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Investing in Bien-Être

Why there is a massive opportunity for next generation companies to build around the wellness-driven consumer.

Photo by Meghan Holmes on Unsplash

We are living through a transformational cultural unbundling of consumer preferences in personal and professional contexts.

One-size fits all brands, media, and retailers leveraging economies of scale for mass market exploitation.

Global networks of niches and tastemaker-driven communities redefining the customer experience and creating entirely new systems of meaning for consumers.

This new era — centered around the wellness-driven consumer is fundamentally reshaping and expanding addressable markets, creating massive opportunities for emerging companies building communities and experiences that improve human health, happiness, and opportunity by reshaping the way we live, make, move, and improve.

The wellness-driven consumer is more informed, more principled, and in search of more lifestyle control than ever before and the impact this is having on the global economy is already well underway.

  • Wellness-related spend now accounts for over 5% of global economic activity and is growing at almost 2x the rate of the broader economy.
  • Americans spent $19bn on gym memberships last year — and a further $33bn on sports equipment.
  • 90% of Americans place a priority on buying things that reflect their values.
  • Over half of Millennial women are working on some sort of side hustle.

The list of stats confirming the scope and scale of this shift could go on forever and touches people across age groups, geographies, and socioeconomic lines.

With global distribution platforms, converging consumer tastes, more efficient business models, and emerging technologies breaking down many of the geographic barriers to building passionate communities, companies are being built and scaled around the world to capture value from this dynamic market.

While this represents just a small subset of the companies serving the wellness-driven consumer, it is clear that global-scale is increasingly possible and necessary.

But things are just getting started and there remains a massive impact gap despite increasing consumer spend and a mind-bending amount capital that has gone into companies in this space.

  • 64% of Americans want to lower healthcare costs but 80% don’t meet minimum exercise requirements.
  • This inactivity cost the US economy $28b in medical expenses and lost productivity. Globally, the figure is a staggering $70b.
  • 61% of employees are burned out on the job thanks to a variety of factors.
  • 163m Europeans experienced activity-limiting musculoskeletal pain in the last week.

Again, the stats indicating how far we have to go could stretch for pages.

The speed with which consumer priorities have shifted in the last decade, the room for improvement we have as a global society, and the nascency of enabling elements like ecommerce and machine learning should be enough to get any entrepreneur or investor excited.

About the “Digitally Native Holding Companies” of the future, David Perrell wrote that the winners will be built around audiences, not industries.

The audience that is the wellness-driven consumer is growing in influence and impact across almost every axis imaginable and is changing the way every industry thinks about the way it serves customers and employees.

As the world of venture capital continues to evolve and enters what could be called its 3rd Wave, I believe many of the best emerging firms will be built by backing companies that excel at addressing those audiences and expanding their influence within them in a way that is aligned with the end consumer and that is sustainable.

Like Homebrew’s Hunter Walk says, “your thesis is your portfolio page” and I’ve been lucky over the last couple of years to work with a number of founders, practitioners, investors, corporate executives, and many others who have a passion for the wellness-driven consumer and look forward to doing the same for many years to come.

If you are working on something or investing in companies that improve human health, happiness, or opportunity, I would love to talk. You can reach me at or on Twitter at @brettbivens.

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The Fourth Edge in Early Stage VC

Behavioral economics has seen its mindshare grow significantly in the investing world over the last decade as more and more people have used it as a primary lens for how to think about decision making.


In 2000, well after people like Daniel Kahneman and Amos Tversky began making their contributions but before the concepts wrapped inside the field made their way into every corner of the business world, investor Richard Fuller published a paper titled “Behavioral Finance and the Sources of Alpha” that framed the way competitive advantage is gained in investing and identified 3 primary sources of potential market outperformance:

  • Informational — Proprietary access to superior information
  • Analytical — The ability to process information more effectively
  • Behavioral — The ability to take advantage of behavioral biases and mental mistakes by other market participants

Since that time, highly regarded investors, analysts, and operators across the spectrum (like Howard Marks, Michael Mauboussin, and Tim Ferriss) have latched on to the framework and implemented it into their own process.

While the three sources of alpha laid out by Fuller are quite comprehensive in the world of S-1s and 10-ks, they fail to fully encompass the way that alpha is created in the much more opaque and jagged early stage venture market.

Public Markets vs. Venture Capital

For a multitude of reasons, early stage venture capital remains a completely different beast than public market investing.

Despite a playing field that is leveling over time (thanks to Angellist and the like), informational edges are still major drivers of long term success as strength of networks play a key role in which investors see which deals. Additionally, the lack of well understood first party operational performance data for startups and industry-wide benchmarks has provided an opportunity for firms like Social Capital (via its Analytics tool) to aggregate and exploit proprietary data in unique ways.

And while the venture markets and public markets are full of smart people competing away many analytical edges, moving earlier into the private markets offers more opportunities to be “right and non-consensus” by building deep expertise in emerging sectors and technologies that are poorly understood or overlooked.

On the behavioral side of things, both public and private markets (and any other market on earth) will be ripe for taking advantage as long as humans are key actors. If you need more convincing on how often smart people make bad decisions, I encourage you to spend some time digesting Charlie Munger’s thoughts on the psychology of human misjudgement.

As noted above, while these factors largely encompass the forms of potential competitive advantage in the public markets, they do not entirely cover the path to outperformance for early stage venture investors.

The Fourth Edge

Because the start conditions and early trajectory of a business plays such a major role in where it ultimately ends up and since the right relationship with a single hire, customer or commercial partner can have an outside impact on emerging companies that are desperately seeking product-market fit, there exists a fourth key source of alpha in the world of venture capital that investors have long sought to exploit: Strategic

This started with the Kleiner Perkins “Kieretsu” and evolved to today’s platform and services models pioneered by the likes of First Round Capital and Andreessen Horowitz. Other firms have taken more focused approaches to delivering strategic value to their portfolio companies and, by extension improved investment performance to their LPs. SignalFire’s technology-enabled hiring platform is a good example of this.

At TechNexus, our twist on strategic advantage rests in deep relationships with leading corporate partners across the industrial world who serve as both capital and commercialization partners for the early stage companies we back.

This is true whether we are talking with pre-launch companies looking for the right market to take their technology to or companies further down the path who need to prove value in an adjacent space in order to get in position for a strong Series A round.

Prior to even writing a check, we spend a significant amount of time with each founding team building a clear business case and execution plan for the proposed strategic relationship and leverage a tight feedback loop with the technology and business teams inside our corporate partners to validate the plan. In every case, and before taking an investment from us, we want the teams we back to have a clear, measurable understanding of the value we plan to deliver and a process for keeping everyone at the table (the corporate, the venture, TechNexus) accountable and engaged over the course of the relationship.

This strategic-first approach is our specific edge that allows us to be proactively helpful to the founders we back and the execution team we have built to scope and implement these plans gives us the operational bandwidth to make an impact on each startup we work with.

A Unique Strategic Advantage

As with any source of business advantage, competition (some credible, some less so) eventually moves in looking to stake a claim. This is no different than what has happened in the world of venture capital, which is why “value add investor” has entered the realm of overused, vapid business jargon alongside time tested favorites like “double click” and “win win”.

While firms like First Round and Andreessen Horowitz undoubtedly execute at a higher level than most, many other firms talk a good game despite a structural inability to perform on a similar level and deliver real value across an entire portfolio.

Most firms active in the pre Series A market — especially emerging firms — lack the financial and operational bandwidth as well as a specific strategic edge to take a proactive approach to supporting (and driving real value for) companies during the search for product/market fit.

Put slightly differently, it is tough to build a “platform” with $400k/year in management fees.

Instead, these firms fall into what I’ve previously called the trap of the Steph Curry Fallacy, which is to say that they copy the obvious things about what makes the First Rounds and A16Zs of the world successful without doing the work to dive deeper and develop what could become their own unique strategic edge.

For a long time, investors talking in broad strokes about being “value add” got a free pass, but the runway on that seems to be running out. Today’s founders have learned to see that messaging for the noise that it is and have become more savvy about getting to the signal of what makes a firm or specific investor unique as they determine who they want to work with over the long term.

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Thinking Slow, Deciding Fast

A one-year-in framework for operating as an early stage investor

The Footnote is a series of audio annotations on some of the interesting things I’ve come across recently on a wide range of topics — from decision-making and investing to technology and the impact it has on the way we work and live.

These episodes are a semi-dive deep into something I’ve written, a topic I want to write about, an interesting article or piece of research, or a recent idea I’ve been kicking around. In each installment, we’ll aim to pull on different threads and explore new angles to help better understand the concepts presented and more thoroughly develop our thinking on the subject at hand.

You can subscribe to The Footnote over on Bumpers >>>

Thinking Slow, Deciding Fast

In the first episode of The Footnote Podcast, I thought it would be useful to talk a bit about what I have learned in my first year on the investor side of the table after spending most of my career on the other side — helping build startups in various business and product roles — and explore the quick framework that I’ve developed around how to operate as an early stage investor.

This framework, which I call thinking slow, deciding fast informs the way I approach two of the more important aspects of my job — building conviction on a company as I am thinking about whether or not we should invest and building a relationship with the founding team during that period where we are coming to a decision.

In a lot of ways, this phrase — think slow, decide fast — is like a mediation mantra…those mantras help recenter you when you find yourself slipping and losing focus. This is essentially the same thing. If I find myself thinking or behaving in a way that contradicts this framework, I try to recenter and approach the situation from a different angle.

Second Level Thinking

The phrase that I’ve mentioned…again, thinking slow and deciding fast, likely calls to mind the book by Daniel Kahneman called Thinking, Fast and Slow. It is a great read and definitely informs the approach I have taken. The central thesis in the book is around the dichotomy between two modes of thought: “System 1” is fast, instinctive and emotional…basically lizard brain type of thought; “System 2” is slower, more deliberative, and more logical.

Another person who has latched onto the “two modes of thinking” concept is Howard Marks — an investor at a firm called Oaktree Capital. Howard has become well-known for both his outsize investment returns as well as his well-constructed investor letters…similar in a lot of ways to Warren Buffett

And, the way these two people — Kahneman and Marks — have laid out their beliefs has been very helpful for me in framing my investment strategy.

Thinking slow, the first part of the phrase, is all about building conviction on investment opportunities, which seems to be one of the toughest things about being new to investing. In my case, I went from the startup side of the equation where you are literally desperate for any opportunity that comes your way to the investor side, where I may look at 300 companies before our firms makes a single investment. So because you are drinking from this kind of fire hose early on in your investment career, people tend to fall back on these very surface level indicators to make decisions:

  • Oh, Bla Bla Bla Capital is investing, they are really smart so I can’t miss out on this deal
  • Oh, the team went to some prestigious school so I should be impressed by them by default
  • Or, oh this is the hot new technology area that everyone is talking about, we have to be active in this space

Of course, these are all important elements of making an investment decision — you want to work with a team who has the chops to pull off what they say they are going to do, you want to have other smart, committed partners in the business, and you want to be investing in technology areas or markets where there is significant opportunity.

But thinking slow is about not taking these things simply at face value. It means:

  • Employing something like the Toyota Five Whys framework — a series of 5 questions, each building off the last and delving further into the problem.
  • Or, as Marks notes, exercising caution if you are operating in a space that everyone else likes…a “hot” area so to speak…if tons of capital has already poured into a segment of the market, it is possible that it is already thoroughly mined and that prices/valuations likely reflect the “hotness” of the vertical.
  • And finally, understanding the incentives of your potential partners — just because some super smart investment firm is involved in a deal doesn’t mean you should be by default…their portfolio is constructed differently, their strategy is different, they may be more or less sensitive to valuations, etc.

So that has been my approach on the actual investment decision side of things, on how I build conviction on an investment opportunity.

Deciding Fast

Another important piece of my work as an investor is on building and maintaining strong relationships with the founders and teams we are working with. And this is where the “deciding fast” part of the phrase comes in…it doesn’t really have much to do with the Kahneman and Marks System I / System II stuff but it helps make the title sound more interesting.

A friend of mine who is also an early stage VC said over dinner the other day that by the time they get to the point where they want to build a financial model or do some kind of in depth returns analysis on an individual deal, it is a strong signal that they want to invest…at the seed stage, and even in some cases at the A stage, there is a limited amount of quantitative work you can do. So in most cases, they just make the decision then and there. And that is exactly what this idea gets at.

Having been on the other side of the table for most of my career, I know that startups don’t have much leverage in any of the conversations they have — customers can squeeze them on pricing, potential job candidates have offers from other companies with better compensation, and investors often have a bit more leverage in negotiations…in many cases, decisions get made wholly on the investor’s time table.

There was a survey done a couple of years ago by Point Nine Capital’s Christoph Janz that found the #1 most frustrating thing for founders about fundraising was not knowing where they stood in the process.

So one of the big things I try to do is make sure that whenever I make a decision or get some type of “news” on a company — whether it is a decision to move them forward in the process, to say no, to present what they are doing to the broader team, or if thereis some kind of delay — is make sure I communicate that clearly and in a timely fashion to the founders.

So there you have it…my 1-year in framework for trying to do my job as a venture investor well:

Build conviction by trying to think deeply about the levers that truly have an impact, know when you have enough information, make your decision, and clearly communicate that to the people you are dealing with.

Sounds simple but in my experience has been anything but.

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EMERGE: The Future of the First Responder

In August, TechNexus announced the second year of the EMERGE Accelerator, our unique partnership with the Department of Homeland Security (DHS), Center for Innovative Technology (CIT), and Pacific Northwest National Laboratories (PNNL) focused on catalyzing and commercializing technologies to enhance the safety and productivity of first responders — police officers, firefighters, emergency medical professionals, and a number of other public and emergency safety personnel.
As we set out on a path that would eventually include hundreds of in-depth conversations with entrepreneurs, first responders, investors, and industry partners, we laid out a number of focus areas around product form factors and high-level use cases that we collectively believed were imperative to effectively preparing and outfitting the first responder of the future.
Throughout the process of having these discussions and synthesizing our learnings, we found these initial focus areas turned out to be just as important as we anticipated and the companies that were ultimately selected fit well into one of more of the categories. What became more important in our evaluation process, however, were key behavioral, purchasing, and distribution trends that the best companies were tapping into in order to compete in a traditionally difficult market on more than simply product quality.
Here, we will touch briefly on all of these overarching themes and, over the course of the next couple months, explore them and the companies that embody them more deeply in an effort to paint a picture of the type of innovation occurring in the first responder market.
Taken together, this set of themes make up a large subset of what is driving the first responder space forward, but it is in no way intended to be entirely exhaustive — as we have come to learn, both during last year’s inaugural program and in the run up to this year’s, more themes will develop and our understanding of them will evolve over the course of the program.

Zero UI

We heard the term “zero UI” mentioned while listening to Jeremy Wall and Adam Janecka of Lumenus describe their product and felt that it succinctly summed up one of the most common refrains we were hearing in conversations with first responders across the United States. 
First responder can’t afford, for one second, to have their heads down looking at a screen or to have one of their hands occupied with picking up or touching a device. That single second is often the difference harm and safety for first responders, their teams, and the people they are protecting and serving.
Smart glasses, for example, are an interesting — and almost obvious — implementation of a touchless future, and while heads up displays are yet to deliver on their promise in the consumer space (although that may soon change), they are making a measurable impact on the way first responders perform their duties. 
From Six-15, Augmate, and Visual Semantics in the heads up display and smart glasses space to Lumenus and Human Systems Integeration, who leverage different types of smart clothing to improve safety and situational awareness, this year’s cohort includes a number of teams exploring new ways for humans to interact with devices and technology in high-stress situations.

Follow the Enterprise

Over the last 10 years in the enterprise, we have seen a tremendous shift in the way software products are bought and sold. As cloud infrastructure decentralizes technology buying decisions in organizations and tech savvy individual contributors — who now spend a bulk of away-from-work time interfacing with software products — become the buyers,
“bottoms up” distribution has become far more prevalent. 
Buying decisions in the first responder space have long mirrored those in the enterprise space, as vendors aimed to impress the head of IT instead of the individual police officer. Companies like VaultRMS, LuminAID, and Pear Sports are three of the companies in this year’s cohort participating in what could loosely be called the “consumerization of the first responder.”
No matter where the buying decision actually occurs, the usage and implementation decision rests with the first responders asked to take these products into the field each and every day. To paraphrase Andreessen Horowitz’s Benedict Evans, tools must follow workflows before they can replace them.

This is far more true in the first responder space than in the enterprise since, as we noted in the section above, anything that throws a first responder off for even an extra second can result in serious consequences for anyone involved in these life or death situations. If emerging products and services don’t ultimately provide a differentiated user experience that plays nice with current toolkits, the odds of adoption and, by extension, business success are exceedingly low.

Software Eats Wearables

If it seems strange that many of the companies in this year’s cohort aren’t creating a hardware, body-worn product, it shouldn’t
The way wearables are thought of today is somewhat analogous to the way the mobile phone market was viewed pre-App Store, when the hardware — better cameras, screens, speed — was where the bulk of the competition was occurring. Once the developer ecosystem around the App Store began to mature, software expanded the use cases and reach of the mobile phone market beyond anything most imagined.
We have now reached a point in the first responder market where many emerging companies that leverage wearable based sensors started off building some kind of hardware/software hybrid before deciding to focus solely on differentiating through software. Like the mobile phone market, innovation (and competition) will continue on an upward trajectory, it will simply be more concentrated among larger players with strong, existing distribution networks and the ability to spend heavily on R&D.
Most of the next generation of companies — like, CommandWear which has developed a software platform to integrate data from wearables and sensors and give responders real time communication capabilities with improved situational awareness — may skip that hardware experimentation phase altogether, allowing them to stay nimble and remain agnostic to which devices and form factors emerge and take hold in the market.
On top of that, and as we have had pointed out to us numerous times over the last few months, the reality is that there simply isn’t much capacity for more equipment on the body of first responders. Fire fighters, for example, carry equipment that can weigh in excess of 70 pounds and are covered head to toe in gear. Like we touched on above, anything that doesn’t immediately integrate with existing technology and attire is facing a steeply uphill battle. It is a lot easier to do this, and to gain an initial foothold, with a software-first approach.

Follow the Enterprise

A conversation about a first responder accelerator with people from outside market generally elicits some form of these two comments:

  • “Seems like a very niche market.”
  • “Seems like that’d be an extremely difficult market to sell into.”

To a degree, both are true and speak to the history of disconnect between the startup ecosystem and the first responder world. Founders see a path to market riddled with bureaucratic hurdles and loops just to sell into departments and organizations faced with constant budget uncertainty.
So what, exactly, is the path forward to bring products to market in a cost and time-efficient manner when the issues outlined above are sure to stick around for the foreseeable future?
For companies like the aforementioned Augmate and Six-15 along with HaaS Alert, the creators of a mobile vehicle-to-vehicle communication platform, this path has been through the enterprise. Since the first responder of the future looks a lot like the miner, utility worker, or general laborer from a technology utilization perspective, companies that find an initial niche in an adjacent market (or who form relationships with entrenched suppliers to the first responder world) can more quickly iterate to a product that fits into a first responder use case. 
This doesn’t necessarily solve, for example, the firefighter version of the last mile problem — that no other use case, from military, to mining, to utility work, truly matches up with needing to be able to take a product into a burning building, have it stand up to 1000°+ heat, and then bring it back again the next day. But it can provide some cost relief and helps position the first responder space as an accessible and profitable adjacency for many industrial products.

Preventative Human Performance Training

The work of a first responder is physically, mentally, and emotionally taxing. That should be immediately obvious to any observer. What may be less obvious to outsiders is the form with which this danger typically presents itself.
While police officers face a constant threat of assault and attacks via deadly weapons, vehicle crashes are equally as likely to cause fatal injuries (a problem being tackled by HAAS Alert). And in an area with more relevance to the theme of preventative human performance training, non fatal injuries that result in lost work time are most often simple strains and sprains occurring during foot pursuits or other physical encounters that an increasing number of officers are not fit enough to handle properly. 
As noted in a report prepared by the International Association of Chiefs of Police, officers engaged in fitness training regimens are less likely to suffer these types of injuries and require less rehabilitation and fewer missed days of work to recover. For that reason, the report recommends that agencies implement mandatory fitness programs.
This is true as well for firefighters, where the number one reason for loss of life is cardiac arrest ( not burns or building collapses).
Pear Sports is directly addressing the problems above with its responsive training platform, which incorporates numerous forms of biofeedback and makes it easy for agencies to offer tailored fitness programs to officers.
VaultRMS is working to solve the next biggest killer among fire fighters — cancer resulting from chronic exposure to toxic substances — by providing an affordable and simple way to track every exposure over the course of one’s career.
Beyond the physical impact of the job, first responders face a bevy of stressful situations that training and ongoing monitoring often fail to properly address. Former police sergeant and current University of Washington sociologist put it this way in a recent quote in Scientific American:

“Put plainly, when cops mess up, the explanations offered tend to be ethical and political, when the more empirically solid explanations are much simpler than that — they are basic failures of human performance under stress. We need evidence-based, human performance training that starts in the academy and continues across every career phase, so when you’re tired, scared or stressed, you still do the right thing.”

If first responders are not physically, mentally, and emotionally prepared to take on the rigors of their duties, no amount of tactical technology will help make them effective and the companies that make up this cohort seem well aware of that fact.

First Responder Technology: A Crucial Piece of Smarter Societies

How do we make the societies that we live in safer, more secure, and more resilient? This is a question that many great organizations and brilliant people around the world are working to solve. In the venture and startup space alone, outstanding firms like UrbanUs and Urban Futures Lab are building robust communities to support the people and companies building the future of how we will live together. This is in addition to the countless university organizations, non-profits, and city and government departments working on innovative solutions to the problems we all face.
The first responder market, is of course, an important subset of this broader ecosystem of innovation.
That is why companies like LuminAID, founded by two architects in response to the 2011 Haiti earthquake, has set its sights on expanding beyond disaster relief in order to find first responder-specific use cases and form factors for its lighting and solar technology. 
With more companies like LuminAID — and the others involved in this year’s EMERGE cohort — realizing the potential for impact offered by building for first responder use cases, we are excited about the innovation ecosystem developing to drive our societies into a safer, more secure, and more resilient future.

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Taking the Pulse of the Seed Stage Market

Venture funding into startups dipped significantly in the first quarter of 2016…yet venture funds themselves raised more money than they have in a decade. So where does that leave us today, specifically as it relates to the seed stage market?

We looked at four factors — current seed stage availability, follow-on capital availability, the M&A market, and the historical economics of seed investing — to gauge where things stand today and help investors build a strategy for the current environment (Spoiler: We think the argument for allocating capital to the seed stage remains strong).

1. Seed Capital Availability

At first blush, a funding dip like the one experienced by the seed stage in the first quarter of 2016 seems disconcerting, especially for angel investors or micro VC funds simply interested in participating in (and not leading) deals. If others don’t show up and fill the round like expected, investors could conceivably be left holding the bag on a doomed investment.

The more likely reality is that the most recent 2 or 3 trailing quarters were simply a slight reversion to normal levels and the pace will continue at a strong clip for the foreseeable future. The last few years have seen funds focused on the seed stage raise a historically outsize amount of capital, much of which remains ready to deploy. And despite some handwringing early in the year about a sinking public market derailing the private market, much of that concern — rightly or wrongly — seems to have been brushed aside.

2. Follow-on Availability

If you have been following the seed stage market with any intensity for any period of time — 1 day or 1 decade — you’re sure to have heard about the almost-about-to-happen Series A crunch. Essentially, as record levels of capital have poured into the earliest stages — via accelerators, individual angels, and the hundreds of seed funds that have been raised in recent years — onlookers have feared that a capital mismatch would take place and a more than usual number of those seed funded startups would be left to wither and die on the vine.

To an extent, this started coming true late last year, as Mattermark data showed “graduation rates” (Seed funded companies that go on to raise Series A rounds) continuing their already downward trajectory in 2015.

Ultimately, the success of an early stage venture portfolio is dependent on whether companies within that portfolio are able to achieve exits via acquisition or IPO. When investing at the Seed stage, however, exits can take half a decade of more. This makes those graduation rates that we mentioned above a very important metric for early stage investors to track and have a handle on.

The concept is pretty simple. If companies in your portfolio continue raising capital, they continue to survive and are more likely to eventually experience some sort of liquidity event.

In Q1, a majority of the capital raised was concentrated among a few firms, most of whom invest across stages but allocate a investment dollars to mid and late stage companies. This bodes well for the current and upcoming crop of seed stage startups who will be in the market for further raises in 12–24 months time. Beyond that time frame, we look to our next factor…

3. The M&A Environment

Q1 2016 saw exactly zero venture backed IPOs. Add to that the fact that the software sector — where most venture capital flows — saw the lowest number of exits since 2011 and it is pretty clear that the M&A and IPO markets can’t get much worse then they are now. As we noted above, private follow-on rounds are great…but the real returns for investors come when some sort of liquidity event occurs. And while it is possible that the IPO window may remain firmly closed for the foreseeable future, other factors indicate we may be in for a pickup in M&A activity in the industry.

  1. The Facebook Effect — In recent years, Facebook has become as well known for its purchased properties — What’s App, Instagram, Oculus — as it has for its core app. This acquisitive approach gives the company the ability to buy the future (before it becomes too large and thus desires to stay independent) instead of building it. Large corporates are nothing if not copycats so expect to see a few others follow Facebook’s lead and step on the acquisition gas pedal here shortly.
  2. Corporate Venture on the Rise — This piggybacks on the Facebook Effect, as corporations have record levels of cash on hand and have realized that true innovation is unlikely to come from within. Since 2011, the amount of corporate venture capital — both in gross and relative terms — has steadily crept up. As those portfolios mature, it becomes more likely that corporate acquirers will be eyeing a few of the top performers.

4. The Economics of Being Early

This last factor is one that has not been significantly impacted by recent funding patterns but remains important nonetheless. Per data from Cambridge Associates, relative to other stages of the private venture market — and frankly to almost all other asset classes — the seed stage outperforms.

This outperformance was brought to back to the surface recently in a series of Tweets from Horsley Bridge Partners, a prominent LP who has backed many of the industry’s top firms. The firm analyzed over 5,500 realized deals from across their portfolio to understand the risks and rewards of early stage and late stage investing. To pull a page from venture darling Buzzfeed’s book…what they found will shock you! We will let the Tweets speak for themselves.

While we spoiled our conclusion above, it makes sense to reiterate here. Capital is available — both at the seed stage and in follow on rounds — for good companies and that availability will continue for the foreseeable future with the amount of dry powder sitting in the bank accounts of both early and late stage investors. On top of that, M&A headwinds are strong (well, stronger) than they have been and the economics continue to favor investors who back companies early in their lifecycle.

Originally published at on April 28, 2016.

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The Steph Curry Fallacy — The KIND Bars Don’t Do Shit

The idea of the Steph Curry Fallacy — which we first wrote about a couple weeks ago — stems from a comment made by NBA Analyst (and former player and coach) Mark Jackson about the league’s reigning Most Valuable Player:

“Understand what I’m saying when I say this. He’s hurting the game. And what I mean by that is that I go into these high school gyms, I watch these kids, and the first thing they do is they run to the 3-point line. You are not Steph Curry. Work on the other aspects of the game.”

Kids look at Steph Curry — small, skinny, doesn’t dunk on a regular basis — and see themselves in him. There are billions of dollars at stake in convincing kids that they can be him.

And so those kids walk into a gym, grab a ball, and start chucking errantly from 30 feet away from the basket because, well…like Steph, they are small, skinny, and can’t dunk.

The success narrative that these kids have built around Steph Curry centers on those surface level, cosmetic traits. This happens all the time in all different pursuits — onlookers ascribe an outsize level of importance to things easily visible without making an attempt to dive deeper to a second level.

In our post, we talked about venture communities outside of Silicon Valley misattributing the success of the region to things like events and trendy coworking spaces and thinking that building those in their cities and countries will make an impact. In reality, those things are effects, not causes of regional success.

During a recent podcast conversation, Social Capital’s Chamath Palihapitiya said that “startups copy what good companies do because they think it contributes to success. The Kind Bars don’t do shit!” Instead, he notes that they should focus on copying less obvious things (that take more work) like workforce diversity.

Mahesh Vellanki of Redpoint Ventures called this “comparing apples to oranges” in his recent list of Silicon Valley’s fallacies and pointed to the rash of Uber-for-X companies founded and funded on the premise that the on-demand economy would quickly obviate existing models.

As it turns out, and as Greylock’s Sarah Tavel (to loop yet another VC into this post) effectively argued, not every market has the economics to support the Uber-for-X model.

“Which brings me back to the “on demand economy”. The challenge I see with so many of these services is that most often, 1) they are new costs, and 2) they don’t fundamentally recast cost structures like Uber did — instead, many of them are an arbitrage on the cost of wealthy people’s time vs the less wealthy.”

Since the Steph Curry Fallacy is a close cousin of the Narrative Fallacy — which says that we as humans are predisposed to try to turn complex realities into oversimplified stories — the approach to defeating the type of thinking should be similar: Favor experimentation and a clinical approach to understanding whether something moves the needle for your company.

Do the free KIND bars actually make people happier and more productive at work? Do the economics of your business model truly make sense when unleashed in the marketplace? Do you have the hand eye coordination to make those 30-footers and the quickness to keep defenders honest?

If the answers to those questions are ‘no’, it doesn’t make sense to keep spinning your wheels just because “you are the same height as Steph Curry”. The best next step is to circle back to the start, build a new hypothesis to test, and repeat the cycle until your success narrative becomes so tidy than “anybody can do it”.

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The Storytelling Thesis

For companies — large and small — each day is spent telling your story over and over again to all of your key stakeholders. Hiring, selling, raising capital…the storytelling doesn’t stop, it simply changes contexts.

Where collections of people have existed, so too have stories.

A company is a collection of people. A startup company, to use one definition, is the largest collection of people you can convince of a plan to build a different future.

The way that this collection of people — employees, investors, even customers — becomes convinced of that future is through storytelling.

In Sapiens: A Brief History of Mankind, author Yuval Noah Harari points out that “humans control the world because we are the only animal that can cooperate flexibly in large numbers.” Storytelling is the skill enables this large-scale cooperation.

In the same way, effective storytelling enables companies to separate themselves from competitors and gain control in the marketplace.

Good storytelling…

…bridges gaps by building context and conveying empathy which reinforces commonalities, minimizes cosmetic differences, and helps both sides find common ground. We see ourselves and project our own experiences onto the narratives others build.

…makes it possible for large collectives to share systems of beliefs and visions of the future. This applies to companies like it does to religions and political or social movements.

…connects the dots. It shifts the view from “what happened” to “why it happened”, “what will happen” to “why will it happen”.

Progress depends on storytelling and on the evolution of who is empowered to be a storyteller. When an overmatched collection of individuals come together to build compelling stories, they not only make their internal bonds stronger, they also create advocates on the outside. From there, the cycle repeats itself. Social movements start small. Religions start small. Businesses start small.

Stories are both the oxygen and the sustenance of these nascent groups. Stories keep these groups alive. Stories help these groups grow. So long as the right story exists, so too does the movement.