Why Startups have the edge over most Big Company competitors
One question that it seems almost every VC or investor asks a startup founder: what happens if random FAANGS (Facebook, Amazon, Apple, Netflix, Google, Salesforce + Microsoft) will come into this space?
I understand why this question is asked: FAANGS have a brand, money and a lot of resources/power. And in the case of Amazon & Facebook, incredibly ruthless & competitive leaders.
But I would hazard that it's not as much of an issue as investors or founders think it is. And as someone who has worked in Startups, Big Tech Co & was an investor i can say this with a good level of confidence.
Big Companies just operate on completely different & SLOOOOOWER time-scale. They are established and have running business already so they also have a limited sense of urgency. Additionally, they are locked into specific product road maps and usually very inflexible, with staff already allocated to these projects.
Or more likely have feature bloat due to building more and more things into the product as they go after different markets. This is to the point that the complexity is chokes themselves out.
I remember having a conversation with a friend who was a senior exec at a public traded tech company in the USA. He told me that 80+% of their engineers were working on KTL ie. Keep the Lights on. So most of the staff were focused on maintaining and making sure their present infrastructure did not die. Which means only a small amount of people were working on new innovations.
This reminded me of what happened at Yahoo!, we stalled out in 2010 because almost all of our engineers were put into redoing our entire back end infrastructure. We literally lost a full year where there were almost NO new products released on the consumer side.
On top of this, in a Big established company, the organization is quite large and complex, it requires very high level executive managers and specialists. These are the people who help you scale. Unfortunately these folks tend to be very risk-averse. If you were entrepreneurial would you join a big company or would you even last long?. But also tend to be very political creatures who are trained to fight for resources or prioritization of their business group/product line versus other executives. I recall the investor Charlie Songhurst saying in an interview, “that the best run Big companies are ones where the executives spend ONLY 25% of their time politicking” :). Sounds about right to me.
Contrast all of this with a startup, where you can be nimble, focused & where politics is at minimum because you are pretty much almost in crisis or near death of all the time. This situation tends to tamp down on stupid politics and focuses the mind. You have zero legacy and when something is not working, you have the flexibility to change your product, your customer or Go to Market. To be successful you have NO choice but to do this. But this is also how you get major breakthroughs in the market.
This is why most innovations come from startups, not big companies. And it’s why you as a startup founder may have more of an edge than you think. So keep on pushing.
The Simplest Sales Framework Ever for Startups: The W3 Method
I was reading Amos Schwartzfarb’s book: “Sell More Faster”. Amos is the Managing Director of Techstars Austin. https://www.sellmorefasterbook.com
I think this is such a great & simple way to think about sales (mainly for B2B of course).
He created the W3 Method framework: the Who, What & Why?
Who is the Customer: the more specific and narrow as possible. The Total Addressable Market can be small at this stage. It’s okay, the point is once you dominate this, you can expand to adjacencies after.
What is your customer buying? (not what you are selling). This is specific, you are selling benefits & results. What is the job to be done by the customer.
Why does this matter for the individual or business? Why do they care?
Also in the beginning, the focus is all about learning & customer development. The point is to learn as much as you can. This will all be helpful as you build out your sales process.
Very simple (although not easy) but it’s a good start. Buy the book, seriously. Especially if you are a technical founder or even a business minded founder. It’s that good and helpful.
And it goes without saying, that if you are a founder you should learn everything you can about sales. Any founder who thinks all you need to do is build an awesome product, well you are half right. You need a great product and sales!
Any founder who thinks sales is grubby, beneath them or that they can outsource this to someone else in the early days is an ignorant IDIOT. Period. Fullstop.
Meet the New King, Same as the Old King: Why the United States, Not China Will Lead the New World Order (No, this is not a Jingoistic Rant :)
“When China Rules the World” has dominated the global news and media and popular sentiment for a while.
Several articles to be found of similar vein across books and major publications illustrate this.
How America will collapse (by 2025)
The Decline of the West: Why America Must Prepare for the End of Dominance
The coronavirus could mark the end of America's global leadership.
Odds were very good that China would eventually overtake the United States as the most powerful country based on the established global economy that began after World War 2.
The global economy which the United States helped build, revolved around efficiency and favored country specialization. For example, France & Italy specialized around agriculture & luxury products, Bangladesh around textiles, Taiwan around microelectronics, Brazil, Russia, Saudi Arabia, Australia, Canada around energy and natural resources. China became the manufacturing center for the world. The United States served as one of the major consumer markets and the final destination of finished goods. Think of the iPhone which openly states, “Designed in California, assembled in China.”
The interdependence that existed between the USA and China is now over. This breakdown of relations is punctuated by a Big Trade War. The Covid-19 pandemic has accelerated this as we enter a world where there will be two big trading blocs split between the United States and China.
The Economy: The USA is still the biggest economy in the world when comparing Nominal GDP, China’s economy at present is at 65% of the USA’s GDP although it is growing.
We see that the United States is a big Import economy with diversified trading partners and not as reliant on China as China is on the USA.
With the Pandemic, many western countries have come to the realization that they have outsourced too many things to China (PPE and Vaccines come to mind). We have seen many multinationals in critical industries beginning to reshore supply chains back home or to more friendly countries. 64% of manufacturers in the USA have reported they will be reshoring back to the USA or within NAFTA (North American Free Trade Agreement). We have seen the same with Korean companies like Samsung reshoring mobile phone manufacturing from China. The Japanese government has put in legislation pushing their corporations to do the same.(https://asia.nikkei.com/Economy/Japan-reveals-87-projects-eligible-for-China-exit-subsidies?fbclid=IwAR0p_vYewZ4rHACSe7CWHjSE7iZqtRNSnRf7kC6tqGKUrcYG06eYlGlTbNE)
This trend of Country resilience over efficiency will escalate over the next few years and bodes ill for China.
Source: 64% of manufacturers say reshoring is likely following pandemic: survey
China has a powerful manufacturing base of 2.8 million factories (vs. 250,000 factories in the USA). It is a double-edged sword for mass employment and competing in a global export economy. As supply chains get redeployed to other countries like Canada, Mexico, Vietnam, or are reshored back home, China will be left with a big manufacturing base making things that their internal economy cannot consume. This will lead to more unemployment and more economic issues, a death spiral. China’s impressive Belt & Road Initiative was designed for this eventuality to lock in future labor pools, export markets and trading partners. But the work is incomplete right now. (Source: Belt and Road Initiative).
The Chinese banking system is also very fragile due to a high percentage of Non Performing Loans despite China’s immense savings rate. Fitchratings estimated that it could actually be as high as 20% of total loans. This is compared to 5% in US Banks in 2009 during the peak of the Housing crisis which was already catastrophic. (Source: Bank Non-Performing Loans to Gross Loans for United States). China’s number is 4 times larger and their banking system will implode with a commensurate amount of pain.
The Greek poet Archilochus wrote, "the fox knows many things, but the hedgehog knows one big thing." In this case, China is the hedgehog, while the USA is the fox. In a fast changing, brand new environment, the fox aka the United States is better adapted to the new world. China is way more fragile and more brittle during these changes compared to the United States.
Demographics: There is a saying that “demographics is destiny” which is also closely tied to economic growth. You want many young productive and tax generating people. America wins hands down due to immigration despite being undercut by anti-immigration sentiment in the present White House). The United States is the only developed country that will not shrink in population over the next 20 years. The upcoming Gen Z cohort is almost as large as the Baby Boomers who powered the American and global economy the last 50 years.
China has a bigger population but it’s expected to peak in 2029 at 1.44 billion before slowly declining (China Academy of Social Sciences CASS). It will also be much older and in economist terms “Unproductive”. Another clear issue is the lop-sided male to female ratio in China, with 114 males to every 100 females due to infanticide and the one child policy. I see this as another source of potential civil stress.
With all the challenges and disadvantages that China has right now, Xi Jinping’s regime has become more autocratic. He has centralized even more power and taken out a wide swath of his political competition via “Anti-corruption campaigns”. There will be much more civic unrest beyond Tibet and Xinjiang as their economy implodes. Additionally if you look at the level of protests and civil disturbances happening, this only points to much tumult under the surface in China even right now.
70,000 incidents in 2018 as recorded by an activist before he was arrested. Obviously it is very hard to get real numbers due to this data being considered a state secret.
(Sources: Masses of incidents - Why protests are so common in China | China)
(Source 2: Protest and dissent in China)
Throughout all of its history, China has been through waves of being a unified centralized Han focused nation state to become splintered and distinct independent regional powers. These were times of chaos, civil disturbances & tragedy that we saw even as recently as 1911 to 1949. Nothing points to this not happening again.
My prediction is that the USA will muddle along for the next 4-5 years regardless of whether Trump wins or not. Possibly for even the next 10 years as our present “Pale, Male and Stale” leaders die off from old age over the decade. But it is inevitable that the USA will have new, younger and more worldly leadership that will be able to cross the Political divide we have at the moment. As the famous Newsroom scene states: “The first step in solving any problem is recognizing there is one.” (Why America is NOT the greatest country in the world, anymore).
The bigger point is dominance is relative. You can decline and win as long as your opponents are declining faster. China has done an amazing job marshaling their lesser resources as America was distracted in the Middle East the last 2 decades. But the timer on China’s opportunity to grow their internal domestic consumption market and lock in markets via their Belt & Road Initiative has ended. China may even fracture as a single country as civil disturbances rise and decentralized tendencies take hold.
America has a massive edge in assets and is better positioned demographically than China to adapt to the new emerging world order. The common trope of China taking over the world is glaring and wrong. When the United States fixes their glaring problems, it will still be the “Shining City on the Hill” and the dominant power in the world.
Marvin’s Best Weekly Reads August 2nd, 2020
"One would expect people to remember the past and to imagine the future. But in fact, when discoursing or writing about history, they imagine it in terms of their own experience, and when trying to gauge the future they cite supposed analogies from the past: till, by a double process of repetition, they imagine the past and remember the future.”--Lewis B. Namier
1. I love this term “Scenius.” The place & scene you are in matters.
“When it is all said and done, I believe that historians will look back at the Coronavirus pandemic as the greatest catalyst for progress and creativity in human history.
That is a big claim, so let me lay out my rationale clearly.
Historically, the scenia responsible for much of the world’s progress have been geographically constrained. The internet has the potential to break that constraint. With global connectivity comes the possibility of scenius that transcends physical place and unites the world’s greatest minds irrespective of distance or station in life.
Without catastrophe, there would be less progress. Without World War II, there would be no Silicon Valley.”
2. "Focus your efforts on iterating the product with a small number of users until you have that product/market fit, and then it will be a great time to push hard on distribution."
Starting Distribution. Sell before building BUT don't… | by Ash Rust | Jun, 2020
3. So much insight here.
"If you invest 100 hours in a rare skill, you’re likely to acquire it. If you could learn to sharpen a tool better than your peers, organize a high-performance database, see the nuances in some sector of cryptography, know how to build a pretty-good WordPress site or really understand the arc of a particular writer’s career, you’d have something of value. Something that anyone who was focused enough to invest 100 hours could have, but few will choose to commit to."
4. A great framework from my friend Ryan Deiss. Strongly recommended. I use this now to evaluate where companies and founders are at in their life cycle & mindset.
The Entrepreneurial Lifecycle and What I Learned From Nearly Bankrupting My First Company
5. Series B stage is an area I'm just not as familiar with. So this is helpful personally.
“But that first growth round (Series B) is becoming an increasingly difficult round for investors (and, consequently, for founders.) The company is perhaps somewhat de-risked from a PMF perspective but there are still substantial GTM and scaling questions that need to be answered. As such, Series B investors are forced to put fairly sizable checks to work ($20–$40M) without the ownership level of a Series A or the “certainty” of a later stage round. This becomes a bit more amplified in a post-covid world where there are even more unknowns.”
Let's Talk Series Bs. When I first landed in venture, it was… | by Allen Miller | Jul, 2020
6. Good summary of network effects and why marketplace business models are so strong when they win.
Layering Network Effects: How to Multiply Unfair Advantages
7. I’m biased but of course Startup. Mckinsey sucks. But good write up on pros and cons.
“These two options sit at opposing ends of the risk spectrum, and depending on where you sit on the spectrum, it’s difficult to empathize with the other end.
With McKinsey, there’s little-to-no risk. It’s pretty clear from the start, with a high degree of certainty, what you’re getting yourself into once you sign up, across all dimensions.
With a startup, there’s only risk. You have no idea, clue what’s going to happen. Even with the things you think you know or are “a given”, you don’t, and they aren’t.”
McKinsey or a startup? - Jonathan Woahn
8. I miss Japan and traveling. One of the first places I'm going to go to when this cursed pandemic is over.
9. Read your industry canonical books but also read the overlooked stuff too. That's your edge.
"How many players have read the NBA referees handbook? A tiny fraction. I love basketball and have studied the game extensively, but I had never even considered the idea that the referee’s handbook even existed.
By seeking out scarce information, Kobe exposed himself to rare ideas that few others had accessed.
Kobe thought to acquire the referee handbook. And then he slogged through it. Finally, he made the connection that understanding referees’ assignments could uncover unseen advantages."
10. "That’s what the Stoics meant when they said you don’t control what happens, you only control how you respond. That’s what they meant when they said the one thing people can always change is themselves. And that’s what they meant when they said we are what we repeatedly do—when or how we manage to squeeze them in is less important than our religious commitment to their continued existence.
Start today. Focus on your practices. In a world where everything and everyone else seems to be falling apart, you can make good use of this time and say, “You’re just what I was looking for.”
https://ryanholiday.net/practice/amp/?__twitter_impression=true
11. If you want to understand what a SPAC is, this is a really good summary.
“The catch to all of these things, of course, is that the SPAC will massively rip you off. First of all, if you look at the terms that the SPAC is offering and what their ownership targets are, they’re seeking a pretty substantial discount as they take you public relative to what you probably feel you’re worth. Second of all, the SPAC sponsor is taking that enormous 20% vig as a promotion fee. In theory, that fee is charged to the investors of the SPAC, not the target business. In practice, that fee gets passed back to the negotiated price with the target. The net result is that instead of going public and feeling ripped off by your investment bank for having sold them shares too cheaply, instead you just directly give the sponsor something like 1% of your business as a tribute offering and go straight to being public.
But then something cool happens. The business and the sponsor, who used to be on opposite sides of the table negotiating against each other, are now on the same team. This is very different than the dynamic with banks: it’s M&A, rather than consulting. Your negotiation is more brutal, but then once it’s done, you merge."
12. My friend Jason Lemkin is spot on. Prepare for the sad phase (ie. rest of 2020). Some good advice here. Forewarned is forearmed but We will get thru this.
"Now, we have to deal more with the Work Outside of the Cloud. The restaurants that will never reopen. The retail shops that will stay boarded up, probably for years to come. The airplanes, that without massive government support, will soon cease flying. The anger from the 33% of the country that doesn’t even have a job. The fact that we didn’t seem to really get anything in the U.S. from our shelter phase. That our schools aren’t working or reopening. That we haven’t really seen much of our families in so long, and won’t be.
And so I worry the next 90 days, even though we’ve stabilized our SaaS businesses, will be the saddest. The partial mental break we get by having restored a new normalcy at work may be eaten away by the non-Cloud world that is going to get even worse before it gets better."
Now We Start to Enter the Sad Phase. Take Care of Your Team.
13. As I said, this is so smart and inspiring. Thesis is really good here.
"The duo in question is 85-year-old Alan Patricof, an investor who has helped build hundreds of companies including Apple and AOL, and Abby Levy, a much younger executive who has occupied prominent roles at Soul Cycle and Arianna Huffington’s Thrive Global.
On Wednesday, the pair announced the launch of Primetime Partners, a new style of venture capital firm that will bet on innovation related to aging and seniors. In practice, this means making early stage investments of $250,000 to $1 million in startups that products for seniors, while also seeking out entrepreneurs in their 40s or 50s or older.
It’s an unusual strategy. The venture capital crowd lionizes founders in their 20s and 30s, and likes to invest in apps and enterprise software. Older people simply don’t register in this world, which makes Patricof and Levy’s new fund a gamble. But they see a huge untapped opportunity."
14. This is how progress happens.
"But too often, the status quo gets stuck. It reinforces injustice, persists in unfair or inefficient approaches and most likely, fails to create as much value as it could.
It’s in those moments that we need your ruckus.
The act of making things better by making better things.
The hard work of showing up with insight, assertions and kindness.
The opportunity to shine a light, open a door and lead.
We’re not often encouraged to do this. The educational-industrial complex is ten or twenty years of schooling built around compliance, adhesion and test-taking. It rarely asks us to come up with “better” and instead demands the right answer. Even if the right answer is no longer useful, at least it’s correct."
On making a ruckus. Not a disturbance, a racket or a… | by Seth Godin | Jul, 2020
Importance of Etiquette as a Savviness-Signal in Silicon Valley
I hear this criticism & complaint all the time. Mainly from people in media, or people new to or from outside of Silicon Valley. It’s so “unfair”, “it’s rigged”, this is an “insider’s game”...blah blah blah. While I do agree at a general level, my counterpoint is, most of us in Silicon Valley were outsiders once too. But we learned the rules, learned the culture and we hustled as well.
So let’s take the much criticized warm intro. Let me steal from Quora on why this is important.
Why are VCs so adamant about warm intros? (worth reading the whole thread)
“As an investor I was speaking to the other day on this point put it...
I want an entrepreneur to show some hustle. If you can't network your way to an intro, then how are you going to land that big contract when the time comes? Or find the right guy to speak to in that big potential client? Or convince an end consumer to hand over their hard-earned cash for your product?
In other words, hustling your way to a warm intro is a signal that you can go the extra mile to give yourself a better chance of success.”
This is why most investors and even prominent startups founders insist on warm intros. It’s a filter from the noise of all the poorly written cold emails, blatantly aggressive pitching at a conference, pings on Linkedin, Facebook, Twitter or whatever social media you can list. Also it’s a way to protect your network. If you are introducing someone, you are vouching for them. Your rep and name is on the line too.
So let’s say you do get a warm intro to me or some other investor. The worst thing you can do is try to hit me up for introductions. Especially when it’s the first time I’ve met you and are just getting to know you. I might offer an intro and that would be okay. But for the most part, even if I want to be helpful (I do), I also want to get to know people over some period of time. This is to make sure they are credible and aren’t sociopaths before I introduce them.
This happens all the time from overseas founders who ask that I start intro-ing them to investors or other relevant folks in my network on the first meeting or call. Talk about coming off as rubes. This act shows a lack of understanding and a very low base level EQ. And because it’s passive aggressive land in California, no one tells you either. (I will tell you but I am an anomaly. It’s probably also why people don’t like me here.)
Learning the rules & etiquette is an important signal that you have done your homework. It’s a signal you can learn and adapt. More crucially that you won’t embarrass us when we introduce you into our network.
As Alex Danco, wisely observed.
“If you’re too different, you won’t fit the pattern at all, so people will ignore you. (Did I mention tech has diversity issues?) And if you’ve been in tech too long, you’ll fit the pattern too well, so people will also ignore you. But if you’re a newcomer who speaks the language? Then you’re interesting. You have “Goldilocks novelty”: a valuable form of social capital, which you can cash in immediately. You’re different enough to have unique potential, but similar enough to fluently use all of the leverage that the tech ecosystem offers you.
Source: Social Capital in Silicon Valley – alexdanco.com (seriously read this)
All cultures have specific etiquette and if you don’t do this, bad things happen. It’s like showing up in Thailand and saying bad things about the King or in China, Japan, Korea or Taiwan when you keep your shoes on when walking into someone’s house (It’s something considered VERY rude). This is exactly the same when you want to become part of the Hollywood or Silicon Valley scene.
As I said before, some of my best performing startup founders were outsiders (male/ female/ American/Int’l & very diverse i should add too). But they learned and navigated their way through this. Most of them also ended up raising from top tier angels and VCs. And they are now considered insiders.
I believe that in our present Pandemic world, it is now easier than ever before to break into the Silicon Valley scene. Almost everyone in tech is Sheltered in Place and working from home or remotely. So the home field advantage of being able to meet live in-person has lessened for people in the San Francisco Bay Area. Now is the time if you want to become part of this world.
To further quote Mr Danco.
“The minute you acquire “in-group” status and establish a bit of social capital in Silicon Valley, everything about your career becomes easier. Introductions, advice, credibility and seed funding flow freely, hesitation and friction around new ideas goes away. It becomes easier to bootstrap something out of nothing, because you’re not starting with nothing anymore.”
Net net: Learn the frigging local etiquette and you will increase your chances of success here. This is a good place to start: Silicon Valley Etiquette. Manners Matter. | by Romain Serman
PS: there is a special place in hell for people who do NOT do Double-opt in Introductions
Lessons from the “Black Death” in the Middle Ages & Its’ Relevance for us in the Modern Post Covid World
“History does not repeat itself but it certainly does rhyme”--Mark Twain
I finished watching the 24 episode series of “The Black Death” and it was eye opening. A grim topic but relevant for all of us in the middle of the Covid-19 global pandemic. I came out grateful that as awful, tragic and scary as the Coronavirus is, it is NOT the Bubonic Plague (Thankfully).
Why? Similar to our times, in the decades preceding 1346, there was a major population and economic boom, where the European population doubled. But after 1346, plague hit like a bomb and Europe’s 150M population was gutted by the “Black Death” or “Great Mortality”. Globalization of Trade spread the pandemic like a scythe as the plague via fleas were carried by Italian traders fleeing the Middle East. Incidentally, the plague also started in Hubei. Yes that Hubei, ie. where Wuhan is.
An estimated 50% of the population in Europe died as the plague ravaged almost every part of Europe. Even worse, it recurred almost every decade till 1667. Because of the lack of understanding of what this was, you had an 80% chance of dying if you got it. Terrifying stuff. Many people then thought the whole world was ending as Entire villages and cities were wiped out. One region impacted disproportionately was England. It had been hit by months of rainstorms and bad crops prior to Bubonic Plague arriving, so the people there died at far higher rates due to deeper malnutrition.
The ineffectiveness of the Church during Plague led to growing dissatisfaction and disillusionment of the Catholic Church and organized religion in general. The mass deaths dislocated the Social order. Where in earlier times, the Church and Nobility were very rigid orders, they were forced to open up to the lower classes. Merchants and others in the social order were welcomed in and moved up. Society adapted because that’s what people do despite the awful experience.
Great wealth & opportunities came out of this. Laborers were now in high demand, and their purchasing power increased 40% between 1340-1380. Also there was mass movement to the city and urban areas. Populations began to cluster, leading to the rise of cities. Survivors inherited more wealth and land. Merchantmen survivors ended up with virtual monopolies of their trade. We saw the growth of merchant class & specialization, concentration and rise of Town Market Fairs for mass trade.
At a bigger macro level, we saw the rise of a global trading system that further connected Europe to Asia & the Middle East. The Serfdom system went into decline as social mobility increased. The Noble classes were negatively affected as their control and power were weakened. Things never went back to normal.
Massive decentralization happened on a geopolitical basis as there was no major kingdom that came out unscathed. The Great Protestant Reformation was a direct result of the decline of the Catholic Church. The Black Death ushered in a new era. At a macro societal level, historians believe that if the Black Death did not happen the glorious European Renaissance that came after would have been delayed several centuries & heralded Europe’s progress away from the Medieval times.
So what’s the point of all this? What’s the lesson here?
Even though most of us hunger to get back to normal, things have changed too much now for that to happen. In this modern day age, we’ve seen the USA & many other countries humbled. The public's trust in present leadership, government, business and media has eroded to the lowest levels ever.
Crisis exposes weaknesses that were hidden and ignored. The glaring ineptitude and leadership gaps. Structural market and organizational issues. Weak medical systems and infrastructure become VERY apparent. This was whether you are a Nation-State (USA, Brazil, Russia, UK etc.) or Business (many retail stores like Macy’s, Bloomingdales, JCPenney etc.) or NGOs (WHO, CDC).
When proper civic action, capable leadership and effective execution meets lucky circumstances and good geography, good things can happen. This occurred in Nuremberg, Iceland or Milan, all places that escaped relatively unscathed during the Black Death. In our modern Covid-19 times, we have seen that occur in Taiwan, Vietnam, Australia, Hong Kong, New Zealand, Finland, Czech Republic, the Baltic States, Greece and Iceland.
But some good comes for the survivors. “Chaos is a Ladder” as new opportunities appear. Trends like ecommerce, virtual education & medical care and digital transformation in corporations have occurred faster in 6 months period versus 5 years. Companies that did not have product market fit, now do as the consumer and enterprise market has changed dramatically.
Like the Spanish Flu in 1918 where an estimated 17 million up to 50 million+ people died (https://en.wikipedia.org/wiki/Spanish_flu), the “Roaring Twenties” happened soon after. The 1920s were a time of economic, cultural growth and hedonism as people tried to forget the horrors that preceded it. The 1920s were known for the rich cultural milieu, economic prosperity & dynamism in Berlin, Shanghai, Chicago and New York!
I expect something similar to happen post 2021. I am steeling myself for more economic, political & societal pain over the next year. But once we get through this, i am very confident we will enter into our own new technology-driven “Roaring Twenties.”
Marvin’s Best Weekly Reads July 26, 2020
Sometimes, we are so attached to our way of life that we turn down a wonderful opportunity, because we don't know what to do with it --Paul Coehlo
1. Awesome & old profile of DE Shaw: one of the first and best quant hedge funds. Also Jeff Bezos worked there and it’s where he came up with the idea.
DE Shaw, the First Great Quant Hedge Fund
2. Think China is going to be a dominant global player? Think again. Worth a read here as it’s contrary to the popular view out there.
3. “After attending and hosting virtual events, it’s clear to me they will continue to be an addition to the marketer’s quiver. And if you haven’t yet explored them at your startup, I think you should reconsider.”
The Unforeseen Benefits of Online Events by @ttunguz
4. This is a monster read by Ray Dalio but important to understand macroeconomics and where the US Dollar is going.
5. “Everyone is all in a tizzy about day traders and Robinhood and Dave Portnoy. “Ooooh, they’re going to have such a hangover when the bubble pops. Ooooh, they don’t understand how investing works.”
Pffft. They’ll be fine.
The investors facing a hangover are small family offices, plied with endless offerings of fee-heavy SPVs and SPACs by multi-billion dollar asset managers. They’re the ones overserved by Wall Street today."
https://www.epsilontheory.com/overserved/?utm_campaign=website
6. “When I ask people how their lives could be improved by removing difficulties, I am always struck by two things. One is, how many of these problems are actually people. The second amazing thing is that the list of monster problems is usually very short. Remove these frustrations, and life becomes a lot sweeter. Use the 80/20 principle to identify the few things that cause nearly all the problems. Then remove the problems."
"Be optimistic. This is where believing that life is difficult can lead you astray. Sure, life is difficult, but the difficulties can always be overcome. There is always a way. It’s just a question of locating it."
ARE LIFE & BUSINESS DIFFICULT?
7. “The presumption that America — once the dominant player in global technology — would have new competition building products of and for rising markets on their own terms was made clear in a rising China. And, of course, as millions of miles of travel since has shown me and anyone willing to look around them — mini “China’s” were rising everywhere. Ask Uber if merely showing up in a market meant they would win it as was once often the case for American tech companies, and their exit from South East Asia with an investment in the largest local competition says a lot.
Thus my one condition for giving such a speech is that it cannot talk about where the next Silicon Valley will come from. While I knew there were great lessons to be learned there —the behavior, mind sent and seeding environment of the Valley remains astounding — it was clear to me that new markets were going to rise on their own locally sensitive terms and those terms would, in fact, unleash a new global approach as billions of new consumers were holding the very means to transact for the first item."
8. "Of course, there’s a more directly competitive aspect to venture capital because it’s a zero-sum game. You have to win, and earn your place in a competitive opportunity. It’s collaborative too, though, and that’s what I love most. I love working with a range of people in the ecosystem. That’s part of the reason I founded High Output as an angel-investing/coaching firm, rather than a traditional fund. It allows me to do what I love, but I don’t have to fight against all these other seed funds out there to win a deal. I can work with them."
https://thegeneralist.substack.com/p/the-miss-steve-schlafman-on-snagging
9. Super insightful write up. I’m not normally a fan of the “velvet rope strategy” but when it works it really works.
The Value of a Velvet Rope: Effects of Hype and Exclusivity on Launch Strategies
10. I read anything with Tim Ferriss: a great interview here.
"The 4-Hour Work Week is—based on the title, understandably—often misunderstood. The objective was to provide a toolkit for maximizing per-hour output. It's not necessarily about working four hours a week. You could choose two hours a week, one hour a week, or 80 hours a week.
But the reason that book found such a toehold in Silicon Valley is because it was focused on evaluating different currencies—money, time, mobility—and how you can pull levers to change these variables to maximize per-hour output. That toolkit was very much time- and income-focused."
Because it doesn't matter how much money you have, doesn't matter how effective or efficient you are. It doesn't matter what types of fancy toys you collect. It doesn't matter how hot your significant other is, if your inner world—your internal monologue or dialogue—is that of anger or despair or frustration or sadness the majority of the time.
Almost none of these other things matter very much."
From Productivity to Psychedelics: Tim Ferriss Has Changed His Mind About Success
11. "Kirkland’s success defies our intuition and experience. Shouldn’t lower prices lead to lower quality products? How can they offer rock-bottom prices but still have some of the best products around?
The answer is this: they get the best manufacturers in the world — who already have products on Costco shelves — to make Kirkland products. Yeah, you read that right. While customers might not know it, Kirkland products are often made by the same manufacturers who make the branded products that sit next to them on the shelves.
And not only that, but according to a Reddit user who worked at a Costco supplier, Kirkland products have to be at least 1% better than the equivalent branded products (on some metric of their choosing). Costco forces manufacturers to compete with a better version of themselves.
But if Costco is pitting brands against themselves, why do the brands put up with it? The short answer is that they want to. Costco is one of the largest sales channels in the world and brands can still profitably sell their products under the Kirkland brand."
Why Most Celebrities (Hollywood, Professional Sports, Music Stars) Suck as Startup Investors
Clearly I am generalizing. The examples of Ashton Kutcher, Joe Montana, Troy Carter, Nas, Serena Williams & various folks from the Golden State Warriors are effective counterpoints. All are super savvy individuals who have also built ties and have incredible mentors from Silicon Valley. Each one is an exemplar in tech investing and probably have better portfolio companies than me. But I would argue these are the exceptions.
If you look at the majority of celebrity investors, due to the mindset of where they come from, it’s almost always short term & opportunistic (ahem Chainsmokers & Manny Pacquiao). This is contrary to the mindset needed for tech investing where the time horizon could be up to 10 years.
Not a surprise when they come from industries where fame & influence tends to be short. Perishable might be a better word. That’s why it’s common when you see stars hit the big time, they start to cash in on this. All of sudden you see them doing all these random sponsorship or licensing deals with all types of random products. This is called the “great cash grab” to monetize as much as you can while you can. Fame & Influence is fleeting in that world, so this is a very logical behavior. This is not a value judgement, but an observation. If I were in their shoes, I would do the exact same thing.
Additionally, a big driver for this movement into Tech is that it is (or was) very hot. Nothing motivates someone more than seeing their peers make money in something. Also its sign of coolness, so why not. Hence the dabbling.
For the record, it’s not a bad thing to take a celebrity’s money as a startup. It actually makes A TON of sense if you are running a Media startup, Direct to Consumer (DTC) or Consumer brand focussed biz or something related to Hollywood, Sports or Music. But outside of this, not sure they can add a lot of value to other sector startups.
So if you do take money from them, just make sure you manage expectations clearly with them. They are dabblers and may not understand how long it will take to get liquidity (if any).
Manage your own expectations as founder on what these celebrities will be able to contribute. They all have busy careers in other realms, so your startup is most likely not a priority. The famous poet Ehsan Sehgal said: “An opportunist runs away and disappears if it fails it’s targeted opportunity. ”
Just remember these folks are tourists, not settlers in our world here, so word to the wise :)
PS: Most Investors, Angels and VCs suck too. It’s called Pareto’s Law. But they underperform for a multitude of other reasons which go beyond a short blog post.
Why Most Founders Don’t Take Good Advice
Most advice is not good. I admit that. Most investors don’t know what they are talking about. Most founders give very industry or stage specific advice that is out of context.
But due to the depth of knowledge and experience here in Silicon Valley, there are many high quality people who do give great advice. Credible people giving credible advice. Yet most founders still tend not to follow good advice given by credible people. People who usually only want the best for their mentees.
I spent 6 years running one of the top global accelerators in the world, running 12 programs with over 370+ founders. I used to get really annoyed when we would share best practices in fundraising, or customer acquisition or hiring and firing and have it all be completely ignored.
But I have come to accept that this will always be the case. My hypothesis? Even if your advice is correct, there are good reasons why they will not take it.
Here is Why:
1) Some things they can only learn the hard way ie. Experiential Learning.
The most common example is Hire Slow, Fire Fast. Almost no one follows this advice because if you have not gone through this yourself it’s just so esoteric or theoretical.
2) The advice is “Cognitively Dissonant” that they don’t understand it. Or more likely, do not want to understand it.
This occurs often because it breaks their worldview and it’s too painful or just does not fit with what they believe.
3) They think they are Exception to the Rule.
The journey of a founder is VERY hard, thus it’s highly irrational. You need to have a little bit of naivety and/or delusion to be a founder, otherwise you would never start. This leads you to think you are unique and different so that the best practices don’t apply to you.
But in all 3 cases, the market aka Reality ALWAYS educates you quickly & painfully.
This is no different than when growing up and you used to ignore your parents advice because you think you know better. It’s something that can only be learned with time and experience. It reminds me of the Josh Billings joke:
‘When I was a boy of 14, my father was so ignorant, I could hardly stand to have the old man around. But when I got to be twenty-one, I was astonished at how much the old man had learned in seven years.”
As an advisor, mentor or investor, all you can do is be there to help them up if or when it goes wrong. And in my case, also to say “I told you so!” ;)
Marvin’s Best Weekly Reads July 20, 2020
“The single best productivity hack - that everyone should aspire to -don't keep a schedule.” --Naval Ravikant
1. "So why does this matter? Companies with network effects that don’t look like network effects are diamonds in the rough. Because their networks are hard to measure, they can often be under-appreciated in the short run and disproportionately strong in the long run.
In the same way that the best startup ideas are good ideas that initially sound like really bad ideas — because the obviously good ideas are both picked over and hyper-competitive — some of the strongest network effects companies end up being strong precisely because they initially don’t seem to have strong network effects."
https://a16z.com/2019/07/29/hidden-networks-effects/
2. "Startup founders and investors love disruption theory because it gives them a playbook: find an incumbent who has made their product too expensive or complicated, then make a version that’s simpler and cheaper, but better along some new dimension. Then, launch to a previously ignored audience, and improve the experience over time.
This isn’t necessarily a bad way to go! But, increasingly, the smartest thinkers in modern strategy are questioning whether the playbook always works."
https://divinations.substack.com/p/disrupting-disruption
3. An interesting new phenomenon happening in Silicon Valley. Venture Capital Funds being unbundled by big name Operators & Founders. Watch this space.
The Rise of the Solo Capitalists
4. "Going from Coordinator → Channel Manager → Sr Channel Manager, you develop more channel expertise and better execution capabilities. You become great at optimizing KPIs within the constraints of your channel. But focusing on the things that make you great as an individual contributor will actually trip you up as a Team Leader. Psychologically, it's incredibly difficult to get out of the habits that initially made you successful."
Crossing the Canyon: Leading Your First Marketing Team — Reforge
5. Open AI’s GPT3 is a big deal. A very good write up. I’m still thinking through the implications.
OpenAI's GPT-3 may be the biggest thing since bitcoin
6. A good call to action here.
"We aren’t used to this sort of cognitive challenge. Software is so democratized today, we forget just how blisteringly difficult almost all other facets of human endeavor are to even start. A middle schooler can build and deploy a web service scalable to millions of people with some lines of code (learned from easily & widely accessible resources on the internet) & some basic cloud infrastructure tools that are designed to onboard new users expeditiously.
Try that with rocketry. Or with pharma. Or with autonomous vehicles. Or any of the interesting new frontiers with green fields that are just sitting there waiting for the taking.”
The dual PhD problem of today's startups
7. "Nespresso triumphed by selling itself as a sophisticated component of an elite, globalised lifestyle. Wherever you were in the world, you could be a Nespresso person, just as you could wear Nike trainers or use American Express. Now, as that lifestyle looks increasingly bankrupt, it is learning to be just another coffee company."
Culture is the Company and the Founder is the Culture
“It’s an easy prediction to make—that Jeff Bezos will do what he has always done. He will attempt to move faster, work his employees harder, make bolder bets, and pursue both big inventions and small ones, all to achieve his grand vision for Amazon—that it be not just an everything store, but ultimately an everything company.” --Brad Stone, “The Everything Store” book
As I write in 2020, Amazon is the dominant player in the Retail, Cloud Computing and Advertising Spaces with market share that would satiate a monopolist. Jeff Bezos is a relentless, customer centric entrepreneur and leader who has built a monster execution machine in Amazon.com that has crushed all competition. No surprise that the leadership team and culture is a direct reflection of himself.
You don’t need to look far for other examples. Other major dominant companies like Walmart under Sam Walton in its past, Microsoft under Gates, Apple under Jobs, Facebook under Zuckerberg, Tesla & SpaceX under Musk. Facebook is ruthless, strategic and focussed. Gates was prepared to crush all competitors and did not play well with others (a very long list of destroyed companies, most famous was Netscape).
Companies end up adopting the style and thinking and behavior of their founder. Stated earlier, people at Amazon are relentless, efficient and extremely customer centric. Microsoft under Bill Gates was aggressive, direct and also extremely ruthless. Apple was design focused (and still is). People at Facebook are focused about driving big impact and are ruthless and strategic, with zero shame of copying competitor features and products. One simple example is Instagram Stories, hmmm….that looks kind of similar to Snapchat. :)
Culture is a scaling tool. Culture repels certain individuals and attracts others. The environment and the people you are around drives behavior. New employees naturally learn consciously and subconsciously by taking cues from their surroundings on what is accepted, rewarded and what is not.
This observation allows us to extract about how important the founder with an owner mentality is in driving the culture. And how almost always when the founder leaves and a professional manager takes over we see a slow decline of dynamism in the company. Many professional managers “optimize short term gains by squandering long term opportunities”. (Steve Blank)
This is a the business-y way of saying “The fish rots from the head first.”
There are obviously rare exceptions like in the MSFT situation with Satya Nardella who effected one of the best turnarounds in business history when he took over in 2014 (How Satya Nadella and the Cloud Turned Microsoft Around) or Shatanu Narayen of Adobe ( who took Adobes market valuation from $20B to $220B by positioning the company toward the Cloud Adobe's CEO on how the company is posting record results amid economic chaos). But the counterpoint is Microsoft after Ballmer took over from gates where revenue grew massively but they lost market share and missed many opportunities like on the internet, cloud computing and mobile.
The Implications here are rife for investors and employees. If culture is a key driver of company performance, then founder leaders are a key driver of the culture. It’s important to watch for signals for how management transitions will affect the culture of great companies.
As famous GE CEO Jack Welch Says, “The Soft Stuff is the Hard Stuff.”
The Magical Power of Your Environment and Who You Surround Yourself With
There is a very common saying here in Silicon Valley: “You are the Average of 5 people you spend most time with.”
I was lucky to end up at Alibris.com, then Yahoo! & 500 Startups at very specific times in their growth. For me it was just like being at Microsoft in the 90s, or eBay 2000-2005, Google from 2003-2008, Or Facebook during 2008-2013. Magical times of growth when there was a critical mass of amazing people who worked there. It also helped that massive fortunes were made by people who worked there during that time. Getting equity really does matter :)
The existence of the Paypal Mafia & other Mafias (Facebook, Yahoo!, AirBnB, Uber etc) show the power of these tribes. Opportunities for new jobs, business partnerships and investment all come from these types of power networks. This is very similar to what happens with top University alumnus.
If you optimize for learning, the best way to do so is from being around other great people. I was listening to an excellent podcast interview between David Perell & Daniel Gross where this came up. The question was:
“Environment Matters and there are 4 ways to build these great environments:
Digital environment: Asymmetrically through books & podcasts
Digital Community Groups: via Telegram group, Reddit Group etc.
Physically locating near a small group of people who have a great mindset
Move to city full of great people
If you want to penetrate an industry go to the centre of the network. It’s why you join certain companies or move to certain cities. So if you are into Hedge funds or Investment Banking, it only makes sense to go to New York or London. If Media is your thing, Los Angeles, New York & London is the center of things. If you are in the Tech Industry, it’s Silicon Valley/San Francisco. But if Fashion is your thing, San Francisco is pretty awful, but New York, London, Paris or Milan are much better places for you.
It’s why I moved to San Francisco back in 1999. To meet, compete and collaborate with amazing & interesting people.
If you want to become better, be thoughtful about your environment and surround yourself with people smarter and better than you are. You always want to be the dumbest person in the room.
If you do this, your Network really does become your Net Worth!
Lessons from the “Forrest Gump” of Silicon Valley
How Do You Build a (Relatively) Successful & Varied Career in the Tech Biz?
I get asked this question often by younger folks all across the world, particularly in the last 6-8 years as a “Gray Hair” as 40 something in San Francisco. I firmly believe that the Future of Work and the world is becoming more like the “tech industry” in Silicon Valley than less. Whether you believe that is a good thing or not but it’s happening.
I do NOT feel like i’ve been particularly successful but yet i do feel i’ve had a very interesting and varied career. First as an early employee (Number 18) at a startup that ended up raising 64M usd, then spending 10.5 years at Yahoo! Inc in its glory days, followed by a 6-year stint as a Partner at venture capitalist fund 500 Startups. Varied careers like mine seem to be the norm here in the San Francisco Bay Area which is what makes this place so interesting (and scary competitive).
During this time I've pulled out some lessons and principles that I hope will be instructive and helpful for folks starting off, thinking about, or restarting their careers.
1. Try Lots of Things:
The first thing you learn about success from Silicon Valley is the velocity & dynamism of the place. The secret is taking many swings at bat & making a lot of bets. There is a reason so many of the top investors and Startup founders are very big aficionados of Poker.
You see lots of people jumping from startups to big tech companies back to startups. For example, the average tenure of an employee at a big tech co (Uber, FB, Dropbox, Tesla, Square, Twitter, Netflix) is about 2 years. The days of spending 20 years at a company are over. I recommend trying a lot of things to see what you like, where you can thrive culturally and figure out what you are good at (that the market values).
My caveat though is not to jump around every year though, that is just not long enough to see the results of your work at a place.
2. Pick a Growth Company (or 2):
This one is tougher to figure out and why i earned the moniker of “Forrest Gump.” But you should pay attention anytime you see a company on a growth trajectory. Or if you hear the excitement of customers & employees or smart friends talking about it. Present day examples of these high growth companies that come to mind would be Stripe, Fast.co, Superhuman, Epic Games, Notion or Webflow. Or Facebook 8 years ago.
And of course, hopefully you are personally excited by their mission or what they are doing. I found that even if the company does not work out, you meet a lot of very smart people.
3. Give Before You Get. “Paying it Forward Culture:”
The top people are almost always generous with their time, energy and advice. Give before you take. (Don’t be an arrogant A--hole who thinks they are better than anyone else). I am not always successful here but i do legitimately try to do this as often as i can.
This is how I ended up at 500 Startups. I was a volunteer mentor for their core accelerator program for over a year and half. I didn't do it because I thought i was going to get a job. Being a Venture Capitalist was very far from my mind at that time (i always thought i would go back to being an operator type COO or CRO at Series A+ company) . I did it because it was fun, I had the time and I wanted to give back. I ended up spending almost 15+ hours a week with their startups. I guess they felt guilty and that was probably why they asked me to join and help start their San Francisco office in 2014. (Thank you Dave!)
Always try to be helpful to people below and above you. Morally & cultural this is what makes Silicon Valley work. But the pragmatic reason is that in an environment as dynamic as the technology business, what is a startup today could be a dominant company tomorrow. A poor founder today, is a billionaire tomorrow. It does happen so you never write anyone off here. No where else in the world do we love a comeback story quite like in Silicon Valley.
4. Think About Your Reputation & Practice Long Term Thinking:
As Warren Buffett says “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.”
Everyone talks about it but in my 20+ years here in Silicon Valley, I am continually surprised by the bad behavior of people and extremely short term thinking that happens. If you are good at what you do, have a reputation for doing right by people whether you are a company or person. This will precede you wherever you go or whatever you do in Silicon Valley.
5. Stress Importance of Relationships & Network (and Power of the Back Channel):
What makes Silicon Valley as well as any other industry work is the tight relationships and networks that span geographies. School and company alumni operate on this. There is the most famous Paypal Mafia but people forget about the very extensive ex-Yahoo!, ex-Facebook, Xoogler, or ex-Ebay or ex-AirBnB or ex-Uber Mafia that spans across Silicon Valley.
This is how you get new opportunities and get referrals and feedback on individuals. This is also how you find out about people's true reputations during the inevitable reference check.
6. Optimize Learning over Earning (ie. Chase Curiosity and not Monetization):
Be a Missionary, not a Mercenary. Mercenaries don’t last in the long run in a place like Silicon Valley. What I optimized for every role I chose was “would I learn in this position and company?” Would I be surrounded by super smart people who would raise my standards?
“You are the average of the 5 people you spend the most time with.” This has always worked for me.
Of course there are situations when you do need to think of the money. But for me, In those few occasions when I did choose things mainly for the money, it never worked out well. Probably either because I was not fully interested nor was I fully committed.
7. Stay Longer and Be Prepared to WORK A LOT:
I see so many people jumping around every year to a new company or new opportunity. I know I mentioned taking a lot of bets but you also have to spend at least 2-3 years at a place as this is how long it takes to 1) make an impact on the business
2) seeing the results of what you are working on. This is how you learn the trade.
I should also note that while I worked at Yahoo! for 10.5 years, I had 5 different roles across different groups while there. So it was varied and did not feel stale.
Sorry to disappoint you but you cannot “4 Hour Work Week” this, especially if you are early in your career (or if you want to achieve excellence in a new role or something completely new to you). When I was at Yahoo! and 500 Startups, I’d work 80-100 hours a week and it did not feel like work. I thoroughly enjoyed the work so much, it was almost every night Monday to Thursday that I would get a call from my wife after 900 pm asking me when I was coming home. (SORRY :() & i should note i missed a lot of my young daughters life which is the only deep regret i have in my life today).
8. Invest in Yourself:
I was so obsessed with getting better and learning about how to do the job, I'd spend time in the evening and weekends reading and watching videos, talking with friends who were investors or renowned operators and learn from them. At Yahoo! this was driven by insecurity and fear of losing my job in the aftermath of the Dotcom Bust. I also felt very behind everyone around me there. They were smarter, had more relevant experience and were more credentialed than I was (boy so MANY Stanford MBAs at Yahoo!). I definitely have some level of OCD which helps here. But I was legitimately interested in the subjects, and over time they became an obsession for me.
When I joined 500 Startups in 2014, i found some good mentors outside of the Firm who were extremely helpful to me (thank you Mike & Tim). I read and watched everything on the art of Venture Capital and how it worked. I was also lucky to be at 500 during that time as it gave me many opportunities to practice investing (i ended up doing over 400 seed deals when i was there which i will be eternally grateful about).
9. BE Interesting (and be Opinionated & Vocal):
In my sabbatical aka “Fallow Years” between Yahoo! & 500 Startups, i met a lot of interesting people in Silicon Valley after being cocooned in the comfortable world of Yahoo! digital media/advertising. It’s relatively easy to get first meetings but hard to get follow up ones. I did this because i had 1) nothing to sell 2) i was not looking for a new job 3) nor was i trying to raise money. But I had built a solid experience, a decent reputation and spoke my mind as I saw things whether it was popular or not. This is very much valued by most senior accomplished people whether they were senior VCs or Business Execs or Startup Gods where people (especially in California) do not speak their mind for fear of offending anyone. So I always got invited back. It does pay to “Speak Truth to the Power.”
I hope the lessons I shared will be helpful for anyone who is interested in surviving and thriving here in Silicon Valley. I cannot guarantee you will get “Rich” following these principles but i do think they will help you build a really fun and impactful career in Tech.
I consider myself very lucky, having built a varied career that has challenged me intellectually, put me in the circle of so many accomplished individuals at the top of their game and given me opportunities to travel across the world. I’ve had such a fulfilling and fun time over the last 21+ years here. That is why I have no problems claiming the title “Forrest Gump of Silicon Valley.”
“Fast Money” versus “Dumb Money” versus “Smart Money”
There has been a FLOOD of new money coming into Silicon Valley especially since 2015.
I’d classify “Fast Money” as Hedge Funds, Private Equity Funds & big Mutual Funds. But my guess is that with this downturn alot of these guys will disappear (and yes its usually guys sadly). These folks in previous times were also called HOT Money, flooding in when the market got heated & flooding out (literally) when it starts to deflate. I saw alot of this with a front row view while living in Taiwan during the Asian Economic crisis in 1998. Ask the Thais, South Koreans, Malaysians, Indonesians what happened then. I also am not talking about Coatue, Altimeter or Tiger Global. But i would definitely include many of the east coast firms who came into tech the last 3 years.
I really should point out that this is nothing close to “Dumb Money”. “Fast Money” are super sophisticated investors who just operate on a much shorter timeline than Venture Capitalists due to the nature of their business and with their returns being measured in quarters, not years like in VC. They are very quick to write off perceived losses & move on to the next opportunity. This is a strength in their world but different in tech where massive companies are built over a 9-12 year period with lots of ups and probably more downs. Reputations are built in sticking with founders during hard times.
“Dumb Money” for me is definitely all the flock of Corporate Venture Capital funds (Not talking about GV or Capital G) but almost everyone else. Fundamentally, Corporate VC just does not work. VC is a 7+ year game and 99% of most corporates just don’t stick with it long enough to get good at it, nor are they structured well. I’d include as part of “Dumb Money” most of the non-tech Family Offices, folks who made $$ in other industries like Oil or Manufacturing and not willing to learn the rules (ie. arrogant) and thus get the table scraps of deals left over by the real Venture Capitalists. Many of these folks just don’t have the staying power to take the losses (or operate under unrealistic expectations) and learn how to do this tech investing well.
I really hate the term “Smart Money” & when a founder says it, it’s a clear sign they are an “out of towner” or arrogant idiot. Smart money means money that can help you with your business (ALOT) beyond just giving you cash. The reality is that it is a very small subset in the VC & Angel Community. No surprise these are usually the big brands like Benchmark, A16Z, Sequoia, Founders Fund, Emergence or the awesome folks at Floodgate, Felicis, True, Uncorked, First Round, Pear, NFX, Cowboy or Baseline in the earlier stage. (I’m clearly missing alot of folks here).
Investing in Tech (just like investing in equities or Bonds or Options) is an Art and Craft. It takes time, commitment and willingness to learn. As they say here in Silicon Valley, “There are two kinds of investors, those who are humble and those who are about to be humbled.”
If you want to read more, the very smart folks at Tribe Capital wrote about this back in April.
https://tribecap.co/fast-money-slow-money-in-vc-during-a-financial-crisis/
For Founders out there make sure you know who you are partnering with when you raise money. You won’t know who will have your back when things get bad but some understanding of which category they fit in will help you in the long run. This way you will not be too surprised when they eventually bail or turn on you.
Who I Am & 5 Signs of the Top of the Bubble in Silicon Valley
Why Should you Read My Stuff
Well, i think i have a slightly different take on tech with a career spanning startups, operating exec at big tech co and early stage investor.
I’ve seen a lot over the last 21 years and hope to share some observations which i believe could actually be interesting for both insiders and outsiders to Silicon Valley. Plus, I tend to be pretty opinionated, bluntly direct and hope to occasionally share something insightful (stress on occasionally).
I’ve been in San Francisco for over 21 years, was an early employee running online marketing at online ecommerce retailer Alibris in 1999 which raised over $64M during its life (crazy times). I was lucky to join Yahoo! during the turnaround in starting in 2001 and rose thru the ranks as an executive in the international operations for 10.5 years traveling all around the world. Spent 2 years as angel investor, board and advisory board member on several startups & mentor at two dozen startup accelerators across the globe.
Most recently was a Partner at 500 Startups, helped start the SF office and ran the core accelerator program and invested in over 400 pre-seed and seed startups during my 6 years there. Notable investments & startups i have invested and worked with include Eaze, Indio, Embroker, Manychat, RapidAPI, Aircall, Pipefy, Shippo, Vela among many others.
I left 500 Startups at the end of 2019 to reset & reflect, do the Tech Conference speaking circuit scene in 2020 and possibly do some angel investing. Covid-19 kind of put a kibosh on all of that.
So now keeping busy doing some executive coaching for a few late stage startups, volunteer mentoring at some international startup accelerators, being a Fellow at Creative Destruction Labs Montreal, speaking at many virtual conferences and webinars, and a proud member of the Silicon Valley Squares Zoom show: https://www.siliconvalleysquares.com
Basically just an observer of the tech scene as an Inside-Outsider while “Sheltered in Place” for the foreseeable future.
TLDR; Highly opinionated views from 21 year career in startups, Big tech & Venture Capital.
5 Signs of the Top of Bubble & Coming Apocalypse in Silicon Valley (USEFUL for the NEXT ONE):
Having lived in San Francisco since 1999 i had the fortune or misfortune of being part of 2 prior Gold Rush Eras in tech.
Harvard MBAs show up and we get flood of ex-I-Bankers and Management Consultants wanting to be VCs or Startup Founders as it seems to be “SURE Way” to become “Rich”
Big Non-Tech Corporates start to show up in Silicon Valley. We see them set up VC Funds or Accelerators. Or my favorite, when the C-level execs come for their one week or two week “Tech Tourism” or what we call “Silicon Valley Startup Petting Zoo”
Sports & Hollywood Stars start to angel invest or start startups (or do both, think Jay Z and Tidal). For record Ashton Kucher and Joe Montana are notable exceptions to this.
Landlords on retail and commercial side get super greedy & ask for equity and try to rip you off more than normal
Flood of Unsophisticated aka “Dumb Money” coming from a bunch of un-named regions. Hint is that it’s usually from energy & resource rich countries not known for tech & just chasing the sexiness and supposed guaranteed riches of the tech industry. (I also note that this is a gross generalization because i have worked with some amazing LPs and investors from these regions.)
A BIG Check Mark on all 5 by Q3 of 2019.
And here we are. Bubble has burst due to Covid-19 and according to Bay Area Layoff Tracker we have over 136,000 layoffs.
https://projects.sfchronicle.com/2020/layoff-tracker/
An old saying comes to mind from 2001 Dotcom bubble. B2C now means “Back to Consulting” and B2B now means “Back to Banking.”
This is gonna suck and i don’t enjoy seeing this. But this rebuilding is when we will see alot of amazing new world changing startups and teams come to the fore. We just need to survive the nuclear winter of 2020 (and probably 2021).
Thanks to my friends Sean Li & Asher Siddiqi for providing feedback on this.