A Couple Thoughts from the First Two Weeks

I’ve been out in San Francisco for about a week and a half now. I’ve traveled around the peninsula, met a ton of cool people, and learned an outrageous amount. After a bit of a hiatus, it seems the right time to get back to the blog with a few of the biggest things I’ve learned in my time here.

Founders are Damn Impressive

So far I’ve met with around twenty companies, and I’ve been struck by just how essential founders are in driving the company. Sure, it’s obvious that founders at an early stage startup are incredibly important. But it’s not just the early stage startups I’m talking about. We’ve met startups with annual revenues over $10 million that, without their founders, would all but cease to exist. There have been a couple of surrounding teams that could probably pick up the slack, but more often than not we find ourselves betting on a founder insofar as we’re betting on a company.

My picture of the average founder was all off too. I expected to come out here and meet my share of Evan Spiegels and Mark Zuckerbergs, coming in hot out of college and creating an awesome product. This hasn’t been the case. For the most part, these founders have been leaders in their industries for years. Oftentimes they’ve learned not only the ways of their industries, but also the ins and outs of sales and product. More than a couple times, I’ve walked away thinking “damn, that guy/girl was impressive”.

When we evaluate a company, we put a massive focus on founders. It has to be someone we want to spend time with, and it has to be someone wicked impressive (I’m not going to start using “hella” anytime soon), and it has to be someone with insane dedication to the company. There’s good reason for that.

Workflow is Everything

This is something that almost everyone with a job probably learns pretty quickly, but in the centuries-old systems of an investment bank I feel like I was sheltered from it. Getting things done is just not as simple as hunkering down, focusing, and working hard. In any given day, I use 5-10 programs, get 50+ emails, attend a few meetings, and make a few calls.

For that reason, managing workflow has been a top focus for me. How often do I check my email? How do I prioritize tasks? How do I prepare for calls? How do I maintain a meaningful Twitter presence in reasonable time? What’s the best way to utilize two monitors? I don’t have the answers to everything yet, but I’ve certainly learned that these questions are worth experimenting with, thinking about, and spending some real time on. In the heat of the day, I never find myself longing to sort through 20 emails or reorganize four desktops on my Mac, but it will pay off in the long run.

It’s Not that Different? 

When I told people on the East Coast I was moving to San Francisco, I often got told “everything’s totally different out there”. So far, I’m not buying it. The weather’s more consistent, tech companies are everywhere, and there are too many Warriors fans (yuck), but at the end of the day it feels like this city could pretty easily be in Massachusetts. We’ll see if my view on that changes over time.

The Next Episode

I am happy to announce that as of writing this I am set to join Amasia. I will be based out of the firm’s office in Burlingame, just outside of San Francisco, working with Ramanan Raghavendran, with a stint in Singapore to come.

A bit on us: Amasia is a venture capital firm based in San Francisco and Singapore, investing primarily in US tech companies from the pre-Series A to Series B stage. We are sector-agnostic, focusing instead on business model with interest primarily in enterprise SaaS, consumer subscription, and consumer marketplace. We have invested as little as $100K and as much as $15m; our sweet spot is between $500k and $5m. We make 3 to 5 investments per year to ensure we can devote the time necessary to help our founders succeed.  We bring decades of venture experience to the full range of issues that high growth technology companies face. At our foundation is a focus on “getting global” – helping our companies think and act for a global market.

Looking forward to adventures to come on the West Coast and beyond.

NY Enterprise Tech Meetup at Work-Bench

On Wednesday, I attended the February NY Enterprise Tech Meetup, my first event at Work-Bench, an enterprise technology venture capital firm in New York City.

The concept behind Work-Bench is an interesting one. In 2012, Founder and Managing Partner Jonathan Lehr was working at Morgan Stanley where he evaluated enterprise technologies in the office of the CIO.  While there, he told me, he was struck by how many enterprise tech startups had created impressive products, and by how many companies like Morgan Stanley had large balance sheets available to invest in products that served their business. He soon started the Enterprise Tech Meetup as a way of bringing these sides together, and later started Work-Bench, where he co-invests alongside such companies while also providing a co-working space for promising enterprise tech companies.

I was impressed by the knowledgeable, friendly, and close-knit community at the Meetup. The vast majority of people at the Meetup were repeat attendees, many of whom worked for companies funded by Work-Bench. This contributed to a fun, collegial vibe with a great networking session afterwards to get to know the presenting founders, the Work-Bench team, and anyone else who attended the event.

The Enterprise Tech Meetup featured half-hour presentations from three promising startups. Alluvium showed off how their data analysis program was able to cut down on noise and deliver meaningful feedback to companies with complex industrial systems. DotAlign, a company that recently joined the Work-Bench community, showed off an application that analyzed CRM and email data while providing a powerful and secure tool to leverage relationships across a firm.

In my opinion, the most impressive product of the night was that of Electric, which provides IT support through Slack by integrating with a company’s technology stack and reading automated feedback. Both the company and the idea have a lot of room for growth, which I hope to get a chance to look deeper into soon.

February NY Tech Connect Impressions

A Couple of Cool Hacks

Two of the most interesting concepts presented at this Tech Connect were not start-ups, but web hacks.

The first hack, utilizing Remember the Milk and Google Contributor, allowed a user to turn all ads on the internet into a personal to-do list. The to-do list conveniently follows the user around the internet as a reminder, and micropayments made through Contributor make the idea sustainable ($5-10 per month was the estimate given). Unfortunately, Contributor is briefly unavailable until its new update is released.

The second hack was DataSelfie, a Chrome extension allowing users to see what data the internet is tracking about them. The extension collects Facebook activity and sends it to IBM Watson for analysis, and its resulting mapping of activity, personality, and ad targeting was an interesting and useful graphic. While the creators viewed the project as a tech hobby rather than a product,  something similar could prove to be a hit with internet users who are curious about how the internet really gets to know them.

Note: DataSelfie exposed me to some of the complexities of what the internet learns about you, and it’s quite impressive. This article does a great job telling the story of how psychoanalysis and big data have come together to provide an incredible mapping of people’s interests: 

“In 2012, Kosinski proved that on the basis of an average of 68 Facebook “likes” by a user, it was possible to predict their skin color (with 95 percent accuracy), their sexual orientation (88 percent accuracy), and their affiliation to the Democratic or Republican party (85 percent). But it didn’t stop there. Intelligence, religious affiliation, as well as alcohol, cigarette and drug use, could all be determined. From the data it was even possible to deduce whether someone’s parents were divorced.”

VirtualApt

The one true start-up that I found particularly interesting at the event was VirtualApt. The company licenses out supercomputers equipped with high definition 3D cameras that have the ability to completely analyze their surrounding environment and produce videos in minutes. The technology was initially intended to make promotional videos for real estate companies, but the company has expanded to serve other companies, such as gyms and small stores.

It will be interesting to see, as virtual reality and 3D imagery catch on, what other applications will become popular. One member of the audience asked if the robot could be choreographed to film a live dance performance. Other applications could include live sports events and nature experiences (Planet Earth III?). The technology is currently limited by the high costs of producing the supercomputers required. VirtualApt’s robots render 3D imaging in mere minutes, but use $20,000 of computing power to do so. Competitors with lower quality supercomputers can take hours or days to produce the same product.

One Last Thing

I was struck by how energized the tech community has become politically. The first 10-15 minutes were dominated by condemnations of some of Donald Trump’s most controversial policies, including the immigration order and the choice of former Verizon lawyer Ajit Pai as FCC chairman. Speakers urged the audience to get involved, and some of the political remarks made were met with the loudest applause of the night. It was certainly cool to see how willing the tech community is to stand for what it believes in.

Bringing Baggage Handling out of the 1960s

When Amazon acquired Kiva and took it in-house in 2012, it left a hole in the market for robotics to augment human warehouse workers. Since then, there has been an explosion of tech companies creating alternatives to serve large retailers. While the arms race does not have any clear winner, or even a consensus on how the concept is best implemented, the market has become hyper-competitive and there is little room for an early-stage company to enter the fray.

There is another market, though, where the same technology can become immensely valuable but has yet to take hold. When a flight lands, you can look outside the window and see a team of men unloading baggage from the plane, loading it onto a truck, and driving it to baggage claim. In 2017, it is unimaginable that this could be the most efficient possible process. By introducing internet-connected robotics to the baggage system, airports could save money, speed up processes, and greatly improve customer service.

Smart Robotics System

The introduction of a robotics system into airport baggage could provide value in a number of ways. The first, and most obvious, is by reducing the amount of manpower that airlines need to hire (more on this in the next section). Moving fifty pound bags for long shifts is not a job that humans are designed for, and machines will be able to do the job in a cheaper and more efficient manner.

A network of smart robots, though, could have an even more disruptive impact on how baggage is handled. Some airlines are already beginning to equip baggage with RFID labels, and robots would be able to instantly scan each bag they touched and constantly interact with each other and keep track of every bag in transit. They would also be able to quickly organize the bags, which could revolutionize baggage claim and make rerouting bags far more efficient. Worldwide in 2015, 23.1 million bags were mishandled, a large improvement over 2014 but still far too many, and smart robotics would greatly reduce this number. Lastly, robotics could improve the manner in which bags are handled. Employees today whip around bags that are too heavy for them to efficiently handle, and a powerful machine could gently place bags where they belong.

Manpower Savings

As of 2010, the Bureau of Transportation reported that airlines employed 29,471 workers for “cargo handling”. While they haven’t reported employees by segment since, they have continued to report the number of total employees, which has grown by 29% in the past six years. Assuming the same growth rate for cargo handlers gives an estimated 38,000 cargo handlers today. Assuming a $10 wage and an average of 30 working hours per week, airlines pay cargo handlers approximately $600MM per year, before additional costs such as health insurance and workers compensation. Of course, robotics would not entirely replace this workforce, but would vastly reduce its size.

Barriers to Entry: A Curse and a Blessing

While a robotics innovation will eventually revolutionize the way airlines handle baggage, when such an innovation will arise is less clear. The reason for this is that there are significant barriers to entry in the industry. Any innovation to be used in an airport will surely require a security clearance which comes through a difficult process. Furthermore, disrupting the entire current system and putting in place a new system will be an expensive and time-consuming endeavor for airlines to undertake. Lastly, the innovation is sure to face opposition from airport workers across the country that risk being displaced by its implementation.

While these barriers to entry initially pose a problem, they will ultimately prove useful to the company that is able to surpass them. Once a company has established a network of robots and an infrastructure for effectively moving baggage with security clearance, it will be very expensive and difficult for competitors to break into the market. Furthermore, as one airline implements a smart robotics system, other airlines will be hard-pressed to adopt a similar system as quickly as possible or risk being left out to dry as its competitors advance beyond it technologically. Once a robotics company can break into the world of baggage, the upside is massive.

January 28 Quick Hits

One start-up that particularly caught my attention this week was HURDL Enterprises, maker of a wearable technology designed for large live events. Hurdl’s product is an LED wristband that is activated via SMS message and worn by attendees at an event or concert. The color of the wristband is manipulated through radio waves that can be controlled by the concert light operator. The color of the wristband can be changed to reflect characteristics of the audience, such as gender, hometown, or relationship status (the operator could, for example, light up all single women in the crowd). This allows the Hurdlorganizers of concerts to gather data which can then be used in marketing. After the concert, attendees receive two personalized advertisements, whether for music downloads, t-shirts, or something else entirely. Of course, concert-goers must actually participate in the exercise, and the excitement of Hurdl’s light displays has drawn participation rates between 85 and 90%. As the music industry seeks to adjust in an era where CD sales are declining, making concerts and branding more important, Hurdl has produced an ingenious product to provide data and targeted advertisements at concerts in a brand new way. The product appeared at the Country Music Awards in November, and is sure to reappear in many new venues in the future.

Tuesday’s AppDynamics sale to Cisco this week was a case study of a tech landscape in which acquisitions by large tech companies are increasingly the most lucrative exit opportunity for successful software start-ups. Cisco paid $3.7Bn in the acquisition, more than twice the amount that the company was expected to be valued at in its IPO- the top estimates for the IPO were in the range of $1.7Bn. While AppDynamics, a software Image result for appdynamics logocompanies that helps companies to identify issues with their digital applications, had
acquired a number of patents and grown impressive revenue, it was not yet cash flow positive and faced competition from similar startups as well as tech giants like Microsoft. Had the company proceeded to IPO, a price below $2Bn would have reflected the uncertainty around the company’s future. When paired with the powerful Cisco, the company’s path forward becomes much smoother as its team gains access to immense resources.  At the same time, Cisco gains the opportunity to utilize the patents, proprietary software, and brainpower of AppDynamics across its company, as well as to integrate the product into its existing digital infrastructure offerings. Over $51Bn flowed into cloud strategic M&A in 2016, up from $10Bn in 2015, and all indications are that this trend is likely to continue through 2017 and beyond.

 

Snap in Historical Context

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As Snap prepares for its IPO, the company is taking heat for a rumored decision to issue non-voting shares, leaving founders Evan Spiegel and Robert Murphy with 70% of the company’s voting power. The decision has irked some investors, who believe that Snap is abusing a position of power to take away rights that investors deserve. Based on historical precedents, though, a consolidation of power may be the best way to protect against shareholders who often hold a short-term mindset that can inhibit innovation.

The Snap IPO would not mark the first time that recent tech entrepreneurs have ensured their own autonomy. Last June, Facebook’s board, which is more than 50% controlled by Mark Zuckerberg, approved a stock split in which shareholders received two additional non-voting shares for each voting share owned. The move allowed Zuckerberg room to maneuver and to sell his shares without diluting his voting position. Facebook has been wildly successful under Zuckerberg’s reign, with the stock having risen 343% since the beginning of 2013. In ensuring their continued control over their companies, Spiegel and Zuckerberg could be showing that they have learned from entrepreneurs before them who struggled while subject to the control of shareholders.

Perhaps the best example of this was the most forward-thinking CEO the world has ever known, Steve Jobs. When Apple was taken public in 1981, Jobs and the Apple Board decided that the company should be run by a more traditional leader and hired John Sculley from Pepsi-Cola, with Jobs taking over as head of the Macintosh team. There, Jobs created an astonishing product but failed to hit short-term sales targets. Tensions rose, and Jobs was removed from the position and effectively forced out of Apple in 1985.

By 1997, Apple had only 4% market share in the PC market and was losing over $1Bn annually, and it realized that it needed to turn back to Jobs. Jobs had learned his lesson, and made it clear that he required a mandate to make massive changes to the company. In the coming years, he revolutionized Apple, focusing on vertical integration and designing groundbreaking new products such as the iMac, iPod, and iPhone. Apple has since grown from a$3Bn valuation in 1997 to a present day value over $600Bn. The company’s share price fell 10% when Jobs announced he was taking medical leave in January 2009.

More recently, the return of Michael Dell as CEO of Dell in the 2000s provides another example of a leader unable to innovate while subject to a Board’s demands. In 2007, Dell faced shrinking sales and margins in a personal computer market that was competitive and slow-growing. Michael tried to shift the company’s focus away from personal computers and primarily towards servers and software. He acquired Perot Systems in 2009 and Quest Software in 2012, but was unable to shift the primary focus of the company. The shareholders had bought a PC business, and they seemed ready to go down with the ship if that business failed.

On October 30, 2013, Michael Dell, backed by private equity firm Silver Lake Partners, regained control of the company through a private buyout. The company has been able to transform since, both by creating new lines of personal and business computers and by expanding into new industries. Most notably, Dell acquired EMC Corporation, a massive software and data storage company, for a tech record $67 billion in September 2016.  Only time will tell how successful Dell’s transformation can be, but it is evident that its founder’s ability to break free from shareholders’ control was pivotal in enabling the company to move forward.

There are benefits and drawbacks to entrusting great power to a founder. At the end of the day, though, investors hoping to see Snap remain a groundbreaking company that can adapt and grow over time could do a lot worse than putting their trust in someone like Spiegel.