supports an open protocol like OpenFlow. With SDN, one can virtualize the network, pool the resources and create virtual wires on-demand, based on the application’s needs. This yields flexibility, agility, and lower capital and operating expenses for deploying and managing applications. (For those using IaaS, they don’t have a network to manage, but rather configurations to adjust. However, once these folks move to a hybrid cloud model, a new challenge emerges with respect to managing balance load and deciding how traffic is split between private and public clouds.)

Compute

Intel rules the datacenter — 90% of the world’s workloads run on Intel processors. AMD completely lost the game in the server marketplace to Intel. Recently, there has been increasing interest around using ARM processors in the datacenter. ARM, the company, licenses CPU architecture to manufacturers. ARM processors are typically extremely low-power and, hence, suitable for mobile devices. The majority of modern mobile devices in world (smartphones, tablets, etc.) run on ARM. Apple’s A-series SPUs, Qualcomm’s Snapdragon, NVIDIA’s Tegra, etc. are all based on ARM architecture. [It helps to understand the fundamental difference between Intel’s x86 architecture versus ARM. Intel using CISC (complex instruction set computer) architecture: complex hardware that supports a rich set of complex mathematical operations and computes very quickly, all handled in the hardware and therefore consumes more power and dissipates more heat (requires cooling fans) as the hardware is complex. On the other hand, ARM uses RISC (reduced instruction set computer), a simple hardware solution that supports basic operations and software, which is slower than CISC, to perform more complex operations. RISC consumes less power and is therefore suitable for mobile devices.]

Memory

Memory is dominated by companies like Samsung and Hitachi. It is not a very interesting space because it is all based on pricing and density. All vendors are trying to make their chips smaller and smaller, and this drives all prices down. It is a race to the bottom.

THE CLOUD LAYER

The cloud layer abstracts away these infrastructure resources and delivers them on-demand.
Gartner defines “Cloud IaaS” as a standardized, highly automated offering, where compute resources, complemented by storage and networking capabilities, are owned by a service provider and offered to the customer on-demand. Cloud computing enables the delivery and consumption of computing as a utility. You pay as you go and move from CapEx to OpEx. Cloud services enable enterprise to compete better in changing markets, be more agile and optimize resource utilization.

Infrastructure as a Service (IaaS)

In IaaS, the infrastructure is available as a service. Current examples of IaaS companies are Amazon (with AWS), Google (Compute), Nebula, and Rackspace, among others. Currently, these players service small companies but can eventually grow to cover the enterprise market. As a result, the IaaS landscape will likely consolidate to a small handful of big players.

One of the interesting aspects of IaaS is that it doesn’t matter where the infrastructure is coming from. In the public cloud, a company like Amazon doesn’t own the hardware and provides cloud-based services; in a private cloud environment, companies like Nebula or VMware provide solutions; and in a hybrid cloud state, a company owns some hardware but outsources some as well. This hybrid state is where most innovation is happening today, as most enterprise runs private cloud most days but, for busy times, can burst to add more capacity when needed.

The growth of hybrid cloud models is potentially threatening to AWS. As servers shift from public to private, companies will adapt to a hybrid model. This will have initial investment costs to purchase hardware, storage, network setup (capital expenditures), plus operating expenditures to manage it, assuming things are architected correctly with stable traffic.

The “cloud” is about “how” one does compute plus storage (an operational model) rather than “where” it’s done — it’s not location-specific. Infrastructure can be anywhere, but the key is how it is managed. The cloud is getting less and less about technology, and more about process, policies, and orchestration. This trend provides opportunities for hybrid packaged solutions (like Nebula) and management policies for sensitive and/or regulated data (e.g. financial, health, security, etc.).

Platform as a Service (PaaS)

Companies also offer platform-as-a-service, or PaaS, such as Heroku, Appfog, Nitrous.IO, and others. This market will likely have many small players, and will be hard to run into Amazon as they expand AWS offerings from the infrastructure layer. The value in PaaS solutions take the pain of setting up and managing production environments, such as setting up software environments on top of infrastructure, finding the right plugins, managing security patches, and so forth.

A classic PaaS example is Heroku, a service which essentially takes care of all the busy work of setup and maintenance and frees up developers to write and deploy code. Developers can push using Git and make their apps live on Heroku, and this agility results in teams not needing systems- and/or database-experts. Heroku runs on AWS, so customers enjoy the goodness of IaaS already baked in and the developer never has to touch it. The problem is that if and when Amazon experiences an outage, startups who are addicted to these setups are stuck, perhaps rationalizing the need for Nebula-like client-side solutions once a company reaches a certain scale. [[ ex Dropbox, Netflix, Ngmoco, Zynga is doing “Hybrid Cloud Model” - ZCloud started early 2011 (considered innovative operating model]]

Software-as-a-Service (SaaS)

Everyone knows SaaS. Briefly, we’ll define it as the pure software and application layer, the place where real scale and innovation will occur. An example of SaaS could be software like Asana, which may (as it grows) provide tiers of service that would empower it to charge for the right to use it. Here’s a brief matrix of some of these companies, to share examples:

Screen Shot 2013-05-15 at 3.07.09 PM

Big Data

“Big Data” is an overused, often misused term. We define “big data” as data one cannot process using traditional analytical techniques, but which require parallel algorithms designed specifically to operate on said data that is usually stored in a distributed fashion. The definition of what constitutes “big data” today will change as computing power increases and price of storage falls. Today, defined in terabytes and petabytes, but in future terabytes might not be considered big data. The reason this is such an exciting space is that the market for all the industries this can effect are huge. Applications of big data are enormous including but not limited to analytics, visualization, business intelligence, reporting, recommendation systems, information discovery, etc. Most think of consumer data, but consider the life sciences, oil and gas discovery, and so forth. For example, a Boeing 787 generates several terabytes of telemetry data on a typical transatlantic flight.

The rise of Big Data can be mainly attributed to two factors: a) denser & cheaper storage devices b) emergence of open-source Big Data processing frameworks (Hadoop, et.al)

MapReduce by Google is one of the most foundational programming models used to process large datasets. Yahoo extended the MapReduce paradigm and introduced the Hadoop open-source framework to perform parallel algorithms on large datasets. The rapid adoption and contribution to Hadoop by companies like Facebook, Twitter, Amazon, etc played a huge role in making big data processing popular.

Although Hadoop remains massively popular in consumer internet companies, the adoption in the enterprise has been relatively slower due to concerns like complexity, security, support and lack of talent to operate Hadoop infrastructure. Whole new category of startups have emerged which are making easier for enterprises to adopt Hadoop. For e.g Cloudera and Hortonworks are doing something very similar to what RedHat did for Linux. These companies offer “enterprise-ready” distributions of Hadoop software, help enterprises deploy them in their cloud and then provide ongoing customer support for the same. With enterprise distributions of Hadoop, enterprises are able to make the transition much faster. However they still have to own and operate the infrastructure to run Hadoop. Hadoop-as-a-Service startups aim to solve this problem by offering big data processing services on demand. Amazon has been a pioneer in this space with their Elastic MapReduce offering. Amazon Elastic MapReduce is a web service that enables businesses to easily and cost-effectively process vast amounts of data. It utilizes a hosted Hadoop framework running on the web-scale infrastructure of Amazon EC2 and Amazon S3. Cetas (acquired by VMware) provides advanced, real-time Hadoop analytics and can be deployed on-premise or in the cloud.

[Reference: See LinkedIn's Peter Skomoroch with Semil on "In The Studio," as well as Accel Partners' partner Ping Li with Semil on "In The Studio."]

Virtualization

In layman terms, virtualization is a way of creating abstract virtual resources from real physical resources. IBM technically invented virtualization decades ago however VMware is usually given the credit for creating an industry around it. The enabling technology behind virtualization is a smart mini-kernel like software, commonly referred to as the “Hypervisor”. The Hypervisor runs directly on top off bare metal hardware and provides abstractions like virtual CPU, virtual memory, virtual disks, virtual networks, etc to the upper layers. Hypervisor enables a single server in your datacenter run multiple virtual machines (VMs) on the server that run in their own container with virtual resources like CPU, memory and storage. Each of these VMs can be running a full-fledge operating system (OS) like Linux/Windows. The OS is usually unaware of the fact that its running on a virtual computer and not a real one.

In a typical datacenter, with tens to thousands of servers, resources are not often fully utilized. With virtualization a single server could be hosting tens, hundreds or even thousands of VMs which dramatically improves the utilization and thereby has a huge impact on the CapEx. When there is resource contention on a server due to high demand for resources from the VMs, the Hypervisor acts as an intermediary and allocates resources to each VM according to its fair share. Virtualization is the key enabler for Infrastructure-as-a-Service products. Key features like elasticity, auto-scaling, multi-tenancy and efficient resource utilization are impossible to deliver without virtualization.

[Reference: see Tintri CEO Kieran Harty with Semil on "In The Studio."]

Recommended blogs on enterprise IT:

May
3

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Three Reasons Venture Capital May Be Roasting Coffee Beans

Category: Culture, Media, Venture Capital Leave a Comment

Why is venture capital being deployed to niche, artisan coffee chains in the Bay Area? In 2012, a group of celebrity investors pooled capital to buy equity in Blue Bottle, and in mid-2013, Philz Coffee received venture capital investment as well. What could be driving such investment? Briefly, here are some possibilities — but tell me about others below:

  1. Anticipation of beverage M&A, consolidation: Starbucks bought La Boulange for $100m. Not bad. Perhaps there will be more, either by Starbucks or other groups who want to enter this space. Additionally, on a global scale, the large beverage distributors (see: beer!) are fighting to consolidate and gain market share in emerging markets. Alternative drinks (sodas, coffees, teas) could be part of their product mix plans.
  2. Online brands for e-commerce: Craft coffee sources and mails subscribers beans from around the world every month. There’s room for more in this space and Blue Bottle and Philz have big brands already. Folks say they want a “Blue Bottle” or they want a “Philz,” not just a coffee. It can be like “Kleenex.”
  3. Portfolio diversification in bricks & mortar consumer retail: Individual and/or venture investors have experience in consumer retail and there are still are opportunities. Back in the day, Trinity Ventures, for instance, funded Starbucks and PF Changs. Today, those may not sound like “venture-scale” spaces, but new franchise chains can be created every year. And, if firms are spreading their bets across consumer (web/mobile), enterprise, and others, consumer-offline may be part of their strategy.

Apr
27

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Hosting @ManuKumar “In The Studio,” Chatting Mobile Cameras and Imaging

Category: Media, Technology, Venture Capital Leave a Comment

About a year ago, in mid-2012, I hosted Manu Kumar for a discussion focused mainly on mobile camera technology and imaging. On the investor-side, Manu is the expert here, bar none. For some reason, I can’t embed this particular video here, so click here and check it out.

Manu Kumar, the self-proclaimed “Chief Firestarter” of his seed-stage fund, K9 Ventures, has been on a roll (and just announced a new, bigger fund). While most of the world is still processing the meteoric rise of products like Instagram and Pinterest, Kumar has been thinking about computer vision for a long time, dating back to his PhD work on eye-tracking. It was as a student, in fact, that he met the founder of Lytro, invested in the company, and spent a considerable amount of time helping the company form. It was through these experiences that Kumar learned more about advancements in camera hardware and what those advancements meant for application development.

Since then, Kumar has had his hands in a number of startups that leverage a camera in some way, such as HighlightCam, Card.io (acquired by PayPal), CardMunch (acquired by LinkedIn), Occipital (which built and sold RedLaser to eBay, among other products), and soon-to-be-launched 3Gear Systems — all in addition to Refocus Imaging, which became Lytro. In this video, we focus our discussion on imaging in general and camera phones, where Kumar traces the hardware advancements to the camera in iPhones, for instance, and what types of new applications these advancements would allow, as well as what hardware improvements he hopes to see in the near future. Kumar also shares some deep advice for developers who are interested in the space, warning them that in order to unlock truly new things with the camera, it requires deep technical expertise in aspects of computer vision and more time than a weekend hack project. For anyone seriously interested in imaging and cameras, this discussion is a must-watch.

Apr
27

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Hosting @WestCoastBill In The Studio, Talking Shop on Mobile Apps and Angel Investing

Category: Career, Technology, Venture Capital Leave a Comment

Earlier in 2013, I had Bill Lee into the studio to chat about his new company, Twist, mobile apps in general, and his varied experience as an angel investor and LP in venture capital funds:

Bill Lee is a hard guy to pin down, but if you can get his attention, he has an unique wealth of knowledge of how entrepreneurship works in the Valley, from many angles and vantage points. Aside from co-founding a successful company to an acquisition in a previous life, Lee is known to many early-stage founders as one of the most thoughtful, helpful, and savvy individual angel investors around. His portfolio hits include companies like Yammer, AngelList, SpaceX, and Tesla, plus many more. Lee has co-founded a new mobile app startup, Twist, which seeks to run in the background and send messages between people who are going to meet.

In this brief discussion with Lee, we talk around many, many topics. In the first part, Lee uncovers the insight that led him to co-found Twist, how they chose to build on iOS first, how they are waiting for Samsung’s Android devices to catch up, how SMS converts better than email, how to think about virality in non-social graph products, and a host of little variables that he believes make for a compelling app that can be used daily by millions of people. In the second part of the discussion, Lee reflects on today’s investment climate and the changes he’s made as an individual angel investor. For now, with so many more seed investors out there, Lee is reducing his number of investments but deploying the same amount of capital. He’s also investing within small networks and avoiding the hyper-syndication party rounds we tend to hear about on an hourly basis. Finally, as an angel investor in both Tesla and SpaceX, Lee offers some fascinating ideas about software apps that entrepreneurs may be able to build on these platforms and behind these huge waves.

Apr
23

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Iterations: How Founders Can Fight Through The Great Fragmentation Of Talent

Category: Career, Culture, Technology, Venture Capital Leave a Comment

Earlier in 2013, as I’ve been working with a small handful of CEOs to build out their organizations, I grew even concerned about the overall climate for technical recruiting in the Bay Area. As a result, I wrote this post on TC about tactical ideas founders could consider in the face of such competition for talent…

The #1 request I hear when talking to founders in San Francisco is: “We are hiring engineers. Know any?” We all know this is a big issue that’s only getting worse, and so do most of the investors. But, I’m now starting to hear this so often, I’m beginning to worry that all the conventional tactics simply won’t work. Early-stage startups that don’t start experimenting with new ideas to source, recruit, and close engineers and other technical hires may end up running out of money or never achieving the product traction they need to get to the next level. I don’t have data to support this, but my intuition is that technical talent is so fragmented right now, all options need to be reexamined and placed on the table.

In that spirit of investigating all available options, here are 10 tactics your startup may consider given today’s conditions. And, while we often read high-level posts about how to hire people, the on-the-ground reality is that so many early-stage companies are being funded every day that when the founders close that first round, they often turn into (near) full-time recruiters, and many of them don’t succeed at it because they either don’t understand the weight of the issue before them and/or because they aren’t willing to consider these kind of options below, some of which require a serious change in thinking:

  1. Hire Remote Employees: Conventional wisdom says that your team should all be together, in person. Unfortunately, there are many great potential hires who are not located in NYC or SF and, for a host of reasons, cannot move.
  2. Hire Contractors (onsite or remote): Conventional wisdom says that this can backfire and cause more work because of incongruous development, but some great people may not be in the mood to commit to something so early and may want to work on other side projects for a host of reasons.
  3. Hire Qualified Candidates And Help Them Relocate: Early-stage companies don’t like to get into the game of relocation expenses, but if that’s the only thing stopping the close of a great potential hire who doesn’t live around here, it may be worth considering breaking that rule.
  4. Referral Systems: I’m sure most startups do some form of this, whether through gifts or cash incentives. But, maybe they need to be more robust and creative.
  5. Pay More Money and Share More Equity: If it’s that hard to land good technical talent, maybe a startup cannot afford the market price, or maybe the conventional wisdom around 15-20% option pools and current salary bands are not in line with this reality.
  6. Acqui-hire Teams That Can’t Survive: The Series A Crunch is real and might be just beginning. For companies that have raised more growth capital and/or those who are making enough money to warrant reinvestment into their core business, there are lots of teams out there who can be slimmed down and gobbled up, usually for a salaried offer, some equity, and a modest bonus.
  7. Open A Second Office: To get around the fear of remote and/or contract workers, there could be situations where a small group of qualified candidates reside close to each other but far away from your HQ. If this core group is open to setting up a new office and could hire more people through their own networks, it may not be a bad approach for a startup that has enough cash runway to handle it.
  8. Publicize Your Infrastructure And Stack: Talented folks want to see what your company has under the hood, so one approach is to invest the time and resources into a real engineering blog and sharing what goes on behind the scenes. This kind of openness attracts others who may be like-minded and could send a strong signal about how differentiated your approach is.
  9. Hire Less-Developed Candidates And Train Them: What if a founding team found raw talent and made the decision to hire these folks and train them? Without reducing the bar on quality, these teams may be able to hire folks like this and devote time and resources to developing them into full team players.
  10. Everyday Improvements: It’s obvious, but any list like this would have to include options like making your office the best place to work, by spending more time on recruiting, or actually hiring an accomplished recruiter who can demonstrably earn the respect of good candidates, or organize more tech talks, or more hackathons, or more competitions. [And, continually learn from experts like Dan Portillo, who captures all of his knowledge and tricks in this great slide deck.]

Naval Ravikant tweeted a great line last year: “It’s never been easier to start a company, but it’s never been harder to build one.” This fragmentation of talent is the other side of the coin in this bubble we are in — and yes, it is a bubble, but the bubble isn’t where you may think it is. Today, the asset that is overvalued is the amount of funds and shares of equity that founders are in control of and chose to hold on to — to recruit the right people, founders now have to work extra harder or be even more creative and daring to fill in their open slots. Put another way, in order to win in today’s game, many founders are going to have to make uncomfortable decisions, especially with respect to money for salaries and equity as incentives.

I am not an expert on all of this. And, I know it’s not cool to suggest these tactics because everyone says it’s all about “team” and because you want to protect your culture and because you don’t want to manage people remotely or hire contractors or spend time training a diamond in the rough, but for many early-stage companies in a flooded market like San Francisco, the harsh truth of 2013 is that everyone and their mom has a tech startup now, and everyone and their dad has a new seed fund, and you, as a founder, are caught right in the middle, forced to make suboptimal tradeoffs between quality and speed. It’s not a pretty choice, but in order to survive or succeed in this environment, I simply don’t see another way.

Apr
21

By

Hosting Greylock’s @DavidSze “In The Studio”

Category: Career, Culture, Technology, Venture Capital Leave a Comment


“In The Studio” this week hosts a special guest who doesn’t typically go on camera that often. As a result, I decided to make this particular episode of the show longer to capture my entire discussion with Greylock’s David Sze. For anyone who follows the ins and outs of venture capital, Sze’s name looms large. By now, most everyone knows of Greylock’s impressive run over the last decade, a firm which originated decades ago in the Boston area and has, thanks in large part to Sze, successfully transformed to one of the premier Silicon Valley shops. Over the last decade, he has helped lead the firm to write early checks into consumer-focused companies such as LinkedIn, Facebook, and Pandora, as well as startups attacking the enterprise, such as Workday and Palo Alto Networks. More recently, he made his largest investment ever (in terms of dollar size) in NextDoor, a company which fits into larger societal trends he’s observed.

What’s not often discussed, with respect to Sze, are the careful moves he’s made to position the firm where it is today. This is the focus of our video conversation, and while it’s a bit longer than most, I would encourage anyone interested in venture capital, Silicon Valley history, and those embarking on a career in technology startups to spend the time to watch this. In this video, Sze and I discuss the following topics: The early stages of his career, when he graduated from college and went into consulting; His move out to the west coast, going to business school, and jumping into the technology world; His first operational role at a real startup; How he paired up with former classmate Aneel Bhusri to join him at Greylock; How he began investing in enterprise and was, admittedly, not that good at it; How he went back to his consumer roots and began investing in consumer companies, such as Pandora; How he met Reid Hoffman, invested in LinkedIn, and eventually recruited a team of operators; and advice he would give young folks who are interested in venture capital and/or who coming to the Valley.

Apr
8

By

Iterations: The Tension Between Transparency And Privacy In The Startup Ecosystem

Category: Culture, Media, Technology, Venture Capital Leave a Comment

Recently, there has been an increase in demand for transparency in the startup world, and while I understand where that desire comes from, I do think there are some nuances and benefits of private enterprise that should be examined. So, that’s what I did in yesterday’s column, see below.

Everyone wants more transparency. It is part of a deep, fundamental trend. In government. In the workplace. Inside large systems like health care. And, more recently, around early-stage startup metrics and investment data. The crowd wants more transparency. They want to know more about metrics, revenues, and stats, and they want to know more about how investment dollars are allocated. Yet, the result of this shift raises concerns about privacy. In this world of imperfect, asymmetric information, combined with the desire among participants to build up, invest in, and report on the industry itself, frustrations can mount easily because, somewhere in the recess of our minds, the game feels slightly rigged in the other person’s favor, and the light of sunshine offers a promise of transparency to perhaps root out those bad apples and, just perhaps, inject an ounce of fairness, comfort, and peace of mind in an otherwise shady world.

In this real tension, we find many nuances.

For companies, unless they’re growing as fast as Pinterest or booking revenue as fast as Bloomreach, there’s little incentive to be fully transparent and publicly disclose metrics. Doing so may impact future fundraising efforts, strain relationships with existing investors, hamper potential partnerships, and inform competitors of an opening. Remaining relatively quiet is one of the key benefits of being a small, closely-held private company.

For investors, transparency may be an even dicier proposition. First, companies they invest in may want to remain stealth or not have their investors made public. In these situations, it is the founders who drive privacy — not the investors. Second, some investors may prefer to keep their moves private so as to not give their own competitors actionable information, especially in a climate where competition among funds within a contracting industry is growing fiercer. By law, investment funds are required to make filings with regulatory agencies, but those laws do not include, for example, listing out limited partners and other details many would like to know. Many people are also simultaneously investors in many funds at multiple stages, compounding the sensitivity.

So, here we are. Many want — in fact, at times, demand — that all of this data be made public to identify, tag, and call out the early-stage companies and investors who are not active, who are not what quite what they say they are. Investors may be growing tired of companies who craft and broadcast vanity metrics, and founders may be growing tired of converting their investor spreadsheets into a never-ending cascading waterfall of pointless investment pitches that waste time. Investors are in pursuit of perfect information when considering pulling out the checkbook, and every minute a founder spends pitching an investor who likely won’t pull the trigger because they’re generally disinterested, are phishing for information, or may not have any gunpowder left.

We have forgotten one dimension. We must investigate what fundamentally drives all of this to begin with: It is our collective curiosity to know more during a time in society where demand transparency is rising and at loggerheads with keeping some information private.

Nearly everyone in the ecosystem participates in the making of, analyzing of, or reporting on the news. Nearly everyone has a desire to know more about “who” funded “what” and at “what price.” Founders are lured to coordinating PR around their funding announcements, helped by an industry devoted to this and a network graph of relationships which can make dreams sing above the noise to target the right set of potential partners, the next key hires, and even the next investor. By the same token, investors love to be mentioned in these announcements, their brands gently stitched into the threads of the story. Both, ironically, work in concert, revealing what is material but oftentimes — as is currently their right — cloaking the specifics. The result is speculation masked as information. Add the real-time nature of Twitter to the mix, and perception distorts any signal frequency into reality.

People are keeping score, if even in the back of their mind, of who is following who, who is investing in who, who has real growth, who has real money, who is walking dead, who won’t be able to raise their next round, who won’t be able to raise their next fund, and all the other aspects and currencies of what makes the Valley’s parlor game so dynamic and opaque. I believe in more transparency on a fundamental level and am not an apologist for shadowiness, but I do recognize that part of the draw of private enterprise is, well, privacy.

The big fault line here is between transparency versus privacy. The web continues to make imperfect markets more efficient, and it is only rational that in these imperfect markets, rational actors will want as much information as possible before transacting. The startup world, in this context, is just another market, one that has traditionally been kept largely private and is slowly opening up thanks to new platforms, blogging, and (ironically) private dashboards created by actors to try to use data to make sense of the madness. The cost of this transparency is privacy, but not just for private companies and firms — but also perhaps for people, because a person’s reputation in our industry is tied so closely to one’s place of work, the drive for transparency might mean that individuals, in addition to firms and startups, may have to give up more privacy than they bargain for.

 

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