Posts from March 2014

Feature Friday: disqus.com/home/

This is a risky post since I am not sure this feature has been rolled out to everyone. But I have it and so does the Gotham Gal, so I am hoping its rolled out to everyone here at AVC.

For the past few months, Disqus has been iterating on a service for regular commenters. It has been in each user’s dashboard at Disqus.com, but recently they moved it to disqus.com/home.

The idea is essentially to showcase all of the great content that is carrying a disqus powered comment stream to regular disqus users. This should drive more discussions, more discovery, and more activity for both publishers/bloggers and commenters. It should drive the discussion more broadly.

I do not think Disqus is finished iterating on this and of course it needs to be on more than the web in an age where half or more of all of our activity is on mobile. But I think its starting to come together nicely and thought I would highlight it today on feature friday.

Check it out and let us know what you think.

#Weblogs

Follower Counts

The other day we gave a friend of my son a ride from one side of Park City to the other. While I was driving, my son and his friends were chatting about the state of hip hop in Salt Lake City. Turns out another of my son’s friends met a local hip hop artist in the SLC airport earlier this week. They got to discussing this local hip hop artist. My son’s friend said “he’s very under the radar right now, he only has a couple hundred SoundCloud followers.”

Contrast that with Lorde, who emerged as an “under the radar” artist on SoundCloud a few years ago. Lorde now has almost 2.8mm followers on SoundCloud.

This phenomenon is certainly not limited to SoundCloud. Follower counts on Twitter have been a thing from the earliest days of Twitter. Subscriber counts on YouTube matter to emerging video artists. Follower counts on Wattpad matter to emerging writers.

The comment about the local hip hop artist got me thinking that for emerging artists, follower counts on the platform of choice for their media type might be the most important metric to asses the state of their career. It certainly sounded that way coming out of my son’s friend’s mouth. Under the radar means less than 1000 followers. Emerging means 1000 to 10,000 followers. Breaking out means 50,000 to 100,000 followers. More than 500,000 followers and you have arrived. More than 2.5mm followers and you are a superstar. Something like that.

Maybe follower counts are the new Billboard, Variety, etc of the entertainment and media business. It certainly seems that way.

#art#Books#Film#Music

Scratch Jr

I’ve spent a lot of time in the past few years talking to students and teachers about learning to code. I’ve also spent a lot of time observing classrooms where coding instruction is being given. I’ve had a lot of “aha moments” and been inspired by many things I have seen. In all of those experiences, the thing that really stands out is seeing Scratch, a free visual programming environment developed at the MIT Media Lab, being used effectively by all ages and abilities. I have come to believe that almost anyone can learn to use Scratch and thus start down the pathway of learning to code.

The Scratch project started in 2003 and since then over 5mm projects have been built and posted on the Scratch website. You can browse the projects here, you can find one you like, you can fork/copy it, and you can make something yourself. It is this forking/copying thing that is so powerful in my mind. You don’t need to start with a blank canvas in Scratch. You can find a project you like, you can look at the code to see how it was made, and you can then modify the code to change the way it works. That’s actually how I learned to code too (by initially modifying someone else’s code).

I just found this flappy birds style game that was posted to Scratch yesterday (use the space bar to flap, hit the flag to start).

If you click on the link that says “posted to Scratch” right above the game embed, and then click on the button that says “see inside”, you will see the code that was used to create this game. You will see how visual and inviting that code is relative to most coding systems.

Anyway, this post is not about Scratch. It is about Scratch Jr. The one thing that you need to be able to do to use Scratch is read and write. So kids who are still learning to read and write can’t use Scratch. A few years ago some researchers at Tufts started working with the team at the Media Lab to create a version of Scratch that younger kids can use. It is called Scratch Jr. Scratch Jr is getting close to commercial release, which will be on tablets (iOS first, Android next).

Since Scratch and Scratch Jr are free to use and supported mostly be research grants, there isn’t a lot of money to commercialize Scratch Jr, particularly the development of easy to use iOS and Android native apps for tablets.

That’s where all of you come in. Scratch Jr posted a Kickstarter project this week. I backed it yesterday. In a few days, they have already raised their initial target of $25k, but I am certain they could use a lot more. The more money they raise, the faster they can get iOS and Android out and the more they can do to get Scratch Jr into classrooms all over the world.

Here’s the Kickstarter page and here is the video they posted. It’s only four minutes and the bits where Mitch Resnick (the “father of Scratch”) talks about learning to code and coding to learn is really good. You should watch it. And please consider backing the project too.

#hacking education

The a16z Podcast

This showed up in my SoundCloud stream over the weekend. I finally got around to listening to it this morning.

The iOS vs Android debate certainly does seem like old news, but what happens next is a super interesting topic. The first part of this podcast is about iOS vs Android, but the second half gets into more interesting territory.

I like that Andreessen is giving Benedict the opportunity to build an audience on multiple platforms. I am not sure if this is Benedict’s podcast or if we will see others, like Marc, Ben, Chris, and the other Andreessen partners on this podcast. But regardless, this is yet another great information source coming out of the VC business.

The idea of a VC podcast is not new. Bijan and Nabeel at Spark have been doing this for a couple years. You can listen to a bunch of their podcasts here.

#mobile#VC & Technology

Bill's Startup - Wharfie

I just woke up (thankfully) and have our weekly team meeting starting in ten minutes. I don’t normally sleep ten hours but I did last night. This past weekend was a lot of fun and I was exhausted. Ten hours of sleep feels great. It’s not a normal thing for me.

Since I don’t have time for a regular post today, I’d like to suggest that everyone read a post the Bill McNeely wrote on usv.com. Bill is a regular here at AVC and most of the regulars know that he’s been struggling to get his life going in the right direction since coming back from Iraq in 2011.

Bill quit a steady but low paying job at Target to do a startup.

There is so much to Bill’s story that I don’t know where to start. Since I am running out of time, I’d just like to wish Bill well on this effort and encourage everyone else here at AVC to do the same.

#entrepreneurship

Revitalizing Urban Cores

We’ve all seen the movie. A bustling inner city experiences the flight of people and businesses to the outer edges or suburban locations and then falls on hard times. The city becomes a suburban story and lacks the creative core that attracts younger people and new residents. The economy falters.

This could be the Brooklyn story, the Newark story, the Detroit story, the Buffalo story, the Cleveland story and many other stories.

We’ve seen that things can be turned around. The economic and cultural juggernaut that is Brooklyn right now is a perfect example. The grandchildren of the people who fled Brooklyn in the fifties and sixties are now coming back in droves, attracted to its lifestyle, its coffee shops, bars, restaurants, art and culture, parks, and affordable real estate. And the tech companies are coming too. Attracted by all the talent that is there.

I’ve been asked by civic leaders from places like Newark, Cleveland, Buffalo, and a number of other upstate NY cities that have suffered a similar fate how they can do the same thing. They all talk about tax incentives, connecting with local research universities, and providing startup capital. And I tell them that they are focusing on the wrong thing.

You have to lead with lifestyle. If you can’t make your city a place where the young mobile talent leaving college or grad school wants to go to start their career, meet someone, and build a life, all that other stuff doesn’t matter.

So it was really great to see what Tony Hsieh and his colleagues are doing at the Downtown Project in Las Vegas. The Gotham Gal has made a number of investments with Tony and his team and so she asked if we could get a tour of their efforts while we are in Vegas this weekend for our friends’ wedding. We spent most of Friday touring the work they are doing. And it is impressive.

The downtown Vegas story is a similar one. The hotels and casinos left downtown for the strip in the fifties and sixties and the city center faded leading to crime and decay. It was a tough place to live and/or work.

When Tony moved Zappos from the suburbs to the former City Hall in downtown Vegas a few years ago, he decided to invest $350mm in a massive urban revitalization project. He set aside $200mm to purchase land at bargain prices and the other $150mm to invest in three areas, arts and culture, small businesses (restaurants, cafes, bars, markets, boutiques, etc), and tech startups. $50mm is going into each area.

I was particularly impressed with The Container Park which opened late last year and houses food shops, boutiques, a playground, live music performances, and is a great place to hang out with friends and family. Here’s a photo I took while we were enjoying tacos at lunch on a sunny day in downtown las vegas.

container park

They have also taken a number of residential and hotel buildings and converted them into low cost and attractive housing for the hundreds of college grads who are moving to Las Vegas to work in the tech startups that are cropping up everywhere, largely funded by Tony’s Vegas Tech Fund.

You can feel the excitement and energy in the coworking spaces that are cropping up all over the place. There is a sense of purpose that goes beyond building a startup. They are also building a community and revitalizing a city.

It’s too early to know if this audacious project will work. But I think it has a decent shot. And mostly because Tony and his team focused on art, culture, lifestyle, housing, night life, parks, and recreation first and foremost. That’s the only model that I think can work and it seems like its working in Las Vegas right now.

#Uncategorized

Video Of The Week: Coffee With Seth

A month or two ago, I sat down with my friend Seth Goldstein who is writing a book with a colleague called The Secret Of Raising Money (not yet available). We met and chatted over coffee in San Francisco and his colleague filmed the conversation. I noticed that they released a snippet of our conversation yesterday and a couple others on their YouTube channel. So this short 4min snippet of our conversation is my video of the week.

#entrepreneurship

Fun Friday: The Missing Plane

While this is not exactly a “fun” topic, I thought it would be an interesting opportunity for a comment driven day at AVC. Last night at dinner, our friend Ben asked me if I had an opinion on the missing Malaysian Airlines plane (#MH370 on Twitter).

I told him I thought it was a hijacking and after that I had no idea. He went on to explain to me that the flight had continued for four or five hours after the communications systems were turned off. To me that suggests even more that this was an act of foul play and that the plane may have been landed somewhere with all the passengers now hostages. Of course, that’s just speculation on my part. What is shocking is given all the satellites and other systems designed to track things such as this, we don’t yet have any public information on the whereabouts of the plane.

So with that, let’s go to the comments and see what you all think. What happened to MH370 and where is it now?

#Random Posts

The Bubble Question

Everywhere I go, everywhere I speak, I get asked this question. Are we in a bubble?

I’ve been getting asked that question for at least four years now. It’s hard to sustain a bubble for four years. But we are also not in a normal valuation environment for high growth tech companies and we have not been in one for a while.

Here’s how I have been answering the question.

I learned in business school that the multiple of earnings one should pay for a business is roughly the inverse of interest rates. The reason for that is if you buy a business that makes $10mm a year and pay $100mm for it, then you are effectively getting a yield on your investment of 10% (annual earnings/purchase price). This math is terribly simplistic but fine for the purposes of this post. If interest rates are 5% instead of 10%, then you would pay $200mm for the business ($10mm/$200mm = 5%). So the math here is interest rates = annual earnings/purchase price. Again this is very simplistic because it does not deal with the important questions of what interest rate you use, how you deal with earnings that are growing or declining, and a host of other issues. But at the end of the day, this math [annual earnings/purchase price = yield] is fundamental and everything about asset values, capital markets, and valuations stems from it.

Since the financial crisis of 2008, policy makers in the developed world have kept interest rates at or near zero. They have flooded the market with cheap money in an attempt to heal the wounds (losses) of the financial crisis and incent business owners to invest and grow their businesses. That has not worked particularly well but it has worked a bit. Though their words have changed in recent years, their actions have not changed very much. We still are in a policy framework where money is cheap and interest rates are near zero.

If you go back and apply the formula [yield = earnings/purchase price] and use zero for yield/interest rate, then one would pay an infinite amount for an earning stream. Of course that doesn’t make sense and it has not happened. But valuations are at extreme levels because you cannot get a decent return on your money doing anything else.

At some point this will change. The yield on the 30 year treasury yield has been sub 5% since the financial crisis. If (when?) it gets back to the 6-8% range where it was for most of the 1990s, we will be in a different place. Here’s a 40 year history of the 30-year treasury yield. You can see that we have been in a very low rate environment for a while now.

30 year treasury yield

The other thing we have noticed is that this low rate environment has caused asset value/earnings ratios to be non-linear. What you normally see is the value/earnings ratio grows linearly with earnings growth rates. If earnings are growing 20% per year you get a value/earnings ratio of X. If earnings are growing 40% per year, you get a value/earnings ratio of 2x. But what we are seeing is you get something that looks more exponential than linear when you start modeling this out at higher earnings growth rates. When earnings growth rates get to 50-100% per year and look like they can continue to grow at that rate for a number of years, you get value/earnings ratios that are eye popping. It seems that investors are so starved for returns that they are willing to pay that much more for earnings that can grow quickly.

It is the combination of these two factors, which are really just one factor (cheap money/low rates), that is the root cause of the valuation environment we are in. And the answer to when/if it will end comes down to when/if the global economy starts growing more rapidly and sucking up the excess liquidity and policy makers start tightening up the easy money regime.

I have no idea when and if that will happen. But until it does, I believe we will continue to see eye popping EBITDA multiples for high growth tech companies. And those tech companies with eye popping EBITDA multiples will use their highly valued stock to purchase other high growth tech business and strategic assets at eye popping valuations.

It’s been a good time to be in the VC and startup business and I think it will continue to be as long as the global economy is weak and rates are low.

#MBA Mondays#stocks#VC & Technology

The Hard Thing About Hard Things

I bumped into Ben Horowitz on Monday and had the chance to talk to him about his book, The Hard Thing About Hard Things. I haven’t read it yet, but I downloaded it to my Kindle app after talking to him about it.

I saw this morning that Brad Feld has read it and thinks it is awesome. I am not surprised and although I don’t normally recommend books that I have yet to read, I think this one merits that.

I’ve seen Ben in action and his experience and approach is valuable to entrepreneurs and CEOs. If you are one, I think you should read it.

#Books