14 May 2020

This week’s issue includes a lot of content about the impact of the virus on work geography and location. A lot of very good stuff on Venture strategy and Startup tactics too. Includes content from Fred Wilson, Gené Teare, Tomasz Tunguz, Elizabeth Yin, Om Malik, TechCrunch, The Harvard Business Review, CrunchBase News and many more. Topics are the ones that dominated the week.

  • Silicon Valley and the Pandemic - The Economist
  • America’s Mighty Middle - Middle America Funding Report - Gené Teare
  • Building a Coast to Coast Silicon Valley - Venturebeat
  • Shelter in Place - What is the Impact on Business Building if it lasts 18 more Months? - Tomasz Tunguz
  • Location and Work - Fred Wilson
  • How Zoom beat Skype - Om Malik

I email the newsletter each weekend. There is little or no commentary included, it is the things I found compelling or interesting. You can find more about what I do at Accelerated Digital Ventures,  archimedes.studio and ubi network

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A new innovation this week. Andrew Keen interviews me ahead of publishing the newsletter.

And here are this weeks articles:

Silicon Valley in the pandemic

The Economist

  • “It’s not the best environment for this, with people at home and kids in the background,” observes Marwan Forzley, the boss of Veem, a startup based in San Francisco which allows firms to transfer money cheaply.
  • More than one sees the tech industry’s sweet spots moving from services that cater to consumers and involve the physical world, such as electric scooters and online ticketing, to offerings for business that are delivered virtually, including specialised web-based software and digital infrastructure.

READ MORE

America's Mighty Middle

Gené Teare - Crunchbase

Across the Mighty Middle, companies in the metro areas or cities of Greater Chicago, Austin, Greater Denver (which includes Boulder), Pittsburgh, Greater Dallas and Greater Minneapolis raised the most venture capital dollars over the past decade.

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Location and Work

Union Square Ventures

  • What this means for large cities where many companies that engage in knowledge work are centered is an interesting question.
  • What we have seen in this pandemic is that knowledge workers have been able to be comparably productive working from home and that has caused many large (and small) employers to consider different work/location options.

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Building a coast-to-coast Silicon Valley

VentureBeat

  • Rather than ask workers to telecommute from their expensive rentals in San Francisco’s Mission District or in Palo Alto — while HR finds ways to sanitize the snacks — what if Silicon Valley companies encouraged them to live and work from the myriad of affordable, livable cities desperate to attract and retain tech talent?
  • At the same time that global tech capital has concentrated in a handful of North American cities (think San Francisco, New York, Seattle, Austin, or Toronto), these same cities have suffered unprecedented crises in housing affordability, traffic congestion, and cost of living increases.

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Lower Costs, Laid-Back Lifestyle Continue To Draw Tech Companies To Austin, Texas

Crunchbase News

  • In 2019, the Austin Chamber of Commerce recorded 58 relocations to the Austin area (keep in mind this does not include companies opening second offices here or those like Apple, Amazon and Google who have announced major expansions in recent years).
  • More than ever, I am hearing about a company that has either relocated its headquarters to Austin, is expanding its presence here, or has plans to open a secondary office in the capital city.

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How Would You Manage Your Business Differently if Shelter-in-Place Lasted 18 Months or More?

Tomasz Tunguz

  • Given all the uncertainty for the next few quarters in how we will work, and it may be time to shift from short-term decisions to longer-term planning, like these larger companies.
  • This week, the first companies announced longer-term plans.

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The Remote Work Renaissance Will Demand Decentralized Technology

Cointelegraph

The world’s digital migration driven by the COVID-19 pandemic requires more transparent and trusted technology such as blockchain

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Thriving In Ambiguity: What To Do Your First Year As A Venture Capitalist

Forbes

  • Some examples of initiatives include building a scout fund, developing a data science strategy, creating team bonding events, or finding new ways to add value to portfolio founders.
  • At any point in time, a founder probably has a long list of things they wish they had another pair of hands to help them with.

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How CEOs Can Lead Selflessly Through a Crisis

Harvard Business Review

  • In my research I found that leader self-sacrifice, such as cutting one’s own salary or giving up one’s own benefits, caused employees to feel more positively toward their leaders and more committed to their organizations during crises.
  • The author’s research shows that when leaders sacrifice in this way, it makes employees feel more positively toward them and more committed to their organizations.

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Moving to an ‘everything as code’ world

Venrock

  • But when it comes to the way we operate and scale the underlying infrastructures that power our software, we look more like a Formula One pit crew — a high-performance team of specialists that need to continually triage, tune, adjust, and repair.
  • This presents us with an opportunity to build a new generation of tools and workflows that will programmatically operate infrastructure the same way we use code to build our software.

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Why is the Stock Market Only Down 15%?

Tomasz Tunguz - Venture Capitalist at Redpoint

  • The model says that the value of a stock is equal to next year’s dividends divided by (the cost of capital minus the dividend growth rate).
  • Alternatively and more pessimistically, if you assume the dividend growth rate falls from 5.8% to 4% after two years at zero dividends, then you should expect the index to fall 25% in value.

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Why VCs Need Unicorns Just to Survive

SaaStr

  • For VCs that manage a fund any bigger than $150m or so though (which is relatively small for a VC) — there really is only one way.
  • Because the (maybe semi-sad) thing for VCs is, only Unicorns make the business model work :

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Why Do VCs Want To Own So Much When They Invest?

SaaStr

  • And to reach that goal, to simplify, for most VC funds, each investment needs to be able to “return the fund”, i.e. return 1x the entire amount of the fund.
  • Why Do VCs Want To Own So Much When They Invest?

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Venture Capital Has A Lot To Learn From Fintech: Data-Driven, New Products, And More Access To A Broader Set Of Companies

Forbes

  • Fintech companies have upended traditional financial services by reinventing business models and offer role-models for similar product innovation in venture capital.
  • Venture capital will similarly evolve its own business models and product lines to cater to the growing breadth of startup companies.

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Thriving in Ambiguity: what to do your first year as a Venture Capitalist

Forbes

  • Some examples of initiatives include building a scout fund, developing a data science strategy, creating team bonding events, or finding new ways to add value to portfolio founders.
  • At any point in time, a founder probably has a long list of things they wish they had another pair of hands to help them with.

READ MORE

Why Skype lost to Zoom

On my Om

The present shift to “work from home” should have a moment for Skype to shine. Instead, it is an afterthought for many of us, who have turned to Zoom (warts and all) at a time when the video has become a crucial part of our daily communication.

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Venture Capital Needs a Complete Reset

Gabe Kleinman - Marker — Business News and Articles for Startups and Leaders - Medium

  • Today, facing down existential planetary and human health challenges, we need less of those types of businesses and more of the inspiring, purpose-driven operations that solve massive problems using approaches never before created.
  • Venture capital today differs so dramatically from 50 years ago not just in the value-add services we now see at so many firms, such as a16z’s services-on-steroids portfolio, which has focused largely on industries like enterprise software, cryptocurrency, and online marketplaces.

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Startups Face a ‘Fundamental Reset,’ Says VC

The Information

Ann Miura-Ko is no stranger to investing during a crisis. She got her start in venture capital as an analyst on September 10, 2001. She co-founded her seed-stage fund, Floodgate, in 2008 just as Bear Stearns was collapsing.

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To Build Strategy, Start with the Future

Harvard Business Review

  • That’s I think what fully unleashes a vision and it would have to be unleashed in the sense of not just saying that this is what we want to try to achieve broadly in our industry, but specifically based on trends and the convergence of those trends and a discussion about that, and other factors deciding what your organization from an enterprise point of view needs to look like in that envisioned future.
  • So present-forward is exactly as it sounds which is to really be able to take the existing operations, the way activities work, processes and the way things are organized, dealing with the immediate market needs.

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Chamath Palihapitiya's unexpectedly successful second act in SPACs

Business Insider

  • But the firm stopped raising new funds two years ago after angering some of its own investors, who watched a series of changes in the investing strategy lead nowhere.
  • For his part, Palihapitiya has said he was frustrated with the typical workings of a venture firm, which invests money from mostly outside sources, like endowments, pension funds, and family offices.

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Equity management platform Carta is planning to launch CartaX, a private share trading platform to rival Nasdaq, this summer for companies worth $1B+

Techmeme

Miles Kruppa / Financial Times: Equity management platform Carta is planning to launch CartaX, a private share trading platform to rival Nasdaq, this summer for companies worth $1B+ — Silicon Valley start-up poised to launch exchange as tech companies delay IPOs — The Silicon Valley start-up Carta is planning to launch …

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The Merits of Bottoms Up Investing

Venture Desktop

Seth Klarman, Benchmark, and seeing the present clearly. Benchmark has set the standard in the VC world for more than two decades. This audio essay is a deep dive on why. Seth Klarman & the perils of thesis driven investing

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2Q20 – Groping in the Dark…

On the Flying Bridge

  • The significant investment activity of 2018 and 2019 (according to Pitchbook there were nearly 22,900 financings over those two years) has created an extraordinary number of companies poised to come back to market.
  • According to Global Corporate Venturing, CVC participation decreased by 21% and 12% in terms of number of investments and amount invested in March when compared to a year earlier.

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How Not to Get Your Time Wasted by VCs

This is going to be BIG

  • The ability to qualify a lead and spend time in your pipeline commensurate with the likelihood of payoff is a critical skill.
  • Some non-partners at a firm can lead a deal—but the reality is that if you’re scoring your VC leads on likelihood fo close, you have to take points off for junior VCs or partners who probably have less pull.

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20VC:

Floodgate’s Mike Maples on 3 Key Breakthroughs

Startups Experience in Success,
The Rise of Angel and Operator Funds,
Multi-Stage Funds Re-Entering Seed Investing and The Insight Development Framework

The Twenty Minute VC: Venture Capital | Startup Funding | The Pitch

  • Mike Maples is a Founder & Partner @ Floodgate , one of the leading early-stage firms of the last decade with investments in the likes of Lyft, Twitch, Twitter, Okta and Sonos to name a few.
  • What were Mike's learnings on inflections from investing in Lyft?

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Leadership Has A Price

Union Square Ventures

  • Leadership is not being liked.
  • It also captures the burden of leadership and what is required to get everyone to commit to each other and be the best that they can be.

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Hunter Walk: Damn the TAM and other seed startup thoughts

Fundings & Exits – TechCrunch

  • Walk joined us for an Extra Crunch Live chat late last week that was a mix of advice and insight about what the seed-stage Homebrew partner looks for in founders and companies to invest in.
  • We also dug into fintech, where Walk and his Homebrew partner Satya Patel have made a number of investments that have turned out well, including Plaid, Finix, Chime and so on.

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You Got Rejected By A VC, Now What?

Crunchbase News

  • Putting aside the commercial readiness, and lack of understanding of what early-stage investors really care about , entrepreneurs today need to handle rejection gracefully.
  • These VC connections led to future investments by the same VCs that rejected us, and led to other collaborations years later.

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Why Are the Public Markets Strong When Unemployment is Terrible? Answer: The Cloud

SaaStr

  • And the public markets have become … The Cloud.
  • The post Why Are the Public Markets Strong When Unemployment is Terrible?

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How Shopify Missed Its Chance to Dethrone Amazon

Marker — Business News and Articles for Startups and Leaders - Medium

  • In a discussion with Web Smith , Tobi Lütke, CEO of Shopify reportedly suggested that the objectives for Shop were to increase post-purchase loyalty, to increase customer lifetime value, and to enable local e-commerce.
  • And, similar to the way Amazon operates, the stores are pushed to use Shopify’s integrated payment platform, Shop Pay.

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VCs spent $11.8B on mobility startups in Q1 2020, report says

The Next Web

  • The report notes that venture capital financing in the space peaked in 2018, when approximately $60 billion were deployed into mobility startups.
  • Investors spent $6.6 billion on ridesharing companies during Q1 2020 — representing a drop of 38% YoY but an increase from the $1.4 billion raised in Q4 2019.

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Silicon Valley Venture Capital Survey – First Quarter 2020 | Fenwick & West LLP

JD Supra

  • • The Fenwick & West Venture Capital Barometer™ showed the average price increase declining from a record 142% in the prior quarter to 94% in Q1.
  • Silicon Valley Venture Capital Survey – First Quarter 2020

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The Truth About Airbnb and Uber Layoffs

The Information

When Cory broke the news that Airbnb was planning to lay off 25% of its staff this week, I wasn’t surprised by the cuts. The pandemic has wiped out demand for travel. It has been clear that no travel business would be spared from cost-cutting.

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Public Frenzy And Private Caution

Haystack.vc

  • But, the key point for observers and especially hopeful entrepreneurs to understand is this — while the stock market gyrates up and down, the market volatility combined with layers of economic, scientific, and public health uncertainty create an environment where VCs have very little incentive to buy illiquid assets at this specific moment, especially when those relationships are so long-term, when the economy is frozen, and when prices have not stabilized.
  • In the midst of America’s struggle with the COVID-19 pandemic and the induced economic coma set through government policies of sheltering in place and social distancing, we all know what has happened — an ice cold shock to consumer demand, unemployment levels not seen in over 50 years, and concerning uncertainty in everything from government policy, kitchen table issues, and public health.

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INTRO to Finance — The Cost of Capital

Stories by Bryce Roberts on Medium

  • We’re going to convert all financing options to a simple Annualized Cost Percentage (ACP).
  • If this financing required annual payments, you would be paying $180k a year in cost beyond repayment to use the money.

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What Should Startups And VCs Build? How To Make Money In Post-COVID-19 Times - Forbes

Forbes

  • Below, I share my thoughts on what is relevant for startups and VCs in the tech, real estate, and blockchain industries:
  • Fortunately, the U.S. real estate industry reached a level of digitalization that allowed the market to prevent itself from coming to a complete halt during the pandemic.

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China unicorn creation falls to six-year low as investors play it safe - Midwest Communication

Midwest Communication

  • HONG KONG (Reuters) - China's rate of creating unicorns has dropped to a six-year low as venture capital funds shy away from early-stage funding while the economic impact of the coronavirus outbreak batters portfolio investments.
  • Early-stage venture funding has dropped with just 13% of fundraising going into "angel" and "seed" rounds as of April-end, down from a third five years earlier, showed Reuters calculations based on PitchBook data.

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