Venture Capital Archives

Banh Mi Equity

August in the Valley always turns out to be an introspective month for me. Things slow down, people leave town, and my wife’s work is also a bit slower before kids come back to campus. This year is no different, as I’m in another transition. I have some fun and also much-needed personal items to tend to this month, and I will also take the time to reflect, recharge, and rediscover what makes me most passionate about work. Three years ago this week, I got my real start in the startup world in the Bay Area. People often just assume it all came together neatly — they see that I wrote for TechCrunch or tweet a lot and assume it was just always like that, or that I know what I’m talking about. Not true. If anything, I’m learning it all as I go along, trying to play catch up with everyone around me.

Three years ago this week, my friend Joel made an off-hand remark that I should just join his company — with the caveat that he couldn’t pay me. Jeez, Joel, thanks for the offer, buddy! Yet, at that time, after nearly 11 months of trying to crack into startups, I thought about the offer and realized — I don’t have a better choice. I emailed Joel. I think he was surprised. He replied, paraphrased: “Well, I can’t pay you, but you’ll get plenty of equity and I’ll buy you Banh Mi sandwiches every day you’re here.” Sold! Since then, Rexly somehow was acquired by Live Nation Labs, I went to Votizen (which wasn’t a great fit) and that was acquired by Causes, and Causes was just acquired by Brigade (these are all Sean Parker companies), and then I was lucky to get my first break in VC and joined Javelin Venture Partners for six months as an executive-in-residence where I began to focus on mobile technology and the iOS platform, after which I started working as a formal consultant for a small handful of companies that were designing and launching apps, and then eventually increased my involvement with Swell, where I became an employee until recently. Along the way, I was fortunate to work as a formal consultant to a variety of venture capital firms (and still do) — like General Catalyst, Trinity Ventures, Kleiner Perkins, GGV Capital, DFJ, and Bullpen Capital, among others — and to have the support of everyone I worked with to explore my interests in mobile and investing simultaneously — and to friends and mentors who helped me channel my energy into the creation of a new fund.

All the while, I have met and worked with great people whom I call friends and mentors. Just like startups fight like hell to become “ramen profitable,” looking back on my three short years in the technology startup vortex that is the San Francisco Bay Area, you could say I worked for “Banh Mi equity.” Most of the equity listed above and the subsequent events have been largely ceremonial. It’s been a fun ride to be on, surrounded with the smartest people in the world. And, here I am again, in the dead heat of August, late twilights that stretch longer, at the same desk, typing away, trying to reset, and wondering what the next Banh Mi equity package will look like. I’m in a good spot, but there’s a long way to go, and excited to let life unfold and see what presents itself.

Think Of YC As A Growing Startup

Y Combinator has come up often in discussions of late, and whenever a topic repeatedly comes up in discussions, it’s time to attempt to structure those thoughts. Let me say upfront that while I don’t agree with everything YC does or shares on their blogs (and have written publicly about that), they are, in a way, somewhat underrated in their impact. Two quick anecdotes: I was recently at a dinner where I was seated next to a founder who has been through YC twice. “Why go back again?” I asked. His answer, paraphrased: “I like the social peer pressure of being in a group, I like the pressure that three months places on a team, and I love the network.” Two, I talked to a friend in the current batch who said YC has essentially empowered the technical to master business, and that inspires him to do the same. Pretty hard to argue with the power in those statements.

All this got me to thinking, YC is not just a “startup accelerator” or whatever it is lumped in to. From my vantage point (on the outside), it is an organization which continues to grow in influence and still has so much more room to grow. This isn’t discussed often in a structured way because the chatter focuses aroudn the brand and personalities, as well as the investors who jockey for positioning next to the graduating classes. Consider the following morsels:

  • Growing Headcount: People muse a16z is getting bigger. Look at the team page for YC. Lots more people to manage the growing network. Many founders I’ve talked to like being matched with an alumni mentor but it can be hit or miss (in their view, not mine) who they’re assigned to as a partner.
  • Extending Brand Geographically: “Startup School” as a recruitment tool has extended to New York and Europe. Why not other places, right? It’s just a matter of time. I’ve argued before that we could see YC not just in SF proper, but perhaps in NYC, Berlin, and even China as their brand grows and as they continue to perfect the model of finding talent and building products quickly.
  • Moving Up-Market: It feels like more and more companies are entering YC already with a product that has some traction and/or revenue. Yes, there are people who still get in without an idea, but plenty of companies are quite further along, which is, in part, a reflection of our times, where everyone has a company (or wants to found one), and what ends up separating the visionaries from the doers is evidence of real adoption, even if small.
  • Alumni Network As Investors: As the YC alumni base grows in size and power, those individuals will become angel investors. Of course, many already have. They are likely some of the first choices for entrepreneurs in YC, and why not? They have the most recent experience and can help guide them up to and beyond demo day. This puts competition on the early-stage players who are not in the alumni network. All’s fair in love and war! Further more, there are pre-demo days leading up to the main demo day, which means the pressure to access has increased. And, YC companies, in my view, are getting smarter each batch about the opportunities and risks associated with talking to larger institutions too early in their life cycles. This means the larger funds may have to change their approach unless they want to invest quickly.
  • Shifting Terms: Many assume YC charges 6-7% for each company, but as they move up-market and companies mature, and as the startup ecosystem continues to become more transparent (even for YC!), they do now negotiate on equity percentage.
  • Recruiting Teams To Apply: As the YC partnership extends, like with a16z’s, the partners can hear about more companies which have matured slightly and invite them to apply to YC, which is about the same thing as inviting them to pitch the partnership. In this way, they’re extending into the sales realm of traditional VC, which is super-interesting and quite smart. (A follower on Twitter commented that #YCHacks also fit into this theme, as the winning teams get an interview with YC.)

Again, YC is a force — no doubt. But, I also think its impact on individuals and companies is underrated (despite all the surface-level hype), and I think they’re planting all different kinds of seeds to extend their power and reach. As the traditional venture capital model continues to experience pressure from myriad angles (private equity, hedge funds, lowering costs of startups, cheaper financial instruments, companies started outside Silicon Valley, crowdfunding platforms like AngelList and CircleUp, and so many other factors), the impressive, expansive growth of YC should be added to the mix. YC is like a growing startup, too — it’s just under 10 years old, and not done growing and evolving. As the faces who lead it change, and as it remains nimble to change as an institution, it enjoys many advantages — just like startups do against incumbents.

Another Angle On The Shifting Pro-Rata Debate

Over the past few days, you may have seen a larger number of people (mostly investors) tweeting about a bizarre term: “pro-rata.” This term is a venture investing inside baseball term, but it is actually quite important for (future) founders to think about. To simplify the term, a pro-rata right is essentially a provision in a venture investment that gives an investor the option to invest more money, on a prorated basis, to maintain their ownership percentage as the valuation of a good company increases over time. This protects the earlier investors from dilution as the valuation of the company rises, and it also is a critical instrument for those earlier investors to “double-down” and put their money to work into the companies that have the best chance to return their fund.

I am writing this as someone who is learning about all this stuff as I write it — not an expert. So take the following with a grain of salt:

Larger institutions in the business of venture usually don’t invest unless they have pro-rata rights. It’s a condition of the deal, and those funds have business models which depend on at least one or two companies within a vintage which end up being the “winners” and end up carrying the fund. The larger players have been in business for a while, so they’ve had enough time to understand it; the newer entrants in the seed ecosystem mostly have not, and it seems like only now that people are understanding that, no matter at what stage, pro-rata rights are critical for investors.

Ah, but there are few assumptions around these that we must reexamine, and this is where it gets interesting given the climate:

  1. Many angels, early-stage, and smaller check-sized investors do not get pro-rata rights. In my limited experience, I never ask for them, and if I did, I probably wouldn’t get them at all.
  2. Now, some investors who have a big enough checkbook, a big enough fund, or a big enough brand name or expertise can lay down that having pro-rata rights is a condition of their involvement in a deal. In those cases, the founder has to chose whether or not that condition is worth it. For example, I was involved in a great seed deal where a well-known investor wanted to come (and he has very relevant experience in the space). His condition was to only participate with pro-rata, as an edict from the fund he works for. No one else got pro-rata. This is a critical point — a founder does not, in no way, have to allow these investors to have pro-rata.
  3. Ok, well, so now that there’s an excess supply of angel and microVC capital in the system, and because many of the people writing these checks do have a business model (i.e. returning a fund based on fund economics), people are asking for their pro-rata rights and realizing just how critical they are for their fund’s performance metrics and, in some cases, survival.
  4. Yet, what’s also interesting is that founders are now in the driver’s seat with respect to pro-rata. Consider a great seed team which raises a bit of funding, and as a condition, they do not give out pro-rata. Assuming they aren’t targeting someone specific, they could just use their leverage to set the ground rules that no pro-rata rights are given. Why not, right?

And, this is where it gets interesting for founders, especially for the ones who survive and their companies mature — they may be in a position in the future to dictate whether or not pro-rata rights are even dished out to begin with. This is the cold view interpretation, as I’m sure many founders will want to investors they’re close to and like to have them, but founders also can use them as a stick to fend off bad behavior. In the future, I believe things will trend this way. The people who actually get pro-rata rights will be the ones that either have close relationships with founders, those that bring extremely deep, relevant experience to the venture, or those who have a brand and patina that send a signal to the market. If I’m right that founders will hold back on this moving forward, this then alters the model of the early-stage funds and puts more pressure on them to have one or more of the characteristics I cited earlier. Otherwise, the money is just money.

As a frame of reference, I set out in my investing activity to assume I won’t have pro-rata because I believe that it has to be earned, over time. It’s less of a pro-rata right, but more of a pro-rata privilege. This is just my point of view, informed only by a few years…I’d love to hear what you think in the comments below.

New VC Interviews @ StrictlyVC

[Update: Links to all my StrictlyVC Q&A's and two columns are now below. Enjoy!]

When TechCrunch ended my weekly column after over three years of writing there, I got many nice messages from folks and friends who are reporters, bloggers, and in the media at large. That turn of events triggered some potential opportunities, but I found thereafter that I wanted to take a break from writing something for a large audience on a weekly basis while working at a startup and working on a variety of investment-related activities. One friend who did email me, Connie from StrictlyVC, smartly notified me that she’d be trying to take an unplugged family trip in August and, if I was up for it, I could help write her daily newsletter for those two weeks — a daily newsletter which is read by many founders and all investors in the startup technology ecosystem. (Almost a year ago, Connie was kind enough to profile me for her newsletter. You can click here to read that short interview, and I’d recommend subscribing to her newsletter, too.)

Well, I took her up on her offer, so for the first two full weeks of August, I will be the guest columnist for StrictlyVC! And, we cooked up a great lineup. For those 10 business days, I will write two columns each of the Fridays about what I’m seeing in the VC landscape, and for the other eight days, I’ve completed detailed Q&As with some of my friends who are in industry. Specifically, you can look forward to learning more about:

I hope you all sign up, tune in, and interact. I’ve read most of the interviews now, Connie will edit them, and I can guarantee they’ll be worth your time.

A Prescient Table Of Contents

In May 2004, Paul Graham published “Hackers And Painters,” arguably one of the most important modern books focused on the intersection of technology and entrepreneurship. I was catching up on reading tonight and saw a post which referenced some passages from the book. I clicked through and was curious, “How old is the book?” Well, it’s just over 10 years old. A decade ago. I cut and pasted the Table of Contents from the book below — the title of each chapter and most of the subtitles are truly prescient, now with a decade of hindsight. I do not agree with 20% of what Graham blogs and tweets about today, but it is hard to argue he didn’t perfectly nail this thesis. Reading through each title, it’s remarkable to see the level of foresight he held, as if he saw the next decade unfolding in his mind.

A few nights ago, I was at a dinner and happened to sit next to a founder who had gone through YC twice. We talked a lot about entrepreneurship, the program, his experiences, and much more. This guest realized I had a lot of thoughts about the topic, so he asked me, “Well, what do you think motivates PG?” My answer: “I believe he wants to empower the people he believes are creators.”

<i>Hackers & Painters</i> Table of Contents

  1. Why Nerds Are Unpopular
    Their minds are not on the game.
  2. Hackers and Painters
    Hackers are makers, like painters or architects or writers.
  3. What You Can’t Say
    How to think heretical thoughts and what to do with them.
  4. Good Bad Attitude
    Like Americans, hackers win by breaking rules.
  5. The Other Road Ahead
    Web-based software offers the biggest opportunity since the arrival of the microcomputer.
  6. How to Make Wealth
    The best way to get rich is to create wealth. And startups are the best way to do that.
  7. Mind the Gap
    Could “unequal income distribution” be less of a problem than we think?
  8. A Plan for Spam
    Till recently most experts thought spam filtering wouldn’t work. This proposal changed their minds.
  9. Taste for Makers
    How do you make great things?
  10. Programming Languages Explained
    What a programming language is and why they are a hot topic now.
  11. The Hundred-Year Language
    How will we program in a hundred years? Why not start now?
  12. Beating the Averages
    For web-based applications you can use whatever language you want. So can your competitors.
  13. Revenge of the Nerds
    In technology, “industry best practice” is a recipe for losing.
  14. The Dream Language
    A good programming language is one that lets hackers have their way with it.
  15. Design and Research
    Research has to be original. Design has to be good.

Notes From The 2014 Pre-Money Conference

Right before the July 4th holiday, Dave McClure and 500 Startups put on their second annual “Pre-Money Conference.” I was lucky to attend as part of my work with the folks at Bullpen Capital, and it was a great conference and day of running into old friends and making new ones. I finally have a chance to jot down my notes from the event, so here goes, in no particular order — and, while entrepreneurs and founders won’t think about these issues on a day-to-day basis, I do believe it’s worthwhile to be somewhat aware of the world in which technology investors live in, because when one starts to peel back the layers, it quickly becomes apparent much of the propaganda shared online and on Twitter about investors is often off the mark. This isn’t meant to imply any of this is bad — it’s just reality, a reality founders may find useful to keep as context as they’re thinking about or actually raising that next round of funding:

A Select Few Raise Quickly, The Rest Are Always Raising: Having worked in a variety of early-stage startups and having helped many folks raise funds, I myself am continually surprised to learn how much time professional investors spend raising dollars for their investment funds from LPs. The bigger funds we all know by name — they raise money quickly. The rest of them have to constantly readjust to the market, think about the composition of general partners, and many have had to withstand haircuts from the billion-dollar club to more modest levels of assets under management. For an entrepreneur, this means most of the investors they’re courting or pitching are likely to be switching context between finding new LPs and evaluating new potential investments. It’s not an excuse, but it may be part of the reason why many are slow to respond to email (or don’t respond at all), and always seem to be in a rush.

In The Short-Term, Investors Are Much More Accountable To Their Own Investors: There’s a lot of good chatter online and on Twitter about behavior among investors, and that investing teams need to be more diverse (on many dimensions). There’s also no shortage of blogging and tweeting by investors marketing themselves as the best choice for founders. What we see online often doesn’t translate offline in real life, but by now, we shouldn’t be surprised by that. Again, for the majority of investors, while their job is to give capital to founders, they’re held much more accountable to their own investors. It makes sense when you think about it, but I’m not so sure most founders (who, likely, don’t care about this world) realize that, depending on the moment, they are not the immediate priority — no matter what all the blogs say.

Up And Down The Stack, It’s A Noisy Market For Capital: Ask anyone who has been investing for a while and is at least good (or great) at it, and they’ll say a version of the same thing — they’re not resting on their laurels. It is a brutally competitive market to invest dollars into private companies, and seed-stage firms which like to lead rounds as well as traditionally growth-stage investors are feeling the heat from all sorts of angles. As a result, investors are resorting to all sorts of branding tactics (PR, for example) and operational techniques (scouting, for instance) to get their names in front of the best opportunities. In a noisy market, attention is the scarcest resource, and because attention is a function of time, it can (somewhat) be purchased with money. Somewhat.

Successful Angel Investors Are Seen As Rock Stars: With public markets tightening and high-growth companies staying private longer, there’s tremendous pressure worldwide for those holding high beta-seeking capital to pump it into early-stage technology. This trickles down from the top, all the way to the long-time angel investors, who are now seen as being ahead of the curve, and rightfully so. It’s hard to prove it, but it just feels like more people are getting more serious about trying to invest small amounts of capital in very early-stage ventures. They come to a conference like this, in part, to better understand what method might work best — whether to raise an actual fund, or to just be an angel, or to try to be an LP, or to use a platform and run syndicates or trade using data. It’s easy to monitor this uptick in activity and conclude it’s a frothy time — yes, it is, but there’s also less of a game for these investors to play in the public markets, so they spillover into another section of the casino.

Seed “Rounds” Are In The Past, Now Things Roll To A Close: I’ve mentioned this to founders often lately…even just a few years ago, the founder would open a process to raise a seed round, and it would close within a finite period of time. No more. While it happens on occasion, the majority of founders are collecting checks at different valuation caps over a longer period of time, holding off on converting the caps to priced rounds until they find a lead investor. What this means is founders have had to collect smaller checks along the way, continuing to build their businesses, and keep momentum moving with the hope of convincing someone to lead and/or price the round and convert. There are some advantages and disadvantages of the new world, but on the whole, I believe it’s better for founders net-net as they don’t have to price their round too early — the cost is that it’s harder to find leads who hold the proper incentives to ensure the early-stage venture is on the right track for downstream investing.

It’s Not A Bubble, But That Doesn’t Mean Some People Won’t Get Burned: Have you noticed some people have been talking about a “bubble” since 2009? That’s because the time in which we’re living in is, for all intents and purposes, quite crazy — the proliferation of technology both to the mainstream (in the form of mobile phones and Facebook and social mobile apps) as well as those reinventing industries like transportation, food, and retail has not only shifted market value from incumbents to new entrants, it’s also increased the overall size of the market. When you look at the data — the amount of money spent in venture capital by quarter, or the number of IPOs, or even just the tightening of the IPO window of late — it’s clear that some big private companies are way overvalued, but it’s also clear that any shrapnel from any fallout won’t affect a wide swath of people. In Oliver Stone’s “Wall Street,” Gordon Gecko mocked a fellow investor who kept predicting doom by retorting: “Like a rooster who takes credit for the dawn.”

The Decacorns

A few weeks ago, I wrote a post called “Baby Unicorns,” where I was extending the meme about billion-dollar companies to try and create a list of companies at earlier stages that could, potentially, mature into unicorns. I know that whenever one creates a list, they’ll miss things and people will disagree. At a few events over the past few weeks, people would come up to me and ask questions about the post. “Hey, I read that post — good stuff, but tell me, how did _____ make your list?” Those led to some interesting (and some uncomfortable) conversations. Then, last week, a friend said — “OK Semil, so what are the ‘decacorns’?” What?

My friend, a former VC at a big fund, mentioned that he’s most interested to know which companies can enter the league of Airbnb, Dropbox, and Uber — the companies which have achieved $10b+ of enterprise value (even in private market valuations). And with technology pervading more and more into society, and more and more people starting companies, the number of unicorns will increase, but limited partners may now be more interested in having their GPs stake out big positions in companies that can be Decacorns.

It’s a good question, and a harder one. Without thinking about it too much, I called up the original post on my iPhone and scrolled through the list with him. Here are the companies and I came up with and my brief justification as to why — companies that have the potential to reach $10bn+ of value and sustain as independent companies over many, many years. The common thread among these: They’re platforms, where we can envision other people leveraging or building on top of the network in new ways. Again, I’m going to miss some, so please tell me what you think: There’s no specific order to this list, so I made it alphabetical:

Airware: Why? The market for drones could reach over $100bn+ over the next decade. Airware is one of the few companies positioned to write and distribute an OS for these “flying cell phones,” and with a market so big, and looking at what mobile phones did for Apple and Google (as rough examples), Airware has a chance to be on a Decacorn-trajectory.

AngelList: Why? The best companies are now staying private longer, and with so much corporate growth occurring in the private sector, funds and retail investors that would traditionally play in the public markets will face more pressure to invest earlier. However, in order to do so, they’ll need access to companies in the absence of publicly-available data, as well as mechanisms to create liquidity for these holdings. In such a heavily regulated world upended by new companies with lighter structures, a company like AngelList has the potential to reinvent everything from sourcing to investment banking.

Coinbase: Why? As Bitcoin grows outside U.S. borders in places where the rule of law is weak, and as more and more retailers accept these “coins,” Coinbase has captured the consumer-facing position where most normal people will start a wallet. For a while, things were unclear with Apple blocking these types of wallets, but those days are over now. Additionally, there are many powerful and influential people who are wholly committed to attacking every ounce of unnecessary fat that bankers have baked into transaction fees, and a digital currency like Bitcoin is what can cut into that fat. Beyond payments (and stored value), the added benefit of Bitcoin for Coinbase is the protocol upon which the system runs on — one I believe can be leveraged by developers to reinvent 101 business processes.

Lyft: Why? Lyft is often (unfairly) compared as Uber’s second-fiddle, but I’ve always felt their model is slightly different. Uber began as a network built around existing private car dispatching systems, using mobile to offer consumers order control. The Lyft vision, on the other hand, is pure P2P ridesharing. To date, Uber is playing the game very well, but I do not believe this is a winner-take-all market, because the market is way too big. So, I can see Lyft growing as well, as more people move to cities, as more municipalities grow cash-strapped and transit infrastructure fails to keep up with demand, and as the bottom-third of the economy looks for jobs that are not just “hourly.” Ultimately, I believe state and federal governments will elect to create huge economic incentives for us to rideshare as an alternative to costly infrastructure projects that would likely not be passed and/or would be too slow to develop. In such a world, governments could offer huge incentives for everyone to give everyone else a Lyft.

Pinterest: Why? I’ve detailed that here before. In my opinion, currently undervalued.

Snapchat: Why? A long road to get there, so I’ll just point to my previous posts on Snapchat as a marker.

Wealthfront: Why? This one is straight-forward: Software applied to a trillion-dollar market. To date, private wealth managers cull lists and network to find clients with net worth over $1m+ to manage their money. Why not use software instead? Part of this is a demographic change, where generations coming up might likely prefer their banking experiences to be automated and accessed through a desktop or mobile native interface. Beyond the UX, Wealthfront could provide more transparency around allocations and use math to power software that more efficiently balances stocks, bonds, and other assets according to an individual client’s particular tastes. Wealthfront could harness software to make Modern Portfolio Theory even more efficient, and that alone gives it a chance to be massive.

A Brief Survey Of The Block Chain And Business Processes

This post is meant to be a simple, brief survey of the block chain, from the point of view of an investor in the space. For someone who has read widely on all aspects of Bitcoin, this will feel rudimentary, but my goal here is to explain the idea of the block chain’s potential to a ore lay business audience. It will lack technical depth and instead focus on business applications that are likely to be created in the next few years.

Post #1: The Business Of The Block Chain (A Survey)

Over this summer and spring, I’m going to write more about Bitcoin and the block chain, specifically from the vantage point of founders who are working in the space right now and those investors who are interested in products that could arrive on the market in the next 2-5 years. The first post in this series was more of a preface, which you can read here. This post and the subsequent ones will presume some basic knowledge of the block chain. One of the best primers I’ve found (and please suggest more in the comments) is by Antonis Polemitis, which you can read here.

Back to the block chain. After reading as much as I can, and after talking to many smart folks in the space, I’ve come to a few conclusions: (1) The block chain as a computer science innovation is for real; and (2) there are 101+ business applications that can be rewritten by harnessing its attributes; but (3) it is very early days and right now, most of the best minds working in this space are focused on payments and stored value.

Put another way, it is very early for the block chain, which is a bad thing for a momentum or inflection investor, but a great thing for an investor who believes in the power of the block chain and wants to lay down an early, early bet. (If you are working on the block chain right now, please do get in touch with me.)

So, what can the block chain do, theoretically? Too much to list here. “A 101 things,” is my standard answer. This is a primer on a few areas, and then I plan to dig into each one with more detail in the summer. Regardless, I’ll offer some ideas as examples of new business processes that excite me specifically, in no particular order:

Smart Contracts

Many of the smart folks working in the space cited the idea of “smart contracts” as the one area which posses the most widely-applicable aspect of what can be “on-chain.” A smart contract acts as a specific protocol which helps parties create, validate, and enforce contracts without the need of expensive human overhead costs. Contracts that become interesting when “smart” could be DRM, derivatives, P2P commerce, and other business processes. All this said, there are some folks working on block chain-related ideas that, at least today, do not seem to be solving a big problem. Of course, it is early days, so who knows. (Earlier in the year, Naval and Balaji posted on Appcoins, which poses thoughts for how block chains could change the financial side of starting a business.)

Proof Of Work

The block chain can be leveraged to verify, attribute, timestamp, and prove, irrefutably, that work has been done at a specific point in time with specific characteristics. These record-keeping capabilities could open the door to a more transparent form of governance. This has been referred to as the public ledger. Today, we hold people and entities accountable to the fact that we can point to something that shows commitment or promise — in the future, work verified by the chain would be theoretically immune to disagreement (but I’m sure there will be “Chain Deniers”). Just like in smart contracts, there are a few companies working in the space, but not many.

Payments

This is the space that is currently in play and has real players most of us recognize by name, such as BitPay, Coinbase, and Circle, among others, which are leading the way to bring Bitcoin to the masses and financial mainstream. Someone will win this space and they will all also provide their own APIs to empower other developers to build on the block chain, but it remains to be seen if independent developers will want to use their APIs versus building on a neutral platform like Chain, which is sort of like an AWS for the block chain.

An Important Caveat

A good percentage of block chain enthusiasts I spoke with cautioned against a mentality of “Block Chain For X,” in the same way we all do this with “Uber For X.” They believed this will also generate very bad ideas that either don’t make sense in practice or that look cool but don’t really solve a big problem. While some of these solutions will be technically feasible with the block chain, they said to expect a period of crappy ideas before someone or a group of folks hits it big. And when they mean big, they mean trillion dollar market big. With that caution kept in mind, however, everyone admittedly is very bullish on the block chain. Today, it is early. Outside of a few teams, I have yet to see it. I would love to see it, and I’m sure I’m not seeing it all. Finally, there are of course many other use cases, but these seemed to be the big ones that resonated with everyone I spoke with, and underneath them, undoubtedly lie fascinating new ideas.

“The [Fleeting] Knowledge”

Of all the places in the world where Uber really gets under the skin of others, London takes the cake. Why it does so warrants more examination. In London, cabbies are required to master the old city’s streets, all the nooks and crannies, if you will. It can take years (and lots of pounds and sterling) to obtain this knowledge.

In fact, that’s what London cabbies call it: “The Knowledge.”

Now, that knowledge is under attack. Cabbies were tested so as to have maps and turn-by-turn navigation capabilities in their brains. Each cabbie, in turn, had to do the hard work of writing this information to each of their “disks.” While the streets are static, the navigation is dynamic. Then, companies like Google (and others) started bringing maps online, followed by directory services (search) and turn-by-turn directions (navigation). But, up to a point, the convergence of those technologies only disrupted the old external GPS providers like Garmin, TomTom, and so forth.

Mobile, of course, changes everything. Mobile now places “The Knowledge” in everyone’s hands, and by proxy, in everyone’s brains. You can see why London cabbies are worried. I heard one on the radio this past weekend. He doesn’t like Uber. He feels that it’s unfair that his knowledge is now obsolete, or at least commoditized. He feels part of being a cab driver is maintaining a character of person that is higher, though I’m sure cuddly behavior exhibited by cabbies varies on a case-by-case basis. In a matter of 15 years, Google mapped the world, and Apple put those maps in the hands of everyone, complete with static street knowledge and powered by the most dynamic, real-time system consumers have ever enjoyed.

The result is what we see on the news and on the streets of London. Up to a point, human knowledge created a moat for some to earn a steady living. But along the way, machines maps combined with cloud computing on handheld devices created a mechanism to democratize and distribute (in real time) the knowledge that had been trapped inside the heads of a few select London cabbies.

It’s not just cabbies in London who hold “The Knowledge.” Many people in other jobs believe they worked hard to accumulate “The Knowledge” in their own fields, but many of them, too, will experience something akin to what these London cabbies are feeling. Think of mobile developers who have been grinding out cycles of Obj-C only now to have to learn Swift to write apps again. Think of those who report and analyze the tech and startup landscape for a living now having to compete with forums and blogs maintained by those who are in practicing their craft in the arena. Think of the venture capitalists who were trained in their craft for decades and over funds to manage large sums of money, only now to see upstarts leveraging platforms like AngelList and resources like Mattermark to invest smaller amounts earlier into startups.

What was once difficult (and costly) to obtain is now more likely to be commoditized, provided for free, and distributed at the touch of a fingertip or even before we know we need it. It happened to these cabbies in less than a decade. Keyhole (which became Google Maps) was founded in 2001 and acquired in 2004. And, it will happen to many others in different fields. This specific case was only really fueled by machine learning, cloud computing, and mobile networks. What happens when vehicles drive themselves? What about the block chain applied to supply chain management? What about the economic effects of 3-D printing on today’s manufacturing industry? Questions like these are never-ending, and, unfortunately, the answers are going to piss off a whole lot of people.

Sunday Conversation #10: Keith Rabois, Khosla Ventures (Round 3)

Welcome to the 10th Sunday Conversation. For this year, Rabois and I sit down once every 2-3 months and talk about a variety of topics. In this installment, there are five separate videos below where we discuss Bitcoin (a second time, now that things have cooled off), the many drivers behind valuations we see today, new types of strategic and late stage investors, additional details on his company, Homerun, and more. Note that full audio of the conversation is at the bottom, via SoundCloud. ♦

Part I, Revisiting Bitcoin (6:56). Late last year, when Rabois and I discussed Bitcoin’s potential, he made some strong statements about the currency’s viability in the United States, but also mentioned two important caveats — that Bitcoin could very well grow first in regions of the world where the rule of law is weak, and that the underlying protocol warrants deeper examination. We discuss this and more about the regulations around currency, the idea of stored value, and what investors look for in products that leverage the block chain.


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Part II, From Disbelief To Belief In Stripe (7:43). Years ago, Rabois infamously tweeted his opinion of Stripe. “It turned out to be an expensive mistake.” In this words, Rabois offers the back story of how he came to eventually invest in Stripe, a breakout company, and from here, we talk about how investors maintain relationships and even invest after saying “no” initially. We also discuss the payments landscape in general, and in particular, what Facebook may have up its sleeves — this conversation was recorded before PayPal’s David Marcus left to join Facebook.


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Part III, Dissecting Valuations (10:03). This segment is more of a quick survey about how valuations come together, how non-VC investors think about valuations (strategics, hedge funds, mutual funds, etc.), and the challenges and opportunities facing entrepreneurs who may have a choice of different sources of capital.


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Part IV, OpenDoor, Part 1: The Product And Market (5:24). Rabois discusses his new company, OpenDoor. We explore the market, the product, and how these types of solutions could help the overall economy.


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Part V, OpenDoor, Part 2: Incubating Companies As A VC (4:51). Here, we discuss how VCs can potentially incubate companies while also being full-time investors, sharing precedent with a few other well known investors who have gone on to fund companies such as Palantir and Workday. VCs who can incubate companies theoretically have a better shot of controlling and preserving equity stakes and can leverage their networks more efficiently.


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A special thanks to the team at Scaffold Labs for sponsoring the Sunday Conversation series on Haywire. Scaffold Labs is a boutique technology advisory firm based in Silicon Valley which designs and builds scientific and predictable talent acquisition programs that helps technology startups hire great people. Scaffold Labs has previously partnered with companies such as Cloudera, Appirio, and Nimble Storage, among others. For more information, please visit www.scaffoldlabs.com

Haywire is written by Semil Shah, and is published under a Creative Commons BY-NC-SA license. Copyright © 2014 Semil Shah.

“I write this not for the many, but for you; each of us is enough of an audience for the other.”— Epicurus