Code To Success

Five years ago this month, we were recruiting the first class of students to enter The Academy For Software Engineering (AFSE), NYC’s first public high school dedicated to studying software engineering. A lot has happened in those five years; AFSE opened, AFSE attracted a great faculty and student body, AFSE built a modern curriculum to teach software engineering to a diverse student body, AFSE became one of the best performing high schools in NYC, AFSE inspired NYC to do CS4All, and, last spring, AFSE graduated its first class.

To say that AFSE has been a success would be an understatement. It is one of the finest high schools in NYC, often competing for students with the likes of Stuyvesant, Brooklyn Tech, and Bronx Science.

The initial funding for AFSE came from the Gotham Gal and me. Then, when we started CSNYC, it took over supporting AFSE. Last year, AFSE took over the responsibility of raising funds for itself and did its first fundraiser.

It’s second annual fundraiser, called Code To Success, will be held on Thursday, March 16 from 7-10pm at Yext’s NYC Offices. I am hoping some of you would like to attend and support this incredible high school.

The school has set a goal of raising $100,000 which will allow AFSE to continue to provide the following resources which are not funded by the NYC Department of Education to its students:

  • Each student is matched with a professional, college-educated mentor from iMentor for all 4 years of high school. This means an email each week, an in-person meeting each month,  and a go-to person for each phase of high school. In the past, mentors have been a key resource for assisting AFSE students with SAT preparation, completing college applications, and applying for financial aid, which many of our students are the first in their families to apply for.
  • Each student receives personalized college counseling through junior and senior year, as well as financial support for SAT/ACT exams, public and private college application fees, college visits and college deposits.
  • Each student who is on track for high school graduation but not on track for college graduation is invited to participate in an intensive OneGoal course for the last two years of high school and first year of college.
  • Each student has access to job shadowing, internships, and other work-based learning experiences to build their personal resumes and apply their learning in a real world context.

The Gotham Gal and I are supporting this fundraiser and we hope some of you will choose to do the same. Visit fundAFSE.splashthat.com to buy your tickets or donate and help AFSE continue to succeed.

Cultural Differences

A friend of mine likes to say that “culture is destiny.”  You can get everything else right but if you get your culture wrong, you are going to have problems.

As I look across our portfolio, I see many different cultures, some very strong and obvious even to outsiders. Some cultures are more nuanced and you have to work inside the company for a while to understand them.

Some cultures are extremely supportive and welcoming. Other cultures are more mercenary.

The truth is that these cultures are set very early on, largely by the founders and the early team they surround themselves with.

Once you create a culture it is incredibly hard to change it. 

I have seen leaders, often new leaders, evolve the culture but not completely change it. 

I have also seen cultures reject leaders who tired to change things too quickly.

All of this leads me to believe that the decisions a founder or founding team makes in the first few months of a company’s life are among the biggest decisions and that they are setting their destiny in place, often without even realizing it.

Funding Friday: The Ollie Chair

The Gotham Gal is an investor and Board member of Rock Paper Robot, which designs and manufactures furniture for modern living environments. Their newest design, The Ollie Chair, is coming to market this year and they are running a Kickstarter campaign to pay for the manufacturing of the chair. It launched this week and has already passed it’s initial goal of $80k, but I know that they would like to raise more than that, and they already have. It’s an awesome chair and an awesome company. If you want to get an Ollie Chair and/or support this campaign, the Kickstarter is here.

Here’s the video. It’s great and well worth the 3mins.

The Kickstarter PBC Annual Report

Our portfolio company Kickstarter became a Public Benefit Corporation in the fall of 2015. I blogged about it at the time. A Public Benefit Corporation (PBC) is a specific type of corporation that allows for public benefit to be a charter purpose in addition to the traditional corporate goal of maximizing profit for shareholders (from Wikipedia).

One of the requirements of being a PBC is that you publish an Annual Benefit Statement after each full year as a PBC. Kickstarter published its first Annual Benefit Statement yesterday. You can read it here.

Here are some bits from the statement:

  • Our CEO’s total compensation in 2016 was 5.52x the median comp of all non-CEO, non-founder employees in 2016. A 2015 study by Glassdoor found that the average CEO earns 204x the median total worker compensation.
  • As of December 31, 2016, our team was majority women (53%), as was 61% of our Senior Team and half of our Executive Team.
  • 100% of our interns in 2016 joined us from New York-based organizations fighting inequality: Coalition for Queens, Prep for Prep, Ladders for Leaders, Tech Talent Pipeline, and ScriptED.
  • We donated 5% of our after-tax profits to six organizations working to build a more creative and equitable world.
  • We took advantage of two tax credits in 2016 and paid a combined effective tax rate of 25%.

I would encourage you all to read the entire statement. It stayed with me all day yesterday. I am proud to be a Director and investor in Kickstarter which is showing the world that you don’t need to choose between making money and doing right. You can do both at the same time.

Go SoundCloud Go

Our portfolio company SoundCloud introduced a new subscription offering yesterday called SoundCloud Go which complements its existing subscription offering called Go+. Combined with the longstanding free service, SoundCloud now has an elegant set of offerings for its users:

SoundCloud is fundamentally different than other streaming platforms like Spotify, Apple Music, Amazon, Tidal, Napster and Deezer because it has always allowed anyone to upload their music to its platform (UGC content). About this time last year, SoundCloud added all of the music that these other streaming services have and launched its premium offering (Go+).

You can see the numbers in the above chart. The premium content that Spotify, Apple Music, etc offer is about 30mm tracks. The UGC content that is only available on SoundCloud is another ~120mm tracks.

The UGC content on SoundCloud is not just your daughter’s high school friends making music in their bedroom (which is how many of the current top artists started out). It is DJ mixes, mixtapes, remixes, top artists like Kanye dropping music quickly and easily (which he did yesterday), emerging artists like Chance who are unsigned and have chosen to stay independent, podcasts, and a lot more. It is the most eclectic, interesting, and vibrant streaming music service in the world.

And so if you have always loved SoundCloud for the UGC content, but want it with no ads and offline sync, get SoundCloud Go. Its available here.

And here’s some “UGC” content to start your morning off with, courtesy of Lil Uzi Vert:

Machine Learning For Investing In Consumer Goods Startups

Our portfolio company CircleUp has been building a marketplace for startup investing, by accredited and institutional investors, in consumer goods companies (natural foods, personal care, beverage, home goods and apparel). In four years of operation, over $300mm has been raised on CircleUp by entrepreneurs to scale their consumer goods startups.

But underneath all of this has been a sophisticated data science effort designed to track the entire consumer goods sector (all companies, not just the ones on CircleUp) and determine which companies succeed and why. Yesterday CircleUp took the covers off this data science effort, called Helio, and explained what they are up to with it.

Here are some bits from that blog post:

there’s endless data on consumer product and retail companies. And, much of it is public. A quick Google search of the product in your pantry tells you how many SKUs the brand has, price points for each SKU, where they are sold, product reviews, and a great deal more. In an A16Z podcast in 2016, Marc Andreessen commented that machine learning wouldn’t be helpful for tech VC because there isn’t enough data (40:04 mark). We agree. But in the consumer industry, the opposite is true. Data is broadly available. Business models are uniform. That’s the perfect recipe for machine learning. That makes Helio possible.

Let’s take a look at a few examples:

  • Supergoop! is a sunscreen brand available nationally throughout Sephora, that Helio surfaced due to its quickly growing brand, great distribution and estimated revenue growth. We presented Supergoop! to institutional investors, and shortly after, they raised $3.25 million.
  • REBBL is a line of coconut-milk based beverages made with super herbs known to reduce stress. Aside from being one of the fastest growing products in its category, REBBL donates 2.5% of net sales to initiatives helping eradicate human trafficking. Helio spotted REBBL early and qualified it for investors, showing its compelling brand, team and distribution metrics. Today, REBBL’s lead investors include Powerplant Ventures, led by the ZICO coconut water founder, and Boulder Investment Group Reprise.
  • nutpods plays in the crowded plant-based, dairy alternative category. Helio spotted nutpods for its remarkable product reviews, strong early growth and overall brand, despite it having less than $50,000 in annual sales at the time. After, nutpods got investments from Stray Dog Capital and Melissa Hartwig, founder and CEO of Whole 30, and today is rated #1 on Amazon in its category.
  • Tio Gazpacho is a quickly growing brand in the relatively new category of bottled soups, or more broadly, drinkable meals. Tio Gazpacho was founded in Florida, a place without a robust VC community, but Helio still spotted it, and surfaced it to General Mills, which now is its lead investor.

Helio is currently monitoring over a million brands across natural foods, personal care, beverage, home goods and apparel, and can help find who might be the next Krave Jerky, Seventh Generation or Too Faced. We are talking to likely candidates right now, and not just in the categories above, in all categories we see as promising growth areas in the consumer market.

CircleUp has always taken the view that the entrepreneurs with the best ideas, products and team should win…not the one with the best personal connections. Helio brings us a big step closer towards that ambition.

We are excited to see what happens when entrepreneurs with big ideas meet a capital market that has data science at the core. If you want to participate in that market, visit CircleUp.

Superstar Firms

Watching Amazon take home two Oscars last night brought home the point that they are a juggernaut, a massive business capable of throwing its weight behind all sorts of new businesses.

It turns out these superstar firms, not robots, may be the most important economic issue right now.

This piece from the Economist argues that taxing robots is a bad idea but figuring out how to deal with these superstar firms who are accumulating much of the profits in our economy is a good idea. Here’s the money quote:

A new working paper by Simcha Barkai, of the University of Chicago, concludes that, although the share of income flowing to workers has declined in recent decades, the share flowing to capital (ie, including robots) has shrunk faster. What has grown is the markup firms can charge over their production costs, ie, their profits. Similarly, an NBER working paper published in January argues that the decline in the labour share is linked to the rise of “superstar firms”. A growing number of markets are “winner takes most”, in which the dominant firm earns hefty profits.

Something to ponder.

The American Formula

It’s that time of year when investors (including me) spend the morning reading Warren Buffett’s annul shareholder letter.

There are always nuggets of wisdom and insight in these letters and I enjoy them very much.

In this year’s letter, Warren spells out the formula that America has used to build the greatest economy in the world.

Sadly one of those four pillars is at risk – “a tide of talented and ambitious immigrants.”

We can’t allow that to happen. There is too much to lose by turning off that tide.

Thanks to AVC reader Abid Azam for sending me that quote this morning.