tech | growth | venture | Kevin Stevens
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The overarching theme of my goals this year is to stay more focused. It requires consistently organizing and de-cluttering my schedule and mind. Knowing that this was going to be the case, I started honing in on a productivity stack in late 2018 that allowed me to spend time on deeper work.

After a few weeks of tuning, and months of experimenting with different products, I think I’ve stumbled upon a setup that works really well and wanted to share. In addition to my email and calendar, below are the products that I’m finding I’ve worked really well to help keep me moving forward with purpose.

 

Airtable

I’ve been using Airtable on and off for the last year or so, but the improvements they’ve made in usability over the last 6 months have turned me into a more loyal user.

The most useful thing I’ve built in Airtable is my Personal Relationship Manager (see above). I think of this as a happy medium between LinkedIn and my iOS contact list and the result is a curated professional network.

One of my favorite ways to use the database is the “needs” column on the contacts tab. This allows me to track the needs of my network in a quantitative way while also making better connections that are deeper than “you two should meet” across my network.

Most of the columns and tabs are self-explanatory, but one of the best features within Airtable is the ability to link multiple tables/records across a database with just a few clicks. For example, I have a “Companies” tab and an “Interactions” tab that are used for this purpose.

  • Companies: This is just a basic list all of the companies my contacts are connected with. The easiest way to do this is pulling a CSV (link) from your LinkedIn account and add the companies column from the resulting spreadsheet. This allows me to create a linked field in both the “Contacts” and “Interactions” tabs which is useful if contacts have multiple companies or interactions include multiple companies in attendance.
  • Interactions (the magic): Here is where I record all of the meetings I have with my contacts. Again, most of the fields are self-explanatory, but I’ve also included a hand-written notes column. There’s nothing like pen and paper in a meeting to show people you’re engaged and disconnected from your device plus it’s my preferred method of notetaking with a few exceptions like annotating decks or PDFs. I simply include a picture of my notes on the row once it’s over. If you take notes in something like Evernote or OneNote you could include a link to those notes instead.

Airtable is great for a multitude of things, but this is my favorite use case and highlights its flexibility extremely well. It’s also a great tool for project management and the site has several preformatted bases that you can customize to fit your needs.

OneNote

A few months ago, I purchased a Microsoft Surface Go (link) and as a result, I’ve migrated from Evernote to OneNote. I’m as surprised as anyone that I actually favor the latter over the former.

Microsoft did a fantastic job developing the stylus for the Surface and OneNote’s freeform nature allows me to take advantage including annotating PDF’s as I mentioned above. Additionally, I like the overall layout of the app much better than Evernote because it feels more like Google Docs and Word.

I use the following notebook structure:

  • My Notes – think Cabinet or Inbox in the GTD method, but more organized. I have sections in the notebook for Ian, articles useful for startups that I share regularly with founders, podcast notes, email templates plus a few more that are personalized to my work style.
  • Kindle Notes – I occasionally read on Kindle and after I complete a book I clip the notes into OneNote (link). This makes the notes more readily accessible as well as searchable.
  • Saved Tweets – I set up an IFTTT integration to have all of my linked tweets sent to OneNote with the primary goal of having them be searchable. It also acts as a bookmark system for tweets.
  • Saved Articles – see above but with Pocket
  • Diligence – resources and templates for performing due diligence on prospective companies
  • Portfolio Companies – see above but for portfolio companies. This is where I track board and touch base notes as well.

OneNote still has some work to do on recognizing handwriting for the “ink-to-text” feature and searching notes that are scanned in from handwritten work. However, it is actually really great for most things. And speaking of things…

Things3

Things3 has become my default to-do list manager and I’ve tried just about all of them. Unfortunately, Things is available only on Mac devices but that hasn’t stopped me from becoming a power user.

The ability to email your to your to-do list (hint: create a contact) and the integrated calendar view are easily the two best features of Things. The “Today” and “Upcoming” lists will not only bring in the tasks you need to get done today but also your meetings which provides a holistic look at the time period ahead.

My to-do list is largely tasks that have come from email or one-line thoughts/tasks that come into my head randomly so my to-do isn’t where the details of the work come together. That’s where I use OneNote. For example, let’s say I had this post as a to-do. In Things, it would be under my “blog” list as “Productivity Stack” then the article itself is written in OneNote.

 

This is probably more than anyone cares to know about the way I work, but I’ve always been a fan of sites like Lifehacker and My Morning Routine that highlight how others go about their days.

Hopefully sharing this post, and the granular boring details that go with it will help prevent others from going through the hassle of tinkering with a setup for months like I’ve done previously and allow them to focus GTD rather than reading about how to GTD.

2018 was the year big tech announced it was leaving the west coast and moving to the middle of the county the other coast.  Apple, Amazon, and Google all announced expansions of their campuses in other locations and since Austin was the only city to be rewarded one of these HQ’s – I hope we’ll see cities like Dallas, Houston, Atlanta, and Nashville continue to invest in their startup ecosystems in order to grow the next great generation of tech companies.

Perhaps foolishly, I’m taking a stance and publishing my predictions for startups in the Southeast. Like most forecasts, the only inevitability is some of these, if not all, will end up wrong.  However, having a point of view to use as a starting point is important when everything in the startup world is far from certain.

A major Silicon Valley venture firm (or 2, or 3) leads a $50 million+ round (or 2, or 3) in the Southeast

By now, it’s become obvious that innovation is happening all across the country and is being highlighted by groups like Steve Case’s Rise of the Rest fund.  I suspect 2019 is the year major Silicon Valley firms lead significant rounds in Southeast-based startups.

This has happened before as Kabbage was able to raise $250 million from Softbank in August of 2017, but with the rise of mega funds we’re due to see the occurrence more often.

Within the last 24 months, several startups have raised meaningful rounds from coastal VC’s with deep pockets or close ties to them.  Those names include Bestow, Pull Request, New Knowledge, Map Anything, Spark Cognition, and OJO Labs.  It’s not hard to imagine one of these firms picking up a large round in 2019.

Early-stage deals decline as family-offices pull back from direct investing in startups…

Increasingly, family offices have become the de facto seed funds of the non-costal markets by leading deals and taking board seats. In 2019, I think it’s possible we’ll see a slowdown of that trend as family-offices become more likely to take cash to the sidelines due to public market uncertainty.  If the fed continues to raise rates, it becomes entirely possible FO’s turn to private debt and distressed assets or fund impact projects where returns are only part of the equation.

For most of these family offices, venture is a very small part of the portfolio and is complementary to another business segment where they have expertise.  Unlike those businesses, the startup economy is not as correlated with the macroeconomic trends.  Yet, this doesn’t mean that those investors won’t take a more cautious stance in 2019, especially at the margin where growth isn’t as obvious even with added synergy.

I’m not convinced those family offices won’t miss out on investing in a new wave of very important startups especially in the analog spaces where the Southeast will be a part of the conversion from an industrial economy to an information one.

…but Series A rounds attract more attention from coastal VC’s

The emergence of mega-funds has increased the size of Series A rounds dramatically in the last few years. In 2017, the average Series A was around $7 million according to Pitchbook but perhaps most astonishing is that 39% of valuations were $25 million+ and less than 25% of those deals were under $10 million.

Investors, especially mega-funds looking for options, are concentrating their capital into deals they view as higher-quality.  My guess is that when the 2018 numbers come out, we’ll see more attention being paid by coastal firms with “smaller” funds investing outside of the coasts as they are priced out of the “hot” deals in Silicon Valley by funds comfortable with deploying more capital earlier.

This is a trend I suspect will continue into 2019 as there is no shortage of capital to invest in early-stage companies, but the non-costal companies will have to prove they are worth the investment to overcome the perceived limitations of location.

If a slowdown occurs, it will look more like 2015-2016 than 2008-2009

I suspect we’ll see a slow down in venture investing this year, but it won’t look like 2008-2009.  Instead, the drop will be more similar to the one in 2015-2016 where the total number of deals fell by about 15%.

It’s unlikely we are headed for anything like the Q1 2009 where venture funding fell by 50% from Q1 2008 to a total of $3.9 billion and continued on that trend for the remainder of the year before 2009 ended up as the slowest year since 1998.

However, startups can most likely expect more diligence from investors, particularly family offices where fees on invested capital aren’t in play, and valuations to come down even for the highest growth companies. Regardless, the bear market can be a good time to invest as great companies are still founded during recessions.

Here’s a small sample of firms that many expect to IPO in 2019 that were founded during the last recession.

Airbnb (8/2008)

Uber (3/2009)

Slack (2009)

Cloudflare (2009)

Pinterest (2009/10)

It’s possible I sound both optimistic and pessimistic at the same time, and that’s the case.  I am incredibly optimistic that the focus on innovation and technology away from Silicon Valley will continue to propel the industry to the forefront in new metros.

On the macro side, I’m less sure as a slow down seems all but certain at some point in the near future and while tech is, in theory, an uncorrelated asset that’s never the case in practice as funding always slows when the economy does the same.

Regardless, there’s no doubt that 2019 is going to be an exciting year for startups between the coasts and I can’t wait to see the trends that emerge.

One of the most popular posts I wrote in 2018 recapped the books I’d read throughout the year, so I’m bringing it back in 2019.  I’m undecided on the format so it may change from time to time, but the three most likely candidates are:

  • Three takeaways, primarily consisting of the three passages I found most interesting
  • One big lesson / theme
  • Intuitive point v. counter-intuitive point (this is my favorite, but I am unsure it will apply to every book)

Below are the books I’ve finished in 2019 in reverse chronological order.

2. How the Internet Happened: From Netscape to the iPhone – Brian McCullough

I knew a lot of the basic history behind the web and the dot-com bubble, but this book was a fascinating story of how it all came together, fell-apart, and came together again. Highly recommend if you’re interested in learning more about the dot-com era. There’s one thing that’s clear from this book: luck and timing matter.

A few favorite takeaways:

  • Microsoft was hesitant about the internet because it didn’t see how it would make money.
  • AOL bought Time Warner after considering eBay but didn’t want to double down on the web.
  • The middle-class suffered two major bubbles within 7-8 years after being told to a) invest and hold internet stocks and b) buy a home it’s a safe investment. Both of these events are likely to have played a role in the distrust we currently see in our political and economic system.

 

1. It Doesn’t Have to Be Crazy at Work – Jason Fried and David Heinemeier Hansson

I mentioned on my Twitter feed that this book was the first one I’ve ever read where one minute I was in staunch agreement and the next I was thinking “that will never work for most companies”.  It was the inspiration for format number three above and so I will use it here.

Intuitive: Your company is your product and so tweaking it in the same way you would actual software makes sense. Elon Musk has championed this theory in the past, build the machine that builds the machine.  Less waste, more production, and few distractions.

Counter-Intuitive: No long-term planning, make it up as you go. While I agree that no one knows what the world will look like in 36 months, it’s a great exercise to anticipate and think through scenarios.  Yet, the book is spot on here, “Seeing a bad idea through just because at one point it sounded like a good idea is a tragic waste of energy and talent.”

Recently, a good friend sent over the TechCrunch article “VC’s Urge Their Portfolios to Prepare for Winter”. Obviously, I’m new to this and as an operator have only known a bull market, but I suspect some market cyclicality will be introduced in the infancy of my investing career.

It’s important that I’m thinking about the potential impacts while researching lessons from past economic downturns. I figured it would be worthwhile to share a snapshot of my response to the article above as it highlights my thinking.

We went through something similar at Choose Energy, but instead it was a VC specific cooling off. Our Series C closed in 2015 and our leadership team anticipated the market could not stay as active as it had previously been.

While the decrease wasn’t as strong as anticipated, it did happen – YoY total deals declined by about 15% in 2016.  As a result, we raised a bit more than needed at a strong valuation allowing us to extend our runway through 2016 and eventually increase our operating leverage which also led to profitability.

This was also part of our thinking with our investment in WNDYR, we saw a strong services business that would be the backbone of a company as the software gained traction. Additionally, the efficiency gains they bring to businesses will become more important both to SaaS companies and startups looking for efficient growth as well as large firms looking to be more productive with fewer resources in the event of an economic downturn.

During the last recession, venture funding fell by 50% nationally in Q1 2009 from Q1 2008 to a total of $3.9 billion and continued on that trend for the remainder of the year. 2009 was the lowest total funding since 1998, yet here’s a small sample of firms close to an IPO and founded during that time:

Airbnb (8/2008)
Uber (3/2009)
Slack (2009)
Cloudflare (2009)
Pinterest (2009/10)

Lesson: the bear market can be a good time to invest if you are focused on building long-term value and expect your holding periods to be on the longer end, especially since you’ll see less yield everywhere else. Good companies are still founded during recessions.

Obviously, we think industrials are well suited for this shift as the larger companies usually shy away from startups that don’t have a path to a strong balance sheet. The flip side is that there have to be levers that allow that to happen. If you aren’t acquired, those levers can still be pulled if capital becomes less readily available.

Lastly, it’s possible the startup capital crunch could be smaller than anticipated if the downturn is a short one, though I’d advise startups to plan on the opposite.

Currently, there’s still a lot of dry powder on the sidelines from all of the mega funds VC firms have been raised ahead of the slowdown that’s supposedly been on the horizon for several months now. They’ll be in a great position to follow on to good deals if pricing decreases due to a cash crunch and startups should be aware of this in the event funding slows for a while.

2018 was an incredible ride between the birth of my first child, celebrating my 5th anniversary with Anita, and getting Intelis off the ground.  Last year, this post was more about growth, and in some ways it was right.

However, I fell short in one major way, focus and optimization.  That is my goal this year, extreme focus. I want to cut out the noise when it matters (e.g. family time, research blocks) and focus on the biggest levers in both my personal and professional lives.  This theme plays throughout my 5 goals for the new year.

1. Improving as a dad

This one is a given. Being a dad has been an incredible experience and I am looking forward to more of it in 2019.  While I’m new at it, and there’s no one right way to parent, I’m focused on being a better dad in 2019.  The first step for me will be no phone time between the time I get home and Ian goes to bed.  Since he’s starting daycare in the new year, our only real time with him during the week will be from 7-9P or so, I want to be present in those moments.

2. Write more

A goal I have had for the last few years and admittedly not succeeded at in the way I had hoped.  I posted 25 times in 2018, by far my best year since starting a blog, but also not close to the cadence I had in my mind.  My goal this year is once per week – an achievable amount without sacrificing the quality (loose usage of the word here) of the content.

3. Saying no more -> working deeply

The best part of being in venture capital is meeting really ambitious, driven people that have worked on or are currently working on projects that I’m interested in learning more about. The business is people-centric and meeting intensive, but I want to make sure I am providing value in those meetings/events in order to be respectful of other’s time.  I did a really poor job of this in 2018 and let my schedule get away from me.

I’ve put two placeholders on my calendar to get me started.  The first is 45-min blocks of email only time first thing in the AM, before lunch, and at the end of my day. I purposely went 15 minutes longer than I thought necessary and if I get that time back, great.  The second placeholder is no-meeting Fridays, which I realize will likely get interrupted from time-to-time but scheduling time to work-deeply is something I hope will have compounding benefits.

In short, my focus should be strictly focused on meeting companies where Intelis is a good fit, growing our firm, and supporting our portfolio companies.

4. Keep reading!

I’m happy with the momentum I built in reading regularly last year and want to continue that trend.  Last year, I read 23 books- just short of my goal.  I’m aiming for 30 books in 2019.

Additionally, I’m adding an additional sub-goal of reading 4 nights a week to Ian during the weeks when I am not traveling.

5. Cook more

Anita and I are in the process of buying a new home and one of our key purchasing criteria is having a place to entertain our friends which also includes having a kitchen we enjoy spending time in.  I love cooking and haven’t done enough of it in the past few years – my goal is to get back in the swing of cooking 1-2 times a week this year.  It’s a great outlet for creativity and relaxing without being tied to a screen.

There you have it, 5 goals for 2019.  As always, there’s the potential for things to change, they almost always do.  However, I’m hoping that by playing offense with my focus and getting these goals down on paper I’ll be more prepared for the inevitable chaotic times.

Happy New Year!

Like most, I figured I would write some form of recap or prediction post(s) at year’s end and this one is the first of what might be a few different articles to come over the next few days.  They’ll be a mix of industry, regional, and personal reflections that should be set up a great framework for growth and focus in 2019.

This one focuses on the themes I see taking hold in the power sector over the next 12 months. New technology-related trends like electric vehicles and cybersecurity have combined with on-going challenges surrounding aging assets, extreme weather, and regulatory uncertainty to create innovation opportunities in one of the world’s largest and most important industries.  As a result, here are the themes I’m particularly interested in next year as the utility business model continues to evolve.

Which network takes the lead in connecting the grid?

Utilities, along with the largest energy consuming industries (manufacturing and transportation), are in the middle of a transformation which includes connecting virtually everything to a network.  In total, these three verticals alone are projected to spend $132B related to the internet of things.

Yet, the available networks (3G, 5G, Bluetooth, and WiFi) all have shortcomings that keep them from becoming the industry standard. Verizon and AT&T are working on 5G IoT specific networks, but it is still incredibly difficult to get 3G coverage in some rural parts of the country where key assets are located, much less 5G and it is often cost-prohibitive at the enterprise level.

The answer is likely a combination of networks that are built on the tradeoffs for latency, computing power, battery life, and of course, cost. Where latency isn’t an issue and battery life matters, protocols like LoRWAN could begin to see wide adoption, especially at the computation and control layers.

How will the industry close the skill gaps in the workforce?

The energy workforce will look increasingly different in the coming years.  Today, 1/3 of the workforce is compromised of manual work rather it be administrative like accounting and data entry or physical labor in the field.  That number is expected to reduce to 1/4 in just the next few years.

With the continued rise of IIoT, it’s no surprise that the jobs most in demand require the data science and software skills the industry is sorely missing, especially given most utilities are HQ’d outside of traditional tech hubs.

However, the chart below from the World Economic Forum highlights a major hurdle for startups looking to grow within the sector- 64% of companies still don’t understand the opportunities for implementing new technologies.  As a result,  founding teams that have industry expertise or have developed go-to-market strategies tailored to helping customers in the industry uncover use cases are likely to have distinct advantages.

Source: WeForum.org

Will machine learning finally begin to reduce operational costs?

Regardless of demand growth or stagnation, operational costs will continue to move to the forefront.  If demand grows, the need for grid management will rise too and ML presents an interesting solution to load balancing and predictive asset maintenance.  If demand shrinks and/or power prices decline, operational efficiency will become even more important in preventing subsequent deterioration.

C3IoT and Uptake Technologies, both of which raised over $100M in the last year, are leveraging this trend for growth. However, the energy industry still has a large number of endpoints that are yet to be moved online and data fidelity remains a problem.

The efficacy of predictive analytics should continue to increase with the continued deployment of distributed assets (meters, lighting, thermostats etc..) while the data processing costs decline in large part due to edge computing and cheaper networks.

Can utilities begin taking steps to merge EV’s onto the grid?

EV’s present the most interesting dichotomy when it comes to the consumption of electricity in the next decade. On one hand, they will dramatically change the demand and shift the time of peak usage.  On the other, they can eventually be used at storage, demand response, and provide leading indicators into future power consumption (i.e. a utility tracks EV density and predicts consumption from that information).

Facing bold predictions of EV availability and adoption in the near future, utilities must begin thinking about how to serve this demand. However, if utility grids are not updated and expanded soon to support networks of widely available charging stations, EV adoption might become impaired or a drain on our already aging infrastructure.

Will a winner in the cybersecurity space emerge?

Source: Utility Dive

This year, Utility Dive’s annual state of the union had cybersecurity has the number one issue of concern according to executives with over 80% naming it a “very important” issue.

While power grid stakeholders will spend over $5 billion globally on securing infrastructure in 2018, only a small portion of that will be dedicated to operational technologies and smart systems.

These grid modernization efforts are an ideal time to design and implement digital security protocols and provide an opportunity for adapting existing mechanisms and processes to the OT space – from industrial control systems to smart meters. While the industry is still heavily service oriented, we’re starting to see hints of software companies gaining ground and expect that trend to continue into the new year.

Overall, I expect the industry to continue its evolution from a rate-based revenue model to one that is rewarded for efficiency and performance. If regulators begin to set those policies in-motion, the trends above will accelerate and tomorrow’s utility model will look very different than today’s.

One of the inherent risks of investing in companies at the earliest stages is revenue diversification which in turn helps to create operating leverage.  Most startups we meet are dependent on just a few customers, partners, or channels for the bulk of their early growth.  Ideally, these early-stage companies are investing in the business to accelerate and diversify revenue streams.

If executed to perfection, revenues and gross margins are growing faster than operating costs, and operating income (or losses) are increasing (or decreasing) faster than both of them.

But without analyzing a few key metrics, it’s impossible to understand, much less create, operating leverage in the business.  Namely, it’s crucial to know how effectively you turn revenue to actual cash and the contribution margin of each product.

Accounts Receivable – How much cash is owed to you?

Accounts receivable is a great metric to use when validating if revenues are “real” or inflated.  When I use the word real, it’s in the context that the revenues will become cash in a timely manner.  Revenues can easily be inflated by shipping product where payment is not expected or will take a while to collect (more on that in a bit).  Rather on purpose or not, in these scenarios cash will be going down while profits are steady and accounts receivable are growing rapidly.

Book to Bill Ratio – How effective are you at turning bookings into real revenue?

Book to bill ratio is simple to calculate by dividing periodic bookings by the same period’s revenues. If bookings are a lot higher than revenues, that can be a positive sign. But it can also mean that your company is having a hard time getting revenue realized, i.e. you have a higher accounts receivable balance than the peers in your industry or at your stage.

Days Sales Outstanding – How effective are you at collecting revenue?

Another easy metric to calculate is days sales outstanding (ending AR/revenue per day) but instead of tracing how efficient you are at converting bookings, it measures how long it takes on average to collect from customers.  This number provides insights into where contracts can/should be re-negotiated and also the amount of cash needed to finance your business. One quick note, DSO is an average. For a more granular analysis, be sure to highlight AR under 30 days, 30-60 days, and 90+ days outstanding.  This will give you a weighted average which provides more insight into how well the company is actually collecting revenue.

Contribution Margin – Which products/channels are most efficient?

In short, the contribution margin is the window into how each product or channel individually affects the business as a whole. CM highlights what’s available after variable costs to cover fixed expenses and provide profit to your company.  It’s as simple as sales minus variable costs and shows the profit on what you sell before fixed costs.

Variable cost is the key factor in this equation – with revenue or channel concentration these numbers are easy to calculate, but with the diversification comes a new equation for each new product or acquisition channel.

Without understanding your CM by product and/or channel, it’s impossible to make informed decisions about where to invest capital for continued growth, the levers that need to be pulled (pricing, CAC, etc..) to make products more profitable, or if products/channels must be entirely eliminated.

This was a fairly long post full of accounting jargon, but it’s important to understand which metrics translate the effectiveness of the business in creating operating leverage.  As revenues diversify, these calculations become exponentially more complicated with the addition of new products, customers and acquisition channels.  Understanding and tracking them now ensures you’ll have a good grasp on where to allocate new capital when the time comes.

 

Like many, I listen to podcasts on my commute to and from work.  Yesterday, I came across this podcast from Greentech Media featuring Shayle Kann, SVP of Research and Strategy at Energy Impact Partners.  Shayle had written an article about the future of energy and tied it to the life events of his colleague’s soon-to-be daughter which is due at the end of the year.

The podcast and article are worth your time – and not just for those interested in the future of energy.  Given that we just had a newborn, I thought it would be fun to duplicate the exercise using my son Ian and my thoughts on the “bets” Shayle puts forward.

Bet #1: Ian will control machines with his voice more than with his keyboard.  My answer: False*

My answer comes with a caveat, what’s the timeline?  In the podcast, Shayle discusses the growth in AI-enabled voice assistants over the last 3 years.  While the number of devices being sold is impressive, voice still has a real user-engagement problem.  These devices are primarily used for timers, audio, weather, and news.  I also think voice has a UX issue that most aren’t talking about, it’s hard to remember what all a device can do (your phone has apps you see every day and do not use).  Until voice-enabled devices do almost everything, I think the path to engagement will remain tough.

Bet #2: Ian will never personally drive a car. My answer: False

While there are several converging technologies and business model innovations in the automobile space, I believe purely out of curiosity Ian will drive a car at some point in his life.  AV’s, ride-sharing, and scooters are all disrupting the way we think about transportation, but pure curiosity gets the best of all of us.

Bet #3: By the time Ian buys his first home, especially if he’s in an urban environment, his surroundings will be transformed. My answer: True

A few of the major trends already impacting cities: WeWork, AirBnB, and EV’s.  Up next: drones (robotics), repurposed parking lots, and vertical farming.

Bet #4: By the time Ian shops for his own groceries, >20% of his produce will be grown indoors, up from virtually none today.  My answer: True

Given the current population growth, the impact farming has on climate change, and vice versa this is a given.  We’ll need more food and the way we grow it today isn’t sustainable for the three major reasons listed.  We need more food, it impacts our climate to grow it, and our climate is changing the way we will have to grow it.

Bet #5: Let’s turn to Ian’s house. I bet that in Ian’s first home of his own, more than half of his electricity load will dynamically respond to grid or price signals. My answer: True

I loved Shayle’s answer here because it was concise and spot on.  Control HVAC plus 1 or 2 additional devices and this goal is achieved.  It must happen in the background, consumers don’t know nor care what the impact could be.

Bet #6: By the time Ian reaches 30 (in the year 2048), electricity’s market share of final energy consumption will more than double. My answer: True

Another fairly simple answer, EV’s should change the demand significantly especially if they hit long-haul trucking in the near future.  The industrial applications of storage and efficiency should also play a large role in increasing electricity’s market-share.

Bet #7: More than 50% of Ian’s electricity, as represented by the national breakdown, will come from renewables by the time he’s a sophomore in high school.  My answer: False

It will be close, but I say we fall just short of this goal primarily due to the availability of natural gas.

Bet #8: Ian will live over 200 years, and for most of his life, electricity will be his only food.  My answer: False

So many ethical questions here, though companies are working on products that allow them to download your loved ones’ text (email, text messaging, social media) then build bots that mimic the physical manifestation of them.  Kann makes a compelling case by listing the major inventions of the last 85 years, but the regulatory and ethical hurdles might defeat this one.

There you have it, my take Ian’s future as it pertains to energy and innovation.  Thank you Shayle for writing this piece, it was a neat way to think about the future and possibly gives Ian something to look back on while having a laugh at his old man’s expense.

It’s been almost a month since I’ve posted, having a newborn will do that to you.  But I’m back and hoping to continue writing regularly from here until the end of the year.

During my time away, I traded-in an old MacBook Pro and iPad mini for a new Surface Go.

At least part of the reason I decided to try a Surface is that I love what Microsoft is doing as a company.  I’ve told anyone who will listen for the last 2 years that I am bullish on Microsoft under Satya’s leadership and the Surface is a big part of my reasoning.

The verdict: I’m only a week or so into using my Surface Go regularly, but so far I love it.

Pros:

  • the keyboard – I love the feel and size even if it takes some getting used to
  • the size – it’s perfect for both tablet uses like reading/browsing and computer use cases like working on email/writing
  • the OS – I like having a full OS instead of a mobile version

Cons:

  • power – the Surface Go does lag for some heavier tasks even though I purchased the 8GB RAM version
  • battery life – on a full charge the battery lasts only ~5-6 hours which is dismal compared to iPads
  • bezel – this is a minor complaint, but the bezel did not need to be so large with the advancements that have been made in screen technologies over the last few years

It’s not a device I’d recommend as your “daily driver”, but if you have a computer for heavy lifting and are looking for something more portable that is still powerful enough to get basic tasks done then the Surface is definitely worth considering.

I’ve attempted to use an iPad off and on for the last few years but the lack of a mouse kept me from using it as an additional computer.  The touchscreen UX just doesn’t work for me. The new iPads still do not solve this problem and so the Surface still feels like the right choice for most of my use cases.

The addition of the mouse and a great keyboard mean I pick up my Surface Go every chance I get and that means more productivity which is what having a secondary device is all about in my mind.

If you ask most early-stage VCs their number one criteria for investing in a startup, the answer you will get is “team.”  Even market first investors, like us, want to know why the team is best suited to tackle the problem.

In a fundraising environment that is becoming more crowded, differentiation is incredibly difficult and the question I’m often left asking after reviewing a deck is “why you?”  As in why are you the best person to solve this problem?

Yet, for some reason, most of the decks that come across my desk leave the team slide either somewhere in the middle or near the end instead of answering that question early and with clarity.

Team, team, team, market, team. — Mark Suster, General Partner at Upfront Ventures

 

The one thing that always stands out the most in an early stage startup is the team. We invest quite early in a company’s life; it will usually take 6–10 years for the company to reach giant success. Given that, many things will go wrong and the one mitigating factor for setbacks is a great team.  We spend the most amount of time thinking about the founders and the early team before investing. — David Pakman, Partner at Venrock

 

The answer can be as simple as the invention serves the need of the inventor.  Our first portfolio company all suffered from the disease they were working to monitor and as a result understood the daily life of their customer.   This has been a guiding force in their product design and cost.

Perhaps you have extensive work experience in the industry and have seen the problems from the inside.  This is especially important in industries that require the careful navigation of regulation, long sales cycles, entrenched incumbents, and/or bureaucracy.

While the best stories in Silicon Valley lore often involve a founder rescuing an industry with innovation from a fresh perspective, the truth is founder-market fit matters and in most cases is a strong advantage.

Be brutally honest with yourself,  are you uniquely qualified to execute on your business?  If so, trying leading with the team first – the risk is low and the rewards could be worth it.

By now you’ve likely seen this week’s The Economist cover story entitled Peak Valley, which features quotes from Claire Haidar.  Claire is CEO of WNDYR, an Intelis Capital portfolio company. The article highlights a mixture of outrageous costs-of-living, poor local government, and high operating costs as the catalysts behind an impending Silicon Valley collapse.

 

We’re skeptical Silicon Valley is “over.” However, we do see its influence dwindling in the next few decades as a direct result of a technological invasion into new sectors that drive the economies of the regions most dependent on them.

 

Every Industry is a Technology Industry 

 

It should come as no surprise by now that almost every industry has come to rely on technology for some core part of its operations.  Yet, there is a large variance in the degree of digitization across sectors that are cornerstones in regional economies outside of the Valley – these sectors have largely been ignored by coastal VCs until the last couple of years.

 

Industries like energy, agriculture, construction, and manufacturing are lagging behind the innovation curve and represent a multi-trillion dollar opportunity for startups and investors alike.  Their importance to regional economies like Texas, the Southeast, and Midwest can’t be overlooked.

 

 

We used the Bureau of Economic Analysis geographical definitions of the Southeast in addition to Texas for our analysis for the graph above.  Sectors such as power utilities (5.2% of SE GDP), oil & gas (2.54%), transportation (3.43%) and construction (4.83%) contribute much more to the regional economy than the US as a whole and while these percentages look may look small, it’s important to note the size of the US economy was $18.5T in 2016 and the region accounts for about 1/3 of total US GDP.

 

The ability to build software products is without a doubt Silicon Valley’s competitive advantage, made possible by an unmatched density of engineering talent. Yet because the aforementioned sectors are largely un-digitized, only a minimal level of improvement is necessary in order to replace current analog processes. Thanks to the spread of technology the requisite level of engineering talent can now be found, for less money, in most metropolitan areas.

 

Additionally, distribution of product is sometimes as important, if not more so.   The density of customers and potential partners in other regions provides startups with a ready-made strategy to build revenue from the outset.

 

These advantages can result in the healthier P&L’s highly-valued by potential acquirers in these sectors, leading to exits that drive ecosystem growth.

 

 

Founder / Market Fit

 

There’s a reason these analog industries have yet to be disrupted.  Often they require highly-skilled and specific knowledge, are encumbered by regulation, have entrenched bureaucracy throughout the entire value chain, or in the worst cases — all three.

 

Witnessing first-hand the ways an industry is broken is crucial to building the foundation of a big business within them.  More importantly, it removes any naïveté a founder might have and prepares them for the potential roadblocks ahead.  A few obvious and successful examples of this are: Flexport (freight), Robinhood (finance), and Farmers Business Network (agriculture).

 

Before, entrepreneurs would have had to move to SV to start these companies due to lack of local resources and talent. However, an explosion of cloud-based collaboration and communication software has now made it possible for these executives to tie into specialized talent from the Valley if and when needed.

 

Moving to the Valley as a contingent of funding is becoming less common distributed work becomes more of an accepted practice, and the rise of new firms focused specifically on not investing on the coasts has given founders more access to capital than ever before. This combination has solved one of the biggest problems of building a business outside of Silicon Valley – access to capital.

 

It’s clear there are several new sectors and regions are primed for the necessary disruption heading in their direction. Undoubtedly, Silicon Valley will play a direct or indirect role in many of the advances, but for the first time ever that role may not be from the driver’s seat.

 

Last week Apple became the first company to hit a $1T market-cap.  Lost in the hype of hitting that milestone and their Q2 earnings call was the announcement that they are also launching a $300M cleantech fund in China to “give fund participants greater purchasing power to pivot toward clean energy.”  

 

This looks eerily similar to a strategy Amazon has used for AWS, except applied to energy. Apple can be the first and best customer for new products and technologies as they’re incredibly large consumers of energy much in the way Amazon was for both data and deliveries.  It’s now a well-worn playbook and it would enable Apple to gain stability in energy consumption while being less exposed to the price volatility of the market… all while subsidizing development via their own purchasing power.

 

For consumers and startups, this development could be game-changing. In the same way healthcare needs Amazon as a major player because Amazon excels in efficiency and logistics, cleantech needs Apple to help it beat the economics of the alternative, and connect its evangelists to the mass market.  If Apple had superpowers, they would be the ability to create a luxury perception of their products, and the ability to create an ecosystem effect that makes their services sticky.

 

“It Just Works”
Apple’s DNA, dating all the way back to 1977 when Steve Jobs demanded the Apple II be as easy-to-use as any household appliance, is creating a product consumers can easily interact with on a daily basis.  Much like today’s early cleantech adopters, the tech evangelists of the 1970’s understood the potential impact of the technology to our every day lives, but could not actually figure out how to convince others of this fact until the Apple II was released.  Apple repeated this feat again when it released the iPhone in 2007.  These kinds of innovations add up over time and have created a bond between Apple and it’s consumers. With Apple you can feel safe trying the unknown, and in energy, as with all regulated industries, trust matters…A LOT.

 

Cheaper, but still expensive
The cost of chips and computer parts began their decline in the 1980’s and the same can be said for cleantech components today.  Solar panels, storage and the sensors are all experiencing some of the steepest price declines since their invention.  Yet, they are still more expensive than their alternatives which includes the status quo.  As it stands, there must be something stronger than economics to serve as the catalyst for massive adoption.  Who better to solve this problem than Apple? Case in point, Apple owns only 18% of the smartphone market and yet earns 87% of all profits and has done so by leveraging usability and lifestyle (i.e. community) to convince customers their most commoditized product is worthy of a price premium.

 

Tesla: The EV Elephant in the Room
Could a company that will repatriate over $200B in cash be interested in acquiring one that has a market cap of $60B and over $10B in debt?  Tesla is one of the first companies (the other being Nest) that has made an environmentally friendly product “cool.”  At the very least, they’ve provided Apple with a playbook to enter the market from the consumer side if they so choose, but an acquisition begins to make a lot of sense if current trends hold. 

 

Despite it’s success, Apple has been under increasing pressure to “do something innovative” as most of its hits post-iPhone have been comparatively minor.  AppleTV, Apple Watch, and AirPods are all best-in-class devices, but none of them triggered a major innovation cycle in the way the Apple II and iPhone did.  Could energy be the next step for the first $1T company to become the first $2T company?  Time will tell.

 

 

It’s not surprising that pricing plays a large role in the success of a startup.  When asked if he could put any one piece of advice to founders on a billboard in San Francisco,  Marc Andreessen famously said, “raise prices.”

However, pricing is more than what you charge your customer, it also includes how you incentivize engagement and create margin as well.  How does this work in practice for two of the most common pricing structures?

Incentivizing Engagement with Consumer-based Pricing

Consumer-based pricing works well when you are working to create a “sunk-cost” feeling or need your users to change behavior, rather that be from an existing software or workflow.

For example,  we work with startups in industries that still use Excel, or if they are really advanced SQL, for most of their workflows pertaining to data entry and analysis.  Charging these customers on per-use basis would be more likely to result in end-users  giving up on the software at the first sign of complication (i.e. MVP / new features have a higher bar to clear), or never using it again a few weeks after onboarding.

Instead, a per-seat charge or a flat-fee creates a sunk-cost feeling within the organization.  The internal manager or champion who initially went to bat for you is now incentivized to show this new cost isn’t going to waste.

Does this create a higher-barrier to sales?  Maybe, but sales were always going to be important.  More importantly, you now have allies working to ensure engagement with your product in their organization due to the effects you’ve had on the budget and their reputation at the company.

Creating Margin with Consumption-based Pricing

Consumption pricing is charging based on how much or often a consumer uses the product.  The two most obvious examples would be almost any cloud storage provider or Invision’s per workflow product.

This structure is perfect if your product could be accessed by an entire group or division with one login and not lose effectiveness.  In the example above, if pricing was consumer based (per seat) a design team could easily create one log-in to create as many prototypes as needed.

If Invision used a per-seat structure, it’s unlikely they could start pricing at $25/mo.  Instead, it would likely be in the neighborhood of $10/mo.  This structure likely allowed them to charge $15 more per month AND make it feel like a value to the end user.

Pricing often gets overlooked in the foundational aspects of company building.  Yet, when structured correctly, pricing strategy can create incentives that become powerful catalysts for early adoption and create extra margin over the long-term.

 

Last week, the Council on Foreign Relations released a report on the ways in which blockchain could impact the future of our power grid.

Until recently, access to data on blockchain experiments in the energy sector has been fairly limited.  However, things are starting to change.  Last year, startups raised $300M through both traditional venture capital and ICO’s.  Two of the most heralded fundings came from Drift (consumer-to-generation) and LO3 Energy (peer-to-peer), both of whom are looking to connect consumers to the energy provider of their choice with distributed ledgers.

 

As I explained in a post earlier this year,  electricity trading transactions are still tracked in Excel or databases that rarely are connected but owned by large corporations.  This system adds millions in additional transaction costs and makes full transparency between market actors almost impossible.

 

A de-centralized ledger solves almost all of these errors and would empower new entrants (i.e. consumers with excess power capacity due to solar panels)  to enter the market.

Other than the power trading market, we see three major use cases for blockchain technology to impact the grid.

 

Grid Security and Generation Balancing- According to McKinsey, the connected-home market is growing at a rate of 31% year-over-year with ~30M homes having some form of IoT device installed.  The long-term result will be unparalleled access to data for grid operators and utilities.  Blockchain has the opportunity to help solve the problems of cybersecurity and data management that will come with this new paradigm. Without access to software talent, these service providers will need help from startups to build the capabilities that allow them to take full advantage of technologies like blockchain.  This transition is already underway in Europe where regulators and utilities are generally more forward thinking than their US counterparts.

 

TenneT, one of the Netherlands largest utilities, is working with Vandebron, a green energy supplier, to encourage owners of electric vehicles to participate in an EV-to-Grid (EV2G) pilot initiative.  Integration of power generation from renewable energy resources such as solar or wind power in combination with storage requires a more granular control to manage supply and demand. The project in the Netherlands is the latest in a long and growing series of technology initiatives to discover new ways of integrating new technologies such as EV and storage on to power grids.

 

Under this new program, TenneT will be able to store and dispatch power from consumer EV batteries in order to balance grid demand with supply. These EV2G transactions will be recorded and shared on a peer-to-peer (P2P) network using a permissioned Hyperledger blockchain. To encourage customer participation, TenneT and Vandebron will guarantee EV owners’ batteries aren’t victims of hacking in the process which is unlikely given the technology being deployed.

 

 

A permissioned distributed system based on the Hyperledger Fabric will allow grid operators real-time insights into distributed battery energy storage capacity across the network, as well as the ability to act on the information instantaneously and, perhaps in the future, automatically.  Eventually, collecting and recording distributed energy transaction data for use in the variety of utility-customer energy applications such as billing.

 

Infrastructure and Microgrid Financing- The US’ power grid is aging and well behind the rest of the developed world and our current political climate has prevented us from making large investments in infrastructure.  ICO’s could give both individuals and investors the opportunity to participate in the power grid like never before.

 

The use cases are wide ranging from peer-to-peer EV charging transactions to larger scale generation or transmission projects.  Blockchain could provide the ledger while ICO’s could easily be tied to the amount of power transmitted to the end-user (i.e. return based on output and efficiency).  It is important to note that this one is the most far-fetched of the three as it would require both consumers to become more educated and/or utilities to participate.  Both of which are far from guarantees.

 

Yet, this is the model that US-based LO3 Energy has experimented with in its Brooklyn Microgrid project without requiring too much engagement from local utilities. Customers can choose to power their homes via a range of local renewable energy sources while their neighbors can sell excess solar power back to them.  LO3 has opted to use a blockchain to keep the transaction record between its customer.  As is the case with all distributed ledger technology, the microgrid’s accounting is decentralised and shared by everyone on the network ensuring that tampering with these records is near impossible since everyone has their own, regularly updated copy of the ledger.

 

LO3 is now rapidly expanding with a series of other microgrid projects around the world where grid stability issues are a growing problem.  While it may be far fetched to believe the US could have grid stability issues, we should look no further than the recent disaster in Puerto Rico and subsequent landfalls of major hurricanes on the mainland to understand the loss of power for days / weeks is a very real possibility under the right circumstances.

A New REC – These market-based instruments represent the rights to renewable electricity generation.  They contain information such as generation source, the number of megawatt hours generated and delivered to the grid.  The immutable and transactional nature of REC’s makes them the perfect candidate to be placed on a distributed ledger.  Furthermore, the trading of RECs is currently highly specialized and opaque, a publicly available blockchain would open access to consumers and businesses alike.

 

Earlier this year, WePower, a blockchain-based green energy trading platform announced a successful $40M ICO, making it one of the most demanded projects of the year.

It helps renewable energy producers issuing their own energy “tokens” based on generation connecting consumers directly with the green energy generation and creating an opportunity to purchase energy upfront at below-market rates. This tokenization ensures liquidity and extends access to capital to finance new projects, but also gives the buyers a coin tied to a tangible asset, a fact that isn’t always true in the ICO world. The hope is that this access to a new capital infrastructure will be a bridge from renewable energy producers to new consumers thus making the grid a little greener.

Much like LO3, WePower’s technology creates an opportunity for a transparent accounting through a distributed open ledger, which records when and in what volumes green energy financed on the platform was produced and supplied into the grid. At the moment, such accounting is based on instruments as paper certificates in a similar fashion to RECs.

 

Of the three potential use cases highlighted here,  the ones that manage the increasing complexity (trading market, generation balancing, and cybersecurity) of the electric grid are the most likely to occur near term.  Utilities are under increasing pressure to better manage their costs and engage their consumers. In a world where devices are connecting to our grid at an exponential pace, it’s both as possible and difficult as ever.

 

 

Last week, Slack announced it had reached a deal with Atlassian to acquire its Slack competitors Hipchat and Stride.  First, it’s important to note that as a part of this deal Atlassian made a small equity investment in Slack as well.  Imagine being so far ahead with your business that your competitor sold you their IP and also makes an investment.

While it certainly didn’t generate the headlines of the Slack / Atlassian deal, Facebook acquired Redkix as it looks to take on Slack, Microsoft, and Google in the battle for workplace integration.

Speaking of Google, they announced a new set of features including smart replies to both email and chat as well as grammar suggestions across all of their MS Office competitors. All of this on the heels of Microsoft making a version of Teams free even to those without an Office 365 account.

What does all of this activity mean in the context of our daily work lives:

  • The tools are being developed are the beginning of a movement to free us from the most mundane tasks of our workday
  • A change in focus from email and task completion creating value on a per employee basis

Why does it matter:

  • Industries like energy (47), real estate (48.4), and agriculture (47) all have workforces that are significantly over the national median age of 42.2.  These industries are all large contributors to our GDP and face an impending labor shortage crisis or a large transfer of knowledge to new employees.  Either way, software is going to play a large role.
  • Consumer expectations for industries like healthcare and energy are changing.  We now expect all companies to engage with us and service to be completed as quickly as possible. SaaS companies that increase the efficiency of problem-solving for consumers while making employees happier (employee happiness is correlated with customer engagement) will be big winners in these massive industries.

Three trends worth monitoring:

  • Can Google and Microsoft expand their footprint inside organizations outside of their 3-5 core products?
  • Will Facebook be able to gain market share as it focuses on expanding Workplace in the face of slowing US growth?
  • When will we see these SaaS companies play a role in determining the optimal organizational structure for the large industries that impact us every day but are in desperate need of renovation?

One thing is almost certain, this space won’t begin to slow down anytime soon.  Engaging and making employees more efficient is going to be big business.

Employees have more information and choices than ever, the best talent will go where they are valued more on their impact than email output.  On the other side of the coin, organizational efficiency drives the bottom line which is obviously a decision criteria for any company looking to onboard new software.

Yesterday, I had the privilege of attending my first AUTM conference after being invited by Kerri Smith of the OWL Accelerator in Houston.  The topic of my quick 10-minute talk was “Ethics in Flyover Ecosystems” and it was part of a broader discussion on “Ethical Challenges Facing Startups”.

From their website:  “AUTM is the nonprofit leader in efforts to educate, promote and inspire professionals, throughout their careers, to support the development of academic research that changes the world. AUTM’s community is comprised of more than 3,200 members who work in more than 800 universities, research centers, hospitals, businesses and government organizations around the globe. The core purpose of AUTM is to support and advance academic technology transfer globally.”

Among the speakers were me, Kirsten Leute, SVP for University Relations at Osage University Partners, and Charles Valauskas of Valauskas Corder LLC.

Kirsten used a term – mirrortocracy -to describe the practice of hiring only those who fit a certain profile for a position. It’s possible I’m late to the game with the term, but I definitely plan on using it moving forward as there are so many possible use cases.

Below are the slides I presented, plus an additional one at the beginning which I left out but spoke to in order to create a frame of reference for what can happen when investor ethics turn in entrepreneurs’ favor.  Once a “market” is created for common terms, it puts everyone on an even playing field which benefits all involved.

Universities have a huge role to play in developing startup ecosystems.  They produce ideas, founders, and affordable talent for startups.  They are taking ethics from faculty, students, and outside parties like investors and mentors very seriously.  I really enjoyed being able to play a small role in their process and to give our perspective on the issue.
Thank you Kerri and the AUTM team for having me!

Directionally correct startups could be considered successful depending on the amount of capital raised, but ultimately fail to live up to their potential.  For most, the pull of the market ends early and the next phase of growth requires precise allocation of capital internally.

Subsequently, growth expectations begin to outpace what funding alone can accomplish and a ceiling in valuation is created.  This leaves the company unable to raise more capital, eventually leading to an exit that leaves investors clamoring for what could have been.

My hypothesis is that there are several companies which are acquired for somewhere between $20-$50M that fall into the category of directionally correct (accurate), but did not operate with precision during their early days.

Accuracy (n): the degree to which the result of a measurement, calculation, or specification conforms to the correct value or a standard.

Precision (n): refinement in a measurement, calculation, or specification, especially as represented by the number of digits given.

I’m admittedly still in the early innings and need to see more startups at this stage before coming to a valid conclusion, but I want to have a few key points in writing for reference moving forward.  In no particular order they are:

1)  The difference between these two groups happens during the time period between traction and scale.  That is, 95% (or some number larger than 80%) of the time, scale happens when startups execute with precision in product and marketing after their initial customers are onboarded.

2) The first few customers – the early adopters – were going to love the product and be the easiest to find regardless of how well the company executed.  The result is a lower bar than what most of the market will consider “viable” in an MVP and marketing costs were artificially lowered by initial consumer demand.  Counterintuitively, acquisition costs will actually go up after the early adopter market is completely exhausted.

3) Startups that scale don’t over-estimate the fidelity of the data created by early adopters.  Instead, they create a framework for discovering core product value for users which will be key to both growth and preventing customer churn in the future as they enter new markets or segments.

4) Market size (need) is correlated to the length of time a startup has to build a scalable customer acquisition strategy which is more than finding a blended CAC.  Precise startups understand how to achieve a sustainable ROI and focus on LTV (ex. bookings) acquisition instead of purely growth metrics (ex. customer count).  For example, at CE we knew a customer in TX had a substantially higher LTV than one in CT and adjusted accordingly.

5) Precision is defined as a repeatable process in the most vital parts of the startup like sales, marketing, and product.  Often, investors talk about “playbooks” and this is where they really punch above their weight.  If the market is X then we do Y or if we do A then the result is B are powerful indicators of precise execution.  Chamath Palihapitiya highlights the importance of this in a talk on “growth hacking”.  During his time at Facebook, they discovered if a new user hit 7 friends in 10 days they were hooked and built product focused on hitting this metric.

6) Once a startup crosses this threshold, the solution will have seemed obvious. The reason, getting there requires measuring and testing over and over and in hindsight, it’s easy to feel the data revealed a straight-forward conclusion and to discount the decisions needed to arrive at the right answer.

I’m looking forward to having more opportunities to help growing startups bridge the gap from consistency to precisision in the coming years while measuring the level of truth in the insights to refine refine them moving forward.

Pitchbook has released a new study on startup ecosystems and a few things immediately stand out to me:

1) TX has anemic local capital per venture backed startup. It’s WAY behind states with growing ecosystems like Tennessee, Utah, Michigan, Missouri, and Colorado.

Some might argue the number is artificially low due to the angel ecosystem filling the gap, but outside of Colorado and Utah the states mentioned above have very minimal VC activity. Additionally, the number of startups receiving funding hasn’t proven this to be true, bringing me to my second observation.

2) TX seed start-up density (# of startups receiving seed funding / pop.) is low. TX’s number is around 15 – several states are ~20+. This makes sense given the above – seed rounds are often led by local investors, and if there isn’t enough capital then fewer ideas are funded. However, Texas does beat IL which is a surprise given Chicago’s recent success.

3) Unsurprisingly, the density gap between established ecosystems like CA, MA and NY really grows in early-stage and late-stage funding. However, the gap is MUCH wider than I expected. In some cases, TX trails states with more active startup ecosystems by 5X.

All of these things are evident on the ground and it’s good to see data backing up the assumption more capital is needed in TX. The report highlights the need for startups to seek angel / seed funding that really understands the fundraising process and has a network to connect them to follow on capital.

You can find the study here.

I had the privilege this week of participating in a panel focused on developing startup ecosystems as part of the ITTN Cross Border Technology Summit in Suzhou, China.

The spirit of the conference was to encourage entrepreneurs to think globally about their opportunity and build relationships outside of any and all comfort zones, including geographic ones.

One of the questions asked of the panel was “what is your role in helping your innovation ecosystem think outside of its borders?” Admittedly, it was a question I had to think about for a second.

The answer that came to me most naturally was we encourage our companies to think BIG with their vision. This may seem obvious, especially in dominant ecosystems like Silicon Valley and Shenzhen, where global market share is the goal.

However, developing startup ecosystems are often different and the majority of early funding is provided from angels who have made their wealth in practical, but successful businesses. These investors want to see business plans rooted in the fundamentals leaving little room for ambition. This starts a cycle where founders are encouraged to think smaller with their vision because it’s what local investors want to hear from them.

Yet, these two ideologies aren’t mutually exclusive – you can think big while having an eye on building a sustainable business in the long run. Big, ambitious thinking when balanced with intense focus is a powerful combination.

We always ask ourselves, “if we get lucky and everything goes right, how big could this be?” It’s important to remember that venture capital is a business of maximizing the ceiling, not minimizing the floor.

After the panel, an entrepreneur found me to say he’d faced this problem when starting his startup which focuses on early-stage colon cancer detection. Local investors had told him the dream was too big and the problem too hard, but he kept pushing and found funding elsewhere.

If you’re angel investing in ecosystems that are just getting started, I encourage you to challenge founders to think big. Without your encouragement, society might miss out on the next big breakthrough.

 

Today, Intelis Capital is excited to announce our seed investment in Wndyr ( \ ˈwən-dər \), a company providing operational clarity to businesses by helping them become more efficient with the tech stack they already have in place.

Socrates is credited with the quote “Wonder is the beginning of wisdom,” and we believe wisdom is exactly what Wndyr will bring to companies who have trouble understanding how they use software.  Below are just a few of the many reasons we are excited to welcome Wndyr to the team.

1) Claire and team

When I first met Claire, I was struck by her experience and clarity of vision when it comes to the future of customer success and change management.  However, I must admit I left our initial meeting a little unsure of what exactly Wndyr did but impressed with Claire.  Wanting to learn more and gain clarity around the product, I asked Claire to come by our offices and present to Jonathan and Kevin; fortunately for us, she accepted.  Over the next 8 weeks, we got to know Claire, her co-founder Tracey, and her team through both direct interactions and speaking with their customers.

Some of the words that were used to describe them: committed, best-in-class, listeners, curious, open to learning, determined, thoughtful and intensely passionate.  In the following weeks, we learned more about the state of SaaS and customer success from the team than I thought was possible. Their vision for the role Wndyr would play in the future of SaaS had us hooked, especially when we saw how they executed against the vision day in and day out.

2) The aging workforce in large industries is a rapidly approaching problem

Industry % of Workforce % Older than Median Age
Utilities 5.3% 7.11%
Real Estate 6.9% 4.69%
Finance 2.1% 4.98%
*US workforce = 154,000,000 people

Several of America’s largest industries are facing the challenge of an aging workforce leaving them with a shortage of employees in crucial roles over the next decade.  This raises four critical questions for those industries: how to capture the knowledge of workers nearing retirement, what skills gaps will be created, can those skills gaps be automated, and do the industries have software to handle the excess capacity of work that could be placed on the remaining workforce?

Unsurprisingly, we believe Wndyr can play a huge role in answering all four of these questions.

Additionally, the US isn’t the only country facing the pressure of an aging workforce.  In the UK alone, over 50% of the workforce in key infrastructure industries such as water, power, and transportation are within 10 years of retirement age.  Given these figures, it’s not surprising businesses in massive industries are seeking solutions to solve this looming problem.

3) Productivity is shrinking in large industries critical to the function of the macroeconomy

The United States, and the world for that matter, appear to have a productivity problem.  US productivity grew a measly 0.1% in 2015.  Perhaps more surprising, that is ABOVE average for both developed nations and the world as a whole.

A deeper dive into the US statistics shows that productivity growth is being dampened by a few of our largest industries which I’ve highlighted in the table below.  The defining characteristic of the industries listed here is they all lag severely behind in the adoption of technology.

These industries will likely be forced to evolve into more digitized businesses over the coming decade much in the way advanced manufacturing and ICT have in the last 5-10 years.  We believe a digital revolution is coming in these fields and tools like Wndyr will be required for deployment scale, speed and accuracy.

Industry GDP Share Productivity Growth (2005-2014)
Healthcare 10.4% -0.10%
Construction 5.2% -1.40%
Public Administration 16.3% 0.20%
*2016 US GDP: $18.6T

4) Businesses are now over-subscribed to and under-utilizing SaaS products

All businesses are now technology companies in one form or another and the result is almost all firms are inundated with an abundance of software that is being either underutilized or unnecessary.  We’ve seen a new wave of companies being built to help manage licenses, increase the likelihood of customer success, and provide analytics to the SaaS companies themselves much in the same way a Mixpanel or Optimizely do for websites.

Given that 1,000 new SaaS companies are formed each year, we believe this opportunity will continue to expand while forcing incumbents to better serve their customers to remain competitive.

The winner in this space will help end-users SOLVE the problem, not just manage it, while still helping SaaS companies perform at their optimal level.

We are proud to partner with Claire, Tracey and the rest of the Wndyr team as they help bring next-generation wisdom to companies navigating today’s cluttered and inefficient SaaS landscape.