Our First Unicorn

Today UIPath announced its new round of funding taking the company to a post-money valuation of $1.1b (The news had leaked on Friday and Techcrunch had already run the story).  I actually dislike the unicorn fetish and find the obsession with it meaningless, but I could not resist the headline of this blog post.

What is great about the story at UIPath is that it’s a validation of a key thesis of ours at the Earlybird Digital East Fund:

Innovation is not under the monopoly of Silicon Valley and bright engineers from underserved venture capital markets will continue to build great companies.  There is an attractive VC opportunity in focusing on regions with a strong tech talent base.

Congratulations to everyone involved, starting with Daniel and Marius, my partner Dan Lupu, who was the first to spot the talent in the founding team, Ondrej, Reshma, and Luciana, who have been on this fantastic journey.


I am a product of a rationalist education. After my schooling, my career progressed in a way that made me more of a disciple of the rationalist cult.  As a strategy consultant, we were brought in to be analytical, usually getting rewarded for overly complex models and frameworks that our clients used to make decisions (or, more often, validate decisions they would like to make).

My rational mind was also in the driver’s seat when I launched my first startup in 1999.  It was the first time I was facing critical decisions about the strategy and tactics around a company, and I found it easy to build analytical frameworks for those decisions.

1999 was a horrible year to start a digital business.  From the peak of the dot-com bubble, we hit the crash head-on.  The next few years were full of anxiety, tough choices and blood, sweat & tears.  It was then that I realized that in a lot of the decisions we were making as a team, my co-founders and I were also relying quite a bit on our intuitions.

Following my exit, I returned to my hometown of Istanbul and started to get to know the startup landscape there.  I found myself falling back into my analytical habits.  Perhaps, the lack of familiarity made me suspicious of my intuitions.

Now that it’s been 12 years since I have been back, I find that my intuition is playing a larger role in how I make decisions.  As a VC, we spend a lot of effort looking at data and building frameworks around sectors, markets, and companies.  However, I keep getting amazed how well my intuitions generally guide me.  A lot of my regrets were results of me ignoring my intuitions.  One of my 2018 resolutions is to focus more keenly on that inner voice.

This was inspired by a post on the great Farnam Street blog.

Digital Turkey

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Turkey is at the core of both our investment strategy and geography.  Naturally, we have quite strong opinions on the market, both positive and negative, formed by the process of investing into dozens of companies in the region, as well as having seen the vast majority of promising startups.

However, from time to time, we come across statistics that blow us away.  Here is one from a recent Visa study on digital payments:

Nine in ten (91%) Turkish respondents have used a mobile device to make payments, and nearly three quarters (74%) say they use their mobile device for payments on a regular basis compared with the European average of 54%

We know and like Turkey’s young, digitally savvy population, but this number was a surprise to even us.

Drama in VC Land

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Since the dot-com boom in the late 90s, the venture capital industry has become a popular pop culture topic.  The mythology around young executives getting to place bets on the future of technology with other people’s money has a certain appeal.  Add to that the irrational exuberance of the 90s, the stories of overnight fortunes and the drama of the crash that followed, and the public interest in the industry was firmly cemented.

Since then, the fascination has only grown.  We’ve had the Hollywood take on how tech innovation and VC works in The Social Network.  VCs such as Peter Thiel, Jim Breyer, Fred Wilson, Marc Andreessen and Bill Gurley have become household names.  Charismatic founders like Steve Jobs, Elon Musk, Mark Zuckerberg, Reed Hastings, Jeff Bezos, Travis Kalanick and Evan Spiegel are now celebrities.

The price our industry pays for this popularity is what we are now witnessing, with scandals like those at Rothenberg Ventures, Binary Capital and 500 Startups,  and the fight on the board at Uber becoming front page news.  This public drama has its toll on VC firms and startups involved.

I’ve been thinking that what we see in Trump’s White House must be making the writers’ job at House of Cards very difficult.  Now I am thinking the same about the writers at Silicon Valley.


Cities are What Counts in Emerging Markets

Germany has 4 cities with a population over 1 million.  China has 160! (Probably some metro area vs. city limits debate here, but that’s not the point.)  Look at the top 10 cities by Facebook usage.

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No London, NY or Paris. All emerging markets (despite missing China).

The amount of aggregate attention in large cities in emerging markets is an important factor in many consumer internet businesses.  If you look at internet business models that require local execution, you’ll see that the geography you have to consider is more “city-denominated” rather than “country-denominated”.  It is not a surprise that the food delivery powerhouse YemekSepeti.com (the largest component of $5bn market cap Delivery Hero) came from Istanbul.  When you evaluate local commerce businesses such as Yelp or Groupon, looking at it city by city is more meaningful than looking at it country by country.


Forecasting Out

In the business of financing technology businesses, one of the most tricky areas is how you treat the forecasts in the pitch decks.  Typically, you are taking a very limited, usually heavily biased, data set and using it to provide a baseline for forecasting a much longer trajectory.  If you are familiar with probability, you’ll know that while this is possible, the result will have a very low confidence level.  Therefore, you need to discount these forecast very, very heavily.

I was reminded of this when I read the Bloomberg New Energy Finance press release on Electric Vehicle sales forecasts.  The headline is that Electric Vehicles will Accelerate to 54% of New Car Sales by 2040.  I a sure there’s sound methodology behind this work, and the resulting graph looks great:

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Now, please consider that Tesla Roadster, the first street-legal, serially produced EV with a viable range was introduced in 2008. When you are taking a 1% market share figure and growing it to 54% over 25 years, a tiny variance in that slope can end up with a vastly different figure.

As a VC, you come across enough forecasts to intuitively discount the out years.  This is not really a science but more of a sense.  However, it can make a massive difference in the eventual exit size and how much capital the business may end up consuming.

Bezos Day 1 Letter

bezosIf you are a founder, please read Jeff Bezos’s letter to Amazon shareholders.  He does a great job of distilling why it’s so difficult to build a great company.

What he describes as a Day 2 company would include the majority of businesses around us, including many market leaders.  He describes Day 2 as sometimes taking decades – extreme slow motion.

It is very, very difficult to stay in Day 1 mode.  I am not even sure Amazon’s succeeding there, as it’s also tough to tell.

However, customer obsession is one way you can try to stay in Day 1 mode, and avoiding proxies and celebratory narratives will help you along the way. However, it won’t help you feel good.

Entrepreneurship rarely feels good.