Posts from March 2015

Numbers Can Ruin A Good Story

As I was reading Josh Kopelman‘s excellent post on the seed boom and Series A bust, I got thinking of some words of wisdom Mike Arrington once shared with me. He said “numbers always ruin a good story.”

What Mike meant by this is you can raise a seed (or Series A) on a story. But at some point, you will have numbers; users, user growth, revenues, and revenue growth. You will also have a burn rate. And those numbers will become the thing you are judged on and your nice story will be “ruined” by the numbers.

Now this is not always true. You might be one of the few entrepreneurs on a real rocket ship and your numbers will be your friend. If that is true, raise while the numbers are great. Because they might not always be.

But, particularly at the Series A stage which Josh’s post is all about, the numbers aren’t always so great. And your story will conflict with the numbers. And so you’ll have to change the story to reflect the numbers. Because you can’t change the numbers to reflect the story you really want to tell.

It’s a painful experience. But as Josh explains, it’s like skinning your knee as a child. Painful but necessary.

#entrepreneurship#VC & Technology

The Clinton Email Affair

The fascinating thing about the Clinton Email Affair is that it illustrates a central truth of our time; someone is storing and reading your emails. That someone could be your employer, your government, your email provider, or all of the above. A very small percentage of email users choose to run their own email servers and avoid this fate. It turns out that the woman who wants to be our next President is one of those very few.

What does this choice say about her and how she would approach digital privacy? If Edward Snowden is the person who told us what we always suspected but were in denial about, then Hillary Clinton is the person who opted out of the system and lived to tell us how she did it.

The media wants her to tell us why she did it. As if there is any question about that. She did not want the witch hunters in Washington to have access to her emails. That’s it. She has been there and has the scars to show for it and did what any intelligent person with balls would do. She opted out. And she got away with it for four years.

Of course, this affair could get in the way of her desire to get back to the White House. We will see about that. In which case she will have not gotten away with it.

But even so, I would hope that this affair, along with the Snowden revelations, clarifies things for people. Your emails are not private messages. They aren’t much different than posting on Twitter and Facebook. If you do anything that a lot of people care about, your emails will be read and shared. Unless you run your own email server and encrypt your messages.

Sadly this email affair is playing out like all other Washington scandals when it could be anchoring a much larger national discussion about the privacy of personal communications and what are our rights are in that regard. Maybe if this email affair blows over and Hillary ends up in the White House, she can lead that discussion. She will be well suited to do so.

#policy#Politics

Guest Post: Beware The Post Money Trap

My partner Albert wrote this a few weeks ago. Since then I have met with a number of founders who are most certainly headed for this problem. As valuations are extended and it feels very late in this cycle, I feel that the risk of this happening to entrepreneurs is quite high now.

—————————————–

In the current valuation environment many entrepreneurs seem to believe that only two numbers matter in a financing: the amount of the raise and the dilution. This leads them to buy into the idea that more money for the same dilution is always strictly better. Combined with a lot of money being available from investors this is resulting in Series A rounds of $10 million and more.

What could possibly go wrong? The number everyone seems to be forgetting about is the post-money valuation. It is a crucial number though as long as a company is not yet financed to profitability. It determines how far the company needs to come to be able to raise money again. It needs to build enough value so that the next round of fundraising can be at or ideally above the current post money valuation.

If you do a Series A with a $50 million post-money, it means you have to build something that people will consider to be worth $50 million when you next raise money. Now if your company hits a great growth trajectory and the financing environment stays as it is then great. But if either of those two conditions are not met you will find yourself in the post money trap.

Again, you can get caught in this trap in two different scenarios. The first one is that you hit a bump in the road. Users or revenues or whatever the most relevant metric for your business wind up not growing as fast as you think or worse yet hitting a temporary plateau, possibly even a small setback just as you need to raise more money. The second one is that the external financing environment adjusts for instance because the stock market drops 20%. Then even if you hit all your milestones, suddenly that may no longer let you clear the hurdle you set for yourself.

Some founders seem to ignore this logic entirely. Others come back and say “but we will have that much more money to and hence time to clear the hurdle.” That too, however, is faulty logic. It reminds me a lot of the problem of getting rockets into space. The simplistic answer would seem to be: just add more fuel. The problem though is that fuel too weighs something which now needs to be lifted into space. Your burn rate is pretty much the same thing. Unless you are super disciplined on how you spend the money you will have a higher burn rate the more you raise which makes subsequent funding harder (instead of easier).

Another, less common, founder objection is: well, if necessary we will just do a down round. This ignores that down rounds are incredibly hard to do. For reasons of founder, employee and investor psychology they rarely happen. And if they do they are often damaging to the company. So when you are in the post-money trap you have largely made your company non-financeable entirely.

Finally, this situation is highly asymmetric from the point of view of funds versus companies. First, funds have portfolios, so some deals with dangerously high post money valuations can be offset — if one is disciplined — with others that are more attractive. Second, when investing in preferred there is a lot of downside protection built in that’s not available to the common shares. Hence a simple test to see just how far you are stretching into is to ask investors (and better yet yourself) how much common they (you) would buy right now and at what price.

#VC & Technology

Back To Android

When we got back from our sabbatical in Europe last fall, I got an iPhone. I’ve been using it for roughly six months. I have enjoyed wrapping my head around the iPhone and the iPhone ecosystem. I’ve learned a bunch. And now I’m heading back to Android.

I bought a Nexus6 from the Google Play Store yesterday and plan to start using it when I get back to NYC at the end of the month. I plan to go back to iOS when the next iPhone ships, and then back to Android six months after that. In this way, I can stay current on both operating systems and ecosystems which I think is useful in my business.

There are some apps that are available on the iPhone and not on Android. I enjoyed being able to use them. I like TouchID for unlocking my phone and certain high security apps on my phone. And that’s about it in terms of things I am going to miss when I go back to Android.

I am jazzed about getting notifications back in my life the way I want them, I am jazzed about getting google apps like gmail and calendar and drive that work the way they are supposed to work, I am jazzed about having only one map application and the best one on my phone, and I am jazzed about getting back to an operating system that works the way I want to work.

The iPhone is a great phone. But its not any better than a top of the line Android phone. They are more or less the same. And I prefer Android. Which makes me a minority in the US, particularly in the mid and high end of the market.

Speaking of Android, here’s a great post from Benedict Evans on why Xiaomi matters when you are thinking about Android.

#mobile

Video Of The Week: Kara Swisher Interviews Hillary Clinton

I posted an interview that Kara Swisher did with President Obama a few weeks ago. Shortly after that interview, Kara interviewed Hillary Clinton. Kara is on a roll. I hope she interviews Jeb Bush next.

In any case, it is great to see a tech journalist interviewing the major national political figures. There are a host of important national tech issues and it is great to be able to hear these politicians address them.

Sadly the email scandal broke about a week after this interview so Kara was not able to ask about that. But otherwise, this is a great discussion and, as I said, I hope she does more of this.

#policy#Politics

Feature Friday: Twitter Video

I tried posting video to Twitter today. It works simply and easily.

I haven’t seen a ton of video in my feed so far, so it’s not clear that posting video has become popular with Twitter users.

But it’s just as easy as posting a photo so I expect it will become more and more common over time.

#Web/Tech

A Focus On The Company Not The Investment

I said something on stage at Launch yesterday that I’d like to elaborate on:

I do not mean that your investment isn’t important and I do not mean that making money isn’t the focus of a venture capital firm and a venture capital investor. Both are absolutely true.

However, I believe if you are invested in a startup at an early stage that goes on to become a “great company”, that your investment is going to work out fabulously well.

So I think that putting all of your energy into helping the entrepreneur and the team around them build a great company is the best way to accomplish generating great returns on investment.

Venture capital is one of those asset classes where you can impact your investment. And the best VCs do that very well. I’ve studied the great VCs and how they conduct themselves. And what I have seen is that this focus on the company first and everything else second is what separates the best ones from the rest.

#VC & Technology

Some Thoughts On Watches

One of my most controversial predictions at year end was:

The Apple Watch will not be the homerun product that iPod, iPhone, and iPad have been. Not everyone will want to wear a computer on their wrist.

With the Pebble Time making records on Kickstarter this month, with the iWatch coming soon, and with a host of Android powered watches coming to market, it sure feels like the “watch moment” in tech.

However, I continue to think that these computers on your wrist are not going to be a mainstream thing.

Monday night we went out to dinner with a bunch of tech investors in LA. Not one of the women at the table was interested in wearing an iWatch or any other “smartwatch”. Not one of them. They all said that watches are jewelry for them and they are interested in beauty and fashion on their wrists, not features and functions. Only one of the men was interested in an iWatch and he said he wouldn’t wear it but he wanted to “play with it.”

Yesterday at the Morgan Stanley Internet Conference, I was on stage with Bill Gurley and Alfred Lin and we were asked about the iWatch. There were several hundred public market tech investors in the room. I asked the room how many wore watches. About half raised their hands. I then asked how many were going to get the iWatch. About 20% raised their hands.

If 40% of watch wearers get an iWatch, then its going to be a massive hit. But that was a room full of tech investors.

I guess to some extent this is a question of expectations. And I have no idea what the expectations are for iWatch sales this year. I don’t really care about iWatch. But I am interested how many people who carry a smartphone in our pockets and purses will wear a companion device on our wrists. I just don’t think it will be that large of a percentage.

And every time I ask the question of real people who have the means to buy anything they want, I get answers that more or less reinforce my views.

So take that for what it’s worth. Soon enough we will know the real answer. And it is important because developers will build for this new platform. New applications will emerge for this platform. And it really matters if its the next big mobile device category or if its more of a niche business.

#mobile

The Blockchain Market Map

Four hours ago I left my house for the airport and was planning to blog on the flight to SF this morning. But things got in the way of that. First the pilot didn’t show. Then when he did the computer systems went down at LAX grounding all Delta flights to SF. We called an audible, booked a ticket on an American Eagle flight, and hustled to another terminal, through security, onto a shuttle bus, and finally just in time onto our flight. There’s no wifi on this plane and all the delays mean my day in SF has been compressed and will be crazy as soon as I land. 

So no time for a blog post today. 

In lieu of that, here’s a graphic from William’s excellent work to create a “market map” of the blockchain ecosystem:

Click here to read his post which goes on to list all the companies active in all of these sectors.

#hacking finance

LTE in the WiFi Spectrum

Apparently T-Mobile is getting ready to launch an LTE service in the unlicensed WiFi spectrum.

I’ve written a fair bit here at AVC over the years about the fact that unlicensed spectrum provides a path for way more innovation than licensed spectrum. I am a big fan of unlicensed spectrum and I believe that the secret to more mobile bandwidth in the coming years is more unlicensed spectrum and less licensed spectrum. I believe that auctioning off the most valuable and useful spectrum to the highest bidders, who often warehouse and under utilize it, is bad policy.

This move by T-Mobile is very interesting to me in a number of dimensions:

1) Can LTE and WiFi (and everything else in the 5Ghz band) play nice with each other?

2) If this works, is this a model for going forward? Why not have the mobile carriers provide services in unlicensed bands versus licensing them valuable spectrum?

3) Does this provide T-Mobile a cost advantaged model for competing in mobile broadband (not having to spend billions to buy licensed spectrum)?

I suppose there are many more interesting questions that will be surfaced and maybe answered as a result of this move by T-Mobile. I’d be very curious to hear them in the comments.

I love that T-Mobile is playing the scrappy underdog role so well in the mobile carrier market and continuing to innovate and disrupt the established norms and business models. I’m a happy and proud T-Mobile customer and plan to remain so.

#mobile