Startup anti-pattern #3: elephant hunting

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First, two stories that highlight two different sides of elephant hunting.

In 2005, Meridio was guaranteed to win a deal worth $15m+. Meridio was a small electronic documents and records management (EDRM) startup whose software ran inside some of the world’s most secure organizations: from banks to oil & gas companies to branches of government and the military. One of its happy customers, the UK Ministry of Defense (MoD), was looking to modernize its infrastructure in a massive IT procurement worth billions. Each of the two integrator consortia shortlisted for the deal had designed Meridio into the solution. It was the largest secure SharePoint deployment in the world at the time: a great proof point of the quality and scalability of Meridio’s software. The future looked bright.

Meridio did win the deal and get the money in the end, but the process nearly killed the company:

  • The product roadmap and development prioritization became more complicated.
  • Supporting the two fiercely competitive integrator consortia required staffing up teams with semi-duplicated responsibilities: a significant distraction and increase in burn far ahead of revenue.
  • Once the MoD deal was awarded to one of the consortia, Meridio had many employees it couldn’t put to productive use quickly. The resulting layoffs impacted culture.

The UK MoD deal was important for Meridio — it influenced the 2007 sale of the company to Autonomy, now part of OpenText — but it was less impactful from a valuation standpoint than the company imagined it’d be. Winning the deal came at the expense of distraction and operational inefficiency, both of which affected growth in other areas of the business. Also, there never was another deal like it.

And now for story #2. In 2014 Life360 hit gold. After 18 months of lengthy negotiations, Life360 landed a $50m investment deal from ADT, the global leader in Home Security, coupled with a strategic joint product development opportunity that could net the company tens of millions of dollars in revenue. The team was dancing on rooftops!

In 2019, long after the commercial deal was dead in the water, Life360 decided to go public early (compared to its peers), and one of the considerations was ADT’s significant position as an investor in the company. Further, after years of development that sucked, at times, half of our engineering team’s bandwidth, the product we launched was discontinued and made no contribution to our business. When the company struck the deal employees were initially very excited. They believed that the organization they were working with would be as devoted to the strategic deal’s success as their small startup was. Three management team changes later, it became clear that the deal, which was one of the highest priority items on Life360 plate, was a pretty low priority for ADT. New execs at the company didn’t feel a real commitment to it, and a Private Equity acquisition coupled with organizational changes didn’t help much either.

Everything is easier in hindsight, but Life360 could have avoided this. Luckily, the deal didn’t end up being a company killer and the other parts of the business helped Life360 cement a great spot as a public company. It’s probably fair to say Life360’s success happened despite the ADT deal, not because of it.

What it is?

“Elephant Hunting” is a buzz term describing the practice of targeting deals with very large customers. For example, hunting an elephant in the context of a startup could be a seed-stage company targeting the likes of Google or AT&T as a customer in a million-dollar deal. These customers can provide large contracts, but they can be hard to catch and require large teams to tackle. With business-to-business (B2B) startups, there’s almost nothing more exciting (or seductive) than hunting and bagging an elephant-sized deal. It can produce huge revenue growth, provide you with highly leverageable customer references, and it’ll excite investors. Once you hunt down an elephant, it can feed many mouths (and egos) at the company for a long time. What could be better?

Be warned: the pursuit of elephants can be a dangerous game. If you fail to “kill the elephant” it might well be the one killing you. Unlike young and dynamic startups, elephants are organizational dinosaurs and striking a deal with an elephant will require your entire team — from sales to engineering — to engage with the elephant at different levels of the organization. This engagement happens over months, sometimes years. Even if you succeed in getting an elephant, you may get less benefit than you expected, as the cases of both Meridio and Life360 demonstrate.

Why it matters?

Elephant hunting can bring your company down on its knees. Here are some perils to be aware of:

  • No repeatability. Elephants are hard to catch and often there aren’t enough of them. Meridio never found another UK MoD. Life360 never found another ADT.
  • Heavy operational burden. When you pursue and, later, land an elephant, it’s tempting to put all your resources into serving them. But this can lead to neglecting other clients and missing out on potential opportunities. Both Meridio and Life360 suffered operationally while selling and, later, servicing their respective elephants. Elephants may demand extended payment terms or lower prices, which can put a strain on a startup’s finances. It’s important to carefully consider the financial implications of taking on an elephant client.
  • Missed learning opportunities. When you and your team are laser-focused on one client you might be missing the forest from the trees. As a startup, you seek scalable solutions that matter to most potential customers you want to serve. More feedback is better, and getting feedback from just one elephant makes it harder to identify the scalable, repeatable, products that your target audience needs.
  • Overpromising and underdelivering. In the rush to impress an elephant, startups may make unrealistic promises they can’t keep. This can damage their reputation and lead to the loss of the elephant and future clients. Elephants have tall expectations for products and services delivered, as well as a web of requirements across legal, compliance, cybersecurity, etc. that smaller companies may be incapable of servicing well.
  • Compromising your identity. When a startup lands an elephant, it’s easy to become absorbed in their world and lose sight of your own identity and values. This can lead to compromises that go against your startup’s mission and culture. Note, for example, how many big tech companies have had to compromise to do business in China.
  • Losing control. Elephants may have their own demands and expectations that clash with a startup’s way of doing things. This can lead to a loss of control and autonomy, as the startup becomes beholden to the elephant’s whims. On the partner/channel side, this relates to the platform risk anti-pattern. In conclusion, while landing an elephant can be a huge boost for a startup, it’s important to be aware of the perils that come with it. By maintaining a balance, staying true to your values, and carefully considering the operating implications, startups can avoid the dangers of elephant hunting and build sustainable growth.

Diagnosis

Diagnosis is relatively straightforward. Here are a few signals that you might be spending too much time elephant hunting or are getting sucked into the Savannah:

  • Are you and your sales team spending most of your time focused on one deal with a big enterprise client? Has this been going on for an extended period?
  • Are you increasing spend ahead of revenue more than what you’d normally do for just one or two deals?
  • Is a significant chunk of your engineering team’s bandwidth focused on building custom features for one big customer? Does it feel like this customer is essentially dictating your roadmap for the foreseeable future? Do you find yourself having to promise steep SLAs and help desk hours that you know your existing team can’t support now or in the near future? Startups often do need to stretch to deliver, but if your team feels that servicing the elephants will consume the entire company, they’re probably right.

Misdiagnosis

A common misdiagnosis stems from not fully understand or realizing the scope and bandwidth consumption of Elephants. Often, it’s easy for the team to get excited about big deals and they tend to look the other way. Developing and delivering products to Elephants comes with significant overhead, longer sales cycles, lower win rates, and, often, requirements and standards that don’t make a positive impact on the joint outcome, but suck a lot of time and energy from everybody in the room.

Put together KPIs and tools to help you measure the impact elephant hunting has on your Sales and Engineering teams and make data-based decisions.

If your startup is investor-backed, remember that your job is to grow equity value. Revenue, profits and growth are pieces of how equity value is determined. Ask yourself whether the pursuit or even the winning of an elephant will have a meaningful positive impact on equity value given all the positive and negative externalities.

Refactored solutions

Once diagnosed, the refactoring of this anti-pattern very much depends on the set of challenges and opportunities your company has at hand. A few ideas on how to make the most out of Enterprise customers without consuming your entire (small) organization in the process:

  • Try to strike a smaller, multi-phase, deal with the Elephant. That would help both sides build confidence and capabilities to better serve each other.
  • (Artificially) Limit the resources devoted to elephant hunting. Be ruthless about this with your sales and bizdev folks. They’re likely to gravitate towards elephant hunting — these deals tend to be very exciting.
  • Continuously measure and analyze how much your team spends on custom work (especially non-repeatable deals and non-productizable work). It might put a strain on your relationship with the Elephant customer, but good Sales and Customer success teams can help strike a balance and set expectations.
  • Do you have enough slack to sign a deal with an Elephant? One good rule of thumb is assuming that deal will require twice as much resource and time compared to your original expectations. If that’s the case, would you still execute on the deal?

When it could help?

Does this mean you should never try to hunt elephants? No, but it does mean you should think very carefully about it, and be prepared to answer a few questions: 

  1. Where does elephant hunting fit in your sales and growth strategy; near vs. longer term; lower-hanging fruit vs. higher up your sales tree?
  2. How many elephants are there for you to hunt? Is that a real market niche for your business?
  3. Do you have the human resources to hunt and satisfy elephant-sized customers?
  4. Do your sales, engineering and customer success people have the skillsets and experience to satisfy this species of customer? 
  5. Does your CEO have the bandwidth and skill to take down the elephant? This strategy often demands an inordinate amount of the CEO’s time. Which of the CEO’s other responsibilities might suffer?
  6. Does your company have the financial resources to survive and thrive in the face of typically slow decision and purchase cycles? Will investors give you (relatively) cheap cash so that you can wait for the revenue?

For many startups, the transition to spending more time on Elephant hunting is part of the startup journey from childhood to adolescence. If you have good answers to the above questions, a more mature product that is ready to scale, you and your team might be ready to make the move, but tread carefully so you don’t end up being yet another victim on the plains of the Serengeti.

Co-authored with Simeon Simeonov. More startup anti-patterns here – https://blog.simeonov.com/startup-anti-patterns/ 

Intro to Startup anti-pattern Series

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An anti-pattern is a commonly used process, structure, or pattern of action that, despite initially appearing to be an appropriate and effective response to a problem, has more bad consequences than good ones.

Simeon Simeonov first wrote an introduction to the value of startup anti-patterns back in 2013. To sum it up, it’s hard to pinpoint the exact set of reasons startups succeed, but experienced entrepreneurs and investors have a good sense of what drives startups’ failures.

Startup anti-patterns are all about that — patterns that increase the risks associated with startups (hey, it’s a risky business to begin with). Pursuing an anti-pattern doesn’t mean that your company will die tomorrow or in the next year, but each anti-pattern adds-up and could lead to clouding your focus and hampering your ability to execute.

Together with Itamar Novick from Recursive Ventures, Simeon Simeonov is bringing the Startup anti-pattern series to life. Stay tuned for more in this series as we work through each anti-pattern with tangible examples from our experiences as founders and investors in 100+ startups, and the experiences of guest founders from our portfolio.

Startup Anti-Patterns full list (work in progress…)

Studying repeatable patterns of startup failure (startup anti-patterns) is more useful than studying non-repeatable strategies for startup success.

Top Startup Anti-Patterns:

  1. Elephant hunting
  2. Ignorance
  3. Platform risk
  4. If you build it, they will come
  5. Bad revenue
  6. Chasing the competition
  7. Chasing Blue Oceans
  8. Analysis paralysis
  9. (Founder) Arrogance
  10. Boiling the ocean
  11. Attribution risk
  12. Bleeding on the edge
  13. Bridge to nowhere
  14. Changing strategy instead of execution
  15. Confirmation bias
  16. Confusing activity with results
  17. Consulting to product
  18. Death by pivot
  19. Deathmarch
  20. Delayed scaling
  21. Demand generation
  22. Design by committee
  23. Designing for investors
  24. Drag
  25. Escalation of commitment
  26. Escape to the familiar
  27. Escapism
  28. Featuritis
  29. Forward thinking
  30. Founderitis
  31. Groupthink
  32. Hail Mary
  33. Ivory tower
  34. Lack of focus
  35. Lagging indicators
  36. Learned helplessness
  37. Long feedback cycles
  38. Lying to investors
  39. Magic salesperson
  40. Mentor whiplash
  41. Missing your exit
  42. Myopic bootstrapping
  43. Next round only
  44. Not knowing your investors
  45. One-off customization
  46. Oooh, shiny!
  47. Overengineering
  48. Overselling
  49. Oversteering
  50. Platform trap
  51. Premature optimization
  52. Premature scaling
  53. Promiscuity
  54. Proof by anecdote
  55. Pushing a rope
  56. Raising too little
  57. Random founders
  58. Scapegoat
  59. Second class citizens
  60. Seed extensions
  61. Secrecy
  62. Silver bullet
  63. Spreadsheet Bingo
  64. Stovepipes
  65. The one idea entrepreneur
  66. Top-down planning
  67. Uber pivot
  68. Underqualifying
  69. Unicorn hunting
  70. Unrealistic expectations
  71. Warm bodies
  72. Weak board
  73. Yes man
  74. Zombie
  75. Outsourcing your architecture (via Alan Neveu)

Note: the list is not “drawn to scale.” Some anti-patterns occur more frequently than others and some are more likely to cause a startup to fail than others. 

How does Early-Stage Venture Capital Perform in a Recession? (or: It’s Time to Build & Invest!)

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Co-authored with Tom White from Stonks and Ram Ben Ishay from the VC Podcast

Venture Capital has existed as a discrete asset class for over seventy years now.

A great deal has been written about what constitutes Venture Capital and what does not (including by Tom White) in these seventy years. Though many different things to many different people, Justice Potter’s famous dictum in Jacobellis v. Ohio works for our purposes: “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it.”

Despite these various definitions, one consistent feature has been written, spoken, read, and heard about Venture Capital: its tremendous outperformance over the last twenty years.

The data is irrefutable regardless of timeframe: over the last five, ten, fifteen, and twenty-five years, top quartile U.S. Venture Funds have generated the highest returns of any major, institutionally-backed asset classes

Because of this, very many podcasts and blog posts have sung Venture’s praises. This post will not pile on here.

Interestingly (and perhaps conveniently, mind you), they all elide over a rather inconvenient truth: a great deal of this outperformance has coincided with arguably the greatest bull run in US history.

Given iffy economic forecasts, turbulent markets, and the looming threat of a recession, this begs two questions. Phrased generally: Did this rising tide lift all boats? More specifically: How does Venture Capital perform in periods of economic decline?

Show Me the Money Data!

Unfortunately, measuring the performance of Venture Capital is a bit more challenging than conducting a similar analysis for public equities. For instance, although some data can be traced back to 1946, the Venture Capital of Georges Doriot and Don Valentine looks very different from that of Marc Andreessen and Mary Meeker. Not to mention, the nearly thirty-five-year period from 1946 to 1979 resembles mere creek when compared with the twenty-first century’s inundation of capital.

Because of this, a middling amount of data exists from that period. Similarly (and unfortunately), data regarding Venture Capital performance from the 1980s is shockingly spotty. In order to maintain data integrity and sound analysis, the below analysis focuses solely on the Global Financial Crisis of 2007-2009. No matter, we’re making lemonade with these lemons. Let’s get into it.

Recessions Make It Rain

Put simply, the Global Financial Crisis produced some of the best Venture Capital vintage years in modern history. A great deal of this value accrued to those GPs and LPs who deployed capital during the crisis’ nadir.

Per the table to the right, Venture Capital performance leading up to the recession was lukewarm. Both during and after the recession, however, performance really 🔥heats up 🔥

Though perhaps initially counterintuitive, upon reflection, some of the strongest performing companies of our generation—Uber, Lyft, Airbnb, Pinterest, Snowflake, Slack, Square, Cloudera, Yammer, and many more – emerged and received funding during this downturn.

Looking at company formation data, the creation of these eventual winners equally spans a lengthy timeline. In fact, it is distributed almost equally before, during, and after the crisis. This supports the notion that good companies materialize through all sorts of financial climates, both good and bad.

Interestingly, the same conclusion does not hold true for the 2000 dot-com bubble. During this downturn, Venture Capital firms had some of the worst returns in history. Even top-quartile funds had single-digit IRR for their 2000-2002 vintages.

So much for a clean through line. What gives?!

Why Do Some Startups Born in Recessions Perform so Well?

Before answering, story time!

When Itamar started his venture career in late 2010 as a junior investment professional, the entrepreneurial ecosystem was still in shock after the 2008 crisis. Despite this, both time and luck were on his side; he was fortunate to have a front-row seat to the funding of some massive VC outcomes during this period. SentinelOne, Honeybook, and LendingClub are just a few that come to mind.

Though companies founded during recessions have a much harder time raising capital, they do benefit from three key advantages:

1) A Focus on Financial and Operational Discipline

Unlike the companies formed in the last three to five years, recession-born businesses must be more customer- and revenue-focused in order to survive. In these environments, founders sprint to build a self-sustaining business because they cannot rely on the safety net of Venture Capital to rescue them. Many aim to become default alive as soon as possible. Those that do not—or cannot due to poor unit economics or lack of product-market fit—seldom make it out of these periods alive.

This transcends the quantitative.

Good companies formed during bad times seem to instill a uniform “tighten-the-belt” ethos when it comes to controlling expenses and cash flow, building sustainable unit economics with quick cash recovery cycles in order to stay default alive. When executed correctly, these upstarts will grow into more efficient, robust businesses.

2) Less Competition

In times of crisis, fewer mavericks take the entrepreneurial leap and bigger companies retreat from new vertical expansion. These complementary forces drastically shrink the competitive landscape.

In fact, during the most recent tech bubble (i.e. 2018-2021), there seemed to be far too much money chasing far too few quality businesses. 

Like weeds, bad, buzzy ideas proliferated and sucked precious capital from good businesses. Driven by FOMO and behavioral contagion, new, sexy ideas attracted the attention of entrepreneurs and VCs alike. This is the barren soil that competition produces; namely, an environment that makes it extremely difficult to produce a singularly-dominant, fast-growing, healthily-operated company. 

3) Talent Acquisition Becomes Easier

During a recession, companies recruit a great deal less. Look no further than recent headlines from Meta, Google, and other giants about current/forthcoming hiring freezes.

Such an environment makes it far easier for David (i.e. startups) to hire talent both from Goliath (i.e. established tech companies) and Fellow Davids (i.e. other startups). 

The below table showcases the cyclical oscillation of job creation by comparing younger and older firms over the last twenty years. During the Great Financial Crisis, job creation slowed by over 50%.

What’s Venture Capital Have to Do with It?

Venture Capital’s beauty derives from its focus on not what is, but rather what could be. As Sebastian Mallaby wrote in Power Law: Venture Capital and the Making of the New Future

Of course, investing in what is categorically impossible is a waste of resources. But the more common error, the more human one, is to invest too timidly: to back obvious ideas that others can copy and from which, consequently, it will be hard to extract profits.

As such, VC is an asset class focused on the long term—more interested in generational paradigm shifts than instantaneous profit extraction.

This is not a bug, but an invaluable feature. Because of this, at its earliest stages – Pre-seed, Seed, and Series A – VC is inherently anti-cyclical. Just think: companies into which Pre-seed investors deploy capital will reap potentially-mammoth rewards not in five to ten months, but in the subsequent economic cycle, five to ten years from now.

It’s worth mentioning that Later-Stage VCs tend to be much more sensitive to economic cycles due to their focus on sufficient capitalization for survival or near-term exit opportunities for liquidity. In recessions, exit timelines become muddled and can be shorter than the time horizon at which late-stage and pre-IPO funds tend to invest.

That said, our focus is on VC’s earliest stages. During recessions, early-stage investors benefit from:

Lower valuations

In recessions, deals become far less competitive. Because of this, it becomes easier to win allocation into high-quality deals (i.e. those that can return a fund and lead to venture-sized outcomes).

Less Market Competition 

As dealflow declines, so too does the pace of capital deployment. This forces VCs to focus more on proper deal due diligence before writing sizable checks. As is said, slow is smooth and smooth is fast.

Though not in the interest of predicting the future, August 2022 is rife with trends that seem to portend recession.

For example, in Q2 2022 Angel & Pre-seed deal activity has fallen ~30% QoQ:

Caveat Emptor and do with that information what you will.

History shows some of the best opportunities come in bad times, not good ones. Though we’re not in the business of prediction here at Recursive Ventures and Stonks, in the words of Lord Byron: “The best prophet of the future is the past.”

Put simply, if public/crypto market turmoil persists, early-stage valuations may well drop ~30% or lower (i.e.below levels seen merely a year ago!).

If that happens, don’t run out of the store when there’s a discount. You would do well to heed Warren Buffet’s advice to be greedy when others are fearful.

Who knows? Such greediness may provide a generational opportunity to invest in quality businesses at bargain prices.

Come along for the ride — we hope to see you on the moon. 🚀

N.B. Investing is a risky endeavor. Investing in startups is particularly risky. Nothing herein constitutes financial advice.

What are “Solo Capitalists” and why are they winning?

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Traditionally, Venture Capital has been driven by the firm. 

The fundamental idea was based on VC Partnerships, with the sum of all partners and investments professionals adding up to more than the individuals themselves. The traditional VC firm with multiple partners has the ability to come across more investment opportunities and be able to better diligence those opportunities. The firm model was seen as lower risk, with more checks and balances in place before cutting a big check.

With the pace of startups right now, though, the firm model is sometimes being left behind. Startups are being built and scale faster than ever. Companies like Deel are reaching unicorn status, scaling from $1m in ARR to $100m, in less than 2 years. Information and deals flow more efficiently, and referrals and trust building happens online and, to a certain degree, in much shorter cycles. VC firms see many more deals, but often they can’t move fast enough.

Funding for startups has also changed, especially at the earliest stages. Good ideas and founders get funded faster than ever, sometimes in days instead of months. Many startups are continuously fundraising. The lines between early stage investment stages (Pre-Seed, Seed) blur together into a series of continued SAFE investment. VC investments builds momentum alongside the company’s business momentum. The notion of waiting for a “formal” big party round is replaced for many founders with several funding chunks providing them with the liquidity they need to continue to scale their businesses.

With the profound changes in startup building velocity and funding ecosystem, it shouldn’t be a surprise that new types of VCs are disrupting the traditional model. The firm model, with its bureaucracy, can’t always keep pace with startup growth. The Solo Capitalists is one model that emerged.

New models are often considered reckless by the old VC guard. But, Solo Capitalists are outperforming many of the traditional funds.

Before we dive into why, let’s first cover the definition of “Solo Capitalists”. Solo Capitalists are typically:

  1. The sole investment decision maker in their fund (and the only General Partner)
  2. Run a lean shop. They often don’t have an Office or Staff (other than Ops and Backoffice, often run by the likes of AngelList and Carta)
  3. Writing larger checks than Angels and competing directly with VCs, raising $50m+ funds and investing $1m+ into funding rounds
  4. Increasingly support their portfolio company’s beyond the early investment stages, leading or investing alongside other VC firms in subsequent rounds all the way to an IPO


Leading “solo capitalists” manage more money than many funds. Oren Zeev manages more than $1.5 billion without additional investment support. Elad Gil, Josh Buckley, and Lachy Groom manage funds in the hundreds of millions with similarly lean structures.

So why does the Solo Capitalist model seem to work so well?

Ultimately, it comes down to the customer.

Entrepreneurs are the customers for VCs (I tend to think about LPs more as partners on the journey). Do founders need VC partnerships? Often they don’t. What founders crave is a single decision maker they can build a trusted relationship with. A partner for the journey who can be hands-on when necessary and understands the business and its evolution.

Founders want a single decision maker who can move as quickly as their business needs (no more “let’s talk again after our next Monday morning meeting”), is unhindered by firm politics or status (no “unfortunately the Senior Partner decided that your business is not one we can continue to support”), and can make informed decisions with full understanding of the business (Why would another partner in the firm investing in Enterprise Software weigh-in on a Consumer investment?).

Further, Solo Capitalists benefit from freeing up the most valuable asset VCs have: time. Without significant operational and partnership overhead, the Solo Capitalist’s time is dedicated to making investments decisions quickly. Solo Capitalists win through speed, empathy, and expertise. Many are current or previous operators, giving them empathy for founders’ journeys. Some bring unique expertise to the table, too.

Naturally, there are potential pit-falls to Solo Capitalists. A single person can’t be an expert in more than a few areas, and having a team of smart folks around the table to weigh-in can help investors avoid missing obvious (and less obvious) hard questions that should get asked ahead of investing. Solo Capitalists often mitigate some of those concerns by seeking help from advisors and experts.

Established institutional LPs are aware of this trend and are increasingly backing Solo Capitalists. University endowments and other institutional investors have funded several top managers. In doing so, these LPs seem to have made peace with the risk of having a solo GP. A side benefit for LPs is that Solo Capitalists are typically more efficient and may generate higher returns due to lower management fees.

Increasingly so, the Solo Capitalist model is a win-win-win to all sides of the Startup funding table — Founders, General Partners, and Limited Partners.

Recursive Ventures top 100 Global seed investor

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Humbled to share that I’ve been chosen #17 on the inaugural Business Insider Seed 100 – The best early-stage investors – list of Global seed investors made by Business Insider and Tribe Capital. Very thankful for the opportunity to support amazing startup founders. Read more about my investments and strategy at Recursive Ventures.

https://archive.is/8M4fu

Berkeley SkyDeck accelerator – application now open

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I’ve recently joined Berkeley Skydeck as an ambassador. It’s a wonderful program and a great fit for startups who are interested in building their business in the U.S. and more specifically in Silicon Valley.

On top of investing $100k, SkyDeck offers a lovely shared office space in Berkeley, and has resources lined up for founders working on deeper technical challenges in Life Sciences, Robotics, and AI. By tapping into the broader UC Berkeley research community the program offers access to faculty as well as cutting edge research labs.

2020 cohort application is now open. Startups can apply here. I’ve recently chatted with Israeli media on the topic (in English, and Hebrew).

On-demand is not a “winner takes it all” market

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A bit over a year ago I was invited to invest in Lyft’s series F ($1B mega round led by GM) as part of syndicate. Even though the investment was too late stage for me I was intrigued and decided to dig in.

I learned early on that some of the existing investors are selling their stock in secondary transactions. That struck me as odd. Lyft was doing very well back then, almost quadrupling GMV in the last year. I talked to one of the investors and he told me that they believe the on-demand ride economy would behave like others in the consumer space – “winner takes it all”. Uber has won, they hoarded too much cash and control the drivers – the supply – taking everybody else out of the market. He claimed that the Marketplace network effect will prevail and will crush all competitors, including Lyft.

A year later Lyft and others are alive and kicking. Not only are they back in the game, but they are also starting to take the lead in their segments and geographies. While Uber has been self imploding here and here Lyft has quadrupled yet again and has become the more beloved brand. In China, Didi has been able to beat Uber and push them out of the country.

The “winner takes it all” dynamic doesn’t seem to hold for the on-demand ride market.

I’d like to propose a different take. How about we start thinking about Uber, Lyft, Gett, etc. like we think about Carriers. There is a place for multiple carriers players in the market, AT&T, Verizon, T-Mobile and so on. They will compete over price and service and each will capture different audiences. It will be glorious for consumers – prices will continue to drop and the service will get even better.

Will it be good for the on-demand ride companies? Can Uber justify a $70b valuation ? time will tell, but I suspect Uber’s (and others) valuation will be challenged in the next few years and it’s not going to be pretty.

The convergence of SaaS and Consumer

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Silicon Valley loves talking about the next big trend and how it impacts the world, so it should come as no surprise that the convergence of SaaS and Consumer technologies (or “Consumerization of the Enterprise”) has been on the radar for a while now.

But there are less discussions about what it takes to win in the “new age” of SaaS companies, nor about the shift in mindset and skillset that startup investors and founders have to undergo to succeed.

To be successful in the “new age” of SaaS Founders and early employees need to have a mix of SaaS and Consumer DNA. Vertical Market Networks, B2B2C companies, and software solutions serving Small and Medium Sized businesses (SMBs), are scaling quickly because of consumer-like characteristics.

Vertical Market Network (read more here) are scaling faster than ever because they are creating virality among businesses. Honeybook (which dubbed the concept of Vertical Market Networks) connects SMBs in the event space, bringing together wedding planners, photographers, and florists, among others, to serve a customer for their project. One service provider usually takes the initiative and starts inviting others, virally growing the reach of the platform. A virtuous cycle begins, similarly to what you would expect in a Social Network, but in this case a business professional network.

B2B2C companies are not a new thing. In the past B2B2C companies were mainly focused on their primary customer – businesses. If businesses were happy the company was successful. But what has been an fairly easy task is becoming harder and harder. Feedback channels from consumer to businesses are prolific and effective and low quality B2B2C products instantly reflect poorly on the brand. Gone are the days where you can have a crappy mobile app and get away with it.

The quality bar required to meet consumer demands, especially in Mobile and IoT, is ridiculously high. Millions of apps flood the app stores and tech startups are going after any connected appliance you could put in your home. Consumer expectations are insanely high and users have little patience for error or quality issues. Everything needs to have a premium feel. If on the web the cost of an error would result in 1x consumer confidence loss, an error on mobile would lead to 10x loss. Even consumer companies have a hard time doing mobile right. One great quote from Facebook: “When Facebook made the move to mobile, it had to ditch its “break a few eggs to make an omelette” mentality, a big change in the company’s core values.” (read more about it here)”. For B2B2C companies to succeed they have to put both the Business and the End-user first. Almost mission impossible.

Last but not least, Businesses themselves are changing rapidly. The United States labor market has been undergoing a substantial shift toward small-scale entrepreneurship. The number of proprietors – owners of businesses – who are not wage and salary employees, has skyrocketed.

Building solutions for SMBs isn’t significantly different than building products for consumers, and requires a shift in focus. The line between work and personal is blurring away, and business users have no patience for systems that don’t meet their demands as a user. Companies serving Small Businesses need Product Development professionals who understand how to build products that have world class User Experience and breathtaking design. Economies of scale is key and Product Growth professional help solutions scale as fast as it takes to serve an online ad.

One example of a company that nailed it is MileIQ. MileIQ publishes a Mobile App that automatically logs all rides and lets you easily deduct or expense miles with total peace of mind. Most of their users are sole proprietors or professionals using MileIQ for businesses. However, the company has been built from the ground up with a consumer mindset. MileIQ invested early in hiring Mobile Growth specialists and being ahead of the curve in mobile acquisition. The focus enabled the company to scale the number of paying users in a very short time period.

That is why I particularly like supporting SaaS founders that have a mixed background of Consumer and Enterprise. The team should first and foremost excel in building a product businesses love and achieving success by scaling Sales and Marketing.
However, founders will stay ahead of the pack by baking “consumer-like” characteristics into their product, make it viral, a pleasure to use, and a product businesses and their users will rave about. The companies who embrace that will shape the next wave of innovation in business productivity.

Bots are great for the Enterprise, not just for consumers

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2016 was already declared the year of bots. While potentially being slightly over-hyped, it seems that many consumer companies have been putting a lot of meat behind their conversational UI efforts.

Facebook is banking on its messaging apps to get back into becoming a leading platform again. They are already allowing users to chat with businesses for customer service and have integrated with Uber to allow people to call an Uber through Messenger. Up-and-comers like Kik are thinking about “importing” WeChat’s success in China to the US.

If indeed there is a broader shift away from traditional point-and-click apps to chat-based user interfaces that is a shift not just for consumer tech but also for the Enterprise. The same fatigue that consumer have with apps is also true for prosumers occupying a work station at work. They get several software solutions for HR, a few more for communication and social networking inside the organization, Many more to sharing content, and so on and so forth.

The transition to bots and conversational interfaces could represent a major point of disruption in the interface paradigm, leading to a slew of incumbent startups going after traditional Enterprise players. There are so many options to explore. What about a conversational analytic platform? How about search and information queries inside the org. run by an bot talking to multiple folks? Maybe a friendly HR bot can help you out with employee benefits? and believe it or not there is already a conversation lawyer out there called Ross (http://www.rossintelligence.com/) courtesy of IBM Watson.

But what about the distribution of those services? Companies like Slack are looking at chat-as-platform as a major next step and that could be one entry. Another simple and under the radar channel is email. Plain old email, requiring no apps to install and barely any configuration to hustle with.

Case in point is Clara. I love my Clara. She might be dumb as hell sometimes, but that is when the human kicks-in and corrects course. Hopefully there is some machine learning going on when that happens as the service seems to improve all the time. I’ve recently surveyed folks who have engaged with Clara only to find out that 90% had no idea they are talking to a machine, with the 10% that did know being Silicon Valley folks who just happened to hear about Clara.

And off course there is Siri and the now Alexa from Amazon. The other I came back home and my three years old toddler has totally lost interest in his previous hobby, the iPad. He spent the entire afternoon busy bossing Alexa around, cracking up whenever she replied to his commands.

Although Alexa currently just resides inside Echo, a consumer product mostly occupying kitchens, I’ve actually started using Alexa for more and more semi work related chores. For example, she is excellent at figuring out what my next meeting is an how traffic is looking (“Bay Bridge traffic is awful today. Thanks for asking”) I can see a natural evolution to engaging with a “personal assistant” – Alexa for business – making every employee a tad more efficient.

All in all it’s exciting development, making technology more accessible and helping us humans become more efficient at whatever we set out to do, including business.