Technology

Tech's Manifest Destiny

abergseyeview manifest destiny

In the 19th century, American pioneers expanded across the reaches of the American continent. The driving force behind this unstoppable conquest was the belief in America’s Manifest Destiny. Today, as we witness a new technological Manifest Destiny, we must be careful not to repeat the sins of the past.

The Call of Destiny

Manifest Destiny was the belief that America’s unique virtue not only allowed, but obligated, its citizens to expand and tame the American continent. It was followed with an almost zealous fervor by pioneers and settlers pushing the bounds of the United States’ frontier ever further. Manifest Destiny, perhaps more than any other cultural belief, has created the country we know today. It brought immeasurable wealth, resources, and power to what eventually would become the world’s preeminent superpower. This treasure trove of riches was not won without sacrifice. The secondary effects of Manifest Destiny were the displacement of native peoples, the extinction or endangerment of many natural species, and the fundamental altering of America’s environmental landscape. It’s hard to argue that the benefits of Manifest Destiny, at least from America’s perspective, outweighed the cost, but we are fooling ourselves if we ignore that there was a cost. I will leave the debate of whether Manifest Destiny on a whole was positive or negative to history’s scholars, but what is undeniable is that the phenomenon was more complex and nuanced in its ramifications than anyone considered at the time. Manifest Destiny’s effects, good and ill, have reverberated through time and are still felt today. The modern-day Manifest Destiny will have an equally far reach, but will it be for our benefit or our detriment?

Technology’s Manifest Destiny

The modern equivalent of America’s Manifest Destiny is the seemingly unassailable march forward of technology and innovation. Innovation grows at an exponential scale as new discoveries and technologies open up the door for additional breakthroughs. It has become a cliche critique, but I do think there is truth in the idea that we spend so much time asking if something can be done, that we rarely take the time to ask whether it should be done. As we reach new technological frontiers in mobility, automation, and artificial intelligence, we need to start grappling with the very real questions of not only what should be done, but how should it be done.

Don’t mistake me. I am not out to get technology or break up big tech or regulate innovation away. If anything I am the opposite. I genuinely believe that technology and innovation is the driving force behind a tide that raises all boats. I believe that we live in the single greatest period of time in human history and that tomorrow will be better than yesterday.

I write this post not because I distrust technology, but because I believe in it so strongly. Just as the pioneers of 200 years ago did, I have at times found myself a zealot blindly preaching the benefits of the forward progress of technology with little heed towards its potential side effects. This entrenched bias and lack of nuanced view scares me when I see it in myself and it scares me when I see it at large in our community. I love disruption as much as the next guy, but we shouldn’t worship at its altar. Disruption hasn’t always had the positive connotations that it enjoys today (just ask my grade school teachers…). We mustn’t give in to the temptation to simply assume that what we do is “good” and what others do is “bad”. We can’t kid ourselves that just because technology has created unprecedented prosperity that, left to its own devices, it is destined to continue to do so.

We are better than that.

Innovation is a force and just like any other, it is indifferent in its application. The fire does not hate the wood it burns.

Responsibility ultimately lies with those who wield it.

Us.

The lack of acknowledging that responsibility is one of the things that scares me most in the world of technology today. There seem to be two camps. On one hand, there are people who believe that tech can do no wrong. That it is not just ultimately a force for good, but unequivocally so. On the other hand, there are those who believe that we are powerless to change the course of innovation for better or worse. That innovation is an unstoppable tide that we must be content to merely keep our heads above water as we are swept away.

I reject both of those arguments.

We should not fall into the same trap that the pioneers of yore did by simply believing that because we can do something that it is good. I will be the first to tell you that I believe that technological progress is on its net, overwhelmingly positive, but to outright ignore its downfalls is a path to disaster.

We are not bystanders who lack sovereignty over our circumstances either. We are creators that can exert their will upon their creation. To argue otherwise is an attempt to dissociate responsibility.

Now look, I don’t have the answers.

But I do know that we need to continue the discourse. We need to have the tough conversations about not just what can be done, but what should be done.

We as a community cannot hide behind platitudes of technology’s greatness. We need to be honest with ourself about innovation’s heights and depths. About its greatness and its shortcomings. Its light and its darkness.

Because if we don’t.

Who will?


Board to Death

Photo by  Drew Beamer  on  Unsplash

Photo by Drew Beamer on Unsplash

The world of Venture Capital is very different than it appears from the outside. I have been surprised by many things since becoming an investor, but none more so, than the difficulties surrounding boards. From the outside looking in, boards appear simple. Incentives are aligned. Everyone wants what is best for the company. Experience and expertise are leveraged to make the company the best it can be.

If only it were that simple.

Properly managing boards as an entrepreneur is a dance. Defer to them too much and you will lose the magic that made board members want to support you in the first place. Don’t heed them enough and you will make avoidable mistakes and miss out on opportunities.

The biggest mistake I see entrepreneurs make in respect towards their boards is that they think about their boards with the wrong mindset. The second you grow mistrustful of your board and start thinking of them as antagonists trying to put up hurdles in the way of your company, the chances your company is going to become successful with you at the helm plummets to almost zero.

Alright, Erik chill out. Classic Berg exaggeration.

No I am serious. A toxic board relationship is THAT deadly. It may not happen that day. Or that month. But eventually allowing the relationship between you and the board to fester will come back to bite either you or the company. Or both.

I believe the best metaphor for a well run board is to think of the board as your boss. Because that is exactly what they are. The keys to a healthy relationship with a board are the same as with a healthy relationship with your boss.

Communication

As with most relationships in life, the most important thing when managing a board is communication. Regularly update your board (even, and especially, outside of official board meetings) on your successes, failures, and any ways that they can help. I maintain that investor updates are one of the highest leverage activities any entrepreneur can do. Keep your board in the loop with what is going on with your company and they will be able to leverage their experience to help you make the best possible decisions. Note that I am not saying to do whatever your board tells you to. If they knew what was best for your business in every possible scenario, they would’ve started your company themselves. Rely on your intuition. It got you this far. But your board has many lifetime’s worth of additional experience than you do. Use it. Take it into account and leverage it to make the best possible decisions. To do otherwise is simply foolish.

Coaching

Just like all good bosses, boards have a responsibility to develop the CEO. Most startup entrepreneurs have not built a business before. Those that have, in all likelihood, have done so in a different sector or space. The board has a responsibility to coach and mentor the CEO to be the best that they can be. This means giving your CEO the tools they require to be successful. Equip them with resources and connect them with mentors who have been successful in this space before. A board’s fundamental job is to protect the interests of a company and its employees. The best way to do this is by making sure that the CEO performs at their absolute peak. If you as a board member believe your duty is to provide oversight without nourishment, advice without mentorship, you are neglecting your responsibilities to the company.

Accountability

Communication is a two way street. Yes, the impetus lies squarely at the feet of the entrepreneur, but at the end of the day, they will only feel empowered to bring everything to the attention of the board if the board knows how to give appropriate levels of feedback. Successful boards design structures where they can hold their CEOs accountable in a constructive way. I think Fred Wilson has the best approach for ensuring that feedback loops are tight and honest. Entrepreneurs, don’t get defensive when the board gives you feedback. Every single one of their incentives is aligned with the success of the company. So are yours. Remember that they trying to help you make the company the best that it can possibly be.

From the outside looking in, no one will know how healthy your company is. You can survive with a bad board relationship for a little while. But, if you are consistently neglecting your relationship with your board, eventually it will blow up in your face. The key is to leverage their experience and remember that they are on your side.

How often should you update your investors?

Venture capital investor updates from entrepreneurs

Regular investor updates are one of the highest leverage activities entrepreneurs can do to make their company successful. They provide tangible value to companies and a positive signal to investors. And they don’t have to be hard.

If you follow me on twitter, you will have noticed that investor updates have been a topic on my mind a lot recently. There is some debate in the industry about how vital they are and what form they should take. Hopefully this post can codify my thoughts and be a resource to any entrepreneurs.

Help me, Help you

Should investor updates even be done? The answer is an overwhelming YES. Not to be confused with an emphatic YES or a confident YES. An overwhelming YES. Updating your investors is important for a few reasons.

First, investors cannot help you if they don’t know what you need. Investor updates are an opportunity to ask for help/guidance/connections. It may seem intimidating to open your company’s komono to some of the less than glamorous aspects of the business, but by the time investors find out about issues on their own, it will often be too late for them to help. This of course all operates under the assumption that your investors are able and willing to help you. If they are, great! Update them. If they aren’t, why are they your investors in the first place (a topic for another post perhaps)?

I am going to let you in on a little secret. Investors want to be helpful! There are better ways to make money in finance than being a VC. For the most part, VCs have an itch to help build the next great thing and providing help to portfolio companies allows them to scratch this itch. I know that is the case for me. Anyday I can make a fruitful introduction or help clean up a model for a portfolio company is a good day in my book. I think any other good investor would agree.

Brent Beshore describes entrepreneurship as a “daily knife fight”. It is not easy. Founders are faced with new issues and obstacles every day. Mobilizing your investors can help solve a lot of those problems. Why turn down a resource that is not only willing, but excited to help you succeed?

Timing is Everything

As with many things in life, the key to investor updates is consistency. Developing a regular cadence with your updates will take a lot of the punch out of anything that is less than perfect. An email received after not hearing from a founder for 6 months saying that a company missed one of their revenue milestones and need help hiring a VP of engineering seems like a catastrophe. An explanation of why a milestone target was missed and a request for help hiring a VP of engineering received as part of a regular investor update is a Tuesday.

There is some debate in the industry on how often companies should be updating their investors. Some investors believe quarterly updates are sufficient. This may work for later stage companies, but for early stage companies, I believe that monthly investor updates are always the way to go. Monthly updates allow you to keep your updates brief and to the point. In-depth strategic discussions can be left for quarterly board meetings.

How Much is too Much

Entrepreneurs have enough on their hands, so investor updates absolutely must be designed to keep the burden to a minimum. With a monthly cadence, your update can be brief. I suggest that entrepreneurs don’t spend more than 15-30 minutes putting together their update. Items noted should be whatever is top of mind. You don’t need to write a novel, just give your investors a sense of the momentum of the company and make any asks you need help with. Here is a template:

Hello Investors,

XYZ month was a productive one for ABCify! This month we accomplished A, B, and C. We are excited about Initiative X and are thrilled about new hire Y. We continue to execute on plan Z.

Thank you for your continued support,

Founder

Company

Wins:

  • Win 1

  • Win 2

  • Win 3

Challenges:

  • Challenge 1, brief explanation

  • Challenge 2, brief explanation

  • Challenge 3, brief explanation

KPIs:

  • Metric 1

  • Metric 2

Asks:

  • Ask 1

  • Ask 2

That’s it. Seriously. If you fill in the blank with the above template your investors will LOVE you. This is a good thing. Happy investors make for happy fundraises. More than that, consistent updates are a very positive signal for investors. It shows that the entrepreneur is on top of things and is being thoughtful about their company.

And it shows that the founder is smart.

Because spending 15 minutes keeping your investors happy and leveraging their expertise to help you overcome obstacles is one of the most high-leverage activities you can do as an entrepreneur.

2019 Predictions for Venture Capital and Tech

2019 predictions for tech and venture capital
Holly Ball

I hope you all had a pleasant holiday season and a happy new year! My wife and I went back to The Commonwealth to spend some wonderful R&R with friends and family. It was quite the “break” with a lot of family time, my first ever successful cooking of traditional Norwegian Juleribbe, my first ever debutante ball, and a New Year’s Eve filled with board games and Super Smash Bros until the wee hours of the morning.

My family is big on traditions, especially around the holidays. We eat the same foods for Christmas and every New Year’s Day growing up we would go to Buffalo Wild Wings (kinda random I know) and make our New Year’s resolutions while watching the bowl games and eating chicken wings. Last year I started a tradition here of making some predictions about the year to come and I thought it would be fun to evaluate how they did before making a few new predictions for 2019.

2018 Predictions

The Rise of New Tech Hubs

Last year, I predicted we would see new tech hubs really solidify themselves as leaders in the space. Of all my predictions I think this one has turned out to be the most true. New hubs for technology have been flourishing for years, but 2018 was really the year that people began to sit up and take notice. The tech scenes in places like Columbus, Nashville, Ann Arbor, and Denver have a new found legitimacy that is demanding coastal investors take notice. This has also come at a time when the largest tech giants are under increasing amounts of scrutiny and the socio-economic situation in the Bay Area has grown more tenuous than ever. I had so much confidence in this trend, that I bet my career on it, and I have had the pleasure of getting to experience the best of what a growing tech ecosystem has to offer first-hand. It has been an absolute thrill to be a part of and I am confident this trend will continue to accelerate into 2019!

The Legitimacy of Zebras

For 2018 I believed that the VC world would wake up a little bit and take notice of more sustainable business models than the boom or bust unicorn hunting that the sector has become known for. Unfortunately it seems to me that, at least in SV, the opposite is true. As record amounts of capital were pumped into the space by ever-growing mega funds, the swing-for-the-fences mentality only seemed to heighten. I understand that VC is a power-law sector where the majority of returns are made only by the top firms/companies, but I worry that in the pursuit of growth at all costs the sector has let valuations get away from them and overlooked wide swaths of new businesses that can be built on more sustainable, cash-flow focused models.

Structures that add value

In 2017, we were starting to see what I thought was the beginning of a trend of innovation within venture capital fund structures. I thought this trend would continue into 2018 and we would see some true innovation in value-add fund structures. This turned out to not really be the case. The same crop of firms that were doing new and interesting things, like indie.vc and Kindred, continue to test their models, while structures for the rest of the industry have remained largely intact. Credit where credit is due, Indie.vc did roll out a new v3 model which is very interesting and seems to have had some initial success, but that announcement happened on January 1, 2019 so I don’t think I can really count that in my favor in good conscience! I think the lesson here for me is that any innovation in fund structure will have a LONG lead time towards wider adoption. Fund feedback loops are simply too long and the outcomes too opaque for other firms to take the career-risk involved with adopting an innovative model.

2019 Predictions

Mega Funds take a Mega Hit

The dominant story in VC over the past year has been the rise of mega-fundraises for both companies and firms. SoftBank’s $100 billion Vision Fund was the spark that started off this explosion, but other big players in the space were quick to follow suit by raising ever larger funds of their own. This trend was also fueled by the combination of a very strong bull market (except for Q4) and an environment of still relatively low-interest rates where major LPs were starved for returns and turned towards alternative assets. I think the writing is on the wall that both of those exogenous factors will be disrupted in 2019 with rising interest rates and growing global economic uncertainty. Within tech, I think we will see a good portion of companies that have raised “mega-rounds” really struggle. There are some companies, like Uber, that have a strong, but costly, business model that can bear to raise hundreds of millions of dollars. However, I do not believe the majority of companies raising these mega rounds fall into that category. They will face the same struggles that all overcapitalized startups face, a lack of fiscal discipline and an inability to meet unrealistic expectations. I predict that the combination of both this financial environment change and the underperformance of many of these companies will lead to a significant pull back in terms of firm fundraises as well as smaller company funding rounds from the all-time peaks of 2018.

Crypto starts showing signs of life

The second biggest story of 2018 was that Crypto got absolutely clobbered. Like I am talking demolished. Basically crypto took the hit that got Jadeveon Clowney drafted first overall (and which still causes him to be incredibly overrated despite being a mediocre pro-football player). The price of Bitcoin (a pretty good barometer of the space in general) started at $13,850 on January 1, 2018. On January 1, 2019 it had fallen to $3,747. A rough year to say the least… I think the majority of us in tech saw a correction coming in 2018 after the irrational exuberance of 2017, but few that I know of predicted it would be quite so dire. Overall, I think this will be a very good thing for the ecosystem. The story of 2017 and 2018 was easy come, easy go. I predict that the story of 2019 be that the cream rises to the top. It was too easy to raise money in 2017/2018 and greedy/lazy/bad actors flowed into the space until the bubble popped. Now that some of the sheen has worn off, I think the smart, passionate true believers will be able to hunker down and get to work without the distraction of the mania. I predict that 2019 will still have its ups and downs, but that we will see the overall health of the ecosystem steadily start to re-accelerate. As an indicator of this, I believe that Bitcoin will end 2019 above $8,000 (complete thumb in the air prediction here).

Tech liquidity gets weird

Liquidity has always been an issue in tech, but the trend of mega funds/rounds has only exacerbated this as companies have chosen to stay private for longer. There is an absolutely stacked lineup of potential IPOs this year including the likes of Uber, Lyft, Palantir, and Slack, just to name a few. This liquidity will be great for investors and founders and will pump capital back into the ecosystem as early employees start angel investing into nascent startups. Unfortunately, I predict that due to global economic headwinds and rising negative sentiment towards tech companies the majority of these newly public companies will underperform in the public markets for the year. The silver lining to all of this is that I believe efforts will continue to find new and interesting paths to liquidity for investors and entrepreneurs including smart secondaries and things like the Long Term Stock Exchange.

Startup I am most excited about: Lambda School

I thought it would also be fun to highlight the startup (excluding any that I have any sort of business relationship with) that I am most excited to watch in 2019. That company is definitely Lambda School! Lambda School was founded by Austen Allred and is a 30-week coding bootcamp that is absolutely free to start. Lambda makes its money with Revenue Sharing Agreements as students graduate and get new jobs. I have written about structures like this before and I absolutely love the incentive alignment that they provide! The more you get paid as a graduate, the more that Lambda makes in revenue for teaching you. I have been on the lookout for new innovative companies like Lambda in the edtech space and I think they fulfill a very interesting niche by equipping people for the future of work in a low upfront cost, incentive aligned manner.

The Globalization of Venture Capital: Is United States Innovation Falling Behind?

Photo by  NASA  on  Unsplash

Photo by NASA on Unsplash

There was a story doing the rounds this week about a new Center for American Entrepreneurship study about the globalization of Venture Capital. CAE’s study showed that the United States’ share of global venture capital investment had fallen 20% in the last five years and 50% in the last 25 years. These statistics were framed with alarming rhetoric from both the tech media and the Center for American Entrepreneurship.

VentureBeat stated that this report should give Americans “cause for concern.”

Richard Florida, one of the leaders of the study, stated that “[he] thinks for the first time, the U.S. is truly in trouble.”

Much of the discussion around this report has represented similarly disheartening views of the outlook for innovation in the United States. Media sites and commentators have worried over America’s loss of “edge,” and forewarned of dark days ahead.

My response:

Are we really so insecure that our place in the global order is threatened by the United States only receiving HALF of the globe’s capital invested into innovation?

The United States represents approximately 4% of the world’s population. By any objective viewpoint we are significantly punching above our weight to receive over 12x our share of the world’s risk capital.

But Erik, what about the relative decrease in our portion of venture capital investments? Shouldn’t we be worried about investment into our country decreasing by 20% in 5 years?

Short answer: No.

Long Answer: This is why Intro to Statistics is required coursework. Venture capital investing into the United States has not decreased by 20%, the share of global venture capital received by US-based companies has decreased by 20%. The difference is incredibly important.

Via NVCA. As of June 30, 2018.

Via NVCA. As of June 30, 2018.

2018 is, in fact, poised to be the largest year for venture capital investment into US startups since the Dotcom crash. At the halfway point of 2018, about 3/4 of 2017’s total investment value has been deployed. This means that we are on pace for a potentially record breaking year (for discussion of whether this should even be something to be celebrated or not, check out last week’s post.) Yes, our piece of the overall venture capital pie is shrinking, but the overall size of the pie is magnitudes greater than it used to be. That is what matters most. Innovation is not a zero sum game, our ability to innovate is not hampered by China’s or India’s. In fact, it is the reverse. Increasing levels of global innovation create network effects which the United States can take advantage of to propel us even further.

It is short sighted and, frankly, close-minded to believe that the United States has some sort of divine right to be the innovation capital of the world. Innovation, by its very nature, is meritocratic. The United States’ shrinking share of venture capital dollars should be met with fanfare, not rumors of our impending demise. The rest of the world is catching up, and that can only be a good thing. More innovation means more impactful technologies that can improve people’s lives for the better. Where that innovation occurs is far less important than the fact that it is occurring, and if we are being honest with ourselves, there are many parts of the world that need ground-breaking innovation a lot more than the United States needs a new social media app.

We are not facing an innovation crisis in the United States. We are the pioneer of modern technological innovation and the rest of the world is starting to build up their own capabilities on the back of 80 years of the United States writing the playbook.

This is a good thing.

For everyone.

To suggest otherwise is both alarmist and misguided.


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