This Is What The Apocalypse Looks Like?

Back in Q1, you couldn’t swing a dead cat without hitting someone advising startups that the world, as they knew it, was coming to an end. Venture dollars flowing to startups had decreased from $16B in Q3 ’15 to $12B in Q4 and VCs were telling anyone who would listen that nuclear winter was in sight and funding would be drying up. The media just ate it up. Take a look at just a tiny sample of headlines from early Q1.

apocalypse

Imagine my surprise when I opened PWC’s VC Q2 Money Tree report on Friday (ok, I’ll admit that I wasn’t surprised at all). Take a look at the chart from their report below. Not exactly the apocalypse everyone was predicting, right? To be fair, while dollars have increased again, the number of deals fell by about 5% (suggesting that larger dollars were going into some later stage companies).

Q2 16

I wrote a post about all this in February and my advice to founders remains the same as it always is. Raise more than you think you need. Price your rounds to avoid the pain of stacked notes. Watch your expenses. But whatever you do, don’t pay attention to what anybody’s saying about the macro because they’re all full of shit.

Will the funding environment get worse for startups? Yes, of course it will. Eventually. Bill Gurley’s been telling us we’re in a bubble for years now. He will undoubtedly eventually be right. But there’s also logic supporting the notion that an entire generation of globally important companies will be born and go public by the time he is. We’ve now had ten quarters in a row of over $10B of venture capital flowing into the system. Venture Capital firms raised more money in 2014 than ever before in history and then they raised even more in 2015! All of those firms have a mandate to put that capital to work which means VC dollars will continue to flow liberally to startups at least for the next 3-4 years.

My $.02? I think we’re in the greatest tech innovative cycle in history and capital will continue to be available to fuel it. Technology is solving more problems for more people in more ways around the globe than ever before. I see it when I travel to our 24 Techstars accelerator programs and the hundreds of events we put on for entrepreneurs around the world in over 130 countries. Barring a global economic collapse (which certainly does seem like better than a zero percent chance given the events of 2016 and the potential fallout from our Presidential election this November), I think we’ll continue to see a healthy environment for startups for years to come.

 

 

 

 

Kids, Google + And The Increasing Speed Of Innovation

When I started my career on Wall Street in the 80’s, I remember reading everything I could about Peter Lynch and his “invest in what you know” strategy. Peter managed the Fidelity Magellan Fund from 1977 to 1990, during which time the fund’s assets grew from $20 million to $14 billion. More importantly, Lynch beat the S&P Index in 11 of those 13 years, achieving an annual average return of 29%.

Two of his most successful investments of all time were Hanes (yes, the same one Michael Jordan pitches) and Dunkin’ Donuts. Lynch invested in Hanes in the 1970s because his wife bought and loved its new L’Eggs pantyhose line — the first department-store-quality pantyhose sold to American women via supermarkets. According to Lynch, “I did a little bit of research. I found out the average woman goes to the supermarket or a drugstore once a week. And they go to a woman’s specialty store or department store once every six weeks. And all the good hosiery, all the good pantyhose is being sold in department stores. They were selling junk in the supermarkets. They were selling junk in the drugstores.” Lynch knew Hanes had a winner. L’Eggs became a huge success, and Hanes became Magellan’s biggest position. He did the same with Dunkin’ Donuts, “I loved their coffee and so did all my friends, the lines were out the door.”

So what does all this have to do with Google+? If you’re reading this, you’re probably a user of social media and if you are, you’ve undoubtedly seen a good deal of negative sentiment surrounding G+.

Let me share a story with you. I’ve got a 13-year old daughter who’s in 7th grade. Six months ago she didn’t text, didn’t IM, and didn’t really spend any significant time in front of a computer or phone. Then she entered junior high school. Fast forward to today: She’s got the outline of her phone permanently etched into the back right pocket of her jeans and she spends a great deal of time at night with her friends on group IM chats. To those with younger (or no) kids who believe “that won’t be my child,” I’ve got one thing to say to you – good luck with that and let me know how it turns out.

Last week, I was lying on the floor of her room doing math homework with her with Rihanna blaring in the background (see my quote above young parents, it’s a new world – she’s a straight A student, who am I to argue with those results?) when I said to her “So you’re 13 now. I’m surprised you haven’t asked me for a Facebook page yet, how come?”

“Facebook? That’s for adults. We use Google +.”

My mind was fully blown. As a VC who is supposed to be spun up on trends in technology, this one caught me as off-guard as Jeremy Lin. I tried as best I could to hide my incredulity and asked her to show me her Google+ page. Sure enough, she and dozens of her friends had the whole thing dialed. Different circles for different classes of friends, the whole shebang.

Try wrapping your head around that. Just a few years ago, Facebook didn’t exist. Now nearly 15% of the people on this planet use it, except that is for my 13 year-old daughter and her group of friends. Frank Sinatra begat Elvis Presley who begat the Beatles. Teenagers eschewing their parents’ ways is as certain as the sun rising tomorrow. A year ago my kids bought all their music through iTunes. Now they both have Rdio accounts and unused iTunes gift cards from the holidays lie untouched on their desks.

Peter Lynch became one of the greatest investors in history in spotting trends before others. Are my daughter and her friends a blip or a trend? And if it’s a trend, what are the implications for Facebook and Google in the next year or two? What other social platform exists in a dorm room today that will displace these giants? One thing is for certain. Innovation is happening faster than ever and I’ll be watching my kids behavior closely to try and keep up with it.