The Emergence of “Pre-Seed” Capital

Notation Capital, founded by former Betaworks folks, is a new pre-seed investment fund launched a couple of months ago. 

Notation Capital is attempting to institutionalize the round of funding that’s usually done by “Friends and Family”. With just an idea and a co-founder, one could actually raise up to $500K in exchange for 5% to 10% of equity.

Really, pre-seed investing isn’t anything new. A few years ago, these rounds were simply known as seed or angel rounds, lead by early stage investors like SV Angel, Lerer Ventures, or Thrive Capital. Startup accelerator programs like TechStars and Y Combinator also use a similar model.

The thesis here is clear – firms are entering both from below and above the traditional VC-backed period of a startup lifecycle in hopes of capturing more of the returns generated by high growth companies. This is why we continue to see more large and institutionalized seed rounds (by pre-seed capital funds), as well as more large and highly-valued growth rounds (by public and/or PE funds). 

From a risk/reward perspective, I think funds with “bookend” strategies (either preceding or following the traditional VC funds) likely have lower return thresholds. What would be interesting is to see a partnership between very early and pre-IPO strategies – if one could be used to identify the winners and the other used for putting more capital behind those winners. 

Six Things Technology Has Made Insanely Cheap

I believe that technology and democratization goes hand-in-hand. If you examine the now-commoditized products listed in this article (PC, software, TV, trading commissions, camera, cell phone plan), you can also follow how such technologies became much more widespread and accessible to the masses as prices dropped.

The subtitle of the article boldly proclaims, “behold the power of American progress”! And it’s interesting to me that the author (Aki Ito) states:

For anyone bearish on the progress made by the U.S. economy, consider this: Computers are now one-1,100th of their price 35 years ago.

On the contrary, I believe that much of this price deflation actually comes from international manufacturers (read: China, India, etc.) who are able to produce virtually the same item at a fraction of the cost. 

With those two factors in mind, tech advancements and cost-efficient copycats, here are few things that I believe will face the same deflationary pressures over the next decade:

  • Mobile phones: This is a no-brainer and has already happened with the likes of cheaper Android handsets, courtesy of Xiaomi.
  • Automobiles and trucks: Asian manufacturers, such as Hyundai, are innovating quickly and will be able to rival Western brands soon in terms of quality. Furthermore, if Uber’s expansion continues world wide, demand for cheaper and more efficient cars will rise as drivers proliferate and riders opt to forgo car ownership. 
  • Education: With the current status of rising student debt, something’s gotta give. Disruptive Education Technology startups, such as General Assembly, Codecademy, and Coursera will begin to offer non-accredited alternatives to higher education. For profit education companies, like Minerva Project, will offer degrees at a fraction of what it costs today.
  • Food: I have high hopes for companies like Beyond Meat, who are looking to product petri dish-grown meat in a more cost-effective and environmentally sustainable way. Before that becomes mainstream, however, farmers will continue to lobby for government subsidies which hopefully will be passed through to consumers. 

On the other hand, there are a couple of things I wish would drop in prices, but I think unfortunately will continue to rise:

  • Healthcare:Healthcare is notoriously a laggard vertical when it comes to tech adoption, and the burden of outdated IT/infrastructure is eventually passed through to the consumer. An aging population, the impending shortage of doctors/nurses, and America’s sedentary lifestyle will all pose to be challenging to the current healthcare system. Without the right incentives for health systems and individual consumers to change their behavior, healthcare looks like it will only increase in the years to come. 
  • Housing: While this is a particularly stressful topic for those of us living in the Bay Area, I think it’s a pain point that all young adults will face sooner or later. Given high student debt and low employment, young adults will find it much more challenging to become home owners than the generation before did. 

What do you think will become cheaper or more expensive over the next decade?

Six Things Technology Has Made Insanely Cheap

Silicon Valley’s Youth “Problem”: A Rebuttal

By now Yiren Lu’s “Silicon Valley’s Youth Problem” has made it way around both my personal and professional circles. As a young person living and working in Silicon Valley, I felt a strong sense of resentment after reading the article. The author focused on specific and superficial examples to build a case against many of the talented founders and engineers I know, and thereby, completely missed what makes Silicon Valley great. 

In the section titled “Unhappy Valley”, Lu outlines a phenomenon that the layman knows as FOMO: Fear Of Missing Out. But it’s not just a “Silicon Valley problem”, but a symptom of our generation as a whole. Sure, FOMO could make us feel like we’re trapped a giant hamster wheel, forever playing catch-up to the Jones. Every generation has a certain amount of FOMO, and given the speed of information today, our generation just feels it that much stronger. I think of FOMO instead as part of the reason why technology cycles have shortened and innovation has accelerated.

The article also questions whether today’s Silicon Valley has created anything of value. To be fair, many of the buzziest startups are consumer-oriented ones, and the value of a Facebook, Snapchat, or Twitter is undoubtedly tied to ad dollars. Money talks, and naturally, VC’s will continue to fund startups with advertising business models because the advertising market is enormous. Instead of asking whether Valley startups are doing anything worthwhile, shouldn’t the question be instead, what good does advertising do for society? By the same token, the author also discounts the importance of startups such as Uber and Airbnb, who have not only provided an additional revenue stream for thousands of people worldwide, but have also fundamentally changed some of the ways that humans interact.

Naturally, Silicon Valley will always have a so-called “Youth Problem”. Startups are risky, and by and large, younger people will have a higher risk tolerance. That doesn’t mean that substantial valley startups, like Dropbox and Stripe, are not striving to recruit tech veterans in leadership positions (in this example, former Motorola CEO Dennis Woodside and former Google executive Claire Johnson, respectively). Startups, especially venture-funded ones, do not have the hubris to believe that inexperienced 20-somethings are equipped to run billion-dollar businesses on their own.

Perplexingly, the author also tries to paint some of the most positive externalities of Silicon Valley in a poor light, for example, the democratization of tech and the consumerization of the enterprise. Isn’t it great that today’s teenagers, with just a conceptual grasp of computer science, could build an app for his/her own use and/or entertainment? Shouldn’t we support the notion of making enterprise applications easier to implement and more user friendly?

Most importantly, I’ve always believed that the most innovative companies are not necessarily apparent at first. One very prominent example of this is Google, a startup founded by two 23-year-olds in a garage at a time when there were already several search engines on the internet. (Maybe yesterday’s search engine is today’s texting app?) Larry Page, in a recent interview, spoke about grander ambitions for Google:

Even Google’s famously far-reaching mission statement, to “organise the world’s information and make it universally accessible and useful”, is not big enough for what he now has in mind. The aim: to use the money that is spouting from its search advertising business to stake out positions in boom industries of the future, from biotech to robotics.

New Numbers Reveal Asian Wage Gap in Tech – NBC News

The article points to the fact that many H1-B workers are Asian, which contributes to depressing the average salary across the tech industry. As an ethnically Chinese person on the H1-B, I think the stat actually demonstrates that Asians are culturally and systematically discouraged from being demanding or confrontational. 

As an Asian woman, I don’t always feel comfortable in negotiating what I want and promoting myself to an employer – a shortcoming that I learned the hard way when interviewing for an investment banking position alongside other white male candidates. The real action point from this data is that Asians need to better learn how to negotiate their salaries (and not let “karma” take care of it, à la Satya Nadella.)

New Numbers Reveal Asian Wage Gap in Tech – NBC News

Marriage Success Rate as a J Curve?

My friend, an Econ PhD candidate at Berkeley, and I have often debated the merits of online dating. (Fun fact: we actually met on OkCupid.) Our conclusion is that online dating is best for folks with edge preferences, as it offers better filtering and wider top-of-the-funnel. 

I like Yagan’s answer on the paradox of choice because it proposes marital satisfaction in America as a “smile” or J curve. Social media and online dating has decreased friction for unhappy relationships/marriages to end and for folks to start new relationships. At first, this could contribute to an uptick in divorce rates, but over time, the hope is that more data and wider top-of-the-funnel will result in happier couples.

Marriage Success Rate as a J Curve?

Free Ventures at Berkeley

I was recently invited to judge at Free Ventures, student-run incubator for UC Berkeley entrepreneurs. The program just completed its first semester of workshops and mentorship, with 5 student teams accepted out of a pool of ~40. This past Monday was their Demo day, which allowed each group to present to a panel of judges and get feedback on how they can improve their product. 

Having been on the other side of this, I was really looking forward to the pitches and was thoroughly impressed by how well-prepared the students were – the coaching really paid off!

The Free Venture Fall 2013 startups were:

  • Supertag: a SMS API that enables users to use hashtags to hyperlink locations or other meta data. The judges were particularly interested in how this can help aging Telco’s bolster their SMS offerings. 
  • Lily: a quadcopter camera that autonomously tracks a headband to film a dynamic subject. Would loved to see a live demo of this, but I guess it wouldn’t have been a great idea to launch it indoors. Prototype is still a hack, but looks a lot like GoPro’s early days and I could see this getting really popular with extreme sport enthusiasts, but also amateur videographers and maybe even journalists. 
  • Fractal: dead simple platform that allows users to create mobile apps without knowing how to code. Geared towards small groups (ie. the Berkeley chess club) who want a mobile app that facilitates communication between club organizers and its members. Great idea, but in a very crowded space. Also, I’m not sure the needs of small interest groups would be better served by a native app vs. an HTML5 mobile website.
  • CloverInk: recruiting platform for startups and new grads. Again, in a very crowded space, but I liked their low-cost advantage and the signing bonus per hire. The pass-through bonus of $100 to the applicant will ensure that transactions are completed on the platform, but may also increase return customers on the applicant side. 
  • Clique: intimate “anti-social” network with 15-person limit. Loved the way they tested their initial idea (using private Twitter accounts) and the innovative shake-to-push-notification feature. Obviously reminded the judges of Path, but I think the 15-person limit makes much more sense than Path’s 150.

Overall, Free Ventures ran a tight ship and the quality of start-ups produced this semester bodes very well for the program’s future. Here’s the kicker – of all the teams that presented, there wasn’t a single female entrepreneur. I’m sure this wasn’t intentional, as the judging panel had a healthy mix of both female and male perspectives, but it does leave me to wonder if it was a result of selection bias or lack of female applicants.