Summer Melts Up Scooters, Melts Down Crypto
A collection of this past week’s events to help us revisit and update some of the recent stories covered this past month on The Big Stack.
As summer grows hotter in earnest, the crypto price winter appears to be taking hold (e.g. a tweet by one Rob Paone: “Crypto YouTube videos in January: ‘How to turn $1,000 into $1 Million in 2018′” … in reality ‘How to turn $1,000 into $148.49 in 2018′). While it might well be a fallow period for speculation, deep work by the devs continues.
Some characterized this as Bitcoin up, altcoins down but I suspect that it might be as Blockstack founder Muneeb Ali characterized the price action: that this was a time for the “devs”. “The slow down of crypto markets has historically been a great time to build. There is less noise, speculation, and vaporware; won’t last for long.” (June 27, 2018)
So perhaps we have passed, temporarily, the stage of conference attendees taking all the glory, as Devs keep working — designing, testing and building the layers of a new stack. Perhaps it’s much in the fashion of the first joint-stock companies, becoming tradeable and more liquid, tapping into animal spirits, bypassing the intimacy of partnerships and surpassing sovereign authority. That analogy might resonate for proponents of trustlessness (or as I keep it anchored in mind, “trust agnosticism”) and decentralization.
Gone is vaporware’s allure, thanks in part to the grind of fraud and thievery:
It’s back to work. And the “new black” for Mr. Market may not only be “machine learning”. 2017’s High school test analogy, ML:A.I. as Blockchain:Bitcoin (or maybe even Devs:TalkingHeads / “Celebs”). 2018’s post-conference drinks getting-buzzed-word includes “smart contracts”
Courtesy of Jimmy Song’s June 11 explainer “The Truth About Smart Contracts“:
“What’s different about a “smart” contract is that the conditions are both evaluated and executed by computer code making it trustless…The key feature of a smart contract is that it has trustless execution. That is, you don’t need to rely on a third party to execute various conditions.”
“Instead of relying on the other party to make good on their word or even worse, relying on lawyers and the legal system to remedy things should something go wrong, a smart contract executes what’s supposed to happen timely and objectively.”
There was one conference covered in the news, however, that caught my attention. The Zcash “Zcon0” conference. This project has captivated for its privacy mission. From Coindesk, a quote of Zooko Wilcox’s topdown view: “”We have already succeeded on a technical level, but we have not succeeded on a usability and adoption level, so that’s the priority you’ll see.” Before the conference, the Zcash foundation published a “two year roadmap” which followed an upgrade called “Overwinter” which provided an on-ramp for future upgrades. There will be one called “Sapling” coming in October, “said to substantially improve the scalability of private transactions on the blockchain, to the point where the anonymous and transparent transactions that comprise the protocol will be ubiquitous.”
The EOS constitutional crisis, which I mentioned recently, continues. $4B USD sure is a lot of money raised for a work in progress. NBA’s Sacramento Kings just opened up a crypto mining operation of its own for a scholarship fund, on the eve of prices getting hit. Perhaps that’s a better sign than magazine covers for shorter time frames on sentiment. Popular consciousness.
Begin Scene. Portrait of Platform in its ascendancy, supplanting new for old.
Netflix is on the cover of the Economist, and I’m not sure what to make of that. I hesitate to lean on the oversimplified trope well known to investors of the “magazine cover” contrarian signal — but it sure does get uncanny at times. (Think “Death of Equities”, the two Brazil covers, and George Washington with a“cut” physique). The overall trend has been intact for this market but leadership may shift as the model changes. I have written several pieces on Netflix and cable but there is something else also happening — which is built on network effects. Verizon’s ending mobile video streaming. Meanwhile, Instagram debuts IGTV.
Alex Taussig, from his Medium piece “Natively Social TV is here to stay“, had some fascinating observations about video I wanted to share:
“ IGTV is Instagram’s take on what TV would look like in a social context.”
“ The experience is at the same time foreign and familiar for Instagram users. The classic Instagram UX is a feed that encourages users to scroll infinitely through short pics and videos.”
“IGTV is the opposite. The UX dumps you right into a channel, with minimal affordances to skip to the next show. The behavior is more akin to traditional TV in the sense that one show rolls into the other. The “programming” comes out of the box depending on who you follow on Instagram. That means a user doesn’t need to set up a bunch of new preferences. She simply leaps into IGTV after logging in and gets a pretty good experience. Although it’s a standalone app, IGTV does a good job leveraging the social graph.”
Young mobile platform, spry and spurred on by social network effects, moves to the front of the stage while an older Platform exits. Fade to black. End Scene.
Startup Song title idea: “Let Me Tell You about the Bird(s) and the Buzzed”:
Meanwhile Scooter startup Bird just got another 300M in funding. And I just read that a vape business, Juul, with a 68 percent market share, is raising 1.2 BILLION dollars for a post-money valuation of $15B USD. It wasn’t that long ago the CEO had to issue a statement after the FDA’s information request regarding minors. (My random thought: combine some future offspring of this deal in 2025 with medical applications (non-euphoric cannabinoid receptors medication) — who knows what comes.)
I have written about Bird, its competitors, and the logic behind this “last mile”, that looks like a “toy” for now, but whose saving grace is that it could become the “first look (on your smartphone)”. Mark Suster just did a facts-of-life piece to help, called “All The Questions You Wanted Answered About Bird Scooters and Their Recent $300 Million Funding“:
“[A]nybody who has seen the meteoric rise in consumer demand and actual revenue the valuation is much less surprising and may turn out to be quite conservative. As I like to tell people who ask about Bird, “consumers have literally voted with their feet.” The company has done zero paid marketing.”
Suster did a great 8 bullet point review of Bird’s strengths but the one that caught my eye was DATA:
“What appears as just an electric-powered scooter is really a computer with wheels. Between our on-board CPUs and your mobile phone companions we have an enormous amount of data on transportation routes, where riders want to pick up scooters in the morning and where they leave them in the evening. This not only allows Bird to have advantages in right-sizing city inventory levels and proper placement to maximize yield, but the company has already been providing this data to cities to help them better plan their cities of the future. We clearly need a world in which gas cars don’t dominate dense city environments and providing this data to cities is a great start in that direction.”
You can get the money, you can get the design, the batteries and the repair-techs. What is hard to beat, is DATA PLUS that daily morning habit — that “first look” by millions of smartphone users for their daily last mile needs. Imagine that your “toy” company’s stack carries a living memory of a city’s rhythms. As powerful as an old time coffee and a cigarette, nothing beats the acknowledged addiction of the smartphone. And now your “toy” is on it.
On the other side of sane is insane, as in the insanely amazing scale of the Security Token Offering being undertaken by one of “Bird”s rivals “Spin”. $125M USD just like that via an “STO”, which is meant to be a more palatable version of Internet Coin Offerings gradually emigrating to and populating a crowded “graveyard” environment. Via the Techcrunch coverage: “Spin has been one of the more quiet scooter startups in the industry after announcing its expansion into scooters in February. This comes shortly after electric scooter startup Bird raised a $300 millionround led by Sequoia Capital, and after reports of Lime raising $250 million led by GV.”
Another aspect to this is “pre-emptive funding”. Elad Gil described in a June 28, 2018 post, the what and the why of “Preemptive Rounds”, which helped explain why so much money was getting invested in very new startups.
“In a pre-emptive round, there is no material change in progress between rounds. Rather, the investor is so excited to invest, or believes the company valuation should be much higher than the last investment, that she is willing to push up the company valuation without any new progress or information.”
“Bird’s latest rounds is a good example of pre-emption.”
“One of the biggest shifts of the last 6 months is the degree to which pre-emptive funding rounds have become the new normal in Silicon Valley. While pre-emptive rounds used to be reserved for celebrity or serial entrepreneur founders, they have recently become almost the default for a subset of companies. I have seen multiple seed companies receive pre-emptive series A fundings in the last few months without any specific milestones hit. Similarly, late stage companies like Bird have seen their valuations skyrocket in the course of months or even weeks. ”
One more wrinkle to this, according to Tom Tomgunz’s review, is concentration, at least from his assessment of seed financing: “In summary, startup valuations have increased. This grows the size of seed rounds. Seed investors’ funds sizes haven’t kept pace, nor has VC seed investment. To buy the same ownership, investors must invest more dollars. So they invest in fewer companies and concentrate their portfolios.”
And more of the same at Tesla: Model 3 drama. My broader thought is that innovation perpetuates and propagates — but we don’t know in which directions and who profits in the end. In a way, aspirational objects of lust may instead include limited edition electric autonomous Rolls Royces or high end Uber/Lyft licensed luxury sports-vehicles. Regardless of how this plays out, the automotive platform experience has changed and it’s only just beginning all over again. Reuters estimated $90B USD and WSJ had $105B USD estimated for EV Cap-ex. Let’s embrace back-of-the-envelope and not lose the bigger picture: Tesla or no Tesla, we got more EVs coming, and this is not the same as making gas-guzzlers — the mileage on a dollar of cap-ex goes further for making a battery on wheels.
Flywheel Pharmacy. Pillpack was bought by Amazon for $1B USD. There will be detractors but I recall much the same years ago when Amazon was “just” an overpriced online book-seller. AND just as Walgreens replaces GE in the index. What timing. Amazon already has partnered with JP Morgan and Berkshire Hathaway to figure out how to arrange cost-effective healthcare for their people. That’s literally about 1 million potential users of pillpack between 3 companies.
But someday it won’t be pills we take, maybe it will be ultra tiny “bots”:
“researchers at City University of Hong Kong published a study in Science Robotics describing how their microrobots successfully delivered cells to a specific site in live animals for the first time.” Until then, maybe pillpack will help make sure you don’t forget to take all your meds.
“There is early evidence that a collagen matrix can be turned back into a functioning lung. This year, in an experiment partly financed by United, Harvard University experimental surgeon Harald Ott reported that he’d pumped billions of human cells (from umbilical cords and diced lungs) into a pig lung stripped of its own cells. When Ott’s team reconnected it to a pig’s circulation, the resulting organ showed rudimentary function, although the experiment lasted only an hour.”
“You do get blood through the system, and you do get gas exchange,” says Finn Hawkins, a stem-cell biologist at Boston University, who is not involved in United’s project. “That is remarkable. But it’s a long way to transplantable organs.”
Back to this week in medical breakthroughs however:
Cannabis regulatory breakthroughs are coming through. This is going to be a huge market with so many parts. My (and many other peoples’) “go to”, Todd Harrison, shared this on his social media stream, an update from a firm’s coverage of what has happened alone in the past week:
Health Canada’s release of regulations supporting the Cannabis Act, to come into effect October 17, the FDA approval of GW Pharmaceutical’s Epidiolex (which will then prompt the DEA to declassify cannabis as a Schedule 1 drug), Oklahoma residents voting to legalize medical marijuana, and Vermont legalizing as July 1 cannabis for adults. It wasn’t all good news in all states but change is coming.
Cannabis has been lumped in with other controlled substances. There is one controlled substance, for Leviathan itself, we should keep an eye on however: credit.
And what is going on with the eurodollar and short-term dollar credit and what does that mean for China? I saw this piece from Jeff Snider’s Alhambra Investments. All that Instagram / Snapchat / Pop-up / Experiences / Influencer / ConferenceX fanfare disappears without deep pockets splitting the seams to pay for the party. The loveliest blooms and greenest leaves, as typified by both cutting edge angel/VC deals and the most spectacular of principal and yield investments, are fed by the gnarled roots of a tree whose rings show cycle after cycle of ebullience and ennui. And so I want to increasingly follow the money, and that means more China. (Hello “BATS”.)
Snider put it plainly: “In other words, demand from the end user economies like the US has stalled. That’s a huge problem for China’s economy which remains oriented toward manufacturing and export. They talk about rebalancing and internal sources for marginal expansion, but month after month it proves to be nothing more than that — talk.”
This is not an idle aside.
Austen Allred’s Lambaschool cited a couple of weeks ago a nice list reasons for China’s tech ascendancy. They are familiar to Tech and china watchers but here they are again:
“1. They work harder. The standard schedule of a Chinese tech employee is what they call “9–9–6”; 9 AM to 9 PM, 6 days a week”
“2. Regulation is not an issue In the US one of the most likely killers of revolutionary tech startups is regulation. In China the government is often a first investor, first customer, and is the entity that pushes companies forward as much as anything else”
“3. They take a hyper-analytical viewpoint and don’t worry about copying When I was in Beijing we met with the Chinese Airbnb. When they noticed that Airbnb was working they hired 100 people and cranked out feature parity in a few months, and were unashamed of that”
“4. They have a much, much greater supply of STEM workers China has 4x the population but 10x the tech employees. Ordinary software engineers get paid living salaries but not what they get paid in the US.”
“5. There’s a lot of capital with nowhere else to go This is true in the US as well, but in China you not only have practically zero interest but a law that makes it difficult to get money out. Every VC backed company has an investment arm, and multiples are *higher* in China”
“6. They have incredible ecosystems to build into I’ve never seen anything like WeChat. You use it for literally everything, from paying bills to connecting with friends. QR codes are everywhere and actually used, and people expect it”
“7. They don’t fear hardware (or atoms generally) Companies were baffled that SV has such a hard time with hardware. It’s no more difficult in their eyes to ship atoms than bits.”
Allred sums it up: “Put all those things together with good ol’ regulatory uncertainty, and it’s difficult to imagine any US company winning a Chinese market. Then you remember that the market is bigger there and growing, and it will likely always be the case that their tech scene is bigger.”
It’s point #2 which comes to mind and hence my interest in macro and why I have shared some links from Alhambra Investment. As key driver, it pays to watch macro. Point #5 is clear after our review of deals in Bird, Spin (STO! Say that with a Russian accent for a similar sounding word to convey my shock and awe.) and the current VC financing regime.
Point #4 we will get to in closing remarks. STEM and education.
This week’s videos and music includes the following, but first a nice A.I. video (from an ARK analyst’s feed) and a podcast interview of Robert Greene, which includes a lot of great insight about writing and creating. It’s humbling and inspiring to learn that Robert Greene’s now famous works were not immediately popular or successful. I believe that is relevant also for much of the secular, macro and tech ideas covered on The Big Stack. Examples: the “toy” becomes a tool and outsiders become the ultimate insiders (e.g. rise of the Entrepreneur as pop-culture hero).
This is one of the great sources of both wealth generation and general prosperity: The Unheralded evolving into the Heroic.
Remember I said I would get back to STEM and education? I finish with WSJ’s Christopher Mim’s nifty June 29, 2018 report, “Big Tech’s Hot New Talent Incubator: Community College”:
“Long stigmatized as “junior,” community colleges might seem like an unlikely source of talent for major tech companies. Yet, increasingly, some of the biggest tech giants are turning to these two-year schools to find the skilled workers they desperately need.”
The harsh reality is that we must press forward and not backward. Even burger flipping jobs will be gone soon enough. The future begins in places like the classroom. (Just ask the founders of pillpack, that was from a school hackathon.)
Another mainstream sign of the times: “Robotics Engineer Barbie”.
Courtesy of Engadget’s June 26, 2018 piece: “Barbie’s latest career path is robotics engineering”:
“Earlier this year, Mattel announced that it was partnering with Tynker to bring Barbie-themed coding lessons to young kids. As of today, six free coding experiences are now available as is a new STEM-themed doll — Robotics Engineer Barbie. The lessons are geared towards beginners, kindergarten-aged and older, and aim to teach logic, problem-solving and the basics of coding.”
Jokes about trend bandwagons aside, for all our sakes, I hope more people will increasingly become part of a new heroic arc we can celebrate. Consumers and users can be the builders too.
Originally published at big-stack.com on June 30, 2018.