Thursday, September 18, 2014

Secondary Technologies and “Why Now?”

After spending a good amount of time in VC, its only natural that you’ll hear the same idea pitched again years later.  Or, in its extreme, you’ll hear an idea pitched in a market that is littered with the cracked hulls of failed startups in the past.  When this happens, the skeptical mind asks “Why Now?” Why will this work today when so many others have failed in the past?

Sometimes the answer is as simple as “We are better.” Team matters… at the earliest stage of investing I’d argue it matters above all else.  And so as an investor you have to decide whether you think this is the team to crack the code in a historically difficult market.

But sometimes, you can come up with an answer to “Why Now?” that’s far more rational and intellectually satisfying. In one of my favorite startup talks ever, Jawad Karim (the third co-founder of YouTube that people usually forget to include in crediting YouTube’s genesis story) explains the “Why Now?” of YouTube quite rationally.  He uses an argument around secondary technology and how they were the necessary foundation for YouTube’s success where previously so many other companies had failed.  The talk is long, so I’ve cued it up in YouTube directly to the part where he explains “Why Now?” and secondary technologies.  If you have more time, I *highly* recommend you watch the whole video because it contains countless gems of internet lore and nostalgia, along with a good analysis of the commonalities of hypergrowth companies.

Also, Liz Gannes did a tl;dr of the video back in 2006, which is a nice summary… though her link to the video in her article is broken so use mine instead.

This talk is 8 years old so I consider this my #tbt for the day even if I wasn’t there.

Friday, September 12, 2014
There are schemes that don’t respect and honor the payment networks,” said James Anderson, the senior vice president for mobile product development at MasterCard. “We want to invest in programs that respect our role in the ecosystem.

A quote from an NYT article on Apple Pay.

"Respect and Honor…" I will remember that phrase for a long time. It’s a death knell.

Thursday, September 11, 2014

Q: So, unrelated question, but I’m just curious—- What was your reaction to THE SOCIAL NETWORK movie?

A:The zero-sum world it portrayed has nothing in common with the Silicon Valley I know, but I suspect it’s a pretty accurate portrayal of the dysfunctional relationships that dominate Hollywood.

from Peter Thiel’s AMA on Reddit.

That’s the single most unintuitive thing about startups: they are almost never zero-sum. Which means you have to stop thinking about competition and instead focus internally on your own strengths and weaknesses. It’s unlike nearly all games, simulations, and learning lessons we all play growing up.

Tuesday, September 9, 2014

"When Are We Gonna Have To Use This?"

Upworthy has a beautiful video featuring an algebra class working together to on a sticky math question. It’s inspiring to watch; it features the best aspects of problem solving and challenging yourself. My favorite part is the teacher’s refutation to the question: “When am I ever going to use this?”

Q: Why do you do this exercise with your students?

"Every year I get the question in class, ‘When are we gonna have to use this?’ And my answer to that question is, ‘You’re not.’ That’s not the point. By doing math, we are carving neural pathways that otherwise wouldn’t have been there. Grappling with problems like this makes us better problem solvers, and by extension, better human beings.

This response reminded me one of my favorite blogs post of the past few years, written by my friend Ben Stein. He wrote a refutation to Jeff Atwood plea to stop encouraging everyone to become programmers.

Jeff’s point was: very few people who learn to program become great programmers, and why does the world need more mediocre programmers? Just like not everyone needs to learn to be a plumber, not everyone needs to learn to program.

Ben’s response was terrific. It’s all great, but the money paragraph is:

Do I want my son to become a computer programmer? I don’t care. Up to him. Do I want him to understand how to think critically and logically and in a structured & methodical way when approaching problems? Absolutely. And computer programming teaches these skills better than anything else I’ve ever done.

Similarly, I recently finished a Coursera course on Cryptography. Outside of this class, I will never again implement a crypto cipher, or even use crypto library code in an app I write. No one will ever rely on me to handle their encryption/decryption matters. Like plumbing, it’s nearly always cleanly abstracted away from me. But it was so worth my time because of the way in which it challenged me an expanded my thinking.  Like after reading a good book, it changed the way I think about a set of problems, and by extension, makes me a better human being.

Sunday, August 17, 2014
The Challenge in VC
Over four years ago I wrote this old post about the spawn of craigslist. It hit a nerve in the zeitgeist and tends to go re-viral about once a year. That happened again this morning as someone emailed me a usage of this image in a post calling for YouTube to be similarly fragmented.
Looking at the image this morning, I’m struck by the arc of the companies on this list.  Some of them have IPO’d. Others are out of business. If you could have made investments in all of these companies back in 2010, you’d have a portfolio of 34 companies with roughly 6-8 billion dollar outcomes, which would likely be one of the best venture funds of the decade.
The lesson here is that venture capital is less about identifying great investment opportunities and is far more about getting access to those opportunities.  Knowing that this handful of companies would become interesting in 2010 is not what makes a great VC. It’s convincing the entrepreneurs in all these companies to partner with you on their journey; that’s the battle.

The Challenge in VC

Over four years ago I wrote this old post about the spawn of craigslist. It hit a nerve in the zeitgeist and tends to go re-viral about once a year. That happened again this morning as someone emailed me a usage of this image in a post calling for YouTube to be similarly fragmented.

Looking at the image this morning, I’m struck by the arc of the companies on this list.  Some of them have IPO’d. Others are out of business. If you could have made investments in all of these companies back in 2010, you’d have a portfolio of 34 companies with roughly 6-8 billion dollar outcomes, which would likely be one of the best venture funds of the decade.

The lesson here is that venture capital is less about identifying great investment opportunities and is far more about getting access to those opportunities.  Knowing that this handful of companies would become interesting in 2010 is not what makes a great VC. It’s convincing the entrepreneurs in all these companies to partner with you on their journey; that’s the battle.

Friday, August 15, 2014
When you hear someone say, “I was using the Google yesterday, and I found this great recipe.” It rings like the speaker is a novice or trailing adopter.
When you hear someone say, “I was using the Facebook yesterday, and I saw this cute kitten photo.” I have this conflicting internal monologue: “Wait, did they say it wrong, or are they being retro?”

When you hear someone say, “I was using the Google yesterday, and I found this great recipe.” It rings like the speaker is a novice or trailing adopter.

When you hear someone say, “I was using the Facebook yesterday, and I saw this cute kitten photo.” I have this conflicting internal monologue: “Wait, did they say it wrong, or are they being retro?”

Wednesday, August 13, 2014
Graffiti at 11 Spring Street
I use Graffiti frequently to explain thought leadership to entrepreneurs.
I tell a simple story: at 11 Spring St (depicted above), the Wooster Collective created an a three-day expo of graffiti featuring some of the best graffiti artists in the world. How was that location chosen? Well, for many years it had been a primer location to tag, and it was about to be torn down to build condos, so the expo was a celebration of the many years in which this wall had served as a graffiti nexus point.
If you were a graffiti artist, tagging the wall across the street was not good enough, it was this one building at 11 Spring that was the wall that mattered. This is thought leadership. Be the wall that matters. This phenomenon describes the success of Stack Overflow, Wikipedia, and other crowdsourced resources of top quality. There are countless places to ask and answer tech Q&A, and the internet is littered with forks/clones of Wikipedia… but, the key difference is these two properties have thought leadership. They are the walls that matter.
(Fred had a concise blog post this morning expressing his interest in Graffiti.  I left a comment that turned into a blog post, so this post is a cross-post of my comment there.)

Graffiti at 11 Spring Street

I use Graffiti frequently to explain thought leadership to entrepreneurs.

I tell a simple story: at 11 Spring St (depicted above), the Wooster Collective created an a three-day expo of graffiti featuring some of the best graffiti artists in the world. How was that location chosen? Well, for many years it had been a primer location to tag, and it was about to be torn down to build condos, so the expo was a celebration of the many years in which this wall had served as a graffiti nexus point.

If you were a graffiti artist, tagging the wall across the street was not good enough, it was this one building at 11 Spring that was the wall that mattered. This is thought leadership. Be the wall that matters. This phenomenon describes the success of Stack Overflow, Wikipedia, and other crowdsourced resources of top quality. There are countless places to ask and answer tech Q&A, and the internet is littered with forks/clones of Wikipedia… but, the key difference is these two properties have thought leadership. They are the walls that matter.

(Fred had a concise blog post this morning expressing his interest in Graffiti.  I left a comment that turned into a blog post, so this post is a cross-post of my comment there.)

Friday, August 1, 2014

Value of the Stellar Currency

Stellar is fascinating.  I’ve spent much of my day today learning everything I can about it.  

I’m curious about what the total value of the currency is worth at this beta beginning.  There’s a couple answers:

1) Stripe made a $3,000,000 loan to Stellar to fund initial operations.  Stellar repaid this loan using 2% of all stellars*.  This means $3MM / 2% = $150MM stellar market cap.

2) On reddit people are offering the following conversion rates:

- 4000 stellars for 1 hr of full-stack dev consulting work.  1 hr of a dev’s time =~ $100. So, that’s a 40 stellar : $1 ratio. There are 100 Billion stellars in existence. Which implies a stellar market cap of: $2.5B.

- Paying $2 for 5000 stellar. So that’s a 2500 stellar : $1 ratio. Which implies a stellar market cap of: $40MM.

Both of those are only offered rates.  Nothing has actually transacted at those prices as far as I can tell. So, they represent the bid side of the bid/ask spread. 

3) Stellar.org is giving away 19% of all stellars to owners of Bitcoin. This ratio implies a value of 1450 stellar : 1 BTC, which is a 2.4 stellar : $1 ratio (using today’s BTC price of $601.97). Which implies a stellar market cap of: $41.5B

This last # is pretty fishy because you don’t have to actually exchange your BTC to get your 1450 stellars… it’s just a gift for being an early supporter of bitcoin.  So, it’s not really a conversion rate.

In conclusion, what is a stellar actually worth? Whatever someone will pay for it. Which of these valuations holds the most veracity, I guess the $150MM number… although $3MM is really just option value to Stripe, so it’s not perfect. The best valuation metric would be to know the salaries being paid in Stellar, compared to market rate alternatives.

——

* lowercase = currency unit.  Uppercase = the non-profit company.

Monday, July 28, 2014

Blockchain Origins

I’ve been taking the Cryptography class on Coursera recently, taught by Dan Boneh.  It’s terrific… just difficult enough to be a fulfilling challenge, but easy enough that I haven’t churned (yet).

We recently studied a practical application of the Cipher Block encryption methodology called Cipher Block Chaining (CBC).  Here’s a diagram from Quora that articulates how CBC works:

It immediately reminded me of the bitcoin blockchain diagram from Santoshi’s original bitcoin white paper:

The key relation in both images that the output cipher from each round of encryption is fed into the input of the encryption of the subsequent round, to create a chain. It’s very elegant. I never knew the origin of this structure before… and I’m sure its roots go back beyond CBC.  

I love moments of abstraction connection like this… this is why I take Coursera classes. They’re very academic, which doesn’t seem useful at first, but I find they make me look at my day-to-day interactions through a new lens, which spurs serendipitous moments of creative connections I would otherwise miss.