1/ Thanks @ivanataylor1 - interesting article. Over the past year we’ve seen a big uptick in VC firms using (or saying they use) data in bigger ways. I don’t know this firm at all but in general I tend to look at the core problems to be solved and difference vs. CPG.
2/ So in tech VC investing – is it difficult to know which companies are hot given all of the press, connections, etc? Or is the harder thing figuring out how much to pay (valuation) and convincing that entrepreneur to take your money?
3/ Perhaps in less mature markets the identification matters more, but I certainly think that in the US what matters in tech investing is convincing the best entrepreneurs to work with you and stomaching some offensively high valuation.
4/ Here is what I mean. VC firm builds analytics to identify signals of growth from afar. VC identifies next unicorn. Presumably when VC looks under hood, the co has great metrics. VC firm submits Term Sheet. Presumably the company’s first call is to Sequoia, USV, etc?
5/ I think some firms have done a good job of pivoting those analytics to try and help the entrepreneur. But I’m not sure the job to be done in US tech VC is identifying the hot company, I think it is “how do I win this company.”
6/ In relation to comparison to #Helio, I also tend to agree with Marc here in this a16z podcast (40:04 mark). There isn’t enough data in tech vc (and the business models evolve/change/are different). a16z.com/2016/05/30/as-…
7/ CPG is very different: There is a crazy amount of data and biz models are all basically the same. Helio has benefit of far more than just pulling LinkedIn data to see where engineers are going to (a derivative metric of success….or previous funding). medium.com/@ryancaldbeck/…
8/ Btw – training the model on teams you like might lead to reinforcing bias…..a particularly tough problem in tech vc. fastcompany.com/40527386/this-…
9/ We will see more VC/PE firms saying they use tech. I keep going back to 1) what problem are they solving with the tech, 2) how real is the tech, 3) what is the actual benefit of the tech (i.e. increased returns, scalability of fund, repeatability of investing process, etc)
10/ If the tech just lets the VC firm call the company first (speed) and doesn't give me (the entreprenur) something more......then my first calls are to @kirstenagreen, @rebeccak46 and the other investors that have proven they can add value and be great partners.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
1/ I’ve talked several times before about building a systematic fund in the private markets. Systematic quant vc/pe funds are coming, and they will grow quicker than anyone expects.
2/ To build a successful systematic VC/PE fund, several things are needed.
I’m going to talk about two specifically here:
A. Information advantage (IA)
B. Large # of companies (N)
IA + large N = enormous value.
3/ In almost any domain, if you have a small advantage and enough swings at bat, you will ultimately come out on top. Let’s rattle through some examples:
1/ I am seeing more and more founder secondary in venture rounds (Secondary = founders selling some of their shares before some other shareholders are able). Series B-D. I see both as an investor and through entrepreneur circles.
2/ I like secondary for entrepreneurs. Moderation is key but in a lot of situations I think it helps accelerate the co. Lots of very smart investors disagree. Here are my thoughts.
3/ Magnitude: My basic rule of thumb from what I see is market is 4+ yrs and up to 10% of founder’s equity stake with some $ cap that makes sense given stage etc. (typically <$10m)
1/ Went to @StanfordWSoccer soccer today v. @USC_WSoccer with my family (wife, 18 mo boy and 4 yr daughter). Dog was invited as well and enjoyed the crowd.
2/ First observation – the crowd reignited a belief in me that Bay Area can have a good sports fan base that isn’t just jumping on the latest bandwagon. Game was sold out.
3/ Second- the @USC_WSoccer were a top 2-3 team I’ve seen in the past few years in terms of communication, how they supported each other, and just general teamwork. It was a master class in teamwork to watch.
1/ We will see more and more use of data in private markets. Over next 24 months it will become table stakes in most private markets. wsj.com/articles/priva…
2/ The transition will happen much faster than it did in the public markets because publics have paved way, easier to process massive amounts of data, more of a demand now to differentiate yourself.
3/ In early stage tech investing in Silicon Valley, I’m very skeptical that there is a problem to be solved (too much capital- not much inefficiency) or that data is the solution….at least in the short-term.
1/ @UNFI – a the largest natural foods distributor- reported earnings. Spoiler- they were horrible. zacks.com/stock/news/324…
2/ Let’s be clear. By horrible I mean that GM% was worse than expected as WholeFoods/Amazon (>30% of their business) puts pressure. EPS missed estimates and guidance implied that margin pressure will intensify next yr. Stock hit 5 yr low.
So I guess I call that horrible.
3/ To quote @karenhowland2 : “The company has razor thin margins (2% operating margin) and is buying another low margin, even less differentiated business in @supervalu and saddling the combined company with a lot of debt. Not a good combination.”
2/ I think almost all founders struggle with these emotional issues-but there are so few that talk about it. Why? Fear of being the only one not “crushing it”, fear of what it will mean with potential investors/customers/employees, fear of not living up to expectations.
3/ I deal with these feelings every day. It is a struggle.