The scientific method is the most powerful invention humans have ever created. It’s not just for people in white coats and in labs. The scientific method has changed what we wear, what we eat, the health of our families, the way we earn a living–the world as we know it is a result of a simple process of hypothesis, testing and explanation.
Unfortunately, school and other systems in our world focus on just one or two of the elements necessary to do it well.
Know the rules, maxims and outcomes that came before. Do the reading, score well on the test.
Understand the thinking behind these rules, so you can dive deeper and either change the rules or expand on them.
Do tests that others haven’t thought of or that people don’t think will work. Intentionally create falsifiable hypotheses, knowing that you might be wrong, and then go test them.
Publish your results so that others can examine your work and improve it. Show your work. Invite correction and improvement.
Explain what you did clearly so that it becomes part of the canon, so it can be used by others, until it’s replaced by something even more useful.
There are very few contentious arguments in our world today that couldn’t be more quickly resolved if all involved were willing to act in good faith and work their way through the steps together.
Because if you seek to lead or to change minds, if you’re working for better, then you’re a scientist.
With politics and the pandemic hurtling towards a crescendo this week, I thought it would be a welcome distraction to talk about something equally as controversial… Contracted Annual Recurring Revenue (CARR). (The comparison is mostly a dark joke, so spare me any indignation.) We started seeing CARR enter the startup lingo about five years ago, but typically only … Continue reading That new CARR smell
We have always wanted to rent a RV. Daydreams of getting an Airstream and exploring the southwest or perhaps the Pacific northwest. One of those things on the wanderlust to do list. But we never did it.
So a few weeks ago, we rented a RV. It wasn’t as cool as an Airstream. While new-ish, it looked like it was straight out of the 70s. But getting a RV rental isn’t easy as many of them are taken this time of year and that is especially true during this pandemic. Our original plan was to drive north into Vermont. But the campgrounds in Vermont discouraged visitors from Massachusetts given the Covid cases spiking in our county.
Instead we found a campground in the Berkshire Mountains. We loaded our clothes, supplies, food, coffee(!) and camera gear and headed west. Driving a RV is quite different than our electric sedan. The RV is massive, it’s loud and drives like a boat. But it’s super fun. A feeling of indepence. We had everyting we needed in our little house on wheels.
The fall colors in the Berkshires were fantastic and so was the crisp morning air that greeted us each day. And it was fun to get away and just enjoy time together hiking during the day and relaxing each evening in our camper. We missed having our daughters with us on this trip but they are in college now. I can totally picture my son getting a RV with his friends when he’s older.
I am grateful for our getaway. I’m now even more excited for a future trip to the southwest 🙂
(Color photographs made with a Hasselblad 503cw and Kodak Portra film. Black and white photographs made with a Leica M-A and Kodak Tri-X film. Developed and scanned by Richard Photo Lab in California).
One is the sort where failure is not noticeable because failure means that you didn’t engage with an audience. If you do an art show and no one comes, no one realizes that your art show failed.
The other is harder to walk away from. You can’t put the toothpaste back in the tube. When you engineer collateralized debt obligations that merge together mortgage streams, inextricably linking the healthy ones with the others, it’s a mistake with real consequences.
Confusing the two types of errors is a recipe for tragedy. If we can figure out how to organize and plan for the first type of resilient failure, it’s far easier to experiment.
Watching a half dozen French Resistance soldiers standing around debating whether Taco Bell is “authentic” teaches you some things. First, that most people have no idea what real Mexican food tastes like. Second, that community is the most powerful retention mechanism available to game developers, because you see, these “soldiers” were players in an online WWII multiplayer simulation. While the chance to shoot some virtual Nazis was likely the original motivation to sign-up, it was the presence of other people which brought them back each day (and bill their credit card $12.95 each month). As I looked around for more examples of this I found that the introduction of connectivity to gaming (hello internet!) had really emphasized how much play was about community. Whether the MMORPG guilds hanging out between dungeon raids, or casual sites like Yahoo Games where the checkers, backgammon, and so on were really just something to do while you text chatted, there were numerous examples of people talking more and more about how the game was a ‘third place’ for them.
Working on the virtual world Second Life at the time I had the proverbial “front row seat” to what online interaction could look like down in the future. It was, or rather is, a fully user-constructed shared virtual world. Think Minecraft but like 100x less successful! Although to be fair, (i) Second Life is still around and profitable and (ii) many of the design choices we made were quite influential on later products. Anyhow, we over-indexed on the community and left the content largely up to the inhabitant which was only appealing to a limited number of passionate users (about half a million). I spent about three years as part of that team and the notion of “staying for the community” lodged itself deep in my cranial matter. Then my time working on AdSense and YouTube for nearly a decade gave me other vantage points from which to see where eyeballs and dollars traveled in media.
If Second Life was 20 years ago, what’s happening today? Over the last year I’ve started paying more indie creators directly for their work — heavily biased towards podcasts and newsletters/blogs. The other night I was wondering which ones I’d likely still be subscribing to a year or two from now. The “absolutely yes” category was dominated by creators who had branched beyond their initial piece of content and created some persistent space for the community to aggregate. Most typically in Slack, Facebook, WhatsApp or Discord. What they’ve done is use their content to assemble an audience and then create a space for that audience to create content with each other — aka community. In some cases the space is an extension of the content, talking about that week’s newsletter or podcast. But the most interesting ones broaden to envelop the general common interest areas of the group. For example, Lenny Rachitsky writes a newsletter devoted to technology and product development. It’s good. But he also runs a paid-subscriber-only Slack group [Friends of Lenny’s Newsletter, partial screenshot below] that has channels for job openings, startup advice, technical talk and so on. He moves from author to convener and his newsletter subscription is auto-renew because I don’t want to lose access to the group.
I’m of the belief that “Come for the Content, Stay for the Community” will be one of the dominating themes for media this decade. As more creators break away from companies to go subscription indie, they’ll find it to be an effective and rewarding strategy to think of ways to build ‘whole is greater than the sum of its parts’ experiences and even perhaps subscription tiers based on access to these events, community spaces and chats. A slew of platforms and apps are letting creators do this without large event staffs, logistics or the costs typically associated with physical gatherings (although getting your fans together IRL will still be a thing post-COVID).
So it’s not a question of “how many newsletters can one person pay for?” it’s “how many communities does someone want to be a part of?”
Notes and More
Other examples of content + community
Lean Luxe (business of commerce and brands) has a newsletter and Slack group
The Profile (news and bios about successful, interesting people) has a newsletter and a WhatsApp group
Do you remember that the President was impeached earlier this year? Easy to forget amidst the pandemic, recession, stock market crash, then raging stock market bull, record low then record high unemployment, and a nasty presidential election. Head spinning. Through it all, the venture capital industry has shown extraordinary resilience with another terrific quarter – $37.8 billion invested in 2,288 companies.
Confoundingly, 3Q20 saw a strong, yet incomplete, financial resurgence alongside a staggering resurgence in COVID-19 cases; three days ago we saw an all-time daily high in cases. As cases surged over the last few months, the S&P 500 index increased 7.9% in 3Q20, while the NASDAQ was up 9.2%. U.S. large cap stock funds powered ahead 11.8%. On the heels of unprecedented job losses this spring, the unemployment rate is steadily improving – although too slowly for many and still miles from where we were pre-COVID.
According to National Venture Capital Association (NVCA) data, $112.3 billion has been invested in 7,891 companies year-to-date. One might have expected a pause this summer, but that did not happen. While the deal count is decreasing, the amount of capital invested continues to be quite robust. The size of the average investment in 2020 so far is $16.5 million, well ahead of the $11.7 million this time last year. Quite clearly, there is a greater proportion of Later stage deals and a greater number of large financings this year, perhaps signaling further concentration around fewer companies as well as a greater degree of risk aversion among VCs who may be shifting attention to more mature businesses. The number of financings greater than $50 million in size so far this year was 6% of the total count yet accounted for 63% of all dollars invested.
This quarter saw the continued collapse in seed investments, both in numbers and dollars. There were 469 seed deals, nearly half as many just two years ago, and a more modest $2.0 billion invested (average size of $4.3 million). Interestingly, angel investment activity remained relatively consistent over the past five years with between 500 – 600 deals per quarter. Early stage also continued the steady decline in activity first seen in early 2019. This past quarter $9.2 billion was invested in 657 Early stage companies for an average round size of $14.0 million. Later stage also saw a marked decline in the number of deals, decreasing to 662 in 3Q20. The quarterly pace was between 750 – 850 over the last six quarters. The amount invested in Later stage companies was $26.6 billion for an average deal size of $40.1 million.
The story in 3Q20 centers mostly around the number of “mega rounds” of greater than $100 million in size. The chart below shows the median round size by stage, highlighting the impact of a few large financings when only focusing on average round size (above). There were 79 “mega round” financings this past quarter, totaling $17.7 billion; strangely ten of these were considered Early stage. Companies raising such large rounds tend to be meaningfully de-risked and are now scaling, maybe (again) suggesting less risk tolerance among venture investors. To underscore this development, there were only 542 first-time financings this quarter, which is the lowest level in a over a decade.
There were a handful of other interesting insights in the 3Q20 data. Year-to-date $63.7 billion has been invested in West Coast companies, which is more than the rest of the country combined. While the dollars are more concentrated in fewer geographies, the number of companies appear to be more distributed, perhaps in response to the pandemic. So far this year, only 38% of companies raising venture capital are on the West Coast. The top three states (California, New York, Massachusetts) represented 75% of the capital invested but only 53% of the number of companies.
One other observation in the funding data worth highlighting: the level of participation by corporate venture capital groups continued its sharp decline and was only 17.6% in 3Q20, a level not seen in nearly a decade. This participation rate tends to be between 20 – 25% of all financings. Such a pull-back may be a direct result of the financial pain inflicted by the pandemic.
Arguably, the strong investment activity this past quarter was bolstered by the exceptional level of exits, driven by a very robust IPO market. The $103.9 billion of exits in 3Q20 was the second-best quarter, nearly 4x the prior quarter and only below the high-water mark of the “Uber IPO quarter” of 2Q19 ($144.8 billion). More typical quarterly exit activity for venture-backed companies tends to be between $20 – $30 billion. Globally, M&A activity surged 80% in 3Q20 while in the U.S. merger activity increased 23.5% quarter-over-quarter.
Exit activity is best considered alongside private round valuations. Median valuations have steadily increased by stage over the course of the last decade and saw no appreciable COVID impact. In fact, given the impact of “mega rounds,” the average Later stage round valuation was $672 million (versus median valuation of $90 million). Median Early stage round valuation of $30 million year-to-date is modestly higher than $28.1 million in 2019, underscoring the significant step-up in valuations available to companies once important milestones are achieved. Given average round sizes, these data also imply that investors tend to end up owning roughly one-third of Early stage companies.
In a period of extraordinarily low interest rates, returns generated by venture capital funds both on a relative and absolute basis continue to be very compelling. Since 2011, according to NVCA data, the venture capital industry has generated net cash distributions each year through 2019 and is expected to do so again in 2020 given the level of exit activity. This dynamic likely accounts for the strong fundraising environment many established firms now enjoy.
Eighty funds raised $13.9 billion in 3Q20, averaging $173 million per fund; this level already exceeds all of 2019. For the year so far, venture capitalists have raised $56.6 billion across 228 funds. Notably, 35 of these funds were larger than $500 million, furthering the concentration of capital with a relatively small number of tenured branded firms. Year-to-date, there have been 30 “first time” funds which have raised $19 billion; in 3Q20 only 16 “first time” funds raised $390 million ($24 million average size).
Separate but related, this past quarter saw the explosion of Special Purpose Acquisition Companies (SPAC), blank check public shell companies that have a limited window to close an acquisition, often of mature venture-backed companies. There are now 185 such vehicles with $58 billion of capital trolling around the market looking for assets to acquire. While in recent weeks there is evidence of waning public investor appetite as a number of pending SPACs have been downsized, this is undeniably an important development in the venture industry, offering yet another potential path to liquidity.
Of course, there are a number of other significant issues weighing heavily on 4Q20 activity. According to the U.S. Treasury, the national debt now stands at a daunting $27.1 trillion which tends to put everything else in sharp focus. And then there is the pandemic, elections, elevated unemployment levels, tensions with China…oh wait, all of those have existed for some time now. Let the good times roll.
There are thirty people over there who are just waiting for you to help connect them, lead them or make things better. But if you’re still defending the stuck project over here, the one you put so much into, you won’t be able to show up for them.
Customers, partners, clients and students who need your voice or your product aren’t going to benefit from it because you’re working so hard to dig yourself out of a previous hole, a situation that is now harder than ever to work your way through.
It’s easy to focus on the problem right in front of us, and to decide that this problem, and only this problem, is the problem for us to solve. But there’s a cost to everything, and the opportunity lost when you’re doing this is just as real, even when you don’t notice it.
Of course, we don’t create contribution by flitting from one thing to another whenever things get difficult. But we also sell ourselves short (and harm the people we’d be able to serve) if we’re unable to quit a project that’s gone sideways.
What happened yesterday already happened. It’s a gift and an asset from your previous self. You don’t have to accept if you don’t want to.
I’m now six months into Shopify. So far it’s going basically on schedule: as I was told, “Your first couple months you’re going to have zero idea what’s going on. Then around month three you’ll come up for air and think, ok, I got this; and then you’ll try to start doing stuff. Then you’ll really struggle, because you won’t be in that happy new float-around-and-learn-people’s-names mode, you’ll be in oh-shit-can-I-really-do-this mode. It’s actually a little scary. But then around month five or six, you start to actually figure some things out… Read more Six Lessons from Six Months at Shopify →
COVID is changing many things about the world. Some will be permanent, some will be temporary, but for most things, we simply don’t know yet. A decision framework I’ve been using when evaluating investments in companies has also proven to …
Small companies create almost all the jobs. They are the insurgents, the agents of change.
Big companies are a backbone, reliable providers of goods and services. Big companies operate at a scale that most of us can’t even imagine.
The two points of view often conflict. And each can learn from the other.
Net neutrality is an argument between freedom of innovation by small business vs. control from big business.
Campaign finance reform is an argument against big companies and their leaders buying the outcomes of elections.
It’s not always about capitalism vs. the alternative. It’s often about the status quo vs. what’s next.
Worth noting: A small business is not a big business that hasn’t grown up yet. It’s different. A small business has an owner, someone who can make decisions without meetings, who can listen to customers and who can embrace the work at hand.
If you run a small business, I hope you’ll check out the new workshop from my friend and colleague Ramon Ray. The folks at Akimbo are working with Ramon to help connect small business people on their journey to making a bigger impact. It works better together.
This week on the Non-Obvious Insights Show, Dan Pink shares his process behind finding big ideas for his books (and why sometimes he abandons an idea altogether). We also talk about his insights on timing from his book When and his latest research around the science and emotions of regret.
It’s about the human process of shipping creative work, regardless of what sort of job we have. It’s about trusting yourself. Mostly, it’s about getting back to becoming the person you seek to be.
You can find details on the book (and links to pre-order) here.
For the true fans, I’ve put together exactly 400 sets of limited-edition swag. If you order the special 12-copy set of the book from Porchlight, you’ll also get a large handful of cool stuff, including a hand-lasered writer’s block, a set of letterpress hand-printed pages, six (of 12) collectible storage packs and a magical surprise that contains actual magic.
If you’re the sort of person who likes to go first, or wants to share a book with your peers, today’s the day. There aren’t many…
[update 10.21 end of day–now a bestseller on Amazon, thank you. And the 12-packs are sold out…]
As most folks know, when iPhone first shipped there were only apps created by Apple. The App Store wouldn’t arrive until about a year later. And even then, apps that directly competed with Apple’s apps were far and few between. And users had to deal with either poorly implemented web apps or Apple’s apps for critical things like email.
By 2011 or so, a new app called Sparrow launched on the Mac and then iPhone. Sparrow was a thoughtful, beautiful app that delivered a powerful and yet simple approach to mail. Like so many others, I was taken with Sparrow and it quickly became my default client. Eventually, Google acquired Sparrow and the app was no more.
Earlier this year I was introduced to Dom Leca, the creator of Sparrow. Dom told us about his vision for a new app called Beam. A few weeks later, my partners and I made an offer to lead the seed round in the company. Dom and Sebastian Metrot have been working on building the initial team and the first version of Beam. While they aren’t ready to fully disclose the product today, you can read about their vision in their paper and join the beta.
I’m really excited about Beam and can’t wait for you all to try it.
One of the most important catalysts for the recent growth in financial services has been fintech enablers and infrastructure. Companies like Plaid wrap otherwise byanztine legacy infrastructure in modern APIs, allowing every developer to easily integrate financial products with software …