The Upside And The Downside

As I wrote in yesterday’s post, there are good and bad things that come from new technology and new innovations.

The challenge for many of us is that the promoters of the technology only want to talk about the upside. And often the media responds by focusing on the downside. It is hard to find a balanced take on things.

Let’s take this Bloomberg article on ISAs in which students trade a percentage of future earnings to fund tuition. The headline is “College Grads Sell Stakes in Themselves to Wall Street.” Which of course, is the negative narrative on this innovation in financing education.

As my colleague Nick pointed out to me this morning, “the stories often seem to ignore the reverse: how hard it can be to carry a large amount of debt, which is the situation that the vast majority of student loan holders find themselves in.”

The whole ISA movement is a reaction to the student debt crisis that many in this country have found themselves in.

Certainly there are questions that need to be asked about ISAs and the model will evolve and adjust over time.

But to throw ISAs under the bus by suggesting that “students are selling themselves to wall street” is the kind of negative narrative that doesn’t help anyone.

Facial Recognition

I would like to start this post with a disclosure. USV portfolio company Clarifai has one of the best facial recognition models on the market and is very active in the facial recognition market. Now that I have disclosed that, we can move on.

Facial recognition has come of age. Machines can figure out who we are and more.

One of the most popular booths with students at The Annual CS Fair this year was the Microsoft booth where they were showing some of their facial recognition technology.

The delight and amazement on the students’ faces was infectious.

But of course, not everyone is excited about facial recognition technology being deployed in the market.

I particularly like that question in the embedded image in that tweet:

How does Jet Blue know what I look like?

The answer turns out that there are many ways to know what we look like and you can start with the federal government and go from there.

Like all technologies, facial recognition can be used for good and bad. And it will be.

I like what my partner Albert wrote on this topic recently:

And then some things are incredibly hard. Such as face and object recognition. There are tons of amazing positive applications for such technology. And yet they could also be used to bring about a dystopian future of autonomous killer weapons chasing citizens in the streets. Does that mean we should not develop these capabilities? Should we restrict who has access to them? Is it OK for corporations to have them but not the military? What about the police? What about citizens themselves? Those are hard questions and anyone who thinks they have obvious answers I submit hasn’t thought long enough about them.
So what is to be done? A good start is personal responsibility. 

We used to have to stop at toll booths and wait in long lines to get across bridges and tunnels. Now we drive past the tolls at 60mph and the machines detect our license plates and debit our accounts.

The same is going to happen with our faces and that will be great for many things. But, of course, it will also freak us out on a regular basis and add to the “technology is turning everything into a surveillance state” narrative that has more truth than we would like to admit.

So what is my point? Well for one, the technology is here and we had better get used to finding it deployed in the wild. And second, that it will bring a lot of good. So we should not over react. But we should be mindful of the downsides and those of us who are working on this technology, those of us who are financing the development of it, and those of us who are deploying it, need to take great care with it.

Video Of The Week: John von Neumann on K12 CS Education

As many of you know, I have spent a fair bit of my time over the last ten years on increasing the amount of CS Education in our K12 system in NYC and around the US.

My friend Rob sent me this short (2 1/2 min) clip of John von Neumann in the early 50s talking about how important CS Education and in particular K12 CS Education would be.

We largely ignored his advice for the last sixty years but I am optimistic that we are finally heeding it.

A Hackathon At NYC’s City Hall

I like going to hackathons. A number of USV portfolio companies have emerged out of hackathons, like our portfolio company Dapper which created its hit crypto-collectible game CryptoKitties at a Hackathon in late 2017.

So yesterday I headed down to NYC’s City Hall which was hosting the finals of a citywide hackathon competition (called The Hack League) among NYC schools to create the best software applications to make the city better.

The final projects were judged by people like the Chief Policy and Data Office (Comptroller’s office); the Chief Analytics Officer (City of NY); the Chief Technology Officer (Mayor’s office); the Executive Director of NYC311 (City of NY) and other folks in city government tasked with a similar mandate.

There were 28 finalist teams at City Hall yesterday competing to win the trophy. They were from all five boroughs, representing schools from all kinds of neighborhoods. It was as diverse as the city is and that is a wonderful thing.

I gave them a pep talk at the start of the day and encouraged them to “instrument their applications” so that they and others can determine how their users are getting value from them.

This is a photo I took of the students as I was about to address them:

The winning teams came from these schools with these applications:

Middle school Winners:
1st: Queens TWYLS – “Trash Go” game that incentivizes proper disposal of trash

2nd: Staten Island IS63 – “Oh Deer” app for residents to report on deer sightings and upload photos so the Dep’t of Environmental Conservation can track the deer

3rd: Brooklyn Parkside Prep – “Hero Foods” app that delivers nutritious lunches to students with special needs (financial or health)  

High school Winners:
1st: Brooklyn International HS at Lafayette – “Busted” app for students to report real-time data about buses (such as too full, never arrived)

2nd: Manhattan Bridges High School – “Heat track” app that tracks temperatures inside and outside of homes and communicates to landlords about issues.

3rd: Bronx Millennium Art Academy – “Safety 1st” bi-lingual alert system to keep students informed when they are without their phones during the school day.

I was super impressed by how focused and committed the students were on making their applications better yesterday:

Here is a photo of all of the students who competed yesterday in the City Hall Rotunda.

These are the employees of the future for NYC startups, larger tech companies, and, frankly, every company in NYC. And let me tell you something. They are going to be really good.

Healthcare At USV

Over the last five years, we have stepped up our investing in and around healthcare. About 15-20% of the early stage companies we have invested in over our last two fund cycles are working in this sector.

If you look at our current investment thesis at USV, you will see that wellness is one of the key areas of interest for us:

USV backs trusted brands that broaden access to knowledge, capital, and well-being by leveraging networks, platforms, and protocols.

So where in the healthcare sector are we focused?

Rebecca tweeted this out yesterday and I think it is a good articulation of what we find most interesting in healthcare:

Making affordable healthcare more available to everyone seems like the winning formula in this sector.

Take our portfolio company Nurx for example. They make birth control and other important prescriptions and home testing kits available to millions of people who have found them difficult to obtain through traditional channels.

I hope and expect that we will increase our investment in the health and wellness space in the coming years. It is an important sector that has immense challenges, but also immense opportunities.

Underground Infrastructure

One evening last week my daughter and I spent an hour with a team from our portfolio company Pilot Fiber who were pulling a new fiber cable from Sixth Avenue to Fifth Avenue along a cross street in lower Manhattan.

My daughter is doing a project and wanted to understand how this all worked and I was curious myself. It was fascinating.

We met them at a manhole near Sixth Avenue where they had pulled a fiber cable into a building where one of their large customers is based.

The team uses a thin line of “mule tape” that is placed in the conduit between the manhole and the building to pull the fiber cable from the manhole to the building. Ideally the mule tape stays in the conduit so that the next team that needs to run fiber from one manhole to another or into a building can use it again.

Pilot had a couple of their trucks on the street that have huge fiber spools on the back of them.

The team runs fiber using the mule tape in the conduits that exist from manhole to manhole. This was the next manhole they worked in that evening.

You can see that there are a lot of fiber cables in these manholes. The big clunky plastic things are splice enclosures that protect the splices that join fibers to each other.

You can see a line of mule tape on the lower right of the photo above that the team was using to pull the fiber cable from one manhole to the other.

When we got to Fifth Avenue, the manhole was cavernous. One of the team members was comfortably working down in the hole which would not have been so easy in the manholes on the cross streets.

I learned quite a bit that evening about how all of this infrastructure is laid and managed. But mostly I was so interested in how this modern infrastructure (fiber) has overwhelmed the prior kind (copper and coax) under the streets of NYC.

If you want high speed/reliable/reasonably priced fiber Internet in Manhattan for your company, you can get that from Pilot Fiber who is out on and under the streets of NYC most nights laying the cables to make it happen.

More S1 Fun

I am continuing my mini series on reading S1s (IPO documents). We are enjoying an IPO bonanza this year, so we might as well use it for some good and learn something.

When a company files for an IPO, I like to think if there is a publicly traded company that looks a lot like that company and if so, I lik to run some numbers comparing the two.

Well we have that exact situation with Uber filing to go public last week. Here is Uber’s S1.

We can compare Uber’s numbers to recently public Lyft, which I blogged about earlier in this S1 Fun series.

Here are Uber’s profit and loss numbers from their S1:

We can compare this to Lyft’s profit and loss from my prior blog post:

I put all of these numbers into a spreadsheet and added some estimates for 2019 that are nothing more than back of envelope guesstimates.

What you can see from this is that Uber is 4-5x larger than Lyft, growing a lot more slowly, has slightly better gross margins, and both are still losing a lot of money but both are moving towards getting profitable on operations in a few years.

Finally lets look at market valuations. Lyft is currently trading at a market cap of $17bn. If you say that Uber is 4-5x larger than Lyft, then Uber ought to be worth in the range of $70bn to $85bn.

There are other factors that will be in play when Uber eventually prices their IPO and trades. Uber owns minority interests in a number of other ridesharing businesses that could be worth as much as $10bn of additional value. On the other hand, Lyft is growing more quickly than Uber.

Ultimately we will see how the market values Uber. But from this analysis, and the public market comparables from Lyft, we can see that Uber should be worth quite a bit when it goes public.

Functionality Vs Content

I saw some chatter on Twitter this past week about Netflix and Disney in the wake of Disney’s announcement of Disney+:

Disney’s stock was up 11% on the week

And Netflix stock was down 5% on the week

Certainly getting into the streaming game will be good for Disney. But I am less sure that content matters that much when it comes to Netflix.

A friend of mine shared this with me earlier this week:

When I saw that data, I replied to him with this:

It is the frustrations of the prior model (interruptive advertising, by appointment consumption, etc) that open the opportunity for the next model

Given that the new model, streaming, is well entrenched now, I am not saying that functionality alone will save Netflix or anyone else.

But I do believe that the functionality of a service (no ads, binge watching, user interface, curation, notifications, price, etc) are just as important, or possibly more important, than whether or not you can watch The Incredibles on it.

And most importantly, it is the frustrations of the prior model, as I mentioned above, that creates the opening for the new model.

So if you are working on a new model, for anything (it could be crypto, health care, education, finance, etc, etc), you should look very closely at what are the most annoying and frustrating aspects of the current model and focus on leading with features that remove them.

Audio Of The Week: Coinbase Custody

And now a word from your sponsor:

Coinbase is a USV portfolio company, I am on the board, and I am deeply invested in this business.

Coinbase’s regulated custody subsidiary is an important part of their overall business and I am also on the board of it.

This Unconfirmed Podcast with Sam McIngvale is a really good explanation of what Coinbase is doing in the custody market and how they are developing new income earning options for their customers.