Prevailing Beliefs on Tech Innovation

Prevailing beliefs that I do not share:

  • Tech innovation is dead.
  • Tech innovation is dead except for the part that will kill all the jobs.
  • Tech innovation is dead except for the part that will kill all the jobs and give all the money to the 1%.
  • QE is hopelessly distorting the economy.
  • Hyperinflation is right around the corner.
  • Hyperinflation is right around the corner and interest rates are about to skyrocket.
  • Five billion more people are getting access to the most amazing tools for education, information, creation, and access to markets ever…and yet they will figure out how to do… absolutely nothing with them, and are doomed to lives of spiraling poverty and despair.

Source: tweets – 1,2,3,4,5,6,7,8,9,10


Tech Valuations and Attach Rate

The second thing often misunderstood about tech valuations: How M&A acquirers decide how much money to pay for companies they buy. The key: The value of a tech company to public or private markets may be completely unrelated to the value of the same company to a corporate acquirer. Value of company X to acquirer Y often = Potential impact to acquirer Y’s business, which has a lot more to do with Y than X.

For example, in product businesses, you’ll often hear the term “attach rate” — acquirer Y can attach company X’s product to Y’s sales engine. Example: I sell $20B of servers/year; I buy storage company X doing $100M revenue/year; and I can attach X’s product to 20% of my server sales. I can generate new $20B*20% = $4B/year of storage sales attached to my server business. X’s standalone revenue is irrelevant. So I can pay up for storage company X based on its projected impact on MY business, way beyond X’s independent valuation.

Of course, for the deal to be good, I have to deliver that attach rate. But when it works, and it often does, it’s magical and worth doing. This is the literal meaning of attach rate, but there are other, such as, maybe I know how to better monetize something I buy than they do.

Large dollar acquisitions of small companies that seem irrational to outsiders almost always have a rigorous plan like this within the acquirer. It’s just nearly impossible to see from the outside, which is why many outsiders get so confused and upset at the time of acquisition.

But, on the other hand, we do not consider it safe for a tech startup to have a plan that DEPENDS on a large acquirer applying this logic. We only invest in startups that have a plan to be large independent dominant companies on their own, with great businesses in the long term. And the act of building for long-term independence makes you more attractive to potential acquirers, not less. So you can win both ways.

Source: Tweets – 1,2,3,4,5,6,7,8,9,10,11,12,13,14


Two Quick Brendan Eich Stories

Brendan was one of the very first Netscape engineers, joined from Microunity, a famous venture-backed chip startup fiasco at that time. We decided we needed a scripting language for web browsers and web servers. We investigated every option. Brendan said, I can build one.

He single-handedly wrote Livescript (the first version) in three months. He built it into the browser. He created modern web programming and borrowed Java syntax. Sun asked us to embed their new Java into browser; in return we forced them to accept the name “Javascript” for Livescript. They hated that!

At the time, I thought Java would dominate client and Javascript would dominate server; it turned out the reverse happened for 10+ years. Javascript in the browser became BY FAR the most widely used programming language in human history. This is a breathtaking achievement. Beyond amazing.

Years later, after Netscape/AOL and AOL/TimeWarner mergers, Brendan called me to see if I could help free Mozilla into a nonprofit. I called Jim Barksdale who was on the AOL-TW board. With Jim’s help, Mitchell Baker and Brendan successfully established the Mozilla Foundation. This was an unnatural act for a big company and could have easily not happened. Mitchell and Brendan made it happen and redefined the web again.

So, if you like your browser, your Firefox, and/or your Javascript, whatever your political beliefs, you owe Brendan a debt of gratitude. The web would be a sparse and barren place without Brendan’s work. I can’t argue with his decision, but I can’t wait to see what he does next.

Source: Tweets – 1,2,3,4,5,6,7,8,9,10,11,12

Similarities Between Venture Capital and Value Investing

Venture capital and value investing fundamentally differ in one key way: VC = long change; VI = short change.

Otherwise I think venture capital has more in common with value investing than any other kind of investing. For example: Both VC and VI believe in deep fundamental analysis, really understanding the fundamentals of a company and ignoring surrounding noise.

Both VC and VI believe in thinking in terms of “owning the entire company” (or a meaningful chunk of it) vs share price speculation.

Both VC and VI believe in taking long view – there is arbitrage opportunity in investing against short-term traders which equals most of market.

Both VC and VI believe Mr. Market is manic-depressive and should be ignored. Prices only matter on day you buy and day you sell.

Both VC and VI believe in portfolio concentration, in making relatively concentrated bets: “All eggs in one basket and watch that basket”.

Both VC and VI believe in the “prepared mind” — always be learning as much as possible at all times to be prepared for big opportunities.

Finally, both VC and VI believe in the “circle of competence” – know what you know and invest in that, not things outside that.

Source: Tweets – 1,2,3,4,5,6,7,8,9


It’s Time to Evolve Beyond Credit Cards

photo credit: Anthrocopy - cc

photo credit: Anthrocopycc

A California DMV credit-card breach was confirmed.

In the old days (20 yrs ago) there was massive paranoia that packet sniffing hackers would steal credit card numbers passing over the wire.

As it turns out, the use of credit cards for online payments is insane for a different reason: E-commerce system databases themselves are vulnerable. Credit cards were never built for this. Better systems exist: Paypal, Dwolla, Bitcoin.

The universe is sending us a message: it’s time to evolve.

Corollary: Giving your credit card info to an online merchant in 2014 is the data equivalent of unprotected sex. For the love of God, please stop.

Source: Tweets – 1,2,3,4,5


Degrees of Tech Cynicism

Degrees of tech cynicism from crude to nuanced?

  • That can’t possibly work.
  • It’ll work, but normal people will never use it.
  • Normal people will use it, but it’s trivial.
  • It will never replace [legacy].
  • It will replace [legacy], which is why the world is going to hell.
  • Yes, fine, but just wait until [big company] does it.
  • Yes, fine, but just wait until [hypothetical better version that doesn’t actually exist] does it.
  • I can’t believe how much money those kids made from that.
  • It’s a clear and obvious bubble.
  • Whatever, innovation is dead.

Source: Tweets – 1,2,3,4,5,6,7,8,9,10,11


Are Chinese Companies Bulletproof?

JP Morgan on China:

“3,398 corporate and enterprise bonds outstanding in China 2013, 22.9% AAA rating, 77.0% AA rating, 0.1% have A+ rating or below… The difference between the average coupon rates of AAA bond and CCC bond is less than 400bps… Shanghai Chaori Solar…is the first default in China’s bond market since the first Chinese corporate bond issuance in 1983.”

So, the $1 trillion question is: Are Chinese companies bulletproof beyond any precedent? Or are the current ratings mostly nonsense?

Source: Tweets – 1,2,3,4

Venice May Elect To Secede From Italy

From the National Post’s recent article – More sovereignty votes: Referendum may see Venice elect to secede from Italy:

“Sunday referendum may see Venice elect to secede from Italy…La Serenissima ‘Most Serene Republic of Venice’ was an independent trading power for 1,000 years before the last leader was deposed by Napoleon in 1797…Campaigners have been inspired by the example of Scotland, which will hold its referendum on independence in September, and Catalonia…Activists say that the latest polling shows that 65% of voters in the region are in favour of cutting ties with Rome… For decades, there has been a deep-seated dissatisfaction in the rich northern regions of Italy with [perceived] inefficient and venal rule from Rome… If it passes, [the region may] start taking steps to withhold taxes, in what would effectively be a unilateral declaration of independence.”

Source: Andreessen’s tweets – 1,2,3,4,5,6

Daily Choices

Every day, each one of us has many choices about whether to lift people around us up or tear them down.

For most of us, those choices are local in nature — people we know or meet, interact with face to face, one on one. But for some of us, those choices loom larger, in the social software and systems we design, build, report on, advertise on, fund.

I’m finished with this topic for now. I believe we all need to consider these choices carefully, every day. Respect for everyone who does.

Source: Andreessen’s Tweets – 1,2,3,4


Technology Shapes Human Affairs

“We shape our tools and then our tools shape us.”—JM Culkin paraphrasing Marshall McLuhan, 1967.

“It is the medium that shapes and controls the scale and form of human association and action. When our central nervous system is technologically extended to involve us in the whole of mankind and to…incorporate the whole of mankind in us, we necessarily participate, in depth, in the consequences of our every action. The ‘message’ of any medium or technology is the change of scale or pace or pattern that it introduces into human affairs.” – Marshall McLuhan

Source: Andreessen’s Tweets – 1,2,3,4,5