This Week in Tech - 10/18/15
ICYMI: The Week in Tech
Don’t let people think you’ve been living under a rock.
Barely a week after officially re-naming Jack Dorsey as CEO, Twitter announced layoffs to “trim an org that has grown bloated.” This bloating evidently included the last standing Vine co-founder (Twitter acquired Vine in 2012). Twitter really botched the job: the supposedly jargon-free memo announcing the layoffs was anything but, and some employees found out they were fired because their email got disconnected.
Time points out that despite the gargantuan size of its brand, Twitter is a relatively small company in terms of both revenue and employees, and that laying off 8% of its workforce mostly means that a couple hundred overpaid San Francisco software engineers are going to have to go found their own startups. Nevertheless, it’s a big piece of news: the Wall Street Journal analyzed what Twitter’s layoffs mean for its stock and over at Both Sides of the Table, Upfront Ventures’ Mark Suster thinks more companies could stand to follow Twitter’s example and trim the fat a bit.
At almost the exact same time, Dorsey’s other company, Square - where Dorsey is the largest single shareholder - filed for an IPO on the New York Stock Exchange, prompting Wired to express exhaustion on Dorsey’s behalf. Recode summarized some of the interesting bits from Square’s disclosed documentation and pointed out some interesting Unicorn trends.
Speaking of high-profile Unicorn founders, last week we finally saw Evan Spiegel’s spread in Vogue Italia. Re/Code covered the feature, Buzzfeed-style, with a listicle asking who wore it better.
Other things happened in the past week, of course. Following a big round of fundraising announced a couple weeks ago, blogging platform Medium has made itself all over again. Its new logo was just the beginning: the Medium API will make it easier for every writer to write however he pleases, to post to her own blog, and to syndicate content to Medium’s ready-made audience.
Also, Chicago mayor (and IRL The West Wing character) Rahm Emanuel called for a national computer coding competency requirement. Which we have a hard time imagining Josh Lyman doing, but whatever. Rahm makes our Chicagoan heart go pitter-patter.
This Week in Bubbles
At least we’re not talking about Unicorns.
Give up the ghost, Silicon Valley: if Business Insider has figured out that we all agree we’re in a bubble, there’s no one left to hide it from. To be sure, there’s a wide range of possible definitions of a “bubble,” and the last six months have seen vociferous advocations for pretty much all of them adorning the front page of many a VC blog. One recurring theme is the comparison of our current economic climate to that of the last major tech bubble. We saw a different take on the 1999/2015 side-by-side last week in VentureBeat, when Brad Feld of Foundry Group mused on whether things are moving faster now than they were in 1999. Feld’s answer? Planes aren’t, but the way we communicate is, and that’s changed the intensity of how we work. He also quoted Battlestar Galactica.
More to the point, Manu Kumar of K9 Ventures pronounced the arrival of #PeakVC via Twitter last week, following the quip up with a Medium post explaining that he’d decided October 13, 2015 would be the height of new investment dollars entering the venture capital industry. But then of course he acknowledged that venture capital investment operates in cycles, and so unlike Peak Oil, we’re likely to see Peak VC multiple times in our lifetimes. Sort of anticlimactic. At any rate, he did us the favor of boiling down the takeaway for founders: #PeakVC will take time to actually trickle out of the system, which means that there’s plenty of money available in the near term, especially at the early stages. But Kumar expects to see it dry up as the flood of investors going after the best tech reduces the return coefficient, discouraging fair-weather VCs and leading to a whole lot of startups that won’t be able to raise follow-on funding.
Other serious blows in the bubble debate last week included MatterMark’s critique of ‘zombie unicorns’ whose margins are way out of whack and Thomas Tunguz’ assessment of The Turbulence in Startupland. But the best way to understand where we are relative to a possible bubble (within it, past it, at its epicenter) is by looking at the private rounds of fundraising completed, their valuations, and the exits that may or may not justify them:
China’s third-largest private equity firm, the China Science & Merchants Investment Management Group, created a $400M seed fund called CSC Upshot to tap the expertise of high-performing investors on AngelList. CSC Upshot is apparently the largest seed fund ever created, since traditionally the larger a fund grows the more pressure it faces to focus on growth-stage companies and less-risky investments. The article also observes that the average valuation on AngelList was $5.1M in Q3 of 2015, compared to $4.5M three years earlier. That doesn’t exactly sound like bubble-quality inflation to us, but maybe we’re not cynical enough.
Secure cloud communications platform Symphony went after $50M and ended up raising $100M in a round announced October 12th, with backing from Google, Inc. (not Google Ventures) and others. Not a bad B round, especially when you consider that the company is aiming not to raise private funds again (they raised a $66M A round last fall). Also of interest: multi-platform word-processing startup Quip raised a $30M series B on October 15 and Israeli cybersecurity startup Cybereason raised a $59M Series C led by SoftBank.
In what looks like a sort of bizarre reverse-acquihire along the lines of the 1988 film Working Girl, Dell bought EMC for $67B, the largest deal in tech history (not counting AOL’s 2000 acquistion of TimeWarner for $106B, which was technically a tech-media deal, since media is evidently still a distinct vertical from tech, just like the automotive industry is); according to TechCrunch, “What makes this deal even more interesting is that Dell, with a valuation of around $25 billion, was by far the smaller fish at approximately half the size of EMC.” EMC is best known for cloud software company VMware, which comes with the deal but will continue to be publicly traded as its parent company goes private with Michael Dell himself as CEO. The deal includes an option for EMC to reneg for a better offer, but according to Re/Code the likeliest candidate, Hewlett-Packard, is smugly celebrating the merger instead. But you know how these legacy tech CEOs are with the drama; honestly, we’re pretty sure the only reason Cisco hasn’t made a bid already is they’re playing hard-to-get because EMC didn’t ask them to Homecoming first.
Less high-profile but pretty cool to us: Conde Nast acquired Pitchfork Media, so you can look forward to lots of spammy postcard inserts at your next indie music festival.
This Week in This Week in Tech
The most-talked-about news in all of the tech news email newsletters.
Ben Thompson of Stratechery reminds us that Venture Capital is mostly just arbitrage and credits the rise of AWS and angel investors for the current startup tech boom:
In 2006, though, something changed, and that something was the launch of Amazon Web Services. Because a company pays for AWS resources as they use them, it is possible to create an entirely new app for basically $0 in your spare time. Or, alternately, if you want to make a real go of it, a founder’s only costs are his or her forgone salary and the cost of hiring whomever he or she deems necessary to get a minimum viable product out the door. In dollar terms that means the cost of building a new idea has plummeted from the millions to the (low) hundreds of thousands.
In turn this has led to an entirely new class of investor: angels. There are a lot of people in the San Francisco Bay Area especially who have millions in the bank — enough to live comfortably and take some chances, but nowhere close to the amount needed to be a traditional limited partner in a venture capital firm. On the flipside, though, these folks have a huge information advantage: they are still a part of the startup scene, both socially and professionally; they don’t need someone to make deals for them.
More than just unit economics: Mahesh Vellanki of Redpoint Ventures offers a Framework for Evaluating On-Demand Startups:
Frequency matters in mobile and helps build habitual behavior.
Be careful of hidden unit costs and poor accounting.
Look for technology leverage and economies of scale in the model.
Be weary of simply becoming a more efficient agency.
Be very careful of discount customers. Can prop up short term growth, but not sustainable and can cause negative chain reactions that are hard to fix.
Look for teams that are equal parts star operators and technologists.
Paul Graham of YCombinator says you can default alive or default dead when you remember that by default you don’t necessarily get to raise another round. Put another way: assuming expenses and revenue growth rates remain constant, can an early-stage startup make it to profitability on the money they have?
Here's a common way startups die. They make something moderately appealing and have decent initial growth. They raise their first round fairly easily because the founders seem smart and the idea sounds plausible. But because the product is only moderately appealing, growth is ok but not great. The founders convince themselves that hiring a bunch of people is the way to boost growth. Their investors agree. But (because the product is only moderately appealing) the growth never comes. Now they're rapidly running out of runway. They hope further investment will save them. But because they have high expenses and slow growth, they're now unappealing to investors. They're unable to raise more, and the company dies.
This Week in PARISOMA
PARISOMA member Daylighted has launched their digital artwork at a new venue: the Hotel De Anza in San José. If you’d like to learn more, join them the first Thursday of every month at the Phoenix Hotel 6pm - 10pm.
PARISOMA’s parent company, FABERNOVEL, released its latest GAFAnomics newsletter this week, recapping major announcements by Google, Apple, Facebook, and Amazon in the third quarter of 2015. Trends include the disruption of television, intensified competition between the giants, an acceleration of AI strategies and renewed approaches to China. Also, you can apparently include emoji in a URL now, which is pretty cool.
Finnish hardware startup SOLU held their launch party - and launched their Kickstarter - on Thursday, then debuted on Product Hunt with a #1 finish on Friday (pun intended). PARISOMA got a sneak peak of the Solu OS back in September, and we’re big fans of the idea. Good luck!
WordPress expert Russell Miller shared a guest post on the PARISOMA blog last week. If you want to know Wordpress Like a Pro, you can read his basic how-to there, and come to PARISOMA for Miller’s WordPress workshop on October 26.
PARISOMA got a nice compliment late in the week from Bonaverde coffee, who called out our Future of Food series in a list of most interesting IoT blogs. We do write about more than the Internet of Things, but as its one of our favorite categories, we appreciate the shout-out. You can read for yourself what they loved about the future of the food supply chain and the emerging Internet of Food.