Category Archives: Silicon Valley

ICO’s to disrupt VC?

Good article here on this – not really answering it but just highlighting the stats :: http://tomtunguz.com/ico-trends/

For sure blockchain, crypto and ICO’s are here to stay. No doubt about it but for every trend there will be good and bad things to happen. No different than any other period of mass change. I myself am still trying to grok the longterm view of this since contrary to popular belief VC is a long game. Of course there are rollercoaster like moments of ups and downs marred with upheavels but generally the course of finding good companies to invest in and seeing them along their journey is what VC is.

And will continue to be.

An ICO will be a new tool in the arsenal a startup has to raise capital or to create a token system that is meaningful to the business. I think this comment at the end of the article is very telling:

First, startups raising these ICOs tend to be pre-revenue. Second, retail investors are buying substantial fractions of these offerings. Third, the volatility of these offerings is enormous.

If this trend continues and questions like regulation are answered, ICOs may be a novel and important mechanism for crytpocurrency based startups to raise capital.

The last sentence is a doozy – novel and important mechanism for cryptocurrency based startups to raise capital.

If I had a dollar for all the ICOs I have already seen that have nothing to do with cryptocurrency whatsover, I could proabably retire. If a company is doing an ICO with no meaningful use of the token other than to raise cash – I would run not walk to the nearest exit.

I have no crystal ball but the world is changing, blockchain + crypto will be a force for change but I wonder myself if there will be more good than bad around this. I bring you this clip from a well known techie:

tweet

Again – I don’t have the answers but much to ponder on.

Good read from Fred on convertibles

Not cars but notes :: http://avc.com/2017/03/convertible-and-safe-notes/

His reasons about why not to do are so good.

2. They obfuscate the amount of dilution the founder(s) is taking. I think many investors actually like this. I do not. I believe a founding team should know exactly how much of the company they own at every second of the journey. Notes hide this from them, particularly the less sophisticated founders.

This one is good. Many times I find even that the founders don’t know what they are talking about and have not figured out their own dilution. They also may not have carved out something for the ESOP and are not taking that into consideration as well.

3. They can build up, like a house of cards, on top of each other and then come crashing down on the founder(s) at some point when a priced round actually happens. This is the worst thing about notes and doing more than one is almost always a problem in the making.

This is the one we see too many times. Rolling notes or extended notes that take a serious Excel expert to figure out how each round is actually priced and who owns what. You have to be careful about this so that you know what each round is doing and how to calculate the dilution.

4. They put the founder in the difficult position of promising an amount of ownership to an angel/seed investor that they cannot actually deliver down the round when the notes convert. I cannot tell you how many angry pissed off angel investors I have had to talk off the ledge when we are leading a priced round and they see the cap table and they own a LOT less than they thought they did. And they blame the founder(s) or us for it and it is honestly not anyone’s fault other than the harebrained structure (notes) they used to finance their company.

Yup. Also, see this. They over promised angels with too high a valuation cap and once you see a few rounds of this by the time you actually calculate it all one will find the dilution and ownership.

The list of stuff he says to do is gold. Freaking gold:

Here are some suggestions for the entire angel/seed sector (founders, angel investors, seed investors, lawyers):

  1. Do priced equity rounds instead of notes. As I wrote seven years ago, the cost of doing a simple seed equity deal has come way down. It can easily be done for less than $5k in a few days and we do that quite often.

  2. The first convertible or SAFE note issued in a company should have a cap on the total amount of notes than can be issued. A number like $1mm or max $2mm sounds right to me.

  3. Don’t do multiple rounds of notes with multiple caps. It always ends badly for everyone, including the founder.

  4. Founders should insist that their lawyers publish, to them and the angel/seed investors, a “pro-forma” cap table at the closing of the note that shows how much of the company each of them would own if the note converted immediately at different prices. This “pro-forma” cap table should be updated each and every time another note is isssued. Most importantly, we cannot and should not continue to allow founders to issue notes to investors and not understand how much dilution they are taking on each time they do it. This is WRONG.

Again. One can do notes. They serve a purpose but I think most founders don’t know what they are doing with them and assume that it is better than equity but in fact dealing with a proper equity round might make more sense. Normally the reason to do a note is speed and you expect that pricing the round later makes more sense than pricing it now. Regardless one shouldn’t do many rounds as notes, leave notes open for too long and delay the hard work of pricing and converting.

Obviously, I am new at this but Fred isn’t!

Greed vs Value Creation

It’s a struggle sometimes for sure but lately it just feels like most of what is going on in the valley is straight up greed.

I am not a huge Arrington fan but I think he makes a point. Is this a cyclical thing? Is there too much capital around? Is the Trump era to blame?

I tend to think it is more related to the pressure cooker of expectations around always having to have that big exit and making everyone rich versus building cool shit. I know there is a fine line. And I am not saying that I don’t want to make money but there is a difference in my opinion.

Uber as of late just feels like greed. Let’s treat employees like shit, let’s skirt the law and let’s steal stuff to win it all because they are changing the world? It’s too much. You can’t demolish everything in your path and still keep telling your customers that we should trust you ferrying our wive’s and children around. Enough already. I honestly hope Google takes them to the cleaners.

Snap. Who knows on this one but the way they are doing things feels to me like just wanting to cash out versus build something for the long haul. Again, I could be all wrong and this is the technique they are using to get enough money to defend their turf and build something amazing. Only time will tell. I could be all wrong. With Facebook I bought on the dip and held. That’s worked out okay so far. Not sure I would with Snap.

WeWork. Is this really a revolution or is it a modern day real estate play with co-working throw in to be cool? No one knows yet but the Softbank deal feels like greed to me. Let’s see what they do.

I used to miss the valley but I am not sure I could survive there. I am not that greedy to be honest. Interesting times.

I am glad I live in Singapore.

Uber’s month from hell!

And now the investors are piling on :: https://shift.newco.co/an-open-letter-to-the-uber-board-and-investors-2dc0c48c3a7#.wro1quz15

#deleteUber

Then the latest on all the sexual harassment

Adding the recode link :: http://www.recode.net/2017/2/23/14717432/waymo-otto-uber-anthony-levandowski-lawsuit

And now :: https://medium.com/waymo/a-note-on-our-lawsuit-against-otto-and-uber-86f4f98902a1#.j81e8os6u

We found that six weeks before his resignation this former employee, Anthony Levandowski, downloaded over 14,000 highly confidential and proprietary design files for Waymo’s various hardware systems, including designs of Waymo’s LiDAR and circuit board. To gain access to Waymo’s design server, Mr. Levandowski searched for and installed specialized software onto his company-issued laptop. Once inside, he downloaded 9.7 GB of Waymo’s highly confidential files and trade secrets, including blueprints, design files and testing documentation. Then he connected an external drive to the laptop. Mr. Levandowski then wiped and reformatted the laptop in an attempt to erase forensic fingerprints.

Wow. Not even a professional hijacking. Just straight up stealing and trying to cover it up.

Guessing Alphabet has plenty of cash and an axe to grind. Seems to me it’s time for the CEO to step down and let an adult run the company before it is too late.

Updated :: Upfront State of the VC & Tech Industry 2017

This is really good. I need to dissect it more and think about Asia in regards to some of the thoughts. Funny – Singapore is in the deck a few times but maybe not for what you think.

I wrote about the conference scene we are missing a little here so it is cool to have a nice deck to digest.

A good primer to the deck is this small digest from Mark Suster :: https://www.cooleygo.com/quarterly-vc-update-mark-suster-state-venture-capital-investing/