Is 2015 The Year Legal Weed Changes The Future Of The American Economy?

I wrote an article on VC investing in the marijuana industry… a fun topic given how big and common weed is in the valley. Also an interesting topic to consider for all investors, in light of Neumann’s most recent blog post, where he claims, 

the only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise.

Is 2015 The Year Legal Weed Changes The Future Of The American Economy?

Recruiting for VC

This post was originally distributed via John Gannon’s VC Jobs mailing list. Edited and re-posted here because I regularly get inbounds on this topic.

I recruited for VC jobs in the spring of 2012 during my first year at Barclays, where I was working as an investment banker.

My recruiting process was fairly straightforward. I met with some headhunters (Glocap and Amity) who specialized in placing Investment Banking analysts as associates in VC firms. I utilized the VC Careers mailing list as well as Christina Cacioppo’s list as resources. I also dropped my resume at several places that posted an opening (e.g. online job boards or targeted mailing lists).

I definitely bombed a couple of interviews early in my process, but the journey definitely taught me how to present myself as a more viable candidate. So think of your VC job hunt a little bit like SAT prep – the only way to get better at it is to do more of it.

On that note, here are the key lessons that I learned during my search:

  1. The saying goes that you have a better shot of becoming a professional athlete than a VC. I haven’t done the math, but the bottom line is that VC openings are much more limited than the number of folks who wants to get into the industry. At the beginning of your process, make a list of the VC firms you’d prefer to work for – either from a stage, geography, or focus perspective. However, at some point your recruitment process will turn into a numbers game. I’d like to say that you should be strategic in which VC firms to approach, but the reality is that it’s a buyer’s market.
  2. Part of being a VC is having the luxury for being paid to think. My interviews were always casual and conversational, because the partner is ultimately trying to understand the way I thought. There are only two ways to hone on-the-fly critical thinking skills: read a lot and blog even more. Be prepared to present some of your theses with the reasoning to back them up.
  3. They say VC is also a people’s business. As much as it is about the analysis and decision-making, VC is also about who you know and who knows you. In an interview context, this is why networking is so important – don’t be afraid to name drop some folks that you have met and maintained relationships with, especially if they are relevant fellow VC or entrepreneur. While in banking, I spent many of my free evenings and weekends attending tech events in NYC. With the proliferation of blogs and tweets, it’s only become easier to access tech investors and entrepreneurs, even if you’re chained to your day job.
  4. Firms seeking candidates with finance backgrounds are typically later-stage VC’s. Those firms prefer hiring folks out of an Investment Banking or Management Consulting program. One recent implication is that competition with PE firms for these same candidates has driven later stage VC firms to recruit earlier and earlier each year – some, like IVP, even hiring a year in advance.
  5. It’s a crapshoot. Some firms liked me enough to have me participate in multiple rounds of interviews, while other firms ignored my resume drop and cover letter. Each VC firm may be looking for something different – either in terms of experience, education, or cultural fit. Don’t take it personally and keep your chin up.

Robotics: the inevitable future

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Seen by its makers “more R2D2 than RoboCop,” the autonomous policing robot Knightscope K5 promises to patrol geo-fenced beats in hopes of reducing crime by 50 percent.

As a late-stage investor, I’m often waiting on the edge of my seat for technologies to mature to a point when IVP would typically get involved. For me, robotics is one of those exciting areas where I have to unfortunately sit on the sidelines, for now. 

Some quick thoughts on how robotics will develop over the next couple of years:

  • Forget the consumer angle (see: the Jetsons), as with other next-gen devices such as Google Glass, robotics will first find their plateau of productivity in the enterprise. (see: AMZN / Kiva Systems)
  • The future is friendly – robots should be made to look as innocuous as possible. (see: Eve from Wall-E)
  • Robots will not only replace human functions, but enhance them too. In the example of Knightscope, the robot can analyze data, such as hundreds of license plates, in a way much faster than a human can. In other words, go for a revenue-generating sales pitch, not just a cost-saving one. 

I have to admit that my understanding of robotics is still elementary Any suggested readings for me?

(PS. Speaking of Wall-E, this cruise ship is just missing those personal hovercrafts…)

Robotics: the inevitable future

— Zuckerberg, being an extremely shrewd and ambitious businessman, is looking to use every tool he possibly can to break into the Chinese market and make sure Facebook is not bested by a Chinese competitor, in China or worldwide.

— His appearance at Qinghua and his ability to speak half-decent Chinese after just a few years of study struck a publicity home-run for Facebook IN CHINA which cannot be overstated. Facebook is blocked in China, but Chinese media and social media was aflame with the story of the multi-billionaire founder of Facebook who speaks Chinese!

— As you yourself well know, even in today’s exceedingly practical and expedience-minded Chinese society, face, politeness and respect still matter quite a bit. For Facebook to be blocked by the Chinese government, and for Zuckerberg to nevertheless put hundreds and hundreds of hours into studying Chinese is an amazing act of respect. How many Chinese people do you think were saying to themselves and their friends, “Wow, we block this guy’s website and cost him billions in advertising and he goes out and learns our impossible language!”?

— I’ve already gone on too long, but I’m just going to wrap this up by saying: Zuckerberg has, with one half-hour interview, put the Chinese government on the defensive — at least from a “face” and “politeness” point of view. At this point, he has shown tremendous respect toward the Chinese, and many millions of Chinese are saying “this guy isn’t so bad, maybe Facebook isn’t so bad, our government should really loosen up.”

The Under-Appreciated Genius of Mark Zuckerberg in China (via khuyi)

I almost feel as if this article is this close to making claims that Zuckerberg has actually planned for this so long that he woo’d Priscilla in college purely as a PR move. 

Fundraising Acceleration as a Flawed Paradigm

For the last 12 to 18 months, the private technology market has seen sky high valuations and a significant disconnect from the public markets. Recently, much talked-about startup Slack raised $120M at a $1.12B valuation with just $1M in monthly revenue. My friend, Danny Crichton, wrote a really insightful piece on TechCrunch regarding this new trend of “fundraising acceleration”.

Crichton outlines the factors that have created such a fundraising strategy and also carefully points out the disadvantages of raising too much at too high a price. Namely, he highlights the increasing bifurcation of the have’s and have-not’s (high and low-growth companies, respectively), as well as consequences with equity compensation for employees.

Here are some pitfalls I see with this kind of investment strategy:

  • High risk of a down round: Macro conditions are nearly impossible to predict. Unless the mega round is meant to fully fund a company from one bull cycle to another, it’s likely that the next funding round will be a difficult one.
  • Capital inefficiency: This type of fundraising strategy is also counter-intuitive to the lean startup philosophy. Raising such a large amount of capital creates negative incentives to be capital efficient, and in the hands of an un-experienced team, can lead to higher burn rates.
  • Increased execution pressure: With a valuation so far beyond fundamentals, management teams will and should feel an increased pressure to perform. It’s no longer enough strive to deliver on a vision you’ve sold because you’ve already committed to deliver it. Traditional “Plan B” options, such as acqui-hires, will become harder to sell to the board.
  • Diminishing returns: The reason that market leaders are often rewarded by an order of magnitude is that idea that in a networked world, winners take most (if not all). With funding acceleration, VC’s are not only increasing the risk of betting on the right horse, but also driving down their own gains. As the adage goes, capital flows into an asset class until returns revert to the mean. When that happens for the VC asset class, it’ll be a painful day for those holding such over-valued assets in their portfolios.

Crichton also writes, 

The person who most popularized this notion of investing was Marc Andreessen (who ironically also happens to be one of the earlier investors in Slack), as well as Peter Thiel, whose experience with Facebook’s growth encouraged his investment thesis for Founders Fund.

While I’m a big fan of both, we should also consider the fact that neither of these two investors have long enough tenures as VC’s to have experienced a downturn in the markets, and more specifically, a downturn within the technology sector.