Capitalism, Unicorns and the SoftBank Vision Fund. The End? The Beginning?

This week’s venture trends includes conflicting evidence on many subjects: the end of big funds (SoftBank); the rise of big investments (Jio), the collapse of unicorns (Uber and WeWork), the rise of Unicorns (SMB companies worth more than $10 billion). The trends are clearly not clear. Makes you think :-).

This week includes content from Om Malik (3 pieces), Om is on a tear producing really excellent content, Albert Wenger, Niklas Zenströmm, Elad Gil, Josh Elman, The Hustle Fund, Fred Destin, and many more. The topics are the ones that dominated the week.

  • The End of Capitalism – with Albert Wenger
  • The Power of Capitalism and the Rise of Jio – Elad Gil and Wall Street Journal
  • Unicorn Nonsense – by Om Malik
  • Early interview with Paul Davison, New Unicorn? Clubhouse Voice App Founder – with Om Malik
  • The Rise of SMB startups worth $10 billion plus – by Josh Elman
  • An Interview with Niklas Zenströmm – by First Minute Capital
  • Facebook to Screw Shopify? – by Om Malik
  • What would the perfect VC do? – by Fred Destin

I email the newsletter each weekend. There is little or no commentary included, it is the things I found compelling or interesting.

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Andrew Keen interviewed me for about this week’s newsletter:

Wall Street Journal

Facebook Inc. and a trio of U.S. private-equity firms have in the past month poured billions of dollars into an upstart mobile operator controlled by India’s richest man.

The stakes, which add up to $8.8 billion, amount to a bet that Jio Platforms Ltd. and Mukesh Ambani, the chairman and largest shareholder of its parent company, Reliance Industries Ltd., are the players best positioned to bring legions of Indian consumers fully online and into e-commerce.

Facebook’s April announcement that it would invest $5.7 billion for a stake in Mumbai-based Jio was quickly followed by $750 million from Silver Lake and $1.5 billion from Vista Equity Partners. On Sunday, Jio said it was raising $870 million from another private-equity powerhouse, General Atlantic.

SoftBank’s Vision Fund will be the first and last of its kind

Business Insider

SoftBank CEO Masayoshi Son planned for it to be the first of a succession of gigantic funds, but it performance to date has been poor; it lost $10 billion in value in the March quarter of this year alone and is now worth less than what backers invested in it.The fund’s poor performance has highlighted the flaws inherent in trying to invest $100 billion in startup companies in little more than three years.


When I joined venture a decade ago, common wisdom was that the primary companies that would exceed $10B were consumer companies. Not SMB. Not bottoms up. What a difference a decade makes. These companies are the center of venture returns now!


On my Om

Sometimes when we find ourselves on the third base, we think we hit a triple. It doesn’t matter if we got there by series of luck of the draw. I mean a botched throw that turned a single into a triple. Or a passed ball that helped with a stolen base or two. The point is that sometimes being successful is a series of unseen random events. However, that is a good reason for many to assume that they are the smartest guys in the room. Enron folks, often thought they were. Except, when they weren’t. They just were just self-dealing.

Fast forward to today, and we have the problems faced by Softbank and its founder-CEO Masayoshi Son, and his game-changing $100 Billion Vision Fund? The company reported some staggering losses, thanks to investments that had a whiff of self-dealing. Keep buying WeWork or Oyo at higher prices, even if others won’t? Why, because you think you are the smartest guys in the room, and you have the best data.

Except, you don’t. The same company that was once worth $47 billion — why, no one knows — is now worth $2.9 billion. This is less than the cash Softbank invested in WeWork. Bloomberg reported:

The company reported some staggering losses, thanks to investments that had a whiff of self-dealing.However, that is a good reason for many to assume that they are the smartest guys in the room.


Why VCs are obsessed with Unicorn companies? (We’ll walk through the math…)

Ever wonder why early stage venture capitalists are constantly looking for $1 billion exits? In this video we will walk through the quick math on why this is.

In conversation with Unicorn maker – Niklas Zennström

firstminute capital – Medium

Key Takeaways from Founders Intelligence by Hendrik Jandel 13 May 2020 Another fascinating myfirstminute conversation, this time with Niklas Zennström, CEO and founding partner Atomico, one of Europe’s most active venture firms, and co-founder of Skype, Kazaa and Joltid.


Watch This: A chat w/ Clubhouse co-founder Paul Davison from his Highlight days

On my Om

The New York Times recently wrote about this hot new app that has been the buzz among technology insiders for a while — Clubhouse. There are rumors of the app getting financed at a valuation of around $100 million. I have been on the service since the very beginning, but co-founder Paul Davison made me promise not to say anything about it. As a beta tester, it is amazing to see how fast Paul and his co-founder, Rohan Seth have improved on the original idea. I love the concept. I will explain why, in a separate post.

Today, however, I wanted to share this video interview of Davison when he was the founder and CEO of Highlight, an ambient location app. This “back in the day” chat is split into four parts — sorry about that — and showcases why I find Paul interesting.


Is Shopify ready to be double-crossed by Facebook?

On my Om

So Facebook is taking on Amazon with its Shops, powered by Shopify (and a bunch of other smaller players.) I don’t know why that agreement kept reminding me of that deal I read about as a young lad: Americans teaming with the rebels to drive out the Russians from Afghanistan. That said, it is not clear how much bargaining power Shopify will have at that point in the future when it is reliant on Facebook and its family of apps to drive a majority of its growth.


Startup founders to VCs: Level Up!

Fred Destin – Medium

Yesterday I asked a simple question on Twitter: “if you could make the “venture capital product” a better experience for founders — what would you change?” Boy, was I in for a treat.

“Allow founders to pitch all the VCs at once. “How about having an online platform that brings together VCs and startups to create pitching sessions, follow up meetings, and instant feedback?”


US micro venture capital fundraising momentum significantly slows down in Q1 2020 –

U.S. micro venture capital fundraising momentum significantly slows down in Q1 2020 (Opalesque) US-based micro venture capital fundraising slows in tandem with the overall market, but funds closed in Q1 2020 did so faster than recent vintages, following a record fundraising year for US-based micro venture capital funds in 2019.


Are VCs Really “Open for Business,” and If So — What Does This Look Like In Reality?

Startup Grind – Medium

From launching Wellness Programmes ( à la Playfair Capital ), webinar series for founders (as shared by Justin da Rosa from Battery Ventures ), and helping with hiring to tackling the difficult questions surrounding restructuring and replanning — investors are providing a huge amount of support to founders during this time ( see our recent “From the Founders ” article for a deep-dive into what this has looked like for some of the startups on our Startup Program ).Most investors said they are “ absolutely actively still investing” (Henrik Wetter Sanchez, Playfair Capital ) and that it’s business as normal with some obvious changes to the usual coffee meetings and catch-ups.


Fundraising for startups is a mix of selling both promise and reality.  In some respects, one of the often non-intuitive privileges of a seed stage fundraising process is that the company is so new.  There isn’t much history, much reality, to get in the way of a good story.  So a lot of Founders can weave a tale of the promise of what could be created rather than what has been created.  And the earlier stage the startup, the less capital that’s gone into it, the small amount of time spent to date, leaves a blank canvas to paint a vivid and promising vision of the future.

But what happens when you’ve been at it a while?  Most startups have hit a patch where they’re figuring things out, not linearly (or geometrically) progressing forward, facing challenging external circumstances, or refactoring a product or go-to-market approach.  Sometimes those time-periods are extended ones.  And it’s even more likely in light of the current Covid crisis that company development and subsequent fundraising timelines will be longer in the next several years than in the past.

Read More

Josh Kopelman on The Business of Venture Capital and Being a Founder

Howard Lindzon

MP3 here

Prior to starting First Round, which has invested at the earliest stages in companies like Square, Uber, and Roblox, Josh was a three-time entrepreneur, so our conversation spans early stage investing, business building, and entrepreneurship.We also discuss how First Round has bucked the trend to build what I’d call a platform adjacent to the core investing business which does a lot for their entrepreneurs and is a model for other professional investing firms, both in venture and elsewhere.


Advice for job seekers on resumes and reaching out

Y Combinator

And if you’re looking for a job, check out our active jobs list on Work at a Startup , which makes it simple to browse the 400+ YC companies that are well-funded and actively hiring, including larger ones like Segment , Brex and Instacart .To help job seekers amid this crisis, I’m spending a lot of time doing 1-1s and resume reviews.


£500m Future Fund launch mired by fears startups will miss out – City A.M.

City A.M.

“The Future Fund is going to probably be used by a core number of VCs that will most likely invest into their existing companies,” Stephen Page, co-founder and chief executive of seed investor Startup Funding Club, tells City A.M.Future Fund, the government’s £500m answer to startups’ need for cash to survive coronavirus, is set to launch today – but risks freezing out a swathe of British firms, entrepreneurs and investors have warned.


Seed funding terms — it’s the upside, stupid!

Point Nine Land – Medium

Hence, we do look at the drag provisions in the shareholders’ agreement, but only to ensure that a) small shareholders do not have undue leverage over a sale (i.e. can be dragged if necessary), in particular if the founders want to sell (as in most cases they know best when it’s time to let go — which we are generally happy to follow), b) proceeds are distributed in line with any applicable liquidation preferences (see below) and c) investors cannot be forced to accept overly onerous terms (esp.The left column of the table lists the (few) provisions commonly agreed in seed rounds that are important to us because they either ensure that we can put more money in or sell when the founders/key operators are selling.


The Opportunity and Risks for Consumer Startups in a Social Distancing World — A Framework for Consumer Attention.

Sarah Tavel – Medium

Social distancing has dramatically changed how we spend our time. With all in person gatherings canceled, people suddenly have a lot more free time on their hands. New and incumbent consumer internet companies are racing to claim that time.

As an investor in and lover of consumer products, I’m incredibly excited by the opportunities this window represents. But I’ve also asked myself what distinguishes a consumer startup that will not only thrive during a time of social distancing, but after? This is how I think about it, and some advice to consumer founders out there.

if you believe you have product/market fit (as evidenced by weekly cohort retention that asymptotes in the 30%+ range), I’d consider whether spending a little bit of money on acquisition to accelerate growth would help you take advantage of the window. Don’t get me wrong — it cannot be a dominant means of growth. It must be a temporary strategy where you see organic growth continue to be your dominant growth vector, but in a world where this is moment of time to take advantage, I’m comfortable breaking sacred rules if it’s done with intellectual honesty and discipline.

Read More

Coinbase says employees can work from home permanently


Coinbase employees can continue to work from home even after the novel coronavirus quarantine was lifted, its CEO Brian Armstrong said today.In the future, Coinbase employees will be able to choose whether they want to work in the office or remotely, the letter stated.


Venture Capital Funding During Coronavirus Pandemic

The National Law Review

In a down-round financing led by existing stockholders, a transaction approved by the majority of the disinterested directors or, where there is no controlling stockholder, a majority of the disinterested and informed stockholders, will receive the benefit of the business judgment rule, which directs a court to show deference to the decisions of the company and assume that the directors acted in accordance with their fiduciary duties.Generally, such claims will center on a breach of a fiduciary duty by the company’s directors, particularly when the down-round financing is led by existing stockholders of the company that have the ability to block other transactions or influence the board deliberations.



In brief

  • UK crypto startup Zumo, which is backed by Coldplay’s Guy Berryman, has launched a payments app.
  • Zumo is targeting mainstream investors with an easy to use, non-custodial app and wallet.
  • The crypto venture is Berryman’s first known involvement in the industry.

Read More

Andreessen Horowitz Report: Crypto Not as Chaotic as It Appears


Top venture capital firm Andreessen Horowitz looked at four key metrics for three cycles of cryptocurrency showing consistent growth.


5 Things No One Tells You About VC Firms


Once an investment crosses 2% of the fund size, it starts to be a bigger deal.Non-partners leave to join hot firms.


The Playing Field

Graham Duncan Blog

Over the last decade, I’ve interviewed and assessed more than 5,000 investment managers. One of the most important things I’ve learned in that process is what separates the great investors from the rest. The great ones view investing as a game, and they know exactly what game they’re playing. It brings to mind an observation from the philosopher Kwame Anthony Appiah:

“In life the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”

One great portfolio manager I know told the story of being driven somewhere by an analyst on a rainy night when a truck swerved and almost ran them off the road. “Why is stuff like this always happening to me?” the analyst instinctually responded. But to the portfolio manager, that response reflected a terrible mindset, whether on the road or in the market: a sense that the world is acting on you as opposed to your acting on the world. It is a mindset that is hard to change. But from what I’ve seen, great investors don’t have it. Instead, they’ve come to understand which factors in the market they can control and which factors they cannot.


A long economic crisis will be the end of founder-friendly deal terms

Business Insider

Many VCs like early-stage firm Benchmark knew that and would market themselves as “founder friendly” to preempt the competition.What Rabois didn’t mention on the podcast is that VC firms are also feeling new pressures affecting the terms of funding deals.


In Defense of the Deck

Bill Gurley on Above the Crowd

From July 7, 2015:

My partners and I have noticed an interesting trend over the past few years: an increase in the number of entrepreneurs who prefer to pitch us without the use of a presentation deck. On one hand, this is totally understandable. Many believe that PowerPoint decks are emblematic of the type of bureaucracy disparaged in Dilbert cartoons. Others want to appear “casual” and “conversational” and view the presentation as overly formal. But, going deck-less can be a risky move, and here is why. Investors are not solely evaluating your company’s story. They are also evaluating your ability to convey that story. Efficiently communicating your strategy, business model, and competitive differentiation is required for many critical things you will do as a company.

myfirstminute in conversation with Dr Hermann Hauser

firstminute capital – Medium

Key Takeaways from Founders Intelligence by Jad Fadl 12 May 2020 Our seed fund partners, firstminute capital, interviewed the immensely successful entrepreneur and venture capitalist, Dr Hermann Hauser.


Myfirstminute in conversation with three unicorn founders turned investors: Cristina Fonseca, Paul…

firstminute capital – Medium

Video Here

Myfirstminute in conversation with three unicorn founders turned investors: Cristina Fonseca, Paul Forster & Fabrice Grind. We caught up with Cristina Fonseca (Co-founder Talkdesk ($1bn private valuation) and Venture Partner at Indico Capital Partners), Paul Forster (Co-founder & former CEO — $1bn acquisition by Recruit), and Fabrice Grinda (Co-founder & Co-CEO OLX (acquired by Naspers), Zingy (exited for $80m), and Founding Partner at FJLabs).


Silicon Valley Rethinks the (Home) Office

Feed: All Latest

Now, as the pandemic has shuffled employees out of the office and into their own homes, some tech companies are offering a new kind of perk: the option to never return to those offices again.The tech industry was full of early adopters, but a survey from the Society for Human Resource Management in March found that two-thirds of US companies were “taking steps to allow employees to work from home who don’t normally do so.”


Internet Escape Velocity

Venture Desktop

The first lecture in an Internet Economics 101 course might start off something like this:

The internet economy is defined by increasing returns to scale. Winners take a larger market share in the online world than the offline world because zero marginal cost distribution and diminished transaction costs make it possible for companies offering a better user experience to insert themselves between a supplier and a customer, re-directing the flow of power in a value chain. Over time, companies who own consumer demand at scale become difficult to displace or get around as network effects and data advantages compound.

Syllabus material for Internet Economics 101 would draw heavily on the thinking of people like W. Brian Arthur and Ben Thompson and would feature posts like this one from Gavin Baker that looks at internet economics from the investor perspective:

Scale and loyalty are generally the most important metrics to me as an investor as they are the most sustainable — and measurable — competitive advantages. They are much more important online than offline, which is why the internet economy has such pronounced “winner take most” dynamics relative to the offline economy. Barriers to entry on the internet are low, but barriers to scale are high.

If scale and loyalty are the defining characteristics of successful consumer internet companies, it begs a set of follow up questions — what strategies can companies employ to build the loyalty that enables scale, and how can those companies continue to scale without diminishing the user experience that is fundamental in creating loyalty in the first place?

Put differently, how can companies hit escape velocity from the pseudo-government level control Google and Facebook exert over the internet economy?


Dallas stands out among the ‘Mighty Middle’ in venture capital investment growth

The Dallas Morning News

Chinn said that Dallas sees a large variety of investments but that health care companies do much of the innovating and attract much of the capital.Zajicek works only with health care startups, and Health Wildcatters has invested about $70 million in 68 companies since beginning in 2013.


The secondary market for VC limited partner stakes is frozen for now

Business Insider

“The secondary market right now is at a grinding halt,” said Kelly DePonte, a managing director and head of research at Probitas Partners, a financial advisory firm that helps venture capitalists raise money for new funds — sometimes by selling stakes in their older funds.When those investors — the funds’ limited partners — run into cash-flow problems and can’t or don’t want to answer those capital calls, they often turn to the secondary market to find people who will buy their stakes, take on their commitments, and pony up the cash to venture capitalists.


Big VCs stacked billions in Q1 while smaller firms saw their haul shrink

Fundings & Exits – TechCrunch

After spending perhaps more time than we should have recently trying to figure out what’s going on with the public markets , let’s return to the private markets this morning, focusing in on venture capital itself. We’ve seen NEA stack $3.6 billion in March and Founders Fund raised $3 billion for its own investing work earlier in the quarter, to pick two examples TechCrunch covered.