Last year was an incredible year for artificial intelligence (AI). If the rise of the internet was an inflection point, the rise of artificial intelligence (in my opinion) is an even more massive one.
I think what I’m most excited about is that sometime in the near future, everyone will have the ability and the access to build anythingdigital. It could be websites, movies/films, songs, mobile apps, comic books. You just need a device (phone / laptop / tablet), internet, and creativity.
In the 90s, with the rise of the internet, this started to become possible, but you still had to run to Barnes and Noble to buy books on how to code. The most motivated quick learners reaped the benefits of the internet in the first inning. You also often needed servers that filled closets and needed to handle the maintenance of all this yourself. It was not a super accessible period of time — not anyone could do this — but it laid the foundation for where we are today.
Fast forward to today, you don’t need to know how to code to build digital things. There are so many no code tools available to take the heavy lifting off of building, and you can learn about all of this with simple video tutorials on YouTube. There is so much that has already been made accessible to the billions of people on this planet. I learn a ton from watching YouTube videos — there is no better educator than YouTube (in my opinion).
Yet, despite these advances, there are some things that historically have still been hard in the last decade or so. For those who have no talent — like me — design, for example, is still hard. I can read and watch tutorials all day, and I still will not be able to draw well to save my life. If I practice for years, I could probably get better, but I won’t be able to come up with cool images or videos in the next couple of months.
Until last year.
Enter Midjourney and so many others. Last year, I thought I could finally fulfill my childhood dream of becoming a cartoonist to draw comics about my favorite stuffed animals I grew up with — all with zero talent.
But, is it hype or is it real?
Meet Warren Hippothat I created with Midjourney
My childhood stuffed animal Warren Hippo should be at least 30+ years old by now, but he is somehow forever 5 years old and will always be 5 years old.
Midjourney was able to make him look pretty real. And more importantly, pretty close to the original Warren Hippo too:
Meet the original Warren Hippo
Pretty close-ish right? I thought I was on my way to becoming a professional artist.
Unfortunately, image consistency quickly became a huge problem, and it’s one of the top issues that Midjourney users want solved (according to a poll in their Discord community).
Midjourney renderings of Warren in various poses. He seems to have…evolved into a different hippo.
Modifying Warren into different poses was an entirely different exercise. Pretty challenging, and he turned into a different hippo. While it’s still really impressive that you can generate these new images of different poses in about 30 seconds, the character consistency will have to get better in order for the technology to truly enable the next generation of comic book artists, brand marketers, and designers, etc.
And this issue isn’t just limited to Midjourney. The generation AI tools I’ve played with are all really good at generating single-use images, but it’s much much harder to create themes, characters, and brands that you can use over and over again. This is getting better, as you can now seed designs with other images and you can preserve past images as well. But, as of writing this blog post, this is still a major blocking point.
In addition, these tools are all great with common images — like dogs. If you want to create a cartoon dog, it’s easy.
But what about something that doesn’t really exist? Something that doesn’t really exist even in people’s imaginations? Like a hippocorn?
Dunky has wings and a rainbow horn and two large teeth
Unfortunately, because the internet doesn’t really know what a hippocorn is supposed to look like, it’s hard to describe it using generation AI tools. You get weird stuff like this:
Early version of a generated hippocorn image
In fact, we did many iterations on our prompts to try to create a good hippocorn design for our announcement of our plushie. Alas, we were unsuccessful.
Generative AI tools are, by definition, horrible at creating images that don’t really exist, because it has no data to work with.
Over the holidays, I was determined to create a great hippocorn cartoon using Midjourney. So I spent a couple of days working on this. (I know, this is a ridiculous hobby.) I realized that if I were going to be successful, I needed to feed it the data to train on. I ended up seeding Midjourney with a ton of photos of our stuffed hippocorn, and the results turned out a lot better.
After a few days of work, this looks a lot closer to our plushie hippocorn Dunky
But even in seeding it, Midjourney struggled to identify its wings (this is why you see a white shawl around the hippocorn). It took a long time to interpret the two white squares as teeth as well.
In addition, it struggled to render different poses of Dunky as well. You can see the teeth were lost.
Renderings of Dunky the hippocornafter having a tooth extraction at the dentist
But, maybe it’s good enough for some use cases.
Ultimately, we were only able to create hippocorn cartoons because we already had designed a hippocorn. In other words, we needed a designer to create our stuffed hippocorn in order to feed the AI models with our design. It would have been impossible to create a hippocorn from scratch with no designer.
This is where AI still falls short. If you are creating something completely new, you will still need a designer to design what you are developing. That being said, AI can probably speed up some bits that are too tedious to do manually, saving your designer some time.
Why bother with your stupid hippocorns?
As we assess products in AI, which is an incredibly competitive space, these nuances matter…A LOT! I think it’s easy as a VC to watch a demo of a product and say “Wow, that image generator can do ABC things.” But really testing the limits and edge cases is important to understand the state of AI and stay on top of who has the lead.
It’s also important not to write off any of these companies because of these limits. I’ve seen so much change in all of these generative AI design products in just the past few months. They are getting better so quickly, and I suspect in a year from now, some of these problems that I’m writing about here will be solved.
What the future looks like?
Eventually, we’ll look back and say, “Wow, the 2020s was an amazing era for technology.” You’ll be able to build movie studios from your computer and distribute your films on the internet, disrupting the traditional movie industry. You’ll be able to write or draw books, including graphic novels, on the internet and distributed on the internet, disrupting the publishing industry. You’ll be able to create websites and mobile apps more easily — as just one person.
So, if I were going to start a new company today, I would probably not build an AI company — there are so many of them. I would probably build a company that thrives with the assumption there will be a lot of AI companies to help us design and build faster and so much more. For example, at Hustle Fund, we hire no-code developers, because you no longer need to code everything from scratch to get things built. That’s an occupation that didn’t exist even five years ago. So, what are the new roles that will emerge in the next five years? I’m sure there will be prompt engineers in the coming few years. Or maybe QA testers for AI. Maybe you’ll need tooling or legal for the creations you develop through all of these AI tools. Think about what that world looks like — I would build a company for that world, because it is arriving so quickly.
Momentum is moving creativity forward quickly. We’ll see new brands arising from individuals and influencers. The next few years will be remarkable.
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Last week, I celebrated my 40th birthday with my family (which is pretty amusing since my birthday was last November).
When I think back about the last few decades, a few stories from my professional life come to mind that I thought I would share here.
1) Serendipity and luck trump everything.
Certainly hard work and skills are important, but luck and being at the right place at the right time is so critical.
I wasn’t born into a family of entrepreneurs or even tech. I got into startups, because of a couple of key events that happened to me. One event that got me into startups happened in 1996 growing up in the SF Bay Area during my freshman year of high school. My best friend Jennifer told me one day that her cousin Tony was building an internet startup. And she asked me if I wanted to help him and their startup over winter break. I didn’t know what a startup was, but I also had nothing major going on during winter break. So, we took the Caltrain up to San Francisco to “help” Tony. When we showed up, the place was honestly a bit of a mess and chaotic. But it was exciting! Tony and his friends were working together on all kinds of projects. They didn’t have to dress up in “grownup-work-clothing”. And they could eat all the pizza they wanted. It was the dream.
I wasn’t any help to their company. But I knew from that day on, *that* was what I wanted to do when I grew up. I didn’t even know how they made money or that there was even money to be made. But, even from that early day, it was inspiring to see a group of friends come together to build something bigger than themselves. A couple years later that company LinkExchange was acquired by Microsoft for a reported ~$200m. Tony — who was Tony Hsieh — would go on to become an active angel investor in many startups and become CEO of Zappos. And while I didn’t know it that day, he would also later have a bigger impact on my life as well as my startup LaunchBit and Hustle Fund, as I’ve written about before here. I’m incredibly grateful for the path he set me on, and that was entirely serendipitous.
2) Failure leads to success.
One of the things I’ve noticed is that most successful people have had *a lot* of failures as well. But people only talk about the successes.
For me, failure and success are oddly connected. When I was nearing the end of college, I thought I wanted to go to business school, and I applied to a few business schools in the fall of my senior year. Throughout this process, I had wanted to visit a couple of business schools I was applying to in Boston, but my money was tight, and I didn’t want to pay for a plane ticket to Boston from California.
Coincidentally, around that time, I saw an ad for a contest, in which the prize was a free trip to Boston from anywhere in the US. I immediately entered the contest on a whim, and amazingly, I won!
The contest was sponsored by the DISCO career forum, which was/is one of the largest job fairs for jobs in Japan. And oddly enough, it was and still is held in Boston every year. In fact, at the job fair, I met tons of people from Japan who flew to Boston just to apply for jobs back home!
I didn’t care about the job fair. I was merely excited to fly to Boston, see my friends, and visit a couple of schools for a couple of days. But, in order to get my reimbursement for my plane ticket, I had to attend the DISCO career forum for 2 days. While there, I met a ton of companies and even interviewed on the spot for various jobs. Although I wasn’t actually looking for a job, by the end of the weekend, I got a job offer!
I soon learned that I didn’t get accepted into any business school, but at this point, I was very excited about the job offer I received and accepted it.
About a year later, I packed my bags and moved to Tokyo. But, a month into it, I was told that I couldn’t stay in that role, because my Japanese was not good enough. Wow, was I getting fired? After just a month into my first job?? That night, I sobbed my eyes out.
To their credit, my former employer was extremely helpful in this situation. They gave me a few choices and told me that I could still stay at the company for about a year if I moved into marketing (so that I wouldn’t have to talk with customers with my poor Japanese 🙂 ). But they didn’t have budget to pay for me much beyond that, so I had to find something else to do.
I decided to re-apply to business school. But this time, I only had time to apply to one school – so I chose to re-apply to MIT which was the school I liked best after visiting. And, fortunately, the entire application was the same except for one question: “What have you done in the last year?” a topic on which I had a lot to say from my experiences in working in Japan. A mere few weeks later, I received an email saying there was a decision ready. I had not even received an opportunity interview this time, so I was pretty certain it was a fast rejection, but it turns out, I had gotten in!
Looking back, failure and success were so well coupled together. I failed to get into business school so I got a job. I failed to keep the job, so I went to business school.
3) Frugality and portfolio construction are keys to wealth. Wealth is freedom.
I am a huge fan of the FIRE (Financial Independence, Retire Early) movement and was an avid reader of Mr. Money Mustache. I think when most people aspire to become wealthy, they think they need to be super successful with building a hit company or something like that so that they can buy all the stuff they want.
In truth, when you get there, many people realize that the stuff isn’t interesting. Wealth is about the ability to be free. Free from ever having to work at a job or on a project you don’t like again. Free from feeling pressure to work with bad people. Free to work on the things you do actually like or find worthwhile. Free to spend your time however you like.
And it actually doesn’t take a life-changing event to become wealthy. Even if you never have a hit company, you can still become wealthy — with frugality and strategic investing.
In my 20s, I quit my job to start a company. My husband was a post-doc (read: paid pretty much nothing). I took odd and end gigs to make ends meet and scrimped like crazy. This was pre-gig-economy, so random jobs I did included being followed around by a researcher from Xerox Parc, categorizing whiskeys, and critiquing MBA resumes for international students. I remember on the rare occasion we would go out to eat, I would get very nervous if we exceeded spending $25 in total.
In looking back on that, most people – especially in my peer group of tech friends – think about $25 as “Oh, it’s just $25.” I have many friends who believe that saving $6 here and there on SBUX lattes and avocado toast is meaningless. It’s just $6. And as a millennial, I do believe there are systemic issues with our financial system and incentives, I also do believe that investing the equivalent of one latte a day can make you a millionaire.
The right way to think about spending decisions is in its compounded value. You take $6 a day and throw on a 7% annual interest rate in the public stock market or 12% annual rate or higher(!) in the private markets. That $6 daily latte is actually worth over $350k+ in your 40s if you take the money and invest it. Just from *investing* your latte money daily, your average person who invests in standard index funds available to everyone and lives an average lifespan *will become a millionaire*.
That’s pretty remarkable.
But I think the topic of portfolio construction for investments is incredibly confusing. And frankly speaking, I think most people find the topic boring and honestly scary – you could lose all your money! Loss aversion is probably one of the biggest roadblocks to more people investing – even in index funds.
I, too, have thought for many years that investing was scary. But I read somewhere when I was very young that putting your money in a savings account actually *loses* you money due to inflation (which today stands at 8%+ annually!). And, I have been investing in index funds ever since my first job in high school. In other words, I was motivated to invest by the idea that I was losing money by merely saving it!
Now at 40, and having seen even some of the meager earnings I had in my teens compound, I still believe index funds are a fantastic place to put your money. You can passively compound and grow it reliably, because it’s diversified and rides on the economic growth of the world.
But, the one thing I do regret about my investment choices was not investing earlier in *private markets*. I didn’t know anything about investing in startups until the last few years. In fact, for many years, the thought had never even crossed my mind to become an angel investor. I always thought you needed to be super loaded to do that.
And then when I was in my 30s, one of my entrepreneur-friends, who at the time had not yet had an exit, told me that he had been angel-investing into friends’ startups with $1k each. This surprised me. How could you invest $1k checks into startups? Why would anyone take that kind of money? I also didn’t understand how he was accredited to be able to do this (I have since learned that his own startup was valued above a certain amount, and his net worth on paper made him accredited). The world of startup investing was utterly unfamiliar to me even though I was a founder myself at the time!
And, it was very inaccessible — there was no information online anywhere on how to get into any of this. Friends learned from friends how to angel invest. I had wished there were an accessible way to get into small check startup investing once I had some level of a portfolio with my index fund investing. I wanted to be able to add some additional risk/higher reward to my portfolio in an educated and balanced way.
And, this is why my colleague Brian Nichols started a program called Angel Squad at Hustle Fund – to empower small angel investors to learn, invest alongside us for even as small as $1k checks, and network with each other as they start and further their angel investing endeavors. We now have almost 1000 angel investors in this community and the next cohort beings soon if you want to apply to join Angel Squad.
4) Family balance is challenging. Take all the help you can get.
Being an entrepreneur is about doing a lot of sprints while running a marathon. I think the only way I’ve made things work is to rely a lot on help and to not attempt or even care about perfection.
How my child perceives me. I would love a gravity-defying computer like that.
Throughout the pandemic, things were tough for just about everyone. I remember this one day that summed up my life: my husband was working at his lab. I had tons of back-to-back meetings as sh*t hit the fan with everything. My older child who didn’t know how to use a computer needed help logging on to an online class. And my younger one wasn’t quite potty trained and had just pooped on the floor and then stepped in it and ran around from room to room. All at the same time.
After that happened, my parents who live a few miles away from me, so graciously offered to take the kids to live with them for the *next several months*. That was huge. And I’m incredibly grateful. I don’t know how we would’ve pulled through without that help.
I recently listened to Indra Nooyi’s memoir My Life in Full: Work, Family, and Our Future about how her career progressed through Pepsi, and the multi-generational help she received from family resonated with me. As much as we’ve progressed and moved forward with society, there’s still a lot of burdens or asks that fall on the mom. Don’t get me wrong, I think my husband is a phenomenal dad, and many of my friends are amazing dads as well. Many dads do so much for their kids and childcare these days.
But society still puts a lot of little burdens on moms in unsuspecting ways. And, it’s the little things that add up. For example, during the pandemic, some of the moms in my kid’s class sent out emails asking folks to submit a page for the school yearbook. Thinking those were mass emails, I just completely ignored them. Eventually, those emails turned into a personal one sent directly to me.
You can bet my husband never received those emails even though he is on the parent list and certainly didn’t receive the direct personal one. I politely responded that unfortunately I didn’t have the bandwidth to do a class yearbook page for my first grader. (I mean…who does a yearbook page for first grade??) You might think, “well, it’s just someone asking you to do a yearbook page – sheesh. No biggie.” But it’s all the hundreds of little requests that happen everyday that compound and particularly on moms.
My child created this sign for my office
As it turned out, the mother who emailed me ended up taking on the task to do the yearbook page *herself* for my first grader. I never saw the yearbook page, because I didn’t order the school yearbook (see #3 on frugality). (Also, did anything interesting even happen during the remote school year?)
Family balance continues to be a struggle, and honestly, I think this is an area that is still being pioneered. After years of getting unhelpful advice from people who have never been in a similar situation before, I think I’ve learned to just embrace the situation. You do the best you can. And that’s ok. Say yes to help. It will work out.
5) Adventures spark inspiration. Routine makes you better. There’s a balance.
Because I grew up the SF Bay Area my whole life, after college graduation, I decided I would go far far away. Even though I knew I wanted to start a company someday, I first wanted to see the world (on someone else’s dime of course — see point #3 on frugality).
So, I left the Bay Area in 2004. I interned at CERN in Switzerland. I worked in Japan in the middle of nowhere (in a town called Suwa in the Nagano prefecture) and also in downtown Tokyo (see point #2 on basically getting fired). I interned in India at Infosys. I briefly worked on a project in New Zealand. I did everything I could to not come back to the Bay Area (until I had my first kid).
Although none of these trips were for the purpose of entrepreneurship or starting a business, oddly enough, I ended up meeting so many people who would end up becoming successful entrepreneurs. For example, in my intern group in India, one person noticed that a lot of food was served on leaves there. He later started a company in the US to make high end disposable plates made out of leaves, and that company is doing really well.
I often hear that one of the best ways to figure out how to start a company is by working at other startups or by trying lots of different business ideas. That certainly is one path. But, sometimes, I think the most off-the-beaten path ideas — the ones with most opportunity — are where others are not looking. And that means also exploring or being an adventurer in paths that others are not taking.
That could mean pursuing an unusual career path. Or living somewhere others are not.
I have been investing in global companies for the past several years now, and while I’m no expert in any and all problems, many of the problems that international entrepreneurs describe to me — at least on some level — are familiar because of my time abroad.
At the same time, running around from place to place and going from one new project to another has its limits. Entrepreneurial skills are honed by doing the same boring thing day in and day out. Just like practicing a sport or a musical instrument, it’s the repetitive mundane that makes you get better. And of course your role changes as your company grows — going from individual contributor to manager to CEO of a large company. But, working on the same problem day in and day out is mundane to many people. And to grow something big is work across a decade or more by doing the same mundane thing better and better everyday.
My thinking about entrepreneurship changed after my company LaunchBit was acquired by BuySellAds in 2014. The CEO and co-founder Todd Garland bootstrapped BuySellAds, and they have quietly become a behemoth. They have grown their ad network tremendously, and they answer to no one. Approaching 15 years, they just continue to hone their supply side and demand side, and that’s how you grow — there are no shortcuts to honing your skills year in and year out.
Most people, including my younger self, don’t have the discipline to do that. But after many years of doing the same thing over and over, eventually you get really good, and a business does well enough to become really exciting. And BuySellAds has been able to push into new initiatives while keeping their cash cow afloat. They’ve gone into other areas beyond ads, building out a portfolio of other businesses, working with great people. This is the kind of stuff you can do when you own your own destiny and don’t need to answer to investors. And it’s the kind of thing you can do when you’ve got a flywheel going. I’m convinced Todd will be one of the first bootstrapped billionaires — AND most people probably won’t ever know it.
I think too many entrepreneurs, including my younger myself, are enamored with getting acquired, because they don’t have the patience and the fortitude to do the same thing day in and day out. (And as a VC, of course, I like exits too). But, as trite as this may sound — my lesson from BuySellAds is that the journey is the reward. Getting better at honing your skills everyday is the goal. Being able to do cool stuff with cool people, work on interesting problems, and make money *is* the dream.
I probably have about 30 — if I’m lucky 40 — good working years left. And, Hustle Fund is my last job. Our mission at Hustle Fund is to democratize wealth via startups by increasing capital, knowledge, and networks in startup ecosystems everywhere. It’s a company I won’t ever sell, because it’s what I want to work on forever. And though not everyday is easy in building Hustle Fund, over the years, I’ve learned to thoroughly enjoy the entrepreneurial journey of embracing all the ups and downs. It’s a joy and a privilege to be able to work on this problem with an amazing team.
These are just a handful of learnings I’ve had over the last couple of decades. I look forward to learning so much more between now and age 50.
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For many years now, VCs have absolutely “hated” investing in media companies. If you were starting a blog or a newsletter, it would be very challenging to raise money from traditional VCs unless you had proven out a ton of traction (with a fast growth trajectory).
But I think it’s important to understand why, because we’re starting to see an inflection point that will shift the entire industry.
Side note: my view on this topic is fairly strong and comes from working with a lot of newsletter companies over the years in running my startup, which was an email ad network.
What’s wrong with media companies?
VCs typically have not liked these criteria about media companies:
Low exit multiples on ad revenue (often 1-2x on annual revenue) Hard to acquire users quickly & scalably (CAC is too high at scale) In a recession, companies reduce ad spend – especially brand advertising
All of these things have been traditionally true — especially if you’re looking to sell your business in 5 years.
But what if you thought more long-term? Not a 5 year horizon but 10-20 years or even 20-30 years out? How would you think about your business differently? What would your strategy be?
Regardless of your business, you might do something like:
Gather an audience – maybe start a newsletter to get loyal fans Launch a product to that audience Launch many products to that audience to upsell them etc..
And maybe you sell ads or event tickets in the beginning to provide cash flow and keep your company afloat, but eventually you start selling other products and services to a loyal group of people… Maybe you even start a fund that gets layered on top of that.
Oddly enough, that playbook looks like starting a media company!! This is what is happening now — you see creators and influencers starting media companies with long-term goals in mind.
People like Mario Gabriele with The Generalist and Packy Mccormick with Not Boring (full disclosure: am a small investor in his fund) are layering on lots of programs and monetization mechanisms that all work in tandem. E.g. content about companies can also be investments and vice versa. When you align community engagement with monetization, this allows for incredible scale. I would bet that Alexis Grant’s new company They Got Acquired could very easily follow the same playbook with a similar audience.
Why now?
Now you may be saying, “Well media companies have always tried to mesh together different monetization methods to try to increase value. Why is now any different?” For example, Thrillist acquired e-commerce company JackThreads to try to increase monetization.
I think now there is just so much more infrastructure available to media companies to enable them to quickly plug into new monetization methods and tools. For example, Angellist’s rolling fund allows creators such as Packy to quickly spin up a fund without doing the time-consuming backops work and fundraising required for a traditional fund. This didn’t exist even 2 years ago.
Or other wildcards — like crypto. Mario created NFTs — without third party tools to do that quickly and without hassle would make this near-impossible for a media company with limited resources to do at scale. You can envision community tokens coming in a big way to incentivize audience members to get more engaged and contribute.
In other words, there are now many ways to monetize quickly that have much lower COGs than creating new physical products to sell.
I think there has never been a better time to start building a media company and we will see many billion dollar media companies coming out of this era — perhaps even run by just a handful of people. Long gone are the days of just ads and events — the bigger monetization mechanisms are just getting started.
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Here are some things that I think will be big in 2019:
1) Furthering vocational education
I think traditionally, a lot of investors have been shy to invest in education. In US, let’s be honest — we don’t really care about education! Here’s a good post that my friend Avichal Garg wrote on the education landscape several years ago which I think still applies today in the US.
But the tide is changing a bit. Specifically, what we’re seeing in the US is massive student debt. And new college graduates are not able to get a job or a high paying job. For so many people in the US, if you are not majoring in a STEM subject, it probably does not make sense anymore to go to college. Period. The economics of college are just terrible.
So while we don’t care about education in the US, we do care about business and return on investment! And it does make sense now to provide education of “useful” topics for the workplace — for a job, for livelihood. This is why we see the rise of Lambda School which ties your livelihood outcomes to your cost of education. And there are many other schools that are cropping up such as Make School and Kenzie Academy (we are investors at Hustle Fund) that are trying to teach useful topics that you can actually use and are willing to pay for, because you can use those skills to make money.
I think we will see a lot of new businesses stemming off of this trend.
We’ll certainly see more schools — both in-person and online covering more topics. Everything from coding to digital marketing to sales to even entrepreneurship. But also vocational categories as well. Can you teach medical skills or plumbing skills using VR headsets remotely?
Additionally, I think there will be businesses stemming off of these. Lots of new ways to loan money to students. New ways to provide socialization and networking for remote students. New real estate opportunities for these students.
2) Improving commutes
Commutes are terrible! (and a big waste of time). This year, we will see a lot of businesses built around making your commute better. Commutes can get better in two ways: A) By actually reducing your door-to-door time and B) by making the experience while commuting better. We’ll see opportunities in both.
A) There will be new ways of commuting in less time.
This is really what the rise of Bird and Lime is all about. When it’s faster and cheaper to go from say SOMA to the Financial District of San Francisco by scooter vs car AND is accessible to everyone, people will do it. In contrast, not everyone can ride a bicycle or a skateboard (e.g. more expensive, need balance or skills – not accessible to all)
But scooters really only work in warm-ish places where there are bike lanes / wide enough roads. E.g. places where it snows / places that don’t have bike lanes won’t be great markets in the long run. So there’s an opportunity to come up with a mode of transportation and model that can withstand weather / lack of bike lanes. My guess is that we will just see further advancement of ridesharing combined with autonomous vehicles. An early version of this might be effectively new autonomous bus lines that just go up and down streets continuously. This is already starting to happen in some cities.
B) As people drive less, they will have more time during their commute
This is a big opportunity for people to do more work, shop, and play more too. For example, we’ll likely continue to see growth in podcasts and tools for podcasts this year. Spotify made clear that they believe in this opportunity by announcing two acquisitions in podcasting this week.
But we might also see the emergence of new commuting activities. Such as new commerce models. In Asia, for example, lots of people shop while waiting for public transportation like this:
We may even see new fitness activities. Peloton allows you to exercise at home in a social way. Can you do this on the road? Can you take a stretch class in an Uber? Can you run from Zombies or have a coach yelling in your ear while you run to work?
A general trend we’ve been seeing over the years is the ability to entertain yourself in a retail location, and later this entertainment was brought into the home and then later yet, taken anywhere, especially while commuting. For example:
Before, you shopped at the mall -> Later you shopped on your Desktop browser at home -> Now shop on your mobile device while commuting
Before, you played video games at the mall -> Played video games on your Desktop -> Now play video games on your phone while commuting
Before, you watched shows at the theater -> Watched shows at home -> Now, you watch shows on your phone while commuting
Before, you went to the gym to workout -> Now, you work out at home -> Later, will you work out while commuting?
Maybe. I can’t predict the future, but I can tell you that people will have more time with their commutes.
3) Furthering entrepreneurship
When I grew up in the Silicon Valley in the 1990s, entrepreneurship was a ridiculous idea. You were a maverick if you were an entrepreneur. This is no longer the case. You’re pretty mainstream if you’re an entrepreneur today. Even outside of Silicon Valley, so many people have side businesses.
I think entrepreneurship as a category has gotten so big that it needs to be segmented. There are fast growth tech startups — these are the ones that VCs like to find and back. There are brick and mortar retail businesses. Like cafes and restaurants. And there’s a new emerging but fast growing category that I call the “micropreneur”. Micropreneurs are < 10 person companies that are supported largely by existing web platforms and online distribution. With just a handful of people, these founders can generate as much as $100k-$1m per employee because they can leverage a lot of existing infrastructure — online payments, website builders or online store platforms, and even easy-to-use “pseudo-developer tools” such as Zapier. Micropreneurs are fueled by the rise in platforms that help people get a business off the ground — such as Shopify or Webflow (we are investors at Hustle Fund) or Stripe or Udemy. Or even YouTube and Instagram! They are often bootstrapped and often start as side businesses that sometimes become full-time businesses. And unlike tech unicorns, there are tons and tons of them.
I think 2019 is the year where we see products, platforms, and content for the micropreneur.
Entrepreneurship education platforms (could be schools / bootcamps / etc of sorts) especially in areas of customer acquisition
Loans / financial solutions to provide non-VC funding for these businesses
Unique platforms and tools that can make it easy to start a “scalable” micro business
networking platforms and clubs (like a YPO for this segment)
In general, I believe that if you can help people make more money, that is the easiest sale, and microentrepreneurs are hungry to buy things that will fuel their businesses that are already doing well.
4) Crypto tools and crypto platforms
Although we’re in the bear markets with crypto, I am bullish on the long term use of cryptocurrency. Why? Fiat works fine in many places. But, I think what we are increasingly seeing is monopolistic behavior on the internet.
I applaud CEO of CloudFlare Matthew Prince for writing this post a couple of years ago about free speech on the internet. In this post, he talks about how CloudFlare came to the conclusion they should terminate The Daily Stormer as a client. It was a difficult decision, not because he agreed with the Daily Stormer’s ideology, but rather because he didn’t believe that internet companies should be policing the internet for people who hold opposing ideologies.
But this is happening. We’ve seen a lot of large internet companies terminate relationships with people they don’t agree with. As a response to that, I believe we’ll see new sites crop up to try to bring back a “free internet”. Payments are usually at the front of new waves of trends, so I suspect, we’ll see decentralized payment options pop up as a response to PayPal / Stripe / et al kicking people off their services. Technology tends to start off with illicit use cases (such as the VHS tape used for pornography) but then ends up becoming mainstream.
In order for people to pay each other with cryptocurrency, we need reliable and easy-to-use infrastructure that mainstream consumers can use. This includes digital wallets for storing cryptocurrency, easy-to-use exchanges for moving money from currencies to fiat, accounting solutions for cryptocurrency, etc. Entrepreneurs are currently building in all of these areas, and I’m bullish on innovation in all of these.
In this space – I think the winners will have to be incredible product designers who can build great user experiences. 5) Verticalization of B2B SaaS
In North America, B2B horizontal SaaS business ideas are largely saturated. Not 100%, of course, but for the most part, we have marketing software, sales software, HR software, customer service software, and communications software that largely works. Some of these tools may be clunky archaic experiences, but they are here to stay — at least for a while, in my opinion.
So I think the B2B SaaS opportunities that people will focus on are verticalized use cases. E.g. Marketo for XYZ industry. Software built around particular sales cycles and workflows for industries like real estate, construction, farming, retail, etc. We already see this happening, but I think there will be a lot more of these types of businesses built around verticals in 2019.
I could be completely wrong on any and all of these predictions! And, even if I’m right, outside of these 5 categories, there will be, of course, many more businesses built.
What startup opportunities do you think will be big in 2019?
This year has been crazy in the fundraising landscape. The fundraising landscape in 2018 for pre-seed and seed-stage companies has changed a lot, even in just the first few months of this year.
Now in Q2, things are a bit different. I’m breaking this down into two blog posts. Part 1 (this one) is about the token-based fundraising landscape. Part 2 will be for pre-seed/seed companies raising traditional equity, debt, and convertible security rounds.
Even though most of my audience is probably more interested in Part 2, it’s important to cover what is happening in the crypto fundraising landscape first because investor behavior in this world affects the pre-seed/seed landscape.
Drivers
A boatload of VCs are trying to get exposure to cryptocurrencies. (Sorta)
Some VCs are doing token buys.
Some VCs are not set up to do token buys per their legal docs for their funds. Or their investors in their funds (their LPs) are not keen on their doing token buys.
Some VCs who were not set up to do token buys before per their legal docs are now making amendments in their legal docs to be able to do so.
Some VCs are less interested in token buys now than a few weeks ago, as alt cryptocurrencies are down in value.
Trends and Takeaways
1) Investors who are able to do token buys are active, but they are not “the usual suspects” (mostly).
In some cases, you see well known Sand Hill VC firms doing token buys – Sequoia, for example. In most cases, however, traditional VCs are not participating (much) for the reasons above.
There are new VCs who are specialized and focused solely on cryptocurrency buys. Some of these are pulling away and building brands in the crypto space. My hypothesis is that there will be a real shake up in how deals are done in startups, and you’ll see turnover as some of these new brands overtake older, well-established VC firms (this is an aside for another blogpost).
And then there are also syndicates. These are groups of angel investors, individuals who are pooling their money together to purchase tokens. These syndicates are often a bit “underground,” so you won’t be able to find them by researching via Google. One good place to find these groups is actually at tech companies. Just about every tech company has a club of cryptocurrency enthusiasts. From there, you can find various syndicates. Syndicates also know other syndicates. Even though syndicates are comprised of angels, you’d be surprised how much money a syndicate call pull together. It’s not uncommon for some of these syndicates to pull together a few million dollars in a given deal and do deals regularly (perhaps less so now that it’s crypto winter).
2. These cryptoinvestors are not buying tokens at the ICO
Most cryptoinvestors I know are trying to buy tokens pre-ICO and often in companies who are doing token sales discreetly.
I think there’s an assumption that VCs are participating in ICOs. They aren’t. They want to buy tokens before the public does at a better price. Moreover, most companies I’m seeing these days who are doing token sales are not even doing ICOs. They are just doing private sales directly to various investors and/or investor groups.
This is because it’s pretty involved to do an ICO. You have to worry about SEC compliance A LOT as well as any potential hacking or fraud issues that could arise. These companies are publicly announcing their upcoming token sale (without committing to dates) and are using those announcements to generate interest, which is then converted into private direct sales of tokens.
3. You now need some “traction” to successfully do a token sale (sorta)
Unlike last year when you could raise $50m on more or less just an idea, the “traction bar” has increased for doing a token sale. We’re still not talking about loads of traction – and it depends on whether you are launching a protocol or an app – but there is a bar.
The bar for protocols is basically a solid idea with some development and a really reputable team (even if it will take a long time to fully build). In contrast, the bar is incredibly high to build an app (decentralized or not). In many cases, you need a community of users already (in addition to a product) to have a successful token sale. These days, many investors are very much leaning towards funding protocols with potential strong tech over apps. Here’s a good paper on why this is (though I don’t entirely agree with his conclusions; that is also for another blog post).
4. Larger established companies are doing token sales
Interestingly enough, part of the reason the bar for apps is increasing is that I’m now seeing centralized apps, existing startups that are at the series A through enterprise level prepare their token sales. If given the choice to buy into a token of a company that is already thriving vs a new app, many investors would choose the former, right? A series C marketplace that has millions of users is a lot more de-risked than an idea-stage marketplace.
Continuing from point 4, companies that are doing token sales today are not necessarily decentralized. Rather, their projects may technically be decentralized, but the tokens will be used in a very centralized use case. A lot of blockchain enthusiasts may find this appalling. After all, one of the drivers of blockchain is this notion that large, centralized companies should NOT hold your data (technically they are not, but their blockchains are for the purpose of furthering a centralized, for-profit company).
This is an interesting concept. I think moving forward, we will see many companies do token sales, even companies where blockchain is not at the core of the business. My prediction – and I could be totally wrong – is that we will see a new type of crowdfunding of utility tokens for centralized apps. Basically, early customers buy into a new startup’s token at a special price, and those customers benefit from that price if the company does well. This is just my prediction of where I think the market is headed.
6. Because the bar for token sales has increased, blockchain companies are raising equity-based pre-seed rounds
Funnily enough, in 2017, a number of companies who could not raise from VC did successful ICOs. Now in 2018 (Q2 specifically), a number of companies who cannot raise on a token sale are running to VCs to do pre-seed raises!
What I’m seeing here is that a lot of VCs who are not able to get into token sales (i.e. are not able to legally do token buys or their investors don’t want them to) are investing in blockchain companies on a convertible note or convertible security and then are receiving promises of X number of tokens during a later token sale.
This has become a common way for pre-seed blockchain companies to raise money.
7. Token-sale raises are becoming smaller
Investors are becoming more wary of large raises. Startups are doing much smaller token sales (and I’m glad)! I think that discipline in a startup is important. If you are basically at the beginning of your startup, and someone gives you infinite resources, you still would not be able to increase your progress substantially. The adage that 9 women cannot incubate a baby in 1 month is apt here.
That being said, raises still have to be substantial in the crypto world because there are a lot of additional considerations that don’t apply to the equity world.
It takes millions of dollars to get your token listed on an exchange, which people need for liquidity. For top exchanges, it could be as much as $2m-$5m per exchange.
Operations costs more. More legal, accounting, and other service providers related to tokens means your bill will be substantially higher.
Even if the net you want to raise is, say $5m, you’re probably looking at raising $10-$15m to cover your other costs.
8. It’s crypto-winter, so investors are a little more shy to move forward even if you have some progress
There’s still a lot of crypto money floating around, but investors are a little more shy to move forward since alts are not doing well right now (and you now have competing token sales from larger companies – see #4).
9. Companies raising on a token need a concrete liquidity and currency plan
In 2017, investors were willing to take a flyer on projects that had built some semblance of a community. In 2018, liquidity had proven to be very important. It’s important to have exchange-connections, money to get on an exchange (or if you are really good friends with people at exchanges, you can get prioritized for free), and a plan or timeline for when your token will become liquid. In addition, thinking through the offering (number of tokens, release of tokens, etc.) is also really important.
In some sense, your success here will be based on whether you can play mini-fed. It’s not about your white paper.
This is something we’ve been talking about with a number of companies – both big and small. How you run your token sale is something that isn’t core to people’s businesses but is really important! I’m happy to chat with more companies thinking about doing this if they want (time permitting).
If I were starting a blockchain startup today, I would at a minimum get a prototype or early version of my tech working (for a protocol idea). For an app, I would get a full v1 product and start pulling together a community. For the former, you can probably raise if the tech is strong. For the latter, you may need to do a pre-seed round with traditional investors and give investors future tokens if you cannot jump straight to a token sale. I would plan for any token sale to take months, partly to raise but partly to make sure that you are fully in compliance. It is also important to have strong legal counsel and think through the costs of this legal counsel (plus the cost of getting on exchanges) as part of planning a fundraise.
This is just my $0.02, and I’m sure my thoughts will change as we move towards Q3 of this year.
I think we’re at a really interesting time with technology. We are going to see a lot of software “middle(wo)men businesses” be replaced. Payment processing companies. A lot of marketplaces. Businesses where there are two sides and some company sitting in the middle who doesn’t provide much value – these are the kinds of companies that are going to be disrupted soon. On the flip side, this is a great time for entrepreneurs who are just starting out and thinking about new opportunities.
Let’s take a step back for a moment to run through a quick history of the web.
History of web businesses
Since the 90s, software companies have moved away from desktop software (CD ROMs, floppy disks, and whatever else we use to rely on that we cannot even remember anymore). Software moved online, and data is now stored in the cloud, not on a local server in your office. This is and was a good thing. It’s incredibly convenient to be able to access software anywhere in the world with any computer or mobile device. Now, it’s also become a bad thing. We’ve seen the rise of hacking databases (thanks Equifax for leaking everyone’s SSNs!) We’ve seen some companies become so big and have all of your data. Some of these companies are selling or giving away your data to other people without you knowing about it. Maybe it’s OK that Yahoo! mail got hacked, and those hackers can have fun with all of my Groupon daily coupons and other newsletters. It’s become clear that this model isn’t perfect for everything.
This is where blockchain technology comes in. What if instead of one company holding all of your data in a central database you flip the model around? Instead, why don’t we make data available and open to the public with privacy settings that you, as the consumer, own and control? Every transaction could be made public with redundancy so that there are no disputes about what records have happened. What if to accomplish this, we rope in a lot of people who can be these nodes of information in this distributed ledger instead of one party?
In the beginning, blockchain sounded like it could only apply to niche use cases that required a lot of security and privacy. Actually, I think this can be applied to a lot of use cases for other reasons – to connect two sides in transactions.
For example: take ad networks. Ad networks have advertisers who want to buy ads and publishers who want to make money by serving ads. The ad networks who sit in between the two parties will often take a 20-70% cut. In other words, if I’m a marketer buying an ad at $100, the publisher might receive anywhere between $30-$80. Some ad networks are incredibly valuable; they provide useful targeting and ad serving technology. Others are not and just take a massive cut in between.
Now, imagine a world where someone built ad tech and offered it for free to match advertisers and publishers? They take no fee in between. I guarantee you that the ad networks who provide no value will be wiped out quickly because marketers will all flock to buy ads that are significantly cheaper. Publishers would prefer to make more money.
So let’s say we start this company – call it Hippo Ads. With blockchain, we can do this with Hippo Ads. We will rely on others to be information nodes; we won’t need a central database. We will provide the software to keep track of the ad buys and who gets what payments. We also provide software to match advertisers and publishers. AND, we take no fee for this.
Here’s how we make money: we offer a currency called Hippo Coin. You can only buy ads and get paid with hippo coin. Plus, there’s a limited supply of Hippo Coin. We at Hippo Ads will hold some of the coins that we’ll vest upon hitting certain milestones. Since there is a limited supply of Hippo Coin, if this ad network gets to be so valuable (i.e. everyone wants to buy and sell ads), the value of Hippo Coin against the dollar goes up, and the employees and founders at Hippo Ads will make money by holding some of that currency and making a good product and service.
Now we take this train of thought a step further. Any two-sided platform or marketplace that charges a fee in-between the two sides could potentially be disrupted by applying the same model. Right?
Not every marketplace or two-sided platform will be disrupted. Let’s say you have a marketplace, and you are charging a 15% fee between the two sides. If your customers are finding your service valuable and are happy to pay you that fee because you provide great service or product, then you likely won’t be disrupted. If you find that people are trying to skirt you to save money, then this could be a better model and something to either adopt or watch out for from would-be competitors. In addition, there are other criteria to consider:
1. Old industries won’t adopt this model in the near term.
Because utility tokens are so new and hard for most people to work with, the industries that will be disrupted first will be the ones where the two sides are quite tech savvy.
2. Tackling tech savvy, fast-moving incumbents is not a good strategy.
I see blockchain companies trying to use this distributed ledger model to take on their “centralized” counterparts who are also still very mobile, well-funded tech companies and who will be able to either counter by offering a token themselves or will outpace building both sides of the marketplace faster.
3. Latency is a strong consideration.
Although a lot of two-sided marketplaces and platforms don’t need information transmitted in real-time, some use cases have serious latency considerations. Programmatic ad-serving, for example, has to be super fast. Consumers won’t wait around for 5sec for a banner ad to show up. Blockchain won’t serve these use cases well.
Just some things to think about as you either pursue your next opportunity or look at who is chasing you.
