Startup One Stop

In case you missed the memo, the big story of the week last week (with all due respect to the families who lost loved ones in Orlando) was that kelp is the new kale – and that we’ve reached the saturation point, in terms of apps: people just aren’t downloading them anymore (The app boom is over: Your phone is full of apps, and you're done downloading new ones — unless they're Snapchat or Uber. The average American smartphone user downloads zero apps per month.)

Some of this you know – some of it you may not: After Hulk Hogan was awarded $140M in his lawsuit against Gawker, it was revealed that it was Silicon Valley billionaire Peter Thiel who funded the lawsuit to the tune of $10M and the online media went ballistic. Thiel-Gawker Fight Raises Concerns About Press Freedom, said the New York Times, and the tenor out there in general is that, by underwriting the lawsuit, Peter Thiel is stifling innovation, what to speak of the dangers of a billionaire exerting that much power/potential control over a ‘news’ organization. We take no sides here, but for the record, “Curiously unmentioned in the piece is Mexican tycoon Carlos Slim, one of the richest men on earth, with a net worth of more than $51 billion… is the largest shareholder of one of the most prominent media firms in the world: The New York Times Company…. His current stake in the company is valued at more than $300 million. The Times apparently did not consider this connection “fit to print.” Or maybe they just forgot to mention it? It’s weird, though, especially since one of the concerns raised in the Times piece is that billionaire owners might be exercising undue influence (including censorship) over news coverage.” (New York Times Is Very Concerned About Billionaire Media Investors—But Not Their Billionaire Investor).

For the record, “Much of Slim’s fortune is derived from the mobile phone empire he built in South America through his company América Móvil, whose U.S. subsidiary, TracFone, recently paid $40 million settlement to the Federal Trade Commission after being accused of deceiving customers,” according to the piece.

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As we said, no editorial today, due to the holidays and yes, we are chomping at the bit with all of the reports surrounding the Peter Thiel/Gawker/Hulk Hogan debacle. In the meantime, just some food for thought:

Steve Blank on the Tech Bubble: 'VCs Won't Admit They're in a Ponzi Scheme' Steve Blank, creator of the "lean startup" movement, explains how the role of venture capital has shifted over time, and why it doesn't bode well for startup founders. In case you haven’t been following it, the stock market has gone up 53X since 2009.

And while everyone has been preoccupied with/distracted by Thiel/Gawker, this is what Facebook has been doing to undermine everyone’s freedom and privacy: Read More...

We’ve been watching the shenanigans that have been going on in Silicon Valley for quite some time now, and it gave us pause to wonder what it is that, no matter from whence founders might have originally hailed, they move to Silicon Valley, make their incredible fortune or two or more, then fall into some sort of moral torpor/instantly bifurcated mindset that we like to call hypocrisy, which somehow seems to go unchecked or unnoticed, for the most part. A few examples:

PAYPAL, APPLE lecture North Carolina — but do business in countries far more hostile to gays. “PayPal drew a line in the sand when North Carolina enacted a law prohibiting people from using the restrooms of the opposite sex, but critics say that line got washed away on the shores of Malaysia, a nation that consistently ranks among the least LGBT-friendly in the world…The company canceled its plan to build a global operations center in Charlotte after the passage of HB2, which CEO Daniel Schulman called discrimination against the transgendered. He noted that the move would cost North Carolina 400 well-paying jobs… Malaysia’s Penal Code 187 — which punishes homosexual conduct with whippings and up to 20 years in prison — did not stop PayPal from opening in 2011 a global operations center there…PayPal does business in 25 countries where homosexual behavior is illegal, including 5 countries where the penalty is death.” Not that anti-gay policies stopped “Apple from opening stores in Saudi Arabia, where gay people are regularly executed in public and cross-dressing is also a criminal offense.”

In fact, Tim Cook just made history by being the first openly gay CEO to be hosted by Prime Minister Modi in openly homophobic India. Homosexuality in that country is an offence punishable by up to life imprisonment. Apple hopes to bring its manufacturing to India, despite the fact that “the ruling Bharatiya Janata Party (BJP) has been vociferous in its disapproval of homosexuality. “We support Section 377 (the law) because we believe that homosexuality is (an) unnatural act that cannot be supported,” India’s current home minister and former president of the BJP, Rajnath Singh, said in 2013... Last year, according to a report by the Indian Institute of Management, Ahmedabad, and Biz Divas, a diversity and inclusion consulting firm, as many as 98% of companies surveyed said that they have not taken any concrete steps to make their workplace lesbian, gay, bisexual and transgender (LGBT)-friendly—or hire people from the community.” Read More...

When he left office, President Dwight D. Eisenhower warned the American public to beware the military industrial complex. That was then and this is now. Times may change, but people – not so much. Especially industrial superpowers, be it the Industrial Age or the Tech Age. No, people don’t change, only situations do, and were he alive today and giving that speech, Eisenhower might well have warned the American public, if not the world at large, to beware the tech uberpowers.

For the record, the term “Military-Internet Complex” is already out there.

Johnny Cash did a song a while back called A Boy Named Sue and we couldn’t resist. Our bugaboo of the week is the incessant number of calls we’ve been receiving of late, where a cheerful voice on the other side of the phone starts with, ‘Hi, I’m Sue!”

‘End.’

No you’re not. You’re a bot and if some telemarketer or politico feels that we’re valuable enough to be worth a phone call, then please do us the courtesy of having a human call us, rather than some bot or other. Read More...

Question of the Day: Do You Earn Less Than a Silicon Valley Intern? Chances are, the answer is ‘Yes.’ One of the big tech news stories of last week was the amount of money that tech companies tend to pay their summer interns. Here’s the Forbes list of The Best-Paying Tech Companies for Interns. According to the article, “Facebook interns earn an average monthly base pay of $6,056, according to Glassdoor. Interns at Google rake in $5,678 per month, on average—while those at Amazon and Apple make $5,366 and $4,914 per month, respectively.” Not including perks and benefits, and keeping in mind that internships generally last just a few short months. Annualized (around $80K), not bad base salaries, generally, for untrained and relatively unskilled college students.

We anxiously await the follow-on article about how much these companies are paying newly-minted entry level grads, and if they’re offering them housing and travel as well.

Bill Gurley wrote an excellent post last week on Why the Unicorn Financing Market Just Became Dangerous…For All Involved. It’s a must read, as the investing landscape has changed dramatically, courtesy of the outrageous number of unicorns, many of whom are still functioning under old paradigms: traction over profits; marketing/perception uber alles; too big to fail. Gurley warns about a new twist in the landscape: sharks with dirty term sheets, whom he defines as “sophisticated and opportunistic investors that instinctively understand the aforementioned biases of the participants and know exactly how to craft investments that can exploit the situation. They lie in wait of these exact situations, and salivate at the opportunity to exercise their advantage.” It’s terra incognita and definitely not for the faint of heart – or the young and inexperienced (ahem). “Dirty term sheets are a massive problem for two reasons. One is that they “unpack” or “explode” at some point in the future. You can no longer simply look at the cap table and estimate your return. Once you have accepted a dirty offering, the payout at each potential future valuation requires a complex analysis, where the return for the Shark is calculated first, and then the remains are shared by everyone else. The second reason they are a massive problem is that their complexity will render future financings all but impossible,” Gurley explained.

One of the problems that led to the first tech bubble was inexperienced investors throwing too much money at startups that didn’t make business sense or were just stupid. Some people did get rich and the idea of sudden and easy money was intoxicating. These unicorn valuations have led to a different problem, as Gurley points out. The inexperienced investors are back, but now experienced investors (not to be confused with the sharks) – who invested heavily in unicorns and are tapped out – are approaching novices. “Perhaps the biggest mistake untapped investors will make is assuming that because there are branded investors already in the company, that the new investment opportunity must be of high quality. They use the reputation of the other investors as a proxy for due diligence... You are not being invited to a special dance, you are being approached because you are the lender of last resort…

It wasn’t the best week for startups. In case you missed it, Beacon, the all-you-can-fly travel startup that raised $8.5M, and which promised to transform aviation, was permanently grounded last week, as was Shuddle, the Uber for getting kids around, who had raised over $12M in hopes of, we guess, disrupting soccer moms.

Then there’s Theranos, which, we believe, is the only female-founded unicorn, and which promised better, faster lab tests, supposedly using revolutionary, proprietary blood-testing technology that the company said required only a few drops of blood, instead of the usual vial. And speaking of drops, while the company was valued at $9B at one point, Theranos may well reach zero in not too long a time. The company’s troubles started a few months back, with a Wall Street Journal expose (Hot Startup Theranos Has Struggled With Its Blood-Test Technology, which claimed that the company exaggerated the precision of some of its diagnostic tests, and used machines from other companies rather than its own technology for many of the tests. Now regulators may bar CEO Elizabeth Holmes and the company's president, Sunny Balwani, from the blood-testing business for two years, for having failed to fix the problems.

Cockroaches, Unicorns, Startups. Enough Already!, said Om Malik. “I get really annoyed by these dumb labels that are put on startups…These made up words represent a limited grasp on vocabulary of those who are seeking cheap attention. As an investor, what I don’t look for is startups that come with dumb labels, popularized by reporters who don’t know what the hell they are talking about and are looking for cheap slogans to put on their click bait bullshit headlines.”

Truth be told, that whole startup lexicon is rife with misleading terms – beginning with the term ‘startup’ itself.

There’s no simple math for startups, and if it were up to us, ‘startups’ would be used much less, and banned in the tech sector completely. Read More...