Awesome VC deal flow. What is it exactly?

I was in one of those VC-to-VC conversations the other day, and heard the phrase, “my deal flow is awesome right now.” To which, of course, I immediately replied, “my deal flow is awesome right now, too.”

But it got me thinking: what is great deal flow? VCs live or die by their access to investment opportunity, so what does it mean to have good deal flow?

On reflection, I think there are four measures of quality deal flow:

Intrinsic quality. This is the most basic measure of all. What extent are you seeing companies you want to invest in? Companies with strong teams, huge markets, great products, market validation, growth strategies, etc. Every other blog post on VC is about this topic, so I won’t go into any more detail on “what makes a good deal.” I will say that one rough way to measure this is the “conversion” rate from qualified leads, to first meetings, to second meetings, and all the way through the funnel. The high the quality of startups, the harder it is to say no. (Just to confuse things, I’ll add another statement: the higher the quality of the VC, the easier it is to say no.)

Inbound deal flow. The more inbound a VC is seeing, the better “deal flow” he or she has. Outbound is important as well – and VCs can often source their best deals by chasing down particular companies or specific investment theses. But outbound is, ultimately, a measure of how hard the VC is working. Inbound, by contrast, is a measure of how much entrepreneurs value a VC as an investor. The complication, of course, is that inbound leads on new investments can often be of low intrinsic quality. So the real measure is the combination of the two: What proportion of the quality leads are inbound? And what proportion of the inbound leads are quality? High quality inbound deal flow is the best measure of a VC’s “brand” – and one of the ways that brand matters in the venture world.

Proprietary deal flow. In some ways, proprietary deal flow is the Holy Grail of venture capital. And, like the Holy Grail, it rarely if ever exists. A “proprietary deal” is a deal that you as a VC have unique or exclusive access to.

  • This is rarely if ever binary. VC investment opportunities are rarely 100% proprietary or 100% public. They are often in a grey zone, and some are more proprietary that others. Most smart entrepreneurs will speak with a few VCs, not just one – whether because they want to hedge their risk, ensure a fair price, or build a syndicate. But from the VCs perspective, it is better to be on the short list who had access than on the long list that read about the investment on Crunchbase. VCs that have access to an accelerator’s class before it hits the press have more proprietary access. VCs that attend demo day, less so.
  • Proprietary can be either inbound or outbound. Sometimes, VCs can hunt down a company, create a relationship, and generate an investment opportunity that doesn’t exist for other VCs. Sometimes, an entrepreneur seeks out a specific VC that he has worked with or heard about to talk about a business idea, consider investment, or just explore financing options. That sort of inbound vote of confidence means a lot – and can result in truly proprietary deal flow.

Validated deal flow. While VCs should be comfortable making their own investment decisions, there is no doubt that outside validation of the quality of a company is a great help – and a great measure of the quality of deal flow. Validation can come in many forms – too many to list – but the key ones would include:

  • Co-investors, advisors, or key-employees who have joined the company
  • Key customers or partners
  • The referrer – if someone referred the startup to a VC, that person has tied their reputation to that of the startup, and that’s a very important indicator in some cases.

So when I try to judge myself or the quality of my “deal flow,” I end up asking myself a series of questions. To be sure, my own judgment of the “intrinsic quality” of the companies I am meeting is one measure. But I also think about the other factors: lead source, inbound or outbound, the nature of the referral if inbound, the extent to which it is proprietary, and any objective signals of validation. Only when I score highly enough on all of these measure will I really be able to say my deal flow is consistently “awesome.”


2nd September 7:23 PM
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Some thoughts on investment discipline

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Not too long ago, I had the opportunity to make a small angel investment in a company I really like. I love the space, love the big picture thesis, I know the market exists, I love what the team has built so far, and I love the team itself. Ultimately, however, I decided not to make the investment - not because of the company itself but because making the investment would have required me to break some rules I’ve set for myself.

As an investor (either an angel or a VC), I believe it’s investment discipline that keeps us safe from making errors. We write the rules for ourselves in moments of calm - when we are not under pressure. Under the pressure of a “hot” deal, these rules are really easy to break - and that’s exactly the reason not to break them. I might have given up on a pretty great return this time - but I’m glad I stuck to the discipline that’s helped me so far.

The investment in question would have required me to break three rules. Here they are:

1. Only invest as part of a strong syndicate. An investor is either leading or following. As a VC, I’m often leading which means I’m playing a role in setting the price and size of the round - and also that I’m playing a role in helping the founding team to select other members of the syndicate. As a tiny angel, I’m always following. Someone else is setting the terms, and the syndicate is a given that I can sometimes influence and sometimes not. I’ve learned the hard way that the quality of a synicate is critical. It shapes the advice and counsel that a founding team gets over the life of the startup, it determines how easy it will be for the company to raise survival case if things go badly, and it acts as a powerful signal to future investors, customers, and employees. There are a lot of good investors out there - and thus, I think, no need to rush into the arms of investors that don’t add value. It might be true that great investors can’t fix crappy companies, but average investors can sure as hell wreck good companies. Unless I’m 100% convinced a syndicate is solid and committed to the longer term plan - I’m out.

2. Only invest when the path to the next fundraising is crystal clear. As a VC, I’m probably more sensitive to this point than most. Pre-profit startups live from one financing round to the next - and the definition of clear funding milestones and an operational path to get there is critical to me. While plans don’t guarantee anything (except that they are going to change)…they offer a signal of discipline and set the stage for success. No matter how much I love a team or an opportunity, if a path to a fundable milestone isn’t front and center in the conversations - I’m out.

3. Never invest under (undue) time pressure. Making an investment (any investment - from buying a share of IBM to making an angel investment) is a combination of emotional and rational mental processes. Sometimes, investors need to act fast. And I know how to do that. But I’ve noticed that one shared characteristics of successful investments I’ve made in the past is that I’ve had enough time to reach a point where I know that I’m ready to make the decision. If there isn’t enough time, emotions take over, rational thought weakens, and FOMO rules the day. If I’ve got to make a decision before I’m really ready (i.e. before I feel ready) - I’m out.

There are other rules that I’ve set for myself, but these are the three that I did a lot of thinking about the other day - as I walked away from a deal that would have required me to break all three of them. For the sake of the team, I genuinely hope I was wrong to pass on this one - but for the sake of my own investment track record over the long run, I’m glad I stuck to the rules.

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12th August 6:32 PM
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There are only four reasons startups can’t fundraise

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I find myself giving “pitching” advice quite a bit, and I’ve noticed that where startups encounter difficulting in fundraising - the reasons usually fall into one of four categories. So here they are:

  1. The investors are not equipped to understand your story. It goes without saying, but if you are an enterprise startup and you are pitching to a fund that has only invested in consumer e-commerce, there is a pretty good chance the people you are talking to just don’t have the tools to understand the opportunity your company represents, no matter how good it is. The fix? Easy. Do your homework and just don’t waste time talking to the wrong people. 
  2. Your story is too small. Depending on the size of the fund/investor you are talking to and their investment strategy, the opportunity your company represents may just not be large enough to be a compelling investment. The fix? Two parts: First, make sure to match the investors you are talking with to the likely exit value of your company. Second (and this is the hard part), make sure you aren’t missing something in your assessment of the opportunity. If you are convinced you are building a billion-dollar company, but no one else seems to believe the opportunity is that large - you might be fundamentally misjudging the opportunity. Look for other VC investments in your space, analyze other large exits in your space, and check your assumptions. VCs tend to be pretty good at pattern recognition, and if none of them are seeing the opportunity - it might not be there.
  3. Your story is not convincingly told. This is where coffees with friendly VCs can be the most helpful. If you are convinced the opportunity is big enough but VCs are still hesitating, it could be that you are just not transmitting your insights about the market in a convincing way. The fix? Patience, listening, humility, and iteration. Put yourself in the shoes of the investor. Ask yourself what would you need to hear/see to overcome your natural hesitations and invest. Sometimes, this can also be a question of stage - the size and valuation of your fundraising must be appropriate to the degree of maturity of your story and the amount of traction or other evidence you can bring with you.
  4. The storyteller doesn’t inspire confidence. This is the hardest reason to recognize. But if it’s not some combination of the other three reasons - it’s this one. In the end, it really is all about the people - and if an otherwise good investment with a well-constructed story in a big market is unable to fundraise - it may be that the team is not just able to convince investors that they will be able to execute on the strategy. The fix? Not easy, but not impossible. Focus on self-awareness. Consider hiring people more experienced than yourself to strengthen the team. And consider the “unthinkable:” If this is the best idea you’ve had in a long time, and you know it’s a real money-maker - consider hiring a CEO/co-founder to lead the venture. Ask yourself if you’d rather be rich or be king - and remember that VCs are in the business of making money, not crowning royalty. 

One pattern I’ve noticed is that most founders think that the difficulties they are experiencing are because of #3 - that is, most founders tend to think that it’s just a question of how to pitch the specific story they are pitching. But often, that’s not the issue. Sometimes, it’s the wrong investor. Sometimes, it’s the wrong founder. And sometimes, it’s the wrong story entirely - and no amount of finesse is going to change how that story is received.

And one more thing - sometimes the absolute best way to “fix” a broken pitch is just to keep executing and let traction in the real world catch up to the story you are telling in the conference room.

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12th August 4:56 PM
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Not created equal: Evaluating enterprise sales strategies.

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Recently, I met with a startup team in the enterprise software space. I’ve known these guys for a long time and have been tracking their steady progress for years. But now, they have finally hit their stride. Sales are exploding, revenue is ramping - things are good.

As they were updating us on their strategy and sales traction, and listing new and impressive customer wins, one of the entrepreneurs paused for moment, reflected, and said, “as a matter of fact, I’m amazed we have any customers at all.

Realizing that he may have confused his listeners, he explained what he meant. Let me paraphrase him: “In our market,” he said, “the competition is so fierce, the marketing messages are so confusing, and the customers are so large and slow to adopt new technologies from new vendors - that it’s amazing that we have achieved the customer penetration that we have.” 

He’s right. And I admire his humility - a humility that I think has contributed directly to their success so far. Anytime a small startup is able to get a large enterprise to write a check, it’s a minor miracle - and that got me thinking. 

Can this be generalized? How do small startups penetrate the enterprise? Is there a recipe?

There is no recipe, of course, but in my experience there are three principal levers that a small startup can use to drive enterprise adoption.

These three “enterprise sales levers” are:

  1. value,
  2. operations, and
  3. product. 

Interestingly, however, each of these levers can be used in negative and positive ways to drive sales forward. Sometimes, tactics used by startups to drives sales actually hurt their prospects for growth or - at least - reduce their ability to convince VCs that rapid scaling is going to be likely. For lack of a better term, I’m going to refer to this as “sales leverage.” Negative sales leverage refers to sales strategies that can actually reduce enterprise value even as they increase sales. Positive sales leverage, by contrast, refers to sales strategies that tend to increase enterprise value.

Let’s quickly go through the three types of levers, and look at what “positive” and “negative” leverage might mean in each case:

1. Value-based sales leverage

  • Positive value leverage: Technical superiority. One of the best and most impressive ways for a startup to drive enterprise adoption is to offer something that the competition simply can not deliver. Usually, good entrepreneurial teams can fix other issues, They can improve sales teams, marketing skills, etc. But winning on technology is probably the most compelling type of sales leverage because it can constitute a significant barrier to entry.
  • Negative value leverage: Below-market pricing. Startups can drive enterprise adoption by dropping prices to below market levels. While this can increase revenues and generate solid reference accounts, it is negative leverage because too much of this can suggest that the only way a startup can generate sales is by being the price leader. That can be great in the early stages, but its usually not a strategy that leads to market leadership and dominance - unless it’s coupled with enough positive sales drivers to lead to massive market share.

 
2. Operational sales leverage

  • Positive operational sales leverage: Sales tenacity & discipline. These are two forms of positive operational sales leverage. Old-fashioned tenacity goes a long way in displacing competitors and winning the enterprise account. It’s a kind of “DNA” indicator that I consider a huge positive. Likewise, discipline in sales operations (inbound lead management, outbound lead generation, inside sales pro, and field sales) can help even the smallest company outsell its competition. Discipline and a well-oiled marketing and sales machine is a repeatable driver of sales - something that both VCs and acquirers like to see.
  • Negative operational sales leverage: Relationships. All startups use personal relationships with customers to drive sales in the early stages. They’d be crazy not to. But personal relationships don’t scale - and they don’t drive the intrinsic value of a business. I’m always wary when startups have only managed to penetrate customers because of past relationships, investor ties, friends and family etc.

 3. Product-based sales leverage

  • Positive product-based sales leverage: Clarity of product/marketing fit: When competing with enterprise software giants, a small company can sometimes achieve disproportionate success through superior clarity around specific use cases and benefits. This can be true even when technology alone is not enough to win the day. Large competitors can’t respond to every marketing message and can’t adjust their product fast enough to stop a small determined company from reaching the market with a clear, crisp message that converts into sales.
  • Negative product-based sales leverage: Custom Project Work. Small companies can often win large and seemingly impressive accounts by doing customized product work or even customized integration work. This is always seductive, but it usually amounts to a massive discount and significant defocussing. VCs (and sharp CEOs) tend to focus on the amount of pure “product” versus professional services revenue as key indicator of scalability. Too much customization can kill growth prospects and indicate that sales aren’t going to be repeatable.

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22nd May 6:36 PM
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Democratizing the Datastore: Why we invested in Crate

Today, Crate announced that Sunstone and DFJ Esprit led the company’s EUR 1.5M seed financing round. This is my first investment as Partner at DFJ Esprit, and I’m absolutely delighted to be working with the exceptional team at Crate and with Nikolaj Nyholm, our partner at Sunstone.

So why did we invest in Crate?

Exceptional team with deep domain knowledge. Jodok Batlogg, who founded Crate, is one of Europe’s leading big data practitioners, having served as CTO for both StudiVZ (over 15M users at the peak) and SevenLoad. Additionally, Jodok is a leading open source contributor (to both the Zope web server and the Plone CMS). Crate’s CTO, Bernd Dorn, is a true database guru, and Christian Lutz is an experienced operator with a track record of, quite literally, doing the impossible (in this case, rescuing Polaroid).

Big market screaming out in pain. No matter how you slice it, the database market is massive and evolving. It’s also a market that has received a disproportionate share of VC investment, with VCs plowing funding into a long list of database related market segments including: NoSQL, Hadoop, graph databases, open-source SQL, cloud-based databases, visualization, etc. But for all of that innovation, the process of setting up and running very large database remains either expensive or complicated. Expensive because large databases still often require expensive hardware and/or licenses. Complicated because setting up a massive cluster of commodity machines to run a database requires a ton of administrative work and expertise that not a lot of people have. It’s this administrative complexity that Crate is out to eliminate – and that’s the real story behind the investment: the democratization of database cluster management. Crate’s real claim to fame is that it allows developers – any developer – to easily set up a massively scalable data store on commodity hardware with sub-second query latency simply and within minutes.

Open source vision. Crate comes to market as an open source offering. Europe, after all, has been home to the open source movement in many forms, most notably through projects such as MySQL, Neo Technologies, Elasticsearch, Zend, and others. Linux itself has strong European roots. Crate hopes to join this list of European open source winners. In many ways, open source is the right way to do software. Increasingly, open source has gone from being an impediment to enterprise adoption to being a driver of enterprise adoption. A healthy open source community can help ensure the long-term viability of a software architecture, and can act to reduce risks for the enterprise. When code is open, it can be readily understood, tested, and extended to meet enterprise needs. I believe firmly that this is a great time to invest in enterprise software, that Europe and Israel are great places to build enterprise software companies, and that open source is going to be an increasingly important route to market going forward.

A roadmap that matters. At Crate, we draw some inspiration from Marc Benioff of Salesforce, who famously drew a line through the word software to help illustrate that SaaS meant you didn’t need to worry about buying and deploying software anymore. Similarly, Crate hopes to draw a line through the word database – making it insanely easy for developers and companies to deploy massive datastore clusters and use them in both applications and analytics, but without having to worry too much about how to set up and deploy the databases that underpin the cluster. That’s a big vision and it’s going to take some time to get there – but this is exactly the kind of real technology that makes venture capital in Europe a great place to be.

Visit Crate at www.crate.io, follow them on twitter at @cratedata and check them out at Github at https://github.com/crate.

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24th April 6:36 PM
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The Era of Facebook is an Anomaly

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This interview with Danah Boyd is one of the most interesting pieces I’ve read this year. She makes several observations, and I encourage you to read both the interview and - probably - her book.

She argues:

  • That the era of Facebook is an anomaly because “everyone was on one site.”
  • That part of the reason we are seeing photo-sharing on Snapchat and Instagram is becuase photos aren’t searchable and people don’t want to be searchable.
  • That agreed fictions are part of normal social interactions and must also be part of digital social interactions.

I find this particularly intriguing because - in a digital sense - I am a child of Facebook. I am 37 today, and I came of age as an adult, a professional, and a person in an era when Facebook was dominant. You were either on Facebook, or you didn’t exist digitally. And as a VC in the era of Facebook, if you didn’t exist digitally, you didn’t exist at all.

But I too was shocked when a younger generation of people started using Facebook in ways that I wasn’t expecting - like cold-messaging me with pitches. I realized then that social networks were triggering a re-engineering of basic human interaction - or were they? A cold email is a cold Facebook message is a cold Tweet. On a human level, these interactions are the same - the interesting thing is how human behavior moves from platform to platform as those platforms are increasingly or decreasingly perceived as the right place to do things.

On a very personal level, there are two observations I want to make. First, while I am still a relatively young VC, I am already too old to have experienced Snapchat or Tinder as an entire generation of people in their twenties and early thirties are doing today. I know what these platforms are intellectually, but must acknowledge that they do not play any role in my life - does this limit my ability to understand them? Probably. At the very least, I’ve got to recognize that I have generational biases that I’ll need to overcome in order to understand where some of these trends are headed.

Second - and more importantly - is the observation that Facebook was an anomaly that is not likely to repeat. Facebook is both a fundamental revolution in human affairs AND an ephemeral fad with no more staying power than a hoola hoop. Part of what Facebook brought to the world - the sharing, the user-generated content, and the tremendous volume and quality of data about user behaviors - will probably be with us forever. But let’s also focus, as Boyd does, on the parts of Facebook that might be a passing fad: the idea that everyone is going to be on one network - THE social network for everyone and everything. That idea - which seemed obvious to me as a member of the Facebook generation - shaped so much of how we think advertising and content and marketing and startups are going to evolve.

But this is probably a flawed idea. The commodotization of technology has led to a proliferation of “social networks” of every possible type and for every possible purpose. Perhaps the exits of the winners may be a bit smaller - but it’s a fascinating time to be in technology for exactly this reason. So I’m excited for the future, but a bit wistful for the past. Human society never organized itself in one place before, and it will probably never do so again. But for about a decade - on Facebook - it did. And it was amazing. 

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3rd April 10:47 AM
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Whatsapp got to do with it?

What can founders actually take away from Whatsapp’s massive exit to Facebook?

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Last week, a question was asked at a panel discussion in which I took part. It was another variant of the same question that has been asked by a lot of people in a lot of places:

  • What do you think of Facebook’s $19 billion acquisition of Whatsapp?
  • Did Facebook overpay?
  • Is Whatsapp really worth $19 billion?
  • Does Whatsapp prove that we in a valuable bubble?
  • Nineteen billion – are you kidding?

My answer is simple: I don’t know if Whatsapp is worth $19 billion or not. Like most people, I’m not privy to Whatsapp’s internal metrics or to Facebook’s strategic calculations. So why am I blogging about Whatsapp?

I think the real question for most of us is this: What can I learn from the Whatsapp transaction as an entrepreneur or a VC that might be relevant for my day-to-day work?

When we look through that lens, I think there are three main lessons for the rest of us:

First, Whatsapp reminds all of us of the adage that great companies are bought and not sold. Whether or not the valuation of Whatsapp was too high or not, part of what drove the valuation for Whatsapp was certainly that it had become deeply strategic to the company that bought it. The same is true of Google’s Waze acquisition, Google’s Nest acquisition, Rakuten’s Viber acquisition, and nearly every other big headline-grabbing acquisition. Every entrepreneur and investor in every startup ignores this observation at their peril.

One of the many paradoxes of entrepreneurship is that great CEOs need to simultaneously never think about the exit (to concentrate on building) and always think about the exit to make sure they don’t miss an opportunity to maximize enterprise value for their shareholders.

I’m not advocating an obsession with building for an exit – not at all – but Whatsapp is an unmistakable reminder that the value of your startup (in an acquisition) is the value that an acquirer sees in your business, your technology, your team, your promise, etc. It’s not just the value of your EBITDA that gets acquired (and certainly not your “revenue” as Bill Gurley has passionately pointed out). By thinking carefully about the dynamics of an acquisition scenario, you can maximize your exit by taking concrete steps to position your companies in someone else’s sweet spot – ideally that of several potential acquirers.

For more thoughts on the “bought vs. sold,” see here from Ed Sim (parts 1 and 2), Fred Wilson, Raju Reddy, and (a contrarian view) from Ryan McFadden.

Second, Whatsapp illustrates the shift in financing patterns brought about by the global IP infrastructure roll-out and the ever-increasing power of software to create value. To explain what I mean by that, let’s look at what Whatsapp managed to do, and lets focus on some of the four numbers that Sequoia used to explain the acquisition. In short, Whatsapp managed to build a user base of 450 million people with only 32 engineers (55 employees), zero marketing spend, and around $60M in total venture investment. For a sense of scale, let’s look at the world’s top three mobile carriers by subscriber volume:

  • China Mobile has 763M subscribers.
  • Airtel (India) has 487M subscribers.
  • Vodaphone (UK HQ) has 453M subscribers.

So Whatsapp built a user base equivalent in size to the third largest mobile carrier in the world. In five years. With $60M in financing. And 55 people.

“But wait!” you’ll argue. “That’s not a fair comparison. Whatsapp is an app and the mobile carriers are infrastructure providers. They have to build and manage a very expensive network of base stations and cable and servers…”

That, I think, is exactly the point. Twenty years ago, if you wanted to build an application (say voice calls, or SMS or pagers) that would connect 450 million people, you would have had to spend billions of dollars on spectrum, right of way, equipment, manpower, etc. And it would have taken years to get up and running. Not to mention the expense of explaining to people why they should allow new technology into their lives and pay for it.

Today, all of that infrastructure has been built already. The “dumb pipes” which carry our smart applications exist. Ubiquitous internet connectivity in our homes, offices, cars, and hands is the infrastructure on which applications get built. Not unlike the roll out of the first nationwide electrical networks (a technology revolution in which my great-grandfather played a role in the 1930s). You can’t sell a GE lightbulb or microwave until enough houses are wired up with electricity. And you can’t roll out a Whatsapp (or a Waze or a Viber or an Uber or a Hotel Tonight or even a Nest) until everyone has a smartphone in the palm of their hands, Wifi, and a 3G connection. But now they do. And now you can. So the second unambiguous lesson from Whatsapp is that we live in a world of ubiquitous IP infrastructure – and there are tremendous rewards for those that can leverage it with software and new devices applications.

The third lesson from Whatsapp is that as software eats the world, the working capital required to grow a tremendous business is sometimes far less than what it has historically been. Whatsapp built a kind of (OTT) telecommunications company with only $60M in investment. The existence of app stores, low operational costs, increasing comfort with new technologies, and the fact that we are all turning into early adopters dramatically eased Whatsapp’s path to growth. True, average revenue per user is only $1/year, but marketing costs are close to zero – and I’ll take that CAC/LTV ratio any day. I think this general observation applies to a great number of companies – and not just in the consumer world. Salesforce pioneered the SaaS model and showed that if adoption frictions were lowered far enough, a whole new generation of business users would be willing to try-and-buy enterprise software from the grassroots up as opposed to from the CIO’s office down. For example, I met an Israeli company last week that had reached over $6M in annualized recurring enterprise revenue with only $6M of investment and was approaching breakeven. We are talking about enterprise sales here – but far more efficiently than was previously the case. SaaS payment structures, cloud-delivered software, and open-source/freemium penetration strategies have revolutionized marketing, even for some of the hardest enterprise applications. We live in a world of increasing marketing and sales efficiency. The primacy of technology has led to a widespread realization that you either adopt new technology early or get left behind - and that shift in mindset is a technology marketer’s best friend.

So yes, some of the insane valuations we are seeing in the valley are a result of a bubble mentality and a fear of missing out. But some of them actually reflect the fact that the best software companies in both the consumer world and the enterprise world have been able to scale their businesses far more efficiently than previously. This means that when a company raises capital to enable further growth, they may be further down their growth curve than one might assume. In the 1990s, enterprise software companies might raise a $5M A-round in order to secure their first handful of paying customers. In the 2010s, we are seeing enterprise software companies raising $10M A-round after having achieved $2-3M in recurring revenue and an installed base of thousands.

As a caveat, we must guard constantly against the utopian belief that technology has created “new economics.” This cognitive error contributed to the first dotcom bubble and crash around 2000. But, at the same time, we must recognize that technology has, in fact, changed the landscape on which companies compete. It may be harder to find true barriers to entry, and harder to differentiate – but for companies that have achieved the beginnings of scale – growths seems to happen faster and more efficiently today than ever before.

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17th March 11:36 AM
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Why I hate your product demo video

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Apologies for the rant, but yes - I hate your product demo video. Instead of just bottling up my frustration, I wanted to package it and share it. 

Why I hate your product demo video?

  1. Because I need to be online to view it
  2. Because I need to dig out my headphones
  3. Because it’s too slow. It doesn’t really take 3 minutes to explain the basics of what you do
  4. Because the first half of it is usually generic and has nothing to do with your specific product
  5. Because it dumbs things down to the lowest common denominator (and, for VCs, that’s pretty low)
  6. Because I can’t quickly flip back to important sections or images once they’ve disappeared
  7. Because video is great for selling/buzz but not for details on tech, features, competitors
  8. Because those cartoons and that music are so 2010, and totally commodized by now
  9. Because it slows me down to the slowest speed of any of your viewers, and it’s hard to skip ahead

There. I feel much better now.


5th March 7:27 AM
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A watershed moment in human-machine interaction

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On Thursday of last week, Google announced that voice search was going to be integrated by default into its chrome browser for the desktop. 

I noticed this story today, and it occured to me that this is a watershed moment for human-machine interaction (HMI). Since the invention of the mouse in 1950 (!) by Douglas Engelbart, not too much has changed on the desktop. Most of the HMI innovation has concentrated on the mobile device - where traditional input methods simply weren’t going to work. This reality brought us the T9 keyboard, the now-ubiquitous but originally magical touch screen, bluetooth enabled keyboards, Siri, “swipe” text entry, and eventually the “OK Google” interface that we first saw with Google Glass but that quickly spread back to the mobile phones. Other HMI innovations such as 3D vision have, so far, been limited to fairly specialized settings such as gaming had not had a massive impact on most people.

The announcement of voice search on the desktop, however, signals that we’ve reached a critical point in the world of HMI: speech recognition is now so accurate, natural language processing so powerful, and computational resources so prevalent that speech will soon be by far the easiest way to interact with a computer - even easier than reaching for the mouse or resting one’s hands on a keyboard. In truth, we have been here for some time and, equally true, most of us won’t notice this or adopt these interfaces for a while - but they are coming - and they are as clear a signal as any that we live in a world where extremely powerful computational capabilities will be broadly distributed and will surround us in ways we cannot even imagine.

Open the pod bay doors, Hal, we’ve been waiting for you.

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3rd March 10:50 AM
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Hegel and the two Bitcoins

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So far, the best analysis of Bitcoin I’ve heard is Hegelian. Bitcoin is the antithesis to the thesis of traditional online banking and payments. Something wonderful might come out of the synergy between the two, but not necessarily out of Bitcoin itself as it stands today. 

Today, I saw a datapoint that, apparently, half of all bitcoins belong to 927 individuals.

I think we need to separate “Bitcoin: the brilliant distributed validation protocol” from “Bitcoin: the ponzi scheme.” It seems to me that both are true.

With the massive caveat that I am not an algorithms expert… it seems that Bitcoin’s algo rewards early participants disproportionately, something which is consistent with a ponzi scheme mentality and inconsistent with the “freedom to the people” ethos Bitcoin fans espouse. While I accept that the increasing complexity of solving the blockchain is part of the security mechanism that is built into the protocol, it still strikes me as a feature that is more consistent with a ponzi-like scheme (get rich quick for early participants) than with a truly “democratic” (i.e. “level playing field”) online transaction system. Algo experts may argue that this is necessary from a security point of view (and that the “get rich quick” for early adopters is, therefore, a necessary evil of the protocol before it gets to critical mass), but I think we should be questioning that.

I’m increasingly convinced that the kind of distributed validation algorithm that Bitcoin represents is an important part of the future of online payments and transactoin validation. But I’m also increasingly concerned that Bitcoin as it stands today has too many features that suggest ponzi-like dynamics, instability, and lack of transparency.

Another thought: The Mt. Gox bankruptcy exposes an underlying social truth about Bitcoin itself. If the idea is to get rid of “government,” then the good parts of government go away as well (in this case, the regulation, FDIC insurance, and monetary policy levers we’ve come to rely on). Advocating for Bitcoin is akin to advocating for handing out guns to citizens in lieu of a centralized police force. Great in theory…until things go wrong.

I’d love your thoughts on this either in the comments or directly.

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2nd March 9:57 AM
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