Light Blog Housekeeping

Every summer, I try to revamp or clean-up this blog. For this summer, it was more about clean-up. There are still some loose ends to be polished up, but briefly, here’s what changed:

1/ The “Haystack” Name: For some reason, I named my site “Haywire,” and that name permeated through Mailchimp, throughout my site, and for other places on the web which syndicate what I write. It rightfully created confusion, all the way to the point where people thought that was the fund name or that I worked for Haywire. It was a stupid idea on my part, and now that’s fixed. Sorry about the confusion.

2/ Top Navigation Bar: I removed “Discussions” because it was never used, replaced “Haystack” with “Portfolio,” and added a Table of Contents along side the Archive, which is reverse-chronological. I hope to add some interesting tabs to the navigation bar over my career.

3/ WP-Engine Hosting: I moved over to WPE. Still not easy to manage, but this site is all I have, so I want to make sure I retain full control over it.

4/ Formatting Miscellany: I increased the font size, added more sharing buttons at the bottom of each post, tried to improve my short and long bio, did some jujitsu to get around ad-blockers (even though I don’t have ads, they still mess up some social icons).

5/ Removing Comments: It’s an end of an era for me. Comments on the web are done. I may add FB Comments Plug-in in the future, but not holding my breath. I love the Disqus product and team (have many friends there), but comments on my site died a slow death and it was time to rip the cord.

Light Blog Housekeeping

Every summer, I try to revamp or clean-up this blog. For this summer, it was more about clean-up. There are still some loose ends to be polished up, but briefly, here’s what changed:

1/ The “Haystack” Name: For some reason, I named my site “Haywire,” and that name permeated through Mailchimp, throughout my site, and for other places on the web which syndicate what I write. It rightfully created confusion, all the way to the point where people thought that was the fund name or that I worked for Haywire. It was a stupid idea on my part, and now that’s fixed. Sorry about the confusion.

2/ Top Navigation Bar: I removed “Discussions” because it was never used, replaced “Haystack” with “Portfolio,” and added a Table of Contents along side the Archive, which is reverse-chronological. I hope to add some interesting tabs to the navigation bar over my career.

3/ WP-Engine Hosting: I moved over to WPE. Still not easy to manage, but this site is all I have, so I want to make sure I retain full control over it.

4/ Formatting Miscellany: I increased the font size, added more sharing buttons at the bottom of each post, tried to improve my short and long bio, did some jujitsu to get around ad-blockers (even though I don’t have ads, they still mess up some social icons).

5/ Removing Comments: It’s an end of an era for me. Comments on the web are done. I may add FB Comments Plug-in in the future, but not holding my breath. I love the Disqus product and team (have many friends there), but comments on my site died a slow death and it was time to rip the cord.

Five Takeaways From Walmart’s Acquisition of Jet.com

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

Here are my quick takeaways from the deal:

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

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

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

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

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

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

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

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

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

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

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

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

My Five Quick Takeaways From The Uber-Didi Deal

It is late (for me) on a Sunday night and my Monday is packed, so I’m going to forego some sleep and quickly jot down my thoughts and reactions to the news that Uber is leaving China, taking investment from its Chinese rival, Didi, and taking a 20% ownership stake in the combined Didi-Uber China entity. There’s no way for me to cover every angle of this and I’m half-asleep, so please forgive the short burst of thoughts — tracking a company like Uber may require a full-time staff! I’m glad I didn’t go through with the book — Uber writes a new chapter every month:

1/ Cutting Uber’s Burn Rate: It’s an open secret that Uber burns a lot of cash, way too much for public market investors to stomach. Because it’s market opportunity is so large (transportation, logistics, applications), they can curry investment favor from strategics, nations, and consortiums. One wonders how much cash Uber had to spend to compete in China, arguably the fiercest market in the world. Now Uber can conserve the cash on its balance sheet (see below) and direct that cash toward other things.

2/ In Land War, China Is The Prize: There was probably little to no chance for Uber to survive in a market like China’s, for a host of reasons. Nevertheless, it competed with strength, but as the belts tightened and as the cap table for each company became more strategic (cough cough, Apple invests in Didi a few months ago, perhaps to position itself against Uber if needed?), the end-game was near. As an exit, 20% of that combined entity feels like a steal for Uber, as China’s massive population and growth rate are unparalleled. (Uber, which may go public one days — will need a clear story to tell The Street. Not all of Uber’s experiments will work out in the end, but they’re trying so many and doing well with them, demonstrating this discipline will win points down the road as Uber undoubtedly will get more focused.)

3/ Scale and Scope of Uber’s Geographic Ambition: We should pause and stand in awe of Uber’s pace of execution and the scope of its ambition to even go into China. Incredible.

4/ Uberducken Alliances: Can anyone follow which major tech companies have invested in Didi or Uber or Lyft, or all of them? Or can anyone track all the allegiances, treaties, in-app cross-promotions, etc. between companies like Apple, Tencent, Didi, and Lyft, and others? I cannot and will not even try. It’s like one big Turducken.

5/ Uber Can Now Focus Up The Stack: Ok, so Uber won’t own China outright. That was likely never possible. Now as it presumably preserves some cash, it can apply those resources to technologies “up the stack” for a world in which your Ubers are autonomous — that could be pods or cars, sensors, robotics, mapping technologies, deep learning, and a host of other requirements to make a fully-integrated self-driving network a reality. With 80% of each fare you pay going to your driver, the company has a huge incentive to bite into that for its next big meal.

Transparency Is Coming To Venture

Today is a big media day at Haystack Fund! Just kidding, but for some reason, previous discussions I’ve had with reporters and media all seemed to surface online today. As I was reading through them and figuring out how to share them, I noticed a theme running through the conversations.

Why all at the same time?

If I had to pick a reason, it would revolve around the idea of transparency in venture. Now, I don’t mean transparency for transparency’s sake, as many people leverage it for their own branding or marketing — and there’s no harm in that. For me, I am thinking about the future of how private companies are discovered and get financed. Part of that future, I believe, will be operating in an environment with more regulatory oversight over how reporting is conducted in the private sector. That means, how do companies report to their venture investors, and how do venture investors report to their investors, the limited partners? And, as more information is shared, how do all parties ensure the information isn’t shared more broadly without a record of who has keys? These are all pertinent yet thorny questions, and with political change in the air, I see these coming.

That theme comes out in the conversations I’ve had below:

1/ Katie Benner of The New York Times: Katie is a friend and a darn-good reporter. She has written before for Fortune, The Information, Bloomberg, and now The Times. She also wrote a great piece on how employee options work at Good Technologies, shining on a light on a topic that affect so many in the ecosystem. Recently, I spoke with her and am quoted in her article today, titled “Making Startups’ Financial Data Free And Open,” which appeared in the July 25, 2016 Times.

2/ Guesting for StrictlyVC: Each summer, I get the pleasure of writing for StrictlyVC while my friend Connie takes a much-deserved break and searches the shores of coastal Maine for rare sea glass. Last Friday, for my column, I wanted to share more details about what I’ve learned in raising three small funds. You can read the FAQ on StrictlyVC here. For some reason, I get a lot of questions about it, and I’ve committed to sharing the lessons I’ve learned (with a grain of salt) here in an open way. The angle of transparency I’m going for here is that it’s really hard to get the funds up and running. Just this weekend, I talked to a friend who has been a founder and had a huge, notable exit as an investor, and is still having trouble raising a small fund. More on this below.

3/ Interviewed by Harry Stebbings on The Twenty-Minute VC: You have probably heard one of Harry’s podcasts. This guy is a machine when it comes to creating, editing, and distributing podcasts. And, he really prepared for our conversation. In the discussion, we chat about topics such as: defining “founder-friendly;” branding in VC, experiences in raising a fund, and more. I want to stress again that Harry did a great job editing this down to 20 minutes and you can listen to my soothing voice, but not when you’re driving, please — you may fall asleep at the wheel! (Link to Apple Podcast here.)

Venture Capital as a Hyperlocal Game

A few weeks ago, Chris Mims of The Wall Street Journal wrote a great piece on the struggle between entrepreneurial energy spreading across the country while the dollars allocated by LPs in venture capital funds increases in concentration in the Bay Area. Specifically, Mims reports that while the share of U.S. VC dollars allocated to startups in L.A., NYC, and Boston roughly amounts to 20% overall over the past two decades, the share going to Bay Area startups has ballooned from around 30% two cycles ago to over 50% in 2016, when we saw many large funds scoop up massive LP dollars.

This is a touchy subject, because for a variety of reasons, the Bay Area isn’t the most welcoming place considering the costs and cultural corners, yet as the country emerges from the Great Recession stronger in aggregate, the “cap table” of that rebuilding has shifted dramatically to the coasts (and a few coastal cities in particular), and especially, to the Bay Area. Additionally, before I begin this post, I want to disarm the chorus in advance — I know that companies can be built anywhere, and that there are plenty of examples of VCs in the Bay Area investing outside their market, as well as great VC firms which are headquartered outside the Bay Area. There’s an advantage to being local, and those who breakthrough outside this chamber deserve extra credit, for the odds are more difficult.

The point of this post, however, is to share some observations on how location — either via proximity or distance — drives so much dealmaking, and then to share some ways to overcome geography. I’m reminded of the lyrics of a Tina Turner classic: “What’s love got to do, got to do with it? What’s love but a second hand emotion?” Just replace “love” with “location,” and the answer is: A lot.

======

Why is location so important to LPs, those who invest in VC firms, and the VCs themselves?

1/ Only way for VC firm to exit is IPO or exit (or selling shares in future rounds). IPOs are rare, and becoming tougher given the startup narrative to stay private as long as possible. Exits are also rare, and most of those big exits (per CB Insights) occur in California. If location drives M&A, location will also then impact where a VC allocates dollars. (Location also helps drive a closer bond between VC and founder, which helps in cases like special liquidity events for an early investor to sell shares, among other techniques.)

2/ Proximity affords VCs more time to track a founder or investment. Whereas the seed world moves on quick decisions, I’ve seen many VCs track potential investments for about a year, either waiting for the timing to be right and/or to gain a better picture of the company and team. Here, proximity drives familiarity and eases the fears of an investor who may not otherwise have enough time to get comfortable with the risk presented to them.

3/ LPs want their GPs to be active managers of their investments. It’s possible yet still hard to be an active VC or Board Member when the company is a 6-hour flight with a connection away, but yes — I know — many do it. But, that right has to be earned. If you look at the folks who do this well, they are considered rainmakers by LPs. And, there aren’t tons of them.

=====

Ok, if this generally the reality, then what? Here’s how I briefly breakdown what startups at various stages should consider about Bay Area capital:

Seed – If you’re outside the Bay Area, raising seed capital in the Bay Area is hard. Seed capital is mostly institutionalized now, meaning those investors are investing other peoples’ money, and in order for them to get a return, they need to see a large potential multiple on what is a smaller check, and one where their stake will get smaller with success via dilution. For founders in ecosystems like LA, Boston, NYC, Seattle, Chicago, seed ecosystems have emerged thankfully to pick up the slack. Those funds can theoretically be more “active’ with their investments by being local, and theoretically help prepare those seedlings for future rounds, where the Bay Area may come into play. For those who are pre-seed or in the seed stage without much traction, it is really hard to raise a seed round in the Bay Area because local investors here have so many options to invest locally.

Series A and Series B “Classic VC Rounds” – Because of the economic incentives of traditional VC funds (firms managing $150m to $1 billion or so), those GPs have to allocate their dollars to the best economic opportunities they see, regardless of location. It is already quite difficult for a Bay Area company to get a Series A done, so imagine how that risk increases for something out-of-market. That said, and no one will say this publicly to you, but the bar is exceptionally higher for a Bay Area VC to make an out-of-market investment. Yes, they will miss good companies (as I wrote last night about Dollar Shave Club). Luckily for founders, non-Bay Area VCs will invest out of their own market, as we saw with Dollar Shave as well, or with east coast firms that invest in Europe, and so forth. For those founders who are outside the Bay Area and seeking a classic Bay Area Series A or B round, the formula to score one is to (a) demonstrate exceptional growth, where you will be offered multiple term sheets, or (b) invest in a long-term relationship that eases the fear of location in the eyes of your target VC.

Growth VC, Pre-IPO or Pre-Exit Rounds – At this point, more people want to give you money than you have room to take, and regardless of your location. So if you make it here, location doesn’t matter.

=====

This is a tough subject to write about. I know it’s unfair, especially as so much of the rebuilding from the Great Recession is seen through the opportunity of building a business. Everyone wants to be Zuckerberg or be on Shark Tank. Everyone wants to be CEO or an investor. And while it is possible, location drives a lot of it, and that particular location isn’t an easy one to physically crack into.

I myself have flirted with the idea of not living in the Bay Area given the increased traffic, congestion, and cost of living, but then I see the power of the local network effect and get nervous. So much of what I do is a local game. Hyper-local, in fact. I’m in awe of those who do it outside the physical network because it means they are even stronger. We moved back to the Bay Area in 2011, and I wonder how hard it would’ve been even if that was pushed back a year. As I’ve shared with you all here, I’ve had a very hard time finding a space in the ecosystem and generally believe my proximity to the epicenter helped me increase my “surface area of luck.”

I wanted to write this post because this issue has come up a bunch with founders I interact with outside the Bay Area, and I know reporters or larger VCs won’t write about it because most reporters don’t understand the nuance to the financial issues like Mims detailed out and the investors don’t want to cut off any potential flow of deals.

=====

There is a silver lining, however: With billions more people coming online worldwide over the next decade, with new geographies emerging with their own capital bases, with traditionally underrepresented minority groups begin growing into the dominant majority, and as larger Bay Area firms grow even larger fund sizes, the types of opportunities created over the next two decades may look different than what occurred over the last two decades. And, thankfully, there are plenty of LPs and VCs (even in the Bay Area) who see the opportunity and are positioned to take advantage of it — or have been taking advantage of it for quite some time (more on this in a future post). You’ll hear about those returns over the next few years.

The Unconventional Wisdom in The Dollar Shave Club Exit

Like any big startup acquisition, there is a rush to unpack it, especially when the price tag is rumored to start with a “B.” There’s a lot of bragging rights and credibility wrapped up in that number, and the ecosystem will even fudge numbers a smidge to make sure it’s in the headline. The most recent Big B exit in the startup world, like the ones before it, caught everyone by surprise: Unilever purchased Dollar Shave Club for $1 billion.

[I will not be able to recount all the fascinating angles of the event, so would kindly point you to the great posts by Ben Thompson on Stratechery (an angle on industrial strategy and disruption) and David Pakman, a Dollar Shave board member, who led an investment in the company’s Series A and Series B financings. Please make sure to read their work.]

I wanted to focus on a different angle, more narrow and as it applies to conventional wisdom peddled around the Bay Area or the blogs. I have done in the past in analyzing Snapchat and Whatsapp through this lens of challenging conventional wisdom with cold, hard facts. Dollar Shave Club presents me with another opportunity, so here goes:

1/ “Big outcomes are more likely to originate in the Bay Area.” This is an old one, and it’s directionally true, but they have been happening outside the Bay Area more over the last five years — Oculus was also in LA (as Snapchat waits in the wings), Minecraft and Spotify are in Sweden (among others). New York has had a few and will have more.

2/ “We solve big, technical problems.” You hear this a bunch, like a badge of honor, or the old skit, “How much do you bench?” Dollar Shave tackled lots of different technical (and operational) problems, but most traditional investors didn’t perceive it that way (more on that below). Dollar Shave also rolled out their own branded butt wipes as a product alongside shaving accessories. Butt wipes.

3/ “There are too many incubators and accelerators.” Sure there are, but that doesn’t mean new “co-creation” models shouldn’t be tried. Credit to the team at Science for incubating the idea and helping the company grow from the early stages. The co-creation model in venture (like Science) gives the investors (potentially) better economics in originating ideas and helping them get off the ground, not to dissimilar from how some (not all) firms treat EIRs with GPs helping. It is an antidote to the increasing competition among venture firms and LP dollars which have rushed in and spread out across the VC industry — a way to co-create ownership thresholds.

4/ “Consumer is closed-off.” It is getting harder to find consumer breakouts. I hear this from many of the top firms, and it is probably true. I touched on this in my Feb 2, 2016 guest post on Stratechery. But, channels exist, they just need to be discovered or dug — like the channel Dollar Shave created to a young, male demographic.

5/ “Bay Area VCs usually catch the big out-of-market companies.” Now that large companies can start anywhere (right?), there’s so much VC in the Bay Area, the VCs there will be able to catch the inflection points of those who are growing — especially if it’s just an hour flight south to L.A. Dollar Shave, by contrast, was likely turned down not once but twice by its blue chip VCs who participated in the seed round, but scooped up by Venrock’s David Pakman out of NYC — he not only led their A, but also did their B. There’s a lot of conventional wisdom around thinking every good deal has to, by law, have competition around it — but then we see examples where everyone had a crack at the A and B, and the lack of competition created the opportunity for an inside round and more kwan for Pakman. Well-played, sir.

6/ “Worry about marketing after product-market fit.” I have lived it, it’s true — most of the Bay Area startup scene either pushes off traditional marketing to the point where it’s too late, doesn’t take it seriously at the outset, or invests in it too much before the time is right. Dollar Shave, on the other hand, leveraged changes in social media to market itself at a lower cost and invested the resources in building up its brand. As we see with the Pokemon Go craze of late, a recognizable brand can soar and effortlessly reduce customer acquisition costs in its wake.

7/ “E-commerce is dead, with Amazon as the Grim Reaper for those startups.” After what happened to Fab, Gilt, One Kings Lane, among others, investors in the public and private markets got real skittish about e-commerce. Another reason this deal was passed over at A and B is because of a fear of going up against incumbents like Amazon, or in this case, the big CPG companies. There are, however, things that Amazon can’t do, and while it is one of the best companies in the world (and will still grow like crazy), we will see more of this trend play out in the headlines with startups over the next few years. (As an aside, larger VC fund sizes come into play here — it used to be that having one billion dollar exit would make a fund, but now some funds need a few of them, hence rendering a company like Dollar Shave, in their eyes, not big enough.)

It’s an uncertain world, and especially true for the startup world. We mostly don’t know what we’re doing, so conventional wisdom is attractive — it is the institutional memory of lessons passed down so that we can make better choices or preserve order. But, conventions don’t necessarily last forever, and they certainly don’t apply to everyone. Congrats to the Dollar Shave team and their investors for writing and acting out their own conventions.

The Story Behind My Investment In Myra Labs

This is going to be a fun story to write about Myra Labs.

About a year ago, my good friend Nakul told me I should meet this guy spinning out of Bloomreach — Viksit. I happen to know one of the founders of Bloomreach, who quickly pinged back to endorse Viksit as one of his top engineers. We met up last summer, and at the time, he was developing a bot for chatting inside Whatsapp. We met for coffee in Palo Alto. A few weeks passed, and we met again, and during that time, Viksit had single-handedly built integrations into other chat apps, made friends with folks who were working for Telegram, and had somehow smiled his way into developing some relationships with more closed mobile messaging platforms.

We met a few times and while I initially didn’t think it would work at scale, Viksit always had a non-obvious and insightful rebuttal to any areas of doubt. He is relentless in this way — and I will come back to this trait. As the summer ended, I hadn’t gained enough confidence in the specific application (going directly to consumers with these bots), but I had gained confidence in Viksit. This was right around the time I started my Fund III and was writing what would be larger checks (for me, relatively). I committed to Viksit that I would invest and also open my entire syndication network to him. I gave him a strong recommendation and made a ton of intros. I was searching my email for the exact date and text: August 31, 2015. In the email, I wrote:

MYRA

Round: $300-350k open on $5m cap, 20% discount; Small round, just me, a Waze co-founder, and early Whatsapp eng, and the two founders of Bloomreach, where he was previously (this may be best-suited to individuals).
Background: Myra is an intelligent assistant tied to a phone number and virtual machine for each user. Viksit himself has already built integrations with Whatsapp, FB Messenger, regular SMS, and Slack.
Risk and Fine Print: I know what you’re thinking – “uh, another bot. Won’t the clients just own this like Moneypenny and FB?” So, I dragged my feet on this for the same reason for weeks, but Viksit handled every strategic question I pummeled him with for weeks. He is a very deep systems thinker and strategist, in addition to being an incredibly productive engineer. I know his former boss (Bloomreach CTO) very well and he also is investing and remarked on his drive and intellect. He’s been obsessed with all the messaging platforms, and that’s essentially why I am investing — the sheer size of all the world’s messaging clients and their restrictive power and influence over how those billions of people will use the web is super interesting to me.

Then the round started to break down. Viksit and I had a number of hard chats. I don’t mean to imply that I could save everything as I have a very small fund and rely on the broader network to syndicate and co-invest. As I replay those conversations, I know Viksit was nervous and there wasn’t much I could do except give harder advice on how to keep going, raise less, lower the cap, etc. To his credit, Viksit stayed with it. He eventually caught the eye of one of the best seed VCs out there (as well as this little, new enterprise tech company called “Slack”), and after a month of deliberation, got a larger seed round with a fantastic investor. It took much longer to happen, but it happened.

That’s the relentlessness I referenced earlier in the post. During those difficult investor meetings, Viksit slowly digested the feedback from the community — mainly that the opportunity to go direct to consumers inside siloed native messaging clients would require too much permission and, therefore, too much friction. Viksit shifted course and moved Myra away from direct-to-consumer and, instead, focused on empowering developers, big or small, to build conversational interfaces in a platform-agnostic way. In this manner, when messaging clients break out, or when new interfaces (like voice) emerge, Myra is flexible and extensible enough to handle the terrain. Additionally, their architecture can recognize similar users across applications, so that you (as a user) don’t have to worry about resubmitting your preferences within each silo each time. The machines actually learn who you are within the context of your interaction. (You can read more about Myra and link to their site here.)

In the time that we’ve gotten to work, I would say that Viksit and I have the most “tough conversations” I have with any startup. It’s partly because we are comfortable with each other and I have now known him for a year, partly because we are both prone to debate and argue in a mild yet relentless manner, and at times, it has led to one of us getting frustrated. I am sure he’s frustrated with me right now in reading this! But, ultimately, we are friends and have built up trust, as well, and he can really create a rich product and evangelize his vision to a degree that’s rare to find. I’m lucky to be a small part of it all.

Since that initial email above, the attention toward bots has exploded, this past April 2016 to be exact. I wrote about the craze here. As I surveyed the market, I was lucky in retrospect to pick Myra early because it is in the #2 category I outlined (“picks and shovels”) and, so long as they can woo developers to build with them and help them scale, the company can grow as the more activity goes inside messaging clients and interfaces, and/or becomes more conversational in nature. Ultimately, no matter what does happen, I know the Myra team will always bob and weave their way to the best opportunity — and I want to publicly congratulate Viksit on not only putting up with me, but also staying the course during a challenging market for fundraising. It all paid off for you.

The Story Behind My Investment In ScopeAR

Back around the holidays in 2015, one of my LPs (who is also a friend) sent me a note about a YC company from the most recent batch, S15. I had been at YC and saw the company, but hadn’t been thinking about the “AR” space. I know they’re unrelated, but previous to this, I had made one small investment in a VR infrastructure company, but it isn’t a space I would claim to know well. As a few months passed, however, I had picked up interest in industrial software and robotics, so learning about ScopeAR again proved out to be excellent timing.

Discovering and investing in a company like ScopeAR is yet another case of where the founders guide me (the investor) to learn about their technology and market in real-time. Within a few email exchanges and conversations, it was apparent to me that Scott (the CEO), David, and Graham would be easy to work with as co-founders. On top of this, I liked their enterprise and/or industrial focus (which fits within my themes), and it was immediately clear how their solution would save companies money from Day 1.

Luckily for me, by the time I had invested, ScopeAR had already won the business of companies such as Boeing, Lockheed Martin, and Honeywell, among many others. ScopeAR boasts two products to date — WorkLink (a platform to create smart instructions), and Remote AR (powering remote collaboration via AR) — which help their customers increase savings from industrial hazards, operator errors, and operational inefficiencies.

When I invested, the main interfaces were largely considered to be iOS or Android platform devices. In a serendipitous turn, I was invited by friends at SVB to a small drinks reception and conversation with Satya Nadella, who during that chat specifically called out Hololens as a major core focus area for the company in enterprise settings, and that in such settings, AR might be the first technology to be adopted on the platform. Once I heard this, I ambushed him (in a friendly way), called up the ScopeAR site on my phone and he deftly introduced me to his SF-based Corporate Development Team — I was able to follow-up and got the team in touch with Microsoft on this initiative.

That’s about all I’ve done so far, and as I write out this story, I realize just how fortunate I am that my friend tipped me off to the deal, that enough time had passed for me to develop an interest in the space, and the founders were extra nice, kept the same terms from their round, and let me slide into the deal. They did me a huge favor, and for that I am grateful and want to work extra hard for the team. I recounted this story last week at an industrial hardware meetup I co-hosted with Lemnos, and we joked that the deal was sort of like a “booty call” at the end of the round. As they say, a seed round is never closed — and thank heavens for that.

It is crazy that within a year of ScopeAR’s time in YC to now, AR has gone from a concept to something millions of consumers interaction casually on their phones, either through Snapchat or Pokemon Go, among others. In a work context, it is easy to envision how processes can be improved by using connected cameras with information overlaid on top. Given the way the winds are shifting, I look back on this investment decision with a smile. It’s easy to imagine a world in which ScopeAR’s current customers use new platforms and go deeper into various industries. And, lucky me, as I was able to hop on the train just as it was leaving the station.

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

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