I was delighted to discover this morning that there is a new StackExchange site dedicated to helping users find open data sets for their projects.
In 2005 Tim O’Reilly said that “Data is the next Intel Inside.” It was a prescient statement, and in that context, one could argue that a strong open data movement will be even more impactful than the already tremendous open source software movement has been.
We are all standing on the shoulders of giants from a algorithms and architecture perspective thanks to OSS. I’d love to see open data become the big openness beachhead for the next ten years.
In 2002 Eric Schmidt (then, CEO of Google) made a bet with Craig Mundie (then, Chief Strategy Officer of Microsoft). The bet was:
"By 2030, commercial passengers will routinely fly in pilotless planes."
Doesn’t sound too surprising of a bet, right? Except, Schmidt took the negative side of the bet! He doubts this outcome, and put his money behind his doubts. Google is pioneering self-driving cars, acquiring robot companies, and experimenting with drones, and yet Schmidt doesn’t believe in the prospect of automated, commercial flights.
I wonder if 2014 version of Schmidt would change his position on this bet today, given the progress we have seen in autonomous navigation of all kinds.
I’m also generally surprised that Schmidt would take any form of pessimistic view on technology in general. I guess, it’s really more of a pessimistic view on the FAA and government regulation to be fair, when you read the rationale for his bet.
I feel very torn writing this blog post, and thought hard about deleting it a couple times. But, in the end, I’ll just put it out in the ether… because this blog is little more than me thinking out loud, and this is what I’m been thinking about for most of the day.
Satoshi Nakamoto’s (Creator of Bitcoin) identity has been revealed in an article by Newsweek. The article feels very voyeuristic, as the reader takes on the role of the author, stalking Satoshi and trying to piece together circumstantial evidence in a painful, stretched way. Despite no clear proof that the author has correctly identified Satoshi… it feels quite conclusive when you look at all the small pieces and connections through a holistic lens.
I’m not linking to the article in this post because, in the end, I don’t like the ethical lines the author crossed. She acquired Satoshi’s email address through social hacking a model railroad retailer. She stalked Satoshi to the point he had to call the police. She seemingly mislead friends and family in interviews. Worst of all, as a result of this piece, I’m certain both Satoshi and the Newsweek author will need 24-hour protection (Satoshi needing protection from weirdo Bitcoin criminals that want access to his $400MM in private keys… and the author needing protection from libertarian Anonymous-esque weirdos that hate the methodology of her exposure of Satoshi… or just hate that the mystery is over).
But all that crap didn’t stop me from reading the article with perversely piqued interested. Cue self-loathing.
The real story here that has been rattling around my brain the most is the story of innovation at the fringes beyond normalcy. Chris Dixon said when he made the investment in Coinbase that Bitcoin, “is one of the 5 best computer science ideas from the last forty years.” I agree. And, the idea that this brilliance came largely from one guy, acting in isolation, motivated largely by paranoia and distaste for existing financial infrastructure, is just wild. In this light the profile of Satoshi is the profile of an artist, or better yet, a maker. And like all makers, he is quirky, weird, one of the crazy ones.
More so than any of the circumstantial facts provided by the author, this is what makes the Satoshi identification story so believable. He looks and feels like other edge people that have made dents in the universe. Watching the ripples from a sole savant’s splash build into global tidal waves is mesmerizing.
Facebook is potentially buying Titan Aerospace. The purpose of the acquisition is to help bring Internet connectivity to emerging markets by flying Internet-bearing drones repeatedly back and forth over developing nations. Facebook’s master plan regarding free Internet connective in third-world countries is called Internet.org. Similarly, Google is working on their own third-world-country-connectivity project, called Project Loon which would distribute Internet via hot air balloons.
These both are interesting initiatives. I’m in favor of anything that helps make the Internet more widely accessible. I applaud both Facebook and Google for their altruistic efforts, even if the primary goal is just to get more people to use Facebook and Google at the end of the day.
However, I don’t quite understand why emerging market Internet penetration isn’t just going to get better naturally?
Given global Internet adoption curves and nearly ubiquitous accessibility in developed nations, why do these projects assume it won’t be better over time in emerging markets through private business competition? Is there something fundamentally wrong or difficult about building a wireless Internet carrier that serves emerging markets? If so, I feel like that would be the more important issue to fix first. I’d love to hear from people that actually know a thing or two about wireless Internet infrastructure.
I first met Katie Bolin about a year and a half ago. One of our portfolio companies at Spark was actively recruiting her for an analytical role, and unfortunately in the end, lost out to Google in pulling her onboard. My colleague Alex was incredibly impressed with her in the process of helping the company recruit her, so he recommended I meet with her, despite the fact she was already committed to Google. “She’s someone we should keep close to,” I believe were his words. We met, and our conversation exceeded the high expectations Alex had set.
Fast forward to today: I’m thrilled to announce a new addition to the team at Spark Capital. Katie Bolin is joining Spark as an Associate. As a member of our investment team, Katie is going to be involved with portfolio companies as well as researching new markets, meeting new startups and evaluating new investment opportunities. She will be based in our Boston office.
Katie has spent much of her career focused on media planning analysis, across both Google and Digitas. And, in an interesting counter-balance Katie spent the first two years of her career in the education world, between Teach for America and tutoring. Katie’s currently on a mission to visit all 50 states (“doesn’t count if you don’t stay overnight”) and is an active Marathoner.
Katie’s arrival is mirrored in David Haber's departure. David was our most recent Associate at Spark, and he really broke the mold for how we think about this job. He went incredibly deep into the intersection of the internet and finance, sourced a few deals in his exploration of the space, and ultimately decided to leave to pursue his own startup, Bond Street. We owe a debt of gratitude to David for his contributions to Spark over the past few years, and we eagerly anticipate the big things to come as he builds Bond Street.
We took a long time to find someone for this role. It’s not easy to find someone with the passion for startups, intelligence, and chemistry that we look for as a member of our small team. We want to surround ourselves with the best people at Spark. I’m delighted to be working with Katie. Please join me in welcoming her, and Katie has posted her introduction on her blog.
“A Goldman spokesman, after being told that @GSElevator had been unmasked, said in a statement, “We are pleased to report that the official ban on talking in elevators will be lifted effective immediately.””—
They say, “The Internet Never Forgets.” Meaning: when you post something online, it will be there forever.
But it’s not really true.
Digital data rot is a real issue. I removed 2.5 years of blog posts from the web when I moved from Wordpress.org to Tumblr for blogging, and they are all pretty much lost for good (a deliberate decision on my part). I still have the Wordpress SQL table backed up, but I doubt I’ll ever open it.
Recently I’ve been exploring whether or not it would be possible to blog into the Bitcoin blockchain. There is a comments field in a transaction that can be used to write a note. These notes are most easily explored via blockchain.info. So essentially blockchain.info would become the blog host, but the underlying database would be the blockchain itself.
The more data a given transaction contains (measured in bits) the higher the fee required to process the transaction. This is a deliberate design decision to discourage people from junking up the blockchain with miscellaneous crap or overly lengthy transactions that involve too many transactions. So, blogging via the blockchain could get expensive. But perhaps the fees are worth the permanence…
It feels like the digital equivalent of writing in wet cement.
At a USV Annual Meeting of their Limited Partners (LPs) many years ago, Biz Stone asked a question during Q&A at the end of the meeting. He asked the partners (then Fred, Brad, and newly minted Albert), do you specifically seek to fund companies that also have a social mission in addition to a profit motive.
It’s not an easy question in front of a room full of LPs because the point of a VC fund is to maximize cash return for LPs and GPs alike. At the same time, you don’t want to just say “we maximize return” because that’s cold and callous. Brad nailed the question by saying (paraphrased): We invest in large networks of engaged users, and when a company lacks a social mission it is nearly impossible for the company to attract the interest of users. So, we don’t specifically seek out companies with a social mission. But if there isn’t a social mission, it’s very unlikely to be successful long term.
The capitalist in me feels this is exactly right, and that moment many years ago is a North Star for me in venture investing.
The lefty in me wonders what a venture firm would look like if it went a step further. What if a VC firm by its very definition sought out companies that had a clear social mission as a part of its long term goals. And the firm measured and regularly reported on the progress of this mission. KP (for better or for worse) tried this when they leaned heavily into cleantech for much of the last decade. As a priority, I’m sure the partners at that firm thought cleantech could be profitable investments, but I am also sure they wanted to save the world.
As a VC with a double priority of both profit motive and social consciousness, I feel an easy trap to fall into would be failing to identify that the next big thing starts out looking like a toy. In seeking socially beneficial investments, it would be easy to discard seed stage media companies as too trivial or not meaningful enough. How could 140 character about sandwich choices save the world? And that trap would have been lethal to returns in both profit and social impact over the past 4+ years: some of the most originally-toyish companies have gone on to make the largest impacts.
Upworthy is doing a wonderful job of taking the data insights from their large traffic and condensing them into easily consummable lessons on their blog. If you’re curious about how Upworthy measures their own success and how different traffic in their distribution engine performs, I high recommend following them on Tumblr. The lasttwo posts specifically about attention minutes are just great. Here’s a nice pull quote as a parting shot:
So what have we learned from Attention Minutes so far? Whether your content is short or long, whether your audience comes from Facebook or Google, whether lots of people have seen your content before or it’s brand new, quality is what counts.
Publish great stuff, and people will stick with it and share it with their friends. Hardly a revolutionary idea, but it’s good to confirm it with data.
“Edgeio is all about edge publishing. It is our belief that services that try to restrict how users create and consume information cannot ultimately be successful. Users own their data, and services exist not to silo that data, but rather to add value to it.”—
Mike Arrington co-founded Edgeio and launched the initial blog post on the company 8 years ago today. This quote is the pull quote from the Techmeme from 8 years ago. I can’t get the rest of the post because Edgeio’s blog has fallen victim to digital data rot.
Forget about Edgeio and all its star-founder-caused baggage… this quote is great on it’s own, and yet ended up being so wrong (from a pragmatic perspective) at the same time.
Who can disagree with the ethos that users should own their own data?
And yet all the juggernauts of the social web today largely disregard this ethos. They don’t disregard this ethos out of disagreement… I suspect most founders of the largest social web services would say they believe that users deserve to own their own data.
Instead, they disregard this ethos out of a prioritization for optimizing the end user experience, and end users would far rather have a beautiful, vertically-integrated, simple experience, often at the expense of things like data ownership.
If you ask any given user, I’m sure they’d say “Yes, I want to own my data.” and yet, they flock to Instagram (where the ToS gives Instagram unfettered republishing rights of user data), and leave behind more ethos-favorable startups like Flickr, and their complicated layer of respectful data rights management and proper attributions.
Edgeio didn’t fail on this one line (FAR from it), but it felt like a prescient echo from the past: a plea for idealism, never realized.
“I asked three tech executives – an American, a Czech and a Romanian, the following question: If I threw down five passports from “good” countries, like Germany or Singapore, would you care which one you picked up? No one would. Their business is on the Internet, everywhere and nowhere, and they have friends all over the world.”—Bitcoin and the Fictions of Money - NYTimes.com
A local Boston hospital wanted to find a way to encourage good health amongst staff doctors. They explored building a gym in the hospital, but the lack of budget and space proved prohibitive.
So, they took what budget they did have and bought the basic, clip-on model of fitbit for all the doctors instead. Then they put all the doctors on small teams and assigned captains to each team, and now the doctor teams are competing to see who can run the highest step count on their fitbits.
MDs are highly competitive people, so this form of team-based social motivation has proven effective thus far. If a team member forgets to clip on their fitbit for a day, the captain gets on their case about it right away. Social motivation is improving compliance.
I wonder how this approach would work inside schools, another competitive environment where social motivation is effective? Something worth exploring in the context of Michelle Obama’s cause to fight childhood obesity.
Sometimes the niche passion of geeks’ toy hobbies become the next big thing. Other times it never really materializes into anything. Here’s a few things I remember geeky people doing in various time spans for fun in their spare time. Caveat: obviously the while list is skewed by my own lens and is not objective truth (that’s kinda the point of blogging).
2005 and Prior: Render Quake in ASCII, using Dvorak layout, cobble together screen scraping poker bots, reverse engineer Street Fighter II hit boxes pixel perfect, “But can it run Doom?” on anything with a processor.
2006-7: Fun/mischief with Asterisk servers, torturing off-the-shelf routers using OpenWRT, “mashups” for the sake of creating web frankensteins, contribute an Arduino library, basking in Linus’s Git talk at Google, build a Caturday generator, check out Wikileaks.
2008-9: Art projects leveraging Mechanical Turkers as artists, Feltron report homages, Wikipedia metadata mining for fun/political-discourse, DIY weather balloons, build a MakerBot cupcake (used to take 40+ hours!),
2010: Challenging each other to learn Brainfuck, homebrew satillite, OK Cupid blog obsession, rebuilding stuff in Go that would be a terrible choice to build in Go just for fun.
There are some deliberate omissions here. For example, where’s crypto-currency? I’m trying to keep this list intellectually honest. I didn’t know anyone messing around with crypto-currencies until I started seeing articles pop up on Hacker News, which doesn’t feel “right” for this list. This list is about my observations (albeit, in hindsight). Same thing with quadcopter kits.
I’m also omitting 2011 - 2013 because it’s confusing. The Social Network was released and then suddenly neckbeard Linux kernel hackers were the new hotness… It’s hard for me to distinguish between fringe niche geek hobbies and investible companies in more recent years. That is probably a good thing… but, I’m not trying to make judgement on this fact, just stating my confusion.
For example, I’d definitely put “Building a Julia-based web server” in the 2012 - 2013 bucket… But at the same time, I could easily see that as a fundable startup. And then, Naveen’s “API of himself” also belongs in 2012-2013… But feels less like a startup. Hence, confusion.
This would be better as a Hackpad, but tumblr doesn’t play nice with those. If someone else wants to run with it, go for it.
Eric Jackson wrote a piece for Forbes where he asked a bunch of people what their “sleeper ideas” for 2014 are. I contributed the following (though, re-reading it now… i think this might not be realized in 2014, but they’re definitely trends to follow over the next 4-5 years).
1) Superpedestrian – Spark is an investor here so I’m biased, but I think this invention is going to lead to massive global change some day. Imagine a world where you could live 10-15 miles outside of a city, and commute to work on a bike in 20 minutes without breaking a sweat (literally). This ability will change how cities work, be disruptive to the auto industry, and affect optimal real estate locations. #investor
2) Proliferation of computers on/near your body - If you think about how many computers are in your home over the past two decades, the number has exploded. In the 80s, you might have had a Mac or PC and a game console, and that’s it. In the 90s, computers started getting embedded in phones, media players, TVs, alarm clocks, microwaves, etc… Nowadays, it’s an exception to see any device sold in the home that is not “smart” in some way. I think computing around our bodies will go through the same transition. In the beginning the only computer on your body was your cellphone. Now people are starting to add fitness quantified self wristband computers. Devices like Oculus and Myo will be two more human-attached computers (again, #investor disclosure). And in the next 5 years I think the number of computers on or near the body will rapidly proliferate.
3) Wireless Internet – It’s crazy that in this country we use our most valuable consumer-grade spectrum in order to broadcast over the air TV and Radio channels that could easily (and more efficiently) be delivered in IP packets over-the-top instead. I think we’ll see startups/ideas like Aereo challenge our assumptions that TV and Radio need over the air access, and instead all that spectrum will be shifted over to delivering better wireless internet for all.
I have been muddling through the same “good, but not great” sci-fi book for the past two months, and it’s putting a cramp on my reading habits. I need something quick, easy, and fast-paced to recharge me. Ideally something I could finish in 5 or less sittings. Fiction or Non-Fiction… just something that’s going to cruise along and make me love reading. Recommendations?
In the wake of 40 Million consumers credit card information stolen, I can’t help but wonder why any merchant needs my credit card information, ever.
My “card” (read: smartphone?) should be smart enough to simply authorize a one-time use token to a merchant to charge my card. The merchant keeps the token as receipt of the transaction, but if it’s stolen, it doesn’t matter, because it can’t be used for subsequent charges.
Given the financial burden the problem of stolen credit cards creates, there should be enough activation energy to move to a “security by design” approach in payments.
When people would ask me where is Spark within Boston, I used to joke sarcastically that Spark Capital was perfectly located (physically, IRL) as a venture firm because it’s where all the entrepreneurs are: the heart of Boston’s fashion/shopping district on Newbury St.
The line usually gets a laugh or two. Everyone knows that in Boston all the entrepreneurs are either in Kendall or the Seaport area. But now my joke is reality (sorta). Starting this month, there is retail presences for 4 dot-com businesses within a one block radius of our offices: Warby Parker, Bonobos, MakerBot, and Gemvara.
Some dot-coms are just doing temporary holiday popup shops. Others are year-round operations. But in all cases, they are playing into the showroom-ification of Brick and Mortar retail, and it’s wild to watch the transition happen right on Spark’s front steps.
When it gets down to it — talking trade balances here — once we’ve brain-drained all our technology into other countries, once things have evened out, they’re making cars in Bolivia and microwave ovens in Tadzhikistan and selling them here — once our edge in natural resources has been made irrelevant by giant Hong Kong ships and dirigibles that can ship North Dakota all the way to New Zealand for a nickel — once the Invisible Hand has taken away all those historical inequities and smeared them out into a broad global layer of what a Pakistani brickmaker would consider to be prosperity — y’know what? There’s only four things we do better than anyone else:
high-speed pizza delivery
- Neal Stephenson (Snow Crash)
This quote is deliberately over-the-top (like everything Stephenson) and playfully blunt, and always sticks in my memory when I think about “world is flat”-style globalization.
IRL (not in the world of Snow Crash) We owe #3 on this list to Apple (really to Steve Jobs).
We (the US) were thought leaders in software for 3+ decades… but until the iPhone launched we were loosing our edge in mobile. Other countries were faster to adopt text messaging, faster to pick up on mobile as a computing platform, largely powered by Nokia and Blackberry — not US companies. There were large swaths of people in other countries that completely skipped the PC era of computing and when straight to mobile as their on-road to the internet. The US was behind.
…and then the iPhone came. It was invented and designed in America, and the thought leadership it generated help solidify a lead in software innovation we had started to take for granted.
Can Bill de Blasio pass a law that forbids deep packet inspection and filtering based on network content if you want to sell online products and services to NYC residents?
Basically, can we create a free and open internet for just New Yorkers?
This is a wonderful question. My blog post for the day will be answering Ben here.
On the one hand, I love the idea of NYC regulating internet service providers because a free and open internet is essential. Discriminating traffic based on its content would destroy the internet. I am not being sensational. Comcast could create a “fast lane” internet that only Google, Yahoo, Microsoft, Facebook and Netflix could afford to pay. Speed is the most important feature online, and so startups could never viably compete with the giants that can afford “fast lane” access. The wonderfully democratizing property of the internet that allows 2 guys in their basement with a case of red bull and a flat of ramen to viably compete with Google would be dead. It would be the end of an era of wildly exciting emergent innovation.
On the other hand, the idea that local or national governments can make any decisions at all that affect how internet technology can and can’t be implemented is terrible. Every law, however well-intentioned it might be, is a restriction on (internet) freedom, by definition. Local internet regulation would also make it more complicated to serve NYC-based customers because business logic would now be necessary in the stack to make sure that internet service complies with all subscribers’ local laws.
Ideally, internet service providers would simply recognize that the internet is so interesting because of ubiquitous access of all traffic, regardless of origin, and they would not be dumb enough to try to squeeze a couple extra coins out of providing service, when the potential down side is so grave. Because I don’t trust service providers to be smart enough to take this long view, I feel that NYC regulation protecting a free and open internet is a great idea, and I support it.
Lastly, regarding whether or not NYC has the *RIGHT* to regulate the internet locally and forbid deep packet inspection… for me that answer is unequivocally “Yes.” That’s because internet service providers leverage public resources like wireless spectrum, cables in streets and sewers, and other public commons, and as such, governments at their best should help mitigate the tragedy of the commons.
I wonder… could a person phantom trade private company stock? Here’s my thought experiment to answer this question.
To start, every trade needs a buyer and a seller. We’ll call our buyer Alice and our seller Bob. (because I secretly wish I was a badass cryto-expert).
In theory, Alice and Bob could execute a contract in place of physical shares of stock. The contract would behave like phantom stock that’s pegged to the value of a company.
What would the terms of a trade be between Alice and Bob?
What company’s stock is to be traded: Let’s say it’s Yoyodyne, Inc.
What is the agreed upon current valuation of the private company: let’s say… [insert dramatic pause] $1 Billion.
How much of the company is to be bought or sold: 0.05%. (It has to be a % of the fully diluted company instead of an arbitrary share number. Because shares could change over time.)
What’s the dollar value bought/sold: This is just a calculation: $1B * 0.05% = $500,000
When will the trade be initiated: how about tomorrow.
When will the transaction be finished: at the soonest of the following dates: A) let’s say a few days after the IPO so the price settles out a bit, B) the company is acquired at a known exit price*, or C) the company declares bankruptcy.
Is this contract transferrable / resellable: Yes.
*if the exit price is unknown, then Bob and Alice could get an independent third-party expert to assess what they think is the most likely transaction price.
Ok, so those are the terms… but how does it all begin?
Alice pays Bob $500,000 and the contract is simultaneously executed.
Since Bob is our seller, and he very likely doesn’t own stock in Yoyodyne today, he’s essentially taking payment from Alice now in exchange for the promise to deliver shares of Yoyodyne to Alice a couple days after the IPO when he can freely buy the stock on the open market. The IPO could be in a week, a month, a year, ten years… it doesn’t matter.
Bob doesn’t HAVE to wait until the IPO to buy the stock if he can beg, borrow, or steal his way into getting a Yoyodyne investor or employee to sell him the stock in the interim period… but by waiting for the IPO, Bob will be able to get you the stock eventually, if it’s available to the public.
OK, the deal is on. Now how does it end?
If Yoyodyne does IPO, how many shares of Yoyodyne does Bob owe Alice? the answer would look as follows: Total number of fully diluted shares outstanding after IPO * 0.05% * ( 1 - The delta in shares from the start of Alice and Bob’s contract / total number of fully diluted shares oustanding when the contract started).
That line was a little messy cause of all the words… it’s a formula of the following form: # Shares to buy = T * P * (1 - D/T’).
That’s a little complicated, I know, but in plain English: it just means that Bob needs to give to Alice the same % of the company that Alice bought originally, minus any dilution that Alice’s phantom equity suffered from any issuance of stock over the years. Ok? Great. I could write a whole other post on just this formula.
You need to have a bunch of knowledge about the capitalization of Yoyodyne over time in order to fill in all those variables, but if the company has IPO’d then much of this information will be in the S-1 statement, so it’s probably doable.
Great, but companies rarely IPO, so what happens next?
Since very few companies ever IPO, 98 out of 100 times, Bob will pocket Alice’s money and then either A) pay Alice some multiple of the money paid to him in an exit for Yoyodyne or B) Yoyodyne will go out of business and Bob will simply keep Alice’s money.
If Yoyodyne exits without raising any additional money, the multiple in scenario (A) would be calculated simply by: multiple = exit price / initial valuation. So if Yoyodyne sold for… [insert even more dramatic pause] $3 Billion, then Bob would owe Alice:
$3B/$1B * $500,000 = $1,500,000.
If Yoyodyne does raise more money before it exits, then we need to revisit our fun dilution-weighted formula I introduced in the IPO section above. Lets say Yoyodyne sells for $3 billion dollars, but they raised a $200MM round of equity at a $2B valuation in between the start of Alice and Bob’s contract and the exit date. Then Bob would own Alice:
Things get really messy if Yoyodyne issues a dividend unfortunately. Luckily dividends are pretty rare in private venture-backed startup companies. But if Yoyodyne does issue a dividend while privately-held, then A) Alice and Bob might not know it happened and B) Bob should be forced to pay Alice her pro-rata portion of the dividend issued (which is 0.05% * the total dividend payment). Enforcement of this step would be tough due to lack of knowledge, but dividends are rare enough that we can just gloss over this point. I’ve heard VCs with 20+ years of experience say they’ve never seen a dividend in any of their companies.
Wait, but holding on to private phantom stock all the way until IPO sounds way too long for me.
Well, Alice and Bob should only engage in this trade if they can handle the length of time required to get to an outcome. But as a remedy to this potentially very long length, I think these contract should be transferable or resellable.
One day after Alice and Bob sign the deal, Alice now holds a contract in which Bob owes her ~$500,000 of equity value in Yoyodyne. She could sell the contract to Chuck for $550,000 the next day and turn a quick 10% profit if Chuck is really bullish on Yoyodyne and can’t find a deal as good as the one that Alice made with Bob on his own.
It’s important to note that if Alice sells the contract to Chuck for $550,000, that does not change the dollar value of the contract. All those calculations about what Bob owes to his counter-party in various scenarios still uses the original $500,000 number. Chuck would only pay a premium to Alice for this contract if he was really bullish that the value of Yoyodyne was going to substantially increase beyond $1.1B (which is the implied valuation of Yoyodyne now that Chuck bought Alice’s contract for a 10% premium).
I’m still reading this post, please go on.
I’m impressed with your stamina to endure my bad humor and back-of-the-envelope math.
It’s worth pointing out the boundaries of this trade. Bob has capped upside (100% of the sale price: $500,000) and unlimited downside (theoretically, infinity dollars) in this trade; whereas, Alice has capped downside and unlimited upside. In short: naked shorting of stocks is scary.
Because Alice owns phantom stock and not actual stock, she is taking on two risks where VCs only take one risk. The risk that VCs and Alice share is the risk that Yoyodyne will be a failed investment. Alice is taking a second risk that Bob can remain solvent to pay his contract obligation in outsized scenarios. If Yoyodyne IPOs at a $100B valuation, does Bob have the $50MM to make good on his deal? Doubtful…
I’m sure the SEC would have something to say about all this… but in a contract between two consenting adults, I’m not sure why this wouldn’t be legal. I don’t think it would be be advisable (especially for Bob), but advisable and legal are different things. Hey readers (if you made it this far), is there some big gaping hole in my thought experiment?
Dick Costolo (now famously known as the CEO of Twitter) wrote a blog for a year back in ‘07-‘08 called Ask the Wizard. People would email in startup-related questions and Dick would blog his answers. He was then the CEO of FeedBurner, and if you read through the posts, it’s not surprising to learn he is also a recovering stand-up comic.
I was delighted today to find that Dick’s blog is still up. I’m sure he doesn’t answer the emails on it anymore, but the archives are worth a read.
One of the more formative things I did in high school was join the school play. I did a few of them, but one in particular hit me like a ton of bricks. I was the Fire Chief in Ionesco’s The Bald Soprano, a one-act absurdist play.
The Fire Chief has a nonsensical monologue called “The Headcold” (P. 32) that runs on for a couple minutes solo. There are a few cues for interruption along the way, so flubbing lines can create big gaps in the script. It’s a real challenge to nail correctly, especially with an absurdist plot with no logical progression and a British accent, and I have never had a particularly good memory.
In every rehearsal I blew the monologue every time. My co-actors and director were disappointed but understanding. I grinded on this monologue like crazy to drive it into my head, but a fear of screwing up made my nerves jump forward in my mind, and then I’d botch the monologue each successive night. Rehearsal was a safe place to fail because there was no audience, but nonetheless, it lead to my own internal mounting disappointment and increasing fear of failure in front of a live audience.
The day before opening night, we did an “advertisement” for the play by performing in front of the entire school at assembly in the morning. I’m sure the director deliberately picked the scene containing my monologue, so it was my first live run.
I failed. I got about half way through the monologue, forgot the next memory block, paused for 5+ seconds of awkward silence frozen on stage, and then inserted a line that I knew was towards the end of my monologue that would cue the next interjections from my co-actors and keep the play moving forward.
While I was a little embarrassed in talking to my friends after the assembly, failing publicly was freeing. Most students didn’t notice the failure (because they didn’t know the script, and its an absurdist plot anyway), and those that did suspect anything was wrong were more impressed by what worked right than what went wrong.
I had built up public failure in my mind into such a big deal, that once I actually failed in public, I was liberated by the experience. I realized it was bearable… not good, but also not the monster I thought it would be.
I think you can predict the end of this story. On all 4 nights the play ran, I nailed the monologue perfectly, now freed from the distraction of failure’s specter.
It was a formative event because the experience is transferable to all angles of my life. It helps me take risks I would never otherwise take. I’ve never used this story with any of the companies I work with (it’s too personal and random for a board mtg or business conversation), but I am often reminded of it when I see Founders learn similar lessons from small failures, and how they later shape larger successes with the experience of failure.