Venture Capital Archives

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

Baby Unicorns

On November 2, 2013, Aileen Lee wrote a post (see here) that cemented one word — Unicorn — into every nook and cranny of entrepreneurship. I’m still amazed at how often the word “unicorn” pops up on Twitter, in slide decks, in some individual’s Twitter bios, in LP decks, in conversations with LPs, and so on. It’s so big, in fact, that there are variants — there are ones based on geography (Asian Unicorns), those based on sector (SaaS Unicorns), and much more.

Well, how about one more variant? Baby Unicorns.

That’s right. Baby Unicorns. You know, those little precious young Unicorns you can just hold in your hand, and then the next day — boom — they’re all grown up. Now, before people berate this list, (1) you can add your list in the comments or try to convince me; (2) there will be potential Baby Unicorns worldwide and in places I haven’t thought about, so please tell me what you think; and (3) I realize that every startup begins with the goal of becoming a unicorn, but most won’t achieve even Baby Unicorn status. There’s no shame in that.

So, here’s my list of Baby Unicorns in alphabetical order. This list means that I think each one of these companies has a tremendous shot to be sustainably valued (in the private market) by at least or over one billion dollars by the time we have a new President of the United States:

Actifio
Airware
AngelList
Blue Apron
CipherCloud
Coinbase
Cloudfare
Docker
Domo
DoorDash
Fastly
Flipboard
Hampton Creek
HotelTonight
Hubspot
Instacart
Julep
Jumio
Live Intent
Lyft
Medium
Mixpanel
Okta
OpenDNS
Optimizely
Oscar Health
Postmates
Practice Fusion
Quantopian
Quirky
Skyhigh Networks
Sprig
Soundcloud
Sumo Logic
Teespring
Thumbtack
Tube Mogul
Twilio
URX
Warby Parker
Wattpad
Wealthfront
Wish
Zenefits
Zen Payroll

The Muddied Lexicon Of Startups

For a variety reasons I can’t go into in this post, entrepreneurship (worldwide) is in the rise and likely will not stop. As a result of this increased level of company formation, it brings with it new investors, new media personalities, and new conventions. All of this is good. One issue, however, is that what it means to engage in all of these activities is in flux, and the result is that founders, investors, and those in the tech media can begin, can frame, and can dictate conversations or interactions where each party may hold a different connotation for the same words they all use.

One example is “bubble.” There are a bunch of people on Twitter who have been calling it a “bubble” since 2011. Like Gordon Gekko mused, “Like a rooster trying to take credit for the dawn.” But, a “bubble” generally means that assets are overpriced, that people are beginning to take on debt to obtain equity, and that any popping of said “bubble” would trigger a widespread effect. More nuanced, you have some people who don’t believe any popping would be widespread, but that still assets are overpriced — hence, they called it a “bubble.” These are just two definitions — I’m sure there are at least eight more credible definitions.

Another example of a word used in different ways is “Bitcoin.” To some, Bitcoin is like a currency. To others, Bitcoin is a way to program money for it to have stored value. And, to others, Bitcoin represents a protocol that solves a key problem in computer science, a protocol that can be used — independent of the market price of Bitcoin — to execute autonomous tasks against a public ledger. Get into a discussion around “Bitcoin” and God help you that both parties are thinking of the word in the same way.

Finally, the most painful is around the monikers we attach to fundraising stages and milestones. We go from bootstrapped to friends & family to angels to super angels to microVCs to seed funds to traditional VC funds and all the way up to growth funds, private equity, hedge funds, mutual funds, and eventually out to the public markets. Along the way, founders and investors have picked up the lexicon, and when they two sides meet, each side comes into the conversation with their own frame about what constitutes their current stage. “We’re heads down working to prepare for our Series A.” Really? What does that even mean? And, especially in an environment when products are launched for little or no money, and when seed rounds are left open indefinitely to a long-term rolling close, when does one round end and another begin?

There’s no shortage of examples. What does the viral proliferation of this divergent language all mean?

It means that in order for two parties to be on the same page, they have to use the same words in the same way. Each conversation and interaction needs to be framed in a way such that the other side understands. Today, we are mostly experiencing the opposite. Today, we expect funding rounds to happen in a linear fashion, up and to the right; we expect that investors don’t have to change their position in the market, despite market forces pushing them in different directions; and we expect that the people who are tasked with reporting all of this “for the official record” will see it our way.

Hence, our expectations are out of whack, and need to be fundamentally reset. Perhaps the transparency of AngelList profiles will nudge the crowd into this direction. Perhaps the next Mike Arrington blogger/reporter who has a full grasp on the intersection of where founders, investors, and the press meets will come up with a new lexicon. Until then, we are likely to engage in more conversations where the other side uses the same words, but those words mean very different things to them. The result? More noise, and less signal. Grab your noise-cancelling headphones.

Pinterest Is Likely Undervalued

I know what you’re thinking — “C’mon! More sky-high valuations?” My short answer: “Yep.” The rate of appreciation of hyper-growth, late-stage private valuations is hard to keep up with. Already in the past few weeks, private companies like Airbnb, Dropbox, and Uber have broken through the $10Bn club. Wow. What shall we expect next? Well, if you’re a market bull, then set your sights on Pinterest, which — depending on how you calculate these things — could be currently undervalued, and by quite a bit. Many people believe that the combination of DAUs, strong engagement, and locking in nearly 90% female users (who often control control purchasing decisions) makes for a powerful company.

Insider Round. The first bit of evidence we have that Pinterest is currently undervalued (depending on your POV) is the most recent $5Bn investment led by SV Angel. This was not a normal deal for this fund, which leads me to believe it was partly motivated by helping the company get cash quickly, helping cash out some earlier employees (perhaps – recall that Pinterest’s cap table is quite messy from all the early battering the company received). In such a deal, a firm like SV can enjoy the carry on making the deal happen, but if this was a real priced investment by the next Wellington, the price would likely have been higher. The metrics are just insane.

Global Referral Traffic. On slide #44 of the 2014 Mary Meeker presentation, it notes that Facebook refers about 20% of global web traffic ($170Bn market cap) while Twitter is about 1% ($18Bn market cap). Pinterest is about 7% and growing quite nicely. But, that’s just the web…

What About Mobile? The WSJ reported a few months ago that over 90% of Pinterest’s traffic comes through mobile — either by users hitting mobile browsers or through their native app? In an era where mobile distribution is choked except for a apps in very specific categories, Pinterest will easily have enough of an installed web user base to bring them into the mobile and tablet world. Thinking ahead — I’ve wondered if Pinterest could somehow negotiate mobile OS integration (like Facebook and Twitter have), but outsourcing photo storage and retrieval (like Dropbox) may be too strategic for the OS to budge on.

Global Distribution. Many consumer and social sites to date took a while to internationalize because of language considerations. Pinterest doesn’t have that exact scaling problem, as photographs are a language understood by all. Like other photo-based services which have exploded recently, this consideration cannot be discounted. It speeds up the time it would take to grow and that speed gets factored into a higher price if and when the next financing occurs.

Vertical Validation. Houzz, a sort of vertical Pinterest focused on people who want to catalog and design their home interiors (and more) was recently valued at over $2Bn. In terms of commerce and closing the loop on lead-gen and transactions, Houzz is an example of what Pinterest “could” do at scale. The “could” is a consideration, however — and a serious one at that.

So, let’s discuss the “could” part — clearly we all believe Pinterest has the ability to do something big, but will they? If people continue to swarm to Pinterest and then find items they buy elsewhere, at a certain point, Pinterest will need to be a part of that transaction — less of an affiliate and more of a broker. The good thing for Pinterest is that people keep coming back, over and over again, to do the same thing. The tricky part is that Pinterest is now a big ship, adding more employees, and carrying the weight of expectations that have been thrust upon them. Will Pinterest build channels to close this loop in time? Will others products that take a vertical approach (like Houzz) start building interest-based communities around images and capture that commerce before Pinterest can? Many unknowns, to be sure, and the company is not enjoying a rate of free cash flows like Uber or Dropbox or Airbnb — but, the metrics are out of this world, and in a world where private capital seeks name brands and growth, parking more money inside Pinterest at even at $10Bn valuation right now may not be an entirely crazy idea.

Marketplace Chat With Sosh, UrbanSitter, Rover, And Postmates

From the Store to the Street Panel from Menlo Ventures on Vimeo.

A few weeks ago, I was invited by friends at Menlo Ventures to participate in a small event touching on marketplace businesses. I moderated a panel that consisted of the founders of UrbanSitter, Sosh, Postmates, and Rover — all incredible early-stage companies with real traction. For about 40 minutes, we had a detailed discussion about how each one kickstarted liquidity in their product, how they think about expanding geographically while maintaining a quality of service, and how they work to ensure transactions are safe, secure, and build trust. I know the cost to watch video is quite high, but this conversation is only going to appeal to those who build and/or invest in marketplaces — and to those people, I’d say, you’ll definitely enjoy this chat. As someone who loves marketplace products and businesses, and as someone who has had the fortune of working with founders who are building businesses like Hired, Paddle8, Exitround, Cambly, and a few others, I’d recommend this discussion to those who work on such marketplaces. Whether it’s Sosh, UrbanSitter, Rover, or Postmates, each service has a slightly different approach to liquidity, geography, and transaction volume and other matters. I hope you enjoy the chat and if you have any feedback, I’d love to hear it.

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