Technology Hazards

pow

We usually think about technologic developments making us more vulnerable to threats because of blind spots they may create.  As a new ATM user, you had to make sure your PIN number does not get compromised.  If you are a Tesla driver, you need to think about securing your car so that it does not get hacked by an intruder.  This is well understood.

There is another type of hazard that is caused by technology that now allows you to access areas that you previously were not able to venture into.  One needs to be cautious about these, because they may be less visible.

The reason I am thinking of this is that I am going skiing this weekend and just received the news of two large avalanches in the area.  The number of avalanche-related skiing accidents is rising and this is generally attributed to improvements in ski technology that makes it easier for inexperienced skiers to venture into backcountry terrain that previously required a higher level of skiing ability and experience.

To end on a positive note, it’s been dumping in the French Alps and there will be excellent powder.  Enjoy it carefully please.

Microchunking of Apps

apps.jpg

I find myself thinking these days about how the app universe will evolve.  There are quite a few ideas and analyses on some trends that hint at what’s ahead of us:

The common thread through these is the reduction of applications to their smallest viable (and functional) form, while remaining accessible through multiple platforms, including devices and social media, and maintaining their ability for transactions.  In essence, we are going through “microchunking” of applications, to borrow Fred Wilson’s term referring to the content revolution we saw with the Web 2.0 wave last decade.

I see two areas to watch as this trend develops.  One is the need for flexible SW development frameworks.  I suspect these will be open source. But there will be support and services opportunities around them that should allow for creation of sizeable businesses.

The second is a similar opportunity on the operations side. Think of it as a set of standards providing context and interoperability for microchunked apps.  As applied to the need around human transport, an example may be standards for my mobile device to signal that :

  1. I am at point A.
  2. I need to get to point B.
  3. I am willing to pay X for this service.

This signal can then get acquired and processed by an open marketplace, and matched with the supply side signals from providers, whether they are taxis, Uber drivers, etc.

I am keenly waiting for Open Bazaar to see how it fares in the wild.

VC Platforms

Platform

Mark Suster has a good post on VC platforms and their approach at Upfront Ventures.  It reminded me that this was a topic I’d had in mind for this blog.

Earlybird is a European VC firm with broad coverage.  We have separate teams of Partners managing our ICT investments in Western Europe and Eastern Europe, as well as a team focused on pan-European health-tech investments.  I am a Partner on our Turkey & CEE team, based in Istanbul, where we have four Partners and two Associates in our investment team, and a Finance Manager and Assistant on the administrative side. Each of our teams are structured similarly.

As you can see, we have not taken the platform approach.  The reason for this is the breadth of our investment strategy. In our portfolio, we have:

In other words, we have a very diverse set of companies we help grow, with very different needs.  If we were to bring on a recruiting Partner, she would be hard-pressed to be an expert in both iOS developer talent and health-tech marketing.  We feel we would fall short in supporting our companies with in-house teams.

Instead, we look to establish privileged relationships with the most competent service providers in each of our focus areas and geographies, and connect them with our portfolio, as needed.  And, we feel that it’s the Partners’ job to procure and facilitate these referrals and guide our Founders through the process.

Intentions and Context

Girl With Mobile Smart Phone

Ben Evans penned his best post of the year last week, which has kept me thinking on it since.  One problem I have with it is its title, though.  I have trouble distinguishing between mobile and the web at this point.  What we call phones refer to a fraction of the utility I receive from mine, and any business that creates its value on the “connected world” (my preferred noun for what includes mobile, web, the internet, etc.) needs to think of these platforms in a unified manner.

The topic is a vast one.  It touches on

  • programming frameworks
  • the future of native apps vs. evolved browsers
  • whether we will continue to rely on legacy input/output interfaces such as mice, keyboards, touch screens, LCD displays, etc.
  • how we navigate and ultimately get to where we need in the massive world of data and information.

I am not smart enough to wrap my mind around what we have coming. I do, however, notice that the final point on the list above is exciting a lot of entrepreneurs.  It’s the quest for the new search paradigm. Google’s Page Rank was a great benchmark, in its speed and accuracy, for our expectations on how our information needs are met.

For the next generation of solutions, Fred Wilson is proposing that we rely on contextual runtimes.  I like his examples:

If I’m building a lunchtime meal delivery service for tech startups, that’s a Slack bot.

If I’m building a ridesharing service, that’s going to run in Google Maps and Apple Maps.

If I’m building a “how do I look” fashion advisor service, that’s going to run in Siri or Google Now.

If I’m building an “NBA dashboard app”, that is mostly going to run on the mobile notifications rails.

I find myself thinking about where context will reside, whether on the cloud or the mobile OS, and how much will be implicit versus explicit.  Essentially, we are looking for better ways to sniff for intentions, the way Google persuaded us to type it into a search box.

VCs and NDAs

Top_secret

From time to time, we come across investment opportunities where we are asked to sign a Non-Disclosure Agreement.  After quite a bit of debate internally, we have decided against signing NDAs, unless we have a signed term sheet and are entering the Due Diligence process.

Why not?

  1. We receive about 1,000 pitches a year and engage with about 400 of these ventures.  Inevitably, many businesses are overlapping and adjacent.  Trying to structurally track and separate information and NDAs relating to these would be a nightmare.
  2. An NDA is a legal document.  I would need to read and understand each one, and we’d need to run them by our lawyers, which is expensive and time consuming.

As VCs, we live and die by our reputations.  We take the confidentiality requests of companies that talk to us very seriously, and go to lengths to disclose conflicts and respect the sensitivity of the information we receive from entrepreneurs.  However, we can no un-know what we have heard.  So, when you share information with us, please keep in mind that we see many companies, probably including your competitors.

Essentially you need to decide on a trade-off: share with us the level of detail you are comfortable sharing, but also know that our decision whether to move on to the next level of conversation with you will be based on that level.

Brad Feld and Mark Suster have longer thoughts on this topic that would be worth a read.

Square IPO

squareSo Square started trading publicly today.  The tech world has been awash with schadenfreude and I-told-you-so’s, since they priced the IPO at $9 per share, below the Series E price at $15.  I have not studied the filing, but I am assuming there are preferences that protect the late investors in the case of a down-priced liquidity event.  That’s how it’s supposed to work: fantastic returns to the early investors (Series A investors are getting like a 50X return), and as the risk was reduced over the company’s development, lower returns to later investors.  The latest investors just get their money back, if they sell now.

What amazes me is that people are ignoring the incredible success of a company that has created about $2.5b of value for its shareholders in just 6 years.  Here’s the first piece of news about the company I could find.

The story is amazing. Right under the noses of payments giants like Visa, Mastercard, Amex, First Data and PayPal, Dorsey was able to build a product that was welcomed by the SMEs, and a company that is now able to provide returns to its backers.  Congratulations to all involved.

The New Search Wars

System-search.svgOne of the factors that has shaped the connected world over the last two decades has been the transition of browser marketshare from Netscape (the inventor), Internet Explorer (the monopolist), and then Chrome (the innovator). The importance of the browser was essentially its impact on where address bar searches terminated. This was one of the strong tailwinds behind Google’s ultimate search dominance.

In the last five years, internet businesses has been facing a new challenge in navigating the mobile universe, as the importance of search has been decreased in getting to your customers.  There are a new set of rules for mobile players.

Then yesterday, I saw Google announce that Chrome for Android and iOS has grown 100% YoY to reach 800m users.  They don’t disclose how much of that is iOS, but it’s showing strong momentum. This makes me think about how there may be a new search paradigm on mobile devices.

I suspect most general mobile searches happen within the browser, within the address bar.  The termination point is usually a website, but sometimes an app that is already in your device.

People searches probably take place in your Facebook and Linkedin apps. Local searches are perhaps in your map apps, or in dedicated apps like Yelp or Foursquare. There are more use cases where you go to a specific app for a specific type of search.

The most interesting development here is Apple’s Spotlight search.  It’s really an attempt to tie the search back to the OS.  If spotlight gets more intelligent, to understand the context of my search, it can perhaps be the start of all my searches.

I am keenly watching how mobile searches will evolve.

 

 

 

Top Tier

Power is like being a lady… if you have to tell people you are, you aren’t. –  Margaret Thatcher

Founders are sometimes faced by the question whether they should choose to raise capital from a less “powerful” (you can also insert famous, prestigious, influential, etc. here; you get the idea…) VC fund, when they have a term sheet from a top tier fund.  This, obviously, implies that the term sheet from the top-tier fund is somehow inferior in its terms.

In trying to answer this question, let’s first try to define what top-tier means.  I think the Thatcher quote above is quite enlightening for the power hierarchy in the VC world.  There are old, established firms with multiple fund generations, firms with quasi-celebrity partners, firms with huge hits in their portfolio, firms with massive AUM and firms with a history of high returns.  Each of these groups would be likely to argue that its the characteristics they possess that define a top-tier firm.  The important thing is that people largely tend to be in agreement about who the top-tier is.

On to our question…  I think the – perhaps frustrating – answer is that it depends. The team should make their decision based on many factors. One very important aspect is who specifically you are dealing with.  I think VC firms matter a lot less than the individuals you end up working with.  Do you trust them? What do their other portfolio companies say about them? Do you feel they understand your company?  Please don’t underestimate how important chemistry is in partnerships.

Another critical factor is what you need the most to get to your next milestone.  Your ideal investors, from stage to stage will vary.  You may value a geography-focused investor to help you with your new market, or a sector specialist to help you tackle certain problems.

In short, there certainly is a hierarchy of investors, but it changes from company to company, and from round to round.  Just like it’s dangerous for VCs to go logo hunting for their portfolios, it’s usually wrong for the startups to do the same.

New Face for my Blog

Quietly this summer, this blog turned 10.  I missed noting the exact date (incidentally, it’s May the 4th, Star Wars Day 🙂), but I did decide this summer to migrate out of Typepad, with which I have been quite unhappy for some time.  You may have noticed that csertoglu.typepad.com is now redirecting to CemSertoglu.com.  The new site has a cleaner design.  I have also decided to drop the Sortipreneur name from the blog, which had really never felt right.  This is the first post I am typing using WordPress.

You may have also noticed that I am trying to blog more frequently.  Let’s see if I keep that up.

Thank you for following me here and I hope you enjoy the new home of my blog.

Life of a VC

BeachI just answered the question "What is it like to be a partner at a venture capital firm?" on Quora.  I thought it may be a good idea to repost here.

The question is too generic, but i'll attempt an accretive answer.

In general, I'd say it's more stressful than it appears.

  • Return hurdles for VCs are high and many return multiples that would make angels happy do not move the needle for VCs.
  • We say ~200 NOs for every yes.  This does not feel good.
  • As portfolio companies increase, the workload begins to compound.  Sometimes, busy periods for a few companies overlap, creating time squeezes.

On the other hand, I feel I am the luckiest person in the world for doing what I do.

  • I get to work daily with people smarter than me.
  • Our value creation is a step function.  It allows us to not focus on squeezing value from the margins. That's a luxury.
  • We learn to focus on successes and positive outcomes.  A VC fund's success comes from great companies built, not from salvaged failures.

Finally, it is a role where  you have to learn to cheer from the sidelines.  Ultimately, it's the founders & CEOs who build the companies we invest in.  You can not get frustrated that you can't just go on the field and get things done.  And, naturally, the glory goes, deservedly, to the founders.