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The latest news on Startups from Business Insider

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    Startup funding has definitely cooled off, but there's a lot of debate about how dire the slowdown is.

    Some startups with good numbers are still having no problem getting funded, and there's a lot of money sloshing around for early (seed-stage and Series A) investments. At the same time, later stage investors who were funding bigger companies at crazy "unicorn" valuations have slowed down a lot, and startups with poor numbers are having trouble getting follow-on rounds.

    One hard-hit area is on-demand startups, which provide real-world services at the touch of a button on your smartphone (think all those "Uber for X" startups). The on-demand sector has fallen out of favor, as investors question whether customers will pay full price for these services once the companies turn off the subsidies they've used to gain customers.  

    As this chart from CB Insights shows, funding for these kinds of businesses rose through 2014 and 2015, driven by huge deals in companies like Airbnb and Lyft, then fell off sharply in the fourth quarter of 2015.

    050416 cotd revised


    SEE ALSO: Here were the winners and losers in this quarter's tech earnings

    Join the conversation about this story »

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    Chinese China weightlifter fail

    You may not know it from the headlines, but most startups fail.

    Some go out in dramatic implosions that leave people without jobs overnight. Some just face a slow decline until they stop.

    The reasons startups fail are as varied as what they're working on, but thanks to a new genre of "startup post-mortems" we can take a look at some of the reasons companies say they met the end.

    SEE ALSO: 9 crazy things tech companies have bought for their execs

    Why do startups fail? A CB Insights study points to a lack of market need, running out of cash, and a bad management team as the main causes. But every story is different ...

    Read the full report here.

    Rdio, streaming music: "Rdio, I guess, made the mistake of trying to be sustainable too early. That classic startup mistake of worrying about being profitable and having a business that makes any sense before you’ve reached this astronomical growth curve. Which is partly the trap of the business model itself — because of the content licensing deals, the margins for the business were so incredibly thin. No matter what we did, the labels made the lion’s share of the revenue. You have to make it up with extreme volume, which is why you see Spotify going after every human being in the world"— Head of Design Wilson Miner



    Sidecar, ride-sharing: "We were unable to compete against Uber, a company that raised more capital than any other in history and is infamous for its anti-competitive behavior. The legacy of Sidecar is that we out-innovated Uber but still failed to win the market. We failed – for the most part – because Uber is willing to win at any cost and they have practically limitless capital to do it."— Sunil Paul, cofounder and CEO


    See the rest of the story at Business Insider

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    Deliveroo Root Men riders

    Drivers that deliver food for Deliveroo are concerned that their new contracts will result in them being paid less than £7.20 an hour, which is lower than the minimum wage for people over the age of 25.

    The BBC reports that Deliveroo drivers used to be paid £7 per hour with £1 commission for each delivery. Under the new contract, they will receive £4.25 per delivery but no hourly wage.

    An anonymous Deliveroo driver told the BBC: "We were told that we would earn more money. It's not true, we're making less. We're really struggling."

    Another anonymous driver said they average 10 jobs over a 10 hour day, which equates to £42.50 for 10 hours under the new contract. "It's £4.25 an hour and that's just crazy," they said.

    Deliveroo reportedly claims the rates are a trial, adding that drivers make two drops an hour on average, earning £8.50 an hour. Some "efficient drivers" can earn more than £12 an hour, according to Deliveroo.

    Deliveroo has raised $200 million (£158 million) from investors since it was founded by Will Shu and Greg Orlowski in 2012.

    Join the conversation about this story »

    NOW WATCH: Physicists came up with a simple way you can outperform supercomputers at quantum physics

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    AptDeco Reham Fagiri 3251

    Reham Fagiri knows from experience how annoying it can be to sell your used furniture when you're moving. That's why she, along with co-founder Kalam Dennis, started AptDeco, a New York City-based startup that takes the pain out of selling pre-owned furniture by handling all of the logistics for you. 

    The company launched in 2013 after graduating from the prestigious Silicon Valley tech accelerator Y Combinator.

    By that time, Fagiri already had years of business experience under her belt. After graduating with an engineering degree from the University of Maryland, she landed a job at Goldman Sachs, where she spent five years working her way up the ranks. 

    But then Fagiri found herself searching for the next big thing. "Being a manager is one of the hardest things you can do, but I had an itch for more," she told Business Insider. "But I didn't know what." She packed her things and went to Wharton Business School at the University of Pennsylvania. Soon after, AptDeco was born. 

    We visited with Fagiri in her recently redecorated home in Harlem, which was completely decked out with items she purchased off of the site she helped build. Let's take a look inside.

    SEE ALSO: Go inside the Brooklyn home of entrepreneur Miki Agrawal, the ex-investment banker with a novel idea for women's underwear

    When describing her personal style, Fagiri says, "I'm a mix of eclectic plus modern — I like bold colors and clean lines."

    Fagiri moved to the US from Khartoum, Sudan, when she was just 16. "Leaving anywhere at 16 is intense, but thankfully I had my brother [in the US] and my best friend moved with me, so it was great," she said.

    "My travels inspire me, coming from Sudan, and I've been a lot of different places," she said. "I love culture and bringing colors and traditions from different cultures: Kenya, South Africa, and more." This chess board, for example, was purchased during a recent trip to Kenya.

    See the rest of the story at Business Insider

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    garrett camp

    BlackJet, an on-demand private-jet service that promised to do for air travel what Uber did for cars, is ceasing operations.

    The writing has been on the wall for BlackJet for a while, despite the star-studded investor ensemble that first backed it. 

    Launched in 2012, BlackJet promised to be the "Uber for Jets" startup that was missing in the on-demand ecosystem, and it had the investor backing to support it.

    Early Uber investor Shervin Pishevar served as chairman, and Uber cofounder Garrett Camp developed the idea alongside him. The duo attracted high-profile backers, which ranged from Ashton Kutcher and Jay Z's Roc Nation to Marc Benioff and Tim Ferriss, according to Crunchbase.

    An annual membership plan meant jet-setters would pay to get access to their network of private jets to book a flight. Along the way though, BlackJet repeatedly hit turbulence between massive layoffs and a service suspension in 2013.

    The company abruptly shut down again on Thursday, according to Fortune's Dan Primack

    In a letter published to BlackJet's members, its CEO blamed inaccurate press coverage and a lack of capital as the reasons for its demise. Just two weeks earlier TechCrunch had reported that the startup had shut down alongside the death of Beacon, another private-plane startup. The story was later updated with a correction. 

    "In the last few days, there was some inaccurate bad press that stunted membership sales, a critical team member stepped down unexpectedly, near-term and longer term financing opportunities were delayed, and it became impossible to continue,"BlackJet CEO Dean Rotchin wrote

    BlackJet was not immediately available for comment. 

    Correction: Jay Z was not a personal investor in BlackJet. Roc Nation, an entertainment company Jay Z founded, was an investor in the company. 

    SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

    Join the conversation about this story »

    NOW WATCH: This startup is trying to take down the diamond industry with Leonardo DiCaprio

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    matt Haughey

    What Google gives it can take away. Startup founder Matt Haughey learned the strength of the search engine's power the hard way.

    He created the community blog MetaFilter in the late 1990s, grew it into a flourishing business, and then lost almost everything because of an accidental Google penalty in 2012. The episode ultimately taught him about the importance of diversifying your revenue as a startup and saving more money than you need to, he reflected in a recent interview with

    Here's what happened:

    The story really starts in 2011, when about 95% of MetaFilter's revenue was coming from Google's AdSense product, which companies can use to place ads on their websites. Because the question-and-answer section of MetaFilter's site was getting tons of traffic, it could display a lot of ads and make lots of money.

    But suddenly, in 2012, Ask MetaFilter's traffic plunged. The site lost half of its ad revenue overnight.

    Google had made an update to its search rankings that affected MetaFilter's spot. The updates are meant to down-rank sites that it doesn't think are as valuable to people using its search engine, like those with "thin" content or unnatural linking.

    But Haughey didn't know what the issue with MetaFilter was that caused it to be punished. Search Engine Land's Danny Sullivan wrote a comprehensive overview of its situation.

    So, Haughey contacted Matt Cutts, head of Google's web-spam team, who told him that MetaFilter was flagged in the update but that Google would reindex the site in a month or two, which would solve the problem.

    But things didn't go back to normal.

    "I kept waiting. For a year and a half, I waited," Haughey told "It got to the point where we couldn't pay our bills. That's when I reached out again to Matt Cutts, 'Things never got better.' He was like, 'What, really? I'm sorry.' He looked into it and was like, 'Oh yeah, it never reversed. It should have. You were accidentally put in the bad pile.'"

    Looking back, Haughey says that he regrets having so much of MetaFilter's revenue come from a single source and putting so much of its money into payroll and perks instead of stockpiling it. Although he knew that the site's ad revenue might trail off someday, he didn't expect it to drop off a cliff all at once. He ended up having to lay off part of site's staff.

    His advice to other startups?

    Diversify your income and save more money.

    Read the rest of the interview here >>

    SEE ALSO: Inside the fancy YouTube event with screaming teens and big-name performers that's designed to steal TV ad dollars

    Join the conversation about this story »

    NOW WATCH: Google just opened an internet store in Cuba

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    bubble bursting

    When many people hear that the tech bubble is going to burst, they harken back to 2000 or 2008 when the floor fell out of the tech industry.

    "Other than the fact that they are cycles of eight, the three sort of periods are very, very different," warns Hemant Taneja, managing director of General Catalyst Partners.

    The first collapse came at the end of the dot-com bubble in 2000 after companies had gone public, only to disintegrate and run out of money completely.

    The subsequent bubble burst came in 2008 when there was a financial crisis that rocked the country across all industries.

    Now in 2016, venture capitalists are worried that a slowdown is happening again. Faced with some rockiness in the public markets, the tech community has shifted from greed to fear — yet the capital is still there to be invested.

    "In 2008, what really happened was the financial crisis. There was good reason why there was a liquidity crisis and capital started to get sparse," Taneja said. "When I think about 2016, I can't think of any event that are really that impactful to the venture world."

    That's good news for some companies

    So why all the fear?

    In 2016, there are more than 160 "unicorn" companies that are now worth more than $1 billion.

    "The venture community has realized that a number of companies were funded at valuations that were far ahead of their fundamental progress as businesses, and that some of those companies are not actually that great fundamental businesses," said Sequoia Capital partner Alfred Lin.

    Not all of the unicorns are unworthy of their rich valuations, of course. But there is a growing acknowledgement that the buzz to reach the billion-dollar valuation got out of control.

    "What really happened was we were fixated on this word unicorn," Taneja said.

    unicorn 2x1

    Sequoia's Lin started feeling the tremors of the shift after July 4, but it didn't really enter the public's conscience until after Square's IPO in November. The payments company, valued at $6 billion, went public below its last private-valuation price. And not only was it priced below, but it had a "dirty term" of a ratchet, designed to protect its late-stage investors.

    The IPO intensified two fears already creeping into the venture-capital community: that these startups might be valued too high, and some companies might have taken dirty terms to get the big-number valuation.

    Now in 2016, there's been a slowdown, and the VCs we spoke to describe the path ahead only as bumpy.

    "I wouldn't say the easy money's gone, but the price of oxygen has increased," said Keith Rabois, a partner at Khosla Ventures.

    It's all about the business

    Unlike 2008, where the capital crunch affected all parties, there's still money for startups in the market.

    But venture-capital investors now need to decide between keeping certain companies on life support or investing in the next big thing. And investors are suddenly much less tolerant toward startup business plans.

    A year ago, venture firms didn't scrutinize companies very closely when it came to the business economics, says Shasta Ventures' Nikhil Basu Trivedi.

    "Maybe [VCs] felt like the consumer pain point was so huge, and the potential for it to grow explosively high, so we might have overlooked unit economics," he said. "Where today, we are focused on the unit economics/gross margin question."

    As the pendulum swings from growth at all costs to building a sustainable business, some companies will get caught and die, says General Catalyst's Taneja. If they can't show that their business can make money and are burning through too much cash, then they won't survive the industry shift.

    You haven't seen an avalanche of failures, but I think the percentage will be increasing.

    "You haven't seen an avalanche of failures, but I think the percentage will be increasing," Rabois said. "If you say there are 100, 150 companies, private, high valuation, a lot of capital, at least half I would say will end in unhappy outcomes. The other half may be spectacular successes."

    For Sequoia's startups, Lin is advising founders who have the cash not to raise more money. Those who need money should start sooner rather than later and understand that there's an added focus on having a sustainable business model.

    Whereas Uber raised a lot of money fast and at an increasing valuation, Lin is backing off that model.

    "That's not the game we're advising companies to do. We've been advising companies not to do that since last June," Lin said.

    SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

    Join the conversation about this story »

    NOW WATCH: A former SpaceX exec has reinvented the high heel with the help of an astronaut and a rocket scientist

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    hurricane red warning flag

    When Dropbox employees walked into their new office on Brannan Street last month, they were dazzled by something they hadn’t seen before — a gleaming, 5-foot-tall panda statue made of chrome.

    The statue was made in recognition of the company's panda mascot. It was seen as a stamp of approval, signaling to the world that Dropbox belongs in Silicon Valley's elite club, where extravagant office decor has become the norm.

    But next to the statue, which one source said was rumored to cost $100,000, was a little memo that offered an interesting footnote about the sculpture:

    “Pandas have meant many things to Dropboxers over the years, and the idea here was to commemorate the original…it wasn’t the right call,” the note said. “When it comes to building a healthy and sustainable business, every dollar counts. And while it's okay for us to have nice things, it's important to remember to ask ourselves, 'would I spend my own money this way?'"

    The message was clear: Dropbox was ready to join the multitude of startups that have started to cut back in an effort to inch closer to profitability.

    The change at Dropbox, last valued at $10 billion, shows even the most richly valued and highly funded startups are no longer immune to the changing tides of Silicon Valley. A weaker VC funding environment and freezing tech-IPO market have forced startups of all sizes to take cost-cutting measures and focus more on profits — signifying a shift in the free-spending, growth-at-all-cost culture that had seeped through Silicon Valley over the past few years.

    "We're keeping the panda as a company-wide reminder of the importance of both our past and future in thoughtful spending — but it's just one example. If you spot other ways we can help Dropbox save, please share them,” the note said, providing a special email address for cost-saving tips.

    Here's a photo of the panda statue:

    Yes, that is a giant Panda. #dropbox

    A photo posted by Malcolm (@ayeitsmalcolm) on Apr 12, 2016 at 4:22pm PDT on

    Culture of frugality

    Dropbox has made other changes to its famously lavish employee perks lately, reflecting its more cutthroat attitude toward cash management.

    In a company-wide email in March, Dropbox said it was cancelling its free shuttle in San Francisco and its gym washing service, while pushing back dinner time by an hour to 7 p.m. and limiting the number of guests to five a month. (Previously it was unlimited, a big perk given its open bar on Fridays.)

    Those changes will have a direct impact on Dropbox's profitability. The company wrote in the email that employee perks in total have been costing Dropbox at least $25,000 a year for each employee. Based on Dropbox's roughly 1,500 headcount, that would translate to about $38 million a year. At that scale, any kind of cost savings would help improve its bottom line. Dropbox declined to comment.

    Dropbox isn't the only high-profile startup to unleash a company-wide cost-cutting campaign lately. A number of unicorn startups, worth over $1 billion, including Evernote, Jawbone, and Tango, have all gone through some form of cost cuts, whether layoffs, office closures, or reduced employee perks.

    In a more extreme case, Prosper, last valued at $1.9 billion, disclosed that its CEO would forgo his entire annual salary this year, in addition to reducing its workforce.

    Anaplan, a cloud-software maker that raised over $230 million, replaced its CEO in part due to financial issues.

    Even a smaller player like ToutApp, backed by Andreessen Horowitz, recently announced that it would not do any paid-event sponsorships this year in an effort to embrace "operational ruthlessness" and get closer to profitability.

    A lot of this has to do with the slowing venture-funding environment in Silicon Valley. Investors have become much more conservative with their money lately, and are losing patience for startups that have failed to generate returns after years of free spending.

    According to research firm CB Insights, "down rounds," in which companies raise at lower valuations than previous rounds, have outpaced the number of VC-backed unicorn startups since the last quarter of 2015. A survey by First Round Capital last year showed over 95% of the founders across all stages saying the funding environment would either remain the same or get harder in 2016.

    In addition, a number of VC power players, such as Benchmark Capital's Bill Gurley and Union Square Ventures' Fred Wilson, have become more vocal about an impending downturn lately, telling startups to get into "belt-tightening" mode soon.

    "Because of the recent changes in the financing environment, I would guess that most startups are carefully rethinking their spending and becoming more conservative with cash management," Matrix Partners' David Skok told Business Insider. "Over the long haul, that’s likely to be a very good thing, and is when the great entrepreneurs will shine."

    1 2016q1 unicorns vs downrounds

    Big startups face the same problem

    Employees at Kabam, the online-gaming startup worth $1 billion, recently felt like there was a decrease in the number of office snack stands. Although the company denies it, some believe the snack stands are now placed more sporadically in order to reduce the employees' frequency of snack consumption by making it a little harder to get to them. That came alongside news of the startup cutting nearly 8% of its workforce to narrow its focus and cut additional costs.

    Dropbox CEO Drew HoustonFor Dropbox, the cost cuts may have less to do with the state of the VC market than with its own ambitions. Dropbox CEO Drew Houston has repeatedly said in the past that he doesn't need to raise capital in the private market anymore.

    Instead, Dropbox may want to show investors that its business is strong enough to IPO.

    The public market has been brutal to tech companies in recent months, with only one tech company floating this year, an absurdly low rate for the industry.

    As more investors turn their focus to profitability, startups that burned through cash at a high rate are struggling to go public at their previously set private-market valuation.

    "The public market has shifted their mentality considerably around companies being cash-flow breakeven," says Menlo Ventures' Matt Murphy. "When you get to a certain stage, you’re optimizing for things that public markets care about, which is earnings per share and how quickly you’ll get to cash flow positive."

    The bigger problem for all startups, however, may be in retaining employees. As startups cut back on perks and delay their IPO, employees could grow frustrated and decide to join larger, more established companies that offer better benefits and stock liquidity. And if that starts to happen in droves, startups will have no one but themselves to blame.

    "This is not just about Dropbox. It’s a reflection of what’s been going on in the Valley," one of our sources said. "We were overfunded. Everyone was treating us like we’re recession proof."

    SEE ALSO: The inside story of how Amazon created Echo, the next billion-dollar business no one saw coming

    Join the conversation about this story »

    NOW WATCH: 7 inventors who were killed by their own inventions

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    Beatriz Acevedo USE

    If you think every startup founder has to be a college dropout like Mark Zuckerberg, you'd be wrong. 

    A new generation of startup entrepreneurs are working hard to solve problems — while working just as hard at being a parent. 

    Business Insider talked to venture capitalists and startup CEOs to find the moms who have risked it all to build a business. 

    Many are solving the pain points in their own lives, like the craziness of carpool schedules. Others are tackling subjects like genomics or cloud infrastructure. 

    If anything is clear, being a mom doesn't mean you can't build a startup. Rather, these startup founders are an inspiration to future generations of women who can really have it all. 

    SEE ALSO: IN THEIR OWN WORDS: 13 startups explain why they failed

    Anne Wojcicki, CEO and cofounder of genomics company 23andMe

    Anne Wojcicki is Silicon Valley's example of never giving up. Even after the FDA served her company with a cease-and-desist in 2013, Wojcicki didn't get sidetracked from her vision of making personal genomic testing affordable. Instead, she buckled down for two years and in October 2015 the company came out with a new line of genetic testing. Wojcicki's startup is now worth more than $1.1 billion.

    Diane Greene, cofounder of VMware and Bebop, now with Google

    Diane Green was pregnant with her second child when she, her husband, and three other founded VMware. "My original plan was I was going to get the company going and bring in a CEO," she once told Stanford students. That never happened. Greene scaled VMware (her third startup) until 2008. Google then acquired her latest startup Bebop for $380 million in November 2015. Greene now serves as the senior vice president in charge of its cloud business.

    Beatriz Acevedo, founder and president of the Mitú network

    Beatriz Acevedo wants to change how Latinos are portrayed in the media so it's not only about the soap opera stereotype. So, in 2012, the media executive took the responsibility into her own hands. Alongside raising her twins, Acevedo and her husband launched Mitú, a content network that speaks to a rising generation of Latino millennials. The startup is creating everything from sketch comedy shows to DIY beauty tutorials, which are viewed more than 700 million times a month.

    See the rest of the story at Business Insider

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    Keith Rabois

    Keith Rabois has lived through several boom-bust cycles in Silicon Valley. He began his career as an executive at PayPal, which went public in February 2002 as the dot-com bubble was deflating, and was bought by eBay six months later.

    After leaving PayPal, he took executive roles at LinkedIn and Square, and also became an investor in many Silicon Valley winners like YouTube (prior to its acquisition by Google), Yammer (which sold to Microsoft), Yelp, AirBnb, and Palantir.

    We interviewed Rabois for our feature on what happens now that Silicon Valley has moved out of its latest easy-money boom cycle. Here's a shortened version of our conversation:

    Matt Rosoff: What has changed in the last six months? Is the easy money gone?

    Keith Rabois: I wouldn't say the easy money's gone, but the price of oxygen has increased.

    You may have seen my tweet over the summer, about the steroid era of startups being over ... In the steroid era of baseball, a lot of people were hitting 30 home runs and the perception was that wasn't that difficult, well the reality is almost no one ever hits 30 home runs without using special supplements and the same thing is true—- building a startup to a successful outcome in a major impact on the world is a very very rare thing, and the skills to do that are incredibly rare. And as you deprive companies or take away the steroids, it turns out that very few people can build transformative and disruptive companies that are worth billions of dollars.

    Rosoff: Are investors looking for different things now?

    Rabois: I think there's a tale of two cities. Most excellent investors are applying roughly the same criteria they've always applied. They have a certain formula that they think predicts success, and they're looking for those ingredients. I do think though that there's a set of investors who are either historically not great investors or are new, and maybe sort of confused by various variables, because there are different ways to assess businesses, especially in the startup days because a company is by definition embryonic.

    I think it's much more art than science.

    As the new sources of capital or less experienced sources of capital or just inferior investors are stressed and pressured when the markets change, that alternative universe sort of dissipates. So they [startups] feel like everybody's applying different criteria.

    Rosoff: What will companies do to bring their burn under control?

    Rabois: One of the bigger costs with most of these businesses is people. Compensation of employees. That's a very hard lever to change. At some point perhaps salaries and non-cash compensation go down, but right now that's almost difficult to fathom.

    The second big cost is often real estate, office space for all these people. That's subject to a little more short-term market winds, and there's some corrections going on right now in commercial real estate in the Bay Area. But it would have to go down by another 30, 40, 50% to have a meaningful effect on many companies' burns.

    LinkedIn building exterior

    The next often lever is customer acquisition and marketing. That one is something many companies can control, but if they have an addiction to growth and they don't have a very rapid payback cycle on their customer acquisition expenditures, then they have a really difficult choice of failing to grow, which makes the business pretty precarious in terms of value, or they need a lot of capital....

    One of the key criteria that I always use and we always use is as a fund is payback time. How long does it take to pay back your customer acquisition costs? We're pretty stringent. We really believe that a good business should pay back at 6 months or less. Whereas many people have funded companies that it takes years to pay back. We just don't believe in that. When capital's more expensive nobody's willing to give you the money to invest two years ahead of payback.

    Rosoff: So if companies can't get easy capital, they can't control their burn without stopping growing, do they go bust?

    Rabois: Some of them have acquisition value, probably not anywhere near their last round price....What companies would be acquired at is probably a fraction of their last round price and that's going to have major implications to the different shareholders.

    You're kind of doing a deal with the devil. You want to make sure you understand what hell's like before you make that deal.

    You haven't seen an avalanche of failures, but I think the percentage will be increasing. If you say there are 100, 150 companies, private, high valuation, a lot of capital, at least half I would say will end in unhappy outcomes. The other half may be spectacular successes....One truly spectacular success does trump a lot of failures. I don't know that it's bad for venture investors, as long as you have a few of those big successes in your portfolio. That said, most investors don't, and can't.

    Rosoff: How common are late-stage investors coming in with what Gurley called "dirty" term sheets? Is it a problem?

    Rabois: I don't think the terms themselves are problematic as much as many founders not understanding all the implications of those terms.

    They basically preclude you from raising private financing in the future. I think that's true, and it's a danger. However, there are some founders who are incredibly sophisticated about this stuff. The right founder with the right asymmetric information about the future prospects of his or her business, it's a gamble that you're going to outperform the valuation. As a general matter, most founders haven't been informed about all the implications.

    You're kind of doing a deal with the devil. You want to make sure you understand what hell's like before you make that deal.

    Rosoff: What about going public? What does it take to go public today?

    Rabois: If Uber wanted to go public, they could go public. I don't know what price they would trade at. There's clearly a demand for their stock. Airbnb, there's infinite demand for Airbnb stock. It's a question of what's the quality bar, how much revenue, what kind of profit margins, how much visibility into future growth must you have?

    Rosoff: So why hold out?

    Rabois: Because not everybody likes the valuation. I don't think Uber could go public at their last round price, but they certainly could go public at around $25 billion, which by any standard in life is awesome.

    If you didn't artificially raise money in the last two years, subject to the valuation, steroids, cheap cost of capital, oxygen kind of points, then you probably could go public with a pretty rational market cap. But if you raised a lot of money in the last 2 years to 3 years, say 2013 to 2015, you'd have this inflated expectation of what the company's worth.

    Rosoff: Will big companies come to the rescue with acquisitions? 

    Rabois: They might acquire these companies at 20 to 70 percent of their prior round prices. A lot of these companies don't have strategic value so there's not that many large acquirers.

    Microsoft acquires where it's strategic. Google has retrenched a LOT on acquisitions in the new Alphabet structure, Facebook where something is particularly strategic on Mark's agenda and fits into Mark's vision. Apple's always been a fairly reluctant acquirer.Yammer CEO David Sacks

    Rosoff: So what happens next? What do the next couple years look like?

    Rabois: It resets the landscape back to normal. There's a natural Silicon Valley ebb and flow, some small percentage of startups succeed, they're transformative, they do change the world. A lot of startups fail. That's part of the business, it's very difficult.

    Maybe due to either cheap costs of capital or movies and Hollywood glorification of startups, people perhaps thought somehow it's easy, or more common to succeed. It's not. You're just as likely to be a major league baseball player and bat .300. It's a very rare thing.

    SEE ALSO: The steroid era of startups is over — here's what 8 top VCs think will happen next

    Join the conversation about this story »

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    mark cubanYou are what you read, and if your goal is to build a massively successful company where you call the shots, you might want to start with the following books.

    We spoke with wildly successful entrepreneurs and VCs like Mark Cuban and Peter Thiel and pored over years of interviews with star founders to find the books that every aspiring entrepreneur should read.

    Here are their top recommendations.

    Bianca Male, Aimee Groth, Richard Feloni, Natalie Walters, and Alison Griswold contributed reporting to this article.

    SEE ALSO: 33 business books every professional should read before turning 30

    "The Fountainhead" by Ayn Rand

    Self-made billionaire Mark Cuban tells Business Insider that this book is required reading for every entrepreneur.

    It's also a favorite of Charlie O'Donnell, a partner at Brooklyn Bridge Ventures. He says:

    I don't know any book that sums up the entrepreneurial passion and spirit better than "The Fountainhead" by Ayn Rand: "The question isn't who is going to let me; it's who is going to stop me."

    Get it here >>

    "The Effective Executive" by Peter Drucker

    This is one of the three books that Amazon CEO Jeff Bezos had his senior managers read for a series of all-day book clubs. Drucker helped popularize now commonplace ideas about management. For example, managers and employees should work toward a common set of goals.

    "The Effective Executive" explores the time-management and decision-making habits that best equip an executive to be productive and valuable in an organization.

    Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

    Get it here >>

    "The Innovator's Dilemma" by Clayton Christensen

    Bezos also had his executives read "The Innovator's Dilemma," one of the all-time most influential business books and a top pick of several other founders and VCs, whose reviews are below.

    Steve Blank, a former serial entrepreneur who now teaches at UC Berkeley and other schools, says of the book:

    Why do large companies seem and act like dinosaurs? Christensen finally was able to diagnose why and propose solutions. Entrepreneurs should read these books as "how to books" to beat large companies in their own markets.

    Chris Dixon, an investor at Andreessen Horowitz and a former cofounder and CEO of Hunch, notes:

    "The Innovator's Dilemma" popularized the (often misused) phrase "disruptive technology," but there's a lot more than that one big idea. Great insights into the "dynamics" (changes over time) of markets.

    Get it here >>

    See the rest of the story at Business Insider

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    adore me plus size

    Lingerie startup Adore Me's subscription model is coming under fire once again.

    Adore Me was, for a time, a media darling. It was challenging Victoria's Secret's position in the lingerie industry, and won some praise for selling plus size undergarments, something that Victoria's Secret does not do.

    Now, nonprofit advertising-watchdog Truth In Advertising has filed complaints with the Federal Trade Commission, the New York Attorney General's office, and the District Attorney's office in Santa Clara, California, claiming the company utilizes misleading marketing practices to trap consumers into subscription billing cycles.

    Truth in Advertising filed the complaints on May 9. They largely have to do with Adore Me's subscription model, which it calls a VIP Membership, through which "members" pay $39.95 to receive a set of lingerie each month — but only if they log on and choose the products they want. 

    The problems Truth in Advertising highlighted include:

    • Automatically enrolling shoppers into the membership program without clear disclosure of all of the terms and conditions;
    • The fact that Adore Me keeps unused store credit, and;
    • How Adore Me makes it extremely difficult for members to get out of this subscription.

    "I think what really focused us on Adore Me was one particular provision in their terms and conditions which I found to be absolutely outrageous," Truth in Advertising's Executive Director Bonnie Patten told Business Insider, "which was that when a consumer attempts to cancel this membership, that the company takes any un-used credit from the consumer, and I thought that that was just outrageous."

    Adore Me didn't immediately respond to a request for comment on the complaints. The company has responded to media coverage of the membership model in the past, telling Business Insider in January that complaints account for only a tiny fraction of purchases on the site. 

    Adore Me's billing practices have led it to receiving an F on the Better Business Bureau (for comparison's sake, the occasionally criticized subscription-based company JustFab has a B-).

    In January, it had racked up 560 complaints on the BBB's website. There are more than 100 more now. 

    "Keep in mind that in 2015, Adore Me counted over 1 million purchases, which means that these 560 BBB complaints account for approximately 0.0005% of all transactions of the Adore Me website," company CEO, Morgan Hermand-Waiche, said to Business Insider in January. "Needless to say this is an extremely low level of dissatisfaction."

    adore me

    Adore Me has made it easier for consumers to get refunds. Members can get a refund for the most recent month with just one click, something that Hermand-Waiche highlighted to Business Insider in January. The company does disclose the rules, though the default mode for purchasing lingerie is through the membership, not the pay-as-you-go-option. Hermand-Waiche also stressed to Business Insider that consumers are reminded frequently, through both email and text message, when it's their time to "shop" for lingerie or "skip," the latter of which would not result in a credit card charge.

    But the scrutiny has continued. Bloomberg recently reported that the company had a 30 percent spike in refunds with a 15 percent dip in subscriptions.

    "The easier you make the refund process," Hermand-Waiche said to Bloomberg, "the more refunds happen."

    Which begs the question — could the refunds derail Adore Me's exponential growth? Sales surged from $1.1 million in sales in 2012 to $16.2 million in 2014.

    To Truth in Advertising, this kind of growth is a sign of trouble, not success, Patten said.

    SEE ALSO: Furious customers are calling a hot lingerie startup a scam because of its sales model

    Join the conversation about this story »

    NOW WATCH: This model was dropped from her agency for her size—now she's the face of Victoria's Secret's top competitor

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    download 1

    Several startups built around the dream of never having to visit a gas station again have popped up in a handful of cities across the country. After Bloomberg spoke with some of the fire departments in areas that these companies are operating in, the safety of this blooming industry was questioned.

    The companies Bloomberg focuses on are Booster Fuels, Filld, Purple, WeFuel, and Yoshi. Most are California-based, though some operate out of Georgia or Tennessee.

    The systems are app-based. A user requests a fuel delivery through their smartphone and designates the location where the car will be, and a car or truck carrying fuel will come by, while the car is parked, and deliver fuel. Think of it as Uber for gas. It doesn't sound like an awful idea, but many fire departments seem to think otherwise.

    “It is not permitted,” Lt. Jonathan Baxter, a spokesman for the San Francisco fire department said to Bloomberg. 

    Yoshi, which is one of the start-ups currently offering its services in San Francisco and Nashville, begs to differ. 

    "Yoshi is safer than a gas station and has a perfect safety record. Our truck and operations are 100% compliant with all laws and regulations and have been approved by both California and Tennessee Weights and Measures agencies, the Department of Transportation, the highway patrol, and multiple fire marshals and departments after thorough review and inspection," David Goboud, the company's co-founder, told Tech Insider. 

    Booster, which is a similar startup that operates throughout California and Texas, shut down its services in Santa Clara, California in February to better adhere to fire department restrictions, a company spokesperson told Tech Insider. However, the spokesperson said that it's "working with fire marshall to make sure its code compliant."

    The company spokesperson also pointed out that it uses a "substantially different model" from the companies it was paired with in the Bloomberg story.

    The spokesperson explained that instead of allowing anyone with a smartphone and its app to request fuel delivery, Booster only delivers to "Private commercial locations where the property owner carries the insurance" needed for this kind of operation. The spokesperson also said that Booster "primarily works in business parks" and that it's "not driving in underground parking garages that are too small for its trucks."

    booster fuel truck

    Booster said that unlike Filld, Purple, WeFuel, and Yoshi, it uses "airport-like tanker trucks" that have all the safety equipment that "you'd expect" from fuel-delivery service trucks and that its "team of employees are trained in hazmat and have the right tank endorsements" to be operating fuel-delivery vehicles.

    According to the Bloomberg report, the Los Angeles Fire Department also said that this kind of fuel-delivery is currently illegal, but that the department is looking into how it could potentially be legalized with some restricting factors.

    Tech Insider reached out to Purple, which is one of the start-ups offering fuel delivery in Los Angeles, but did not receive a response. However, Bruno Uzzan, the CEO of Purple told Bloomberg that “The way we currently operate is permitted by the code.”

    When Tech Insider asked Filld about its stance on the legality of the industry, a spokesperson quoted its CEO Dr. Chris Aubuchon saying "Filld operates with the utmost attention to safety at all times. We serve our customers in full compliance with all applicable laws and regulations.” 

    Tech Insider also contacted WeFuel for comment but did not immediately receive a response. 

    It's unclear whether any of the other companies will change their operations or strategies to adhere to these laws. We'll have to wait and see.

    H/T Autoblog, Bloomberg

    Join the conversation about this story »

    NOW WATCH: America’s $241 million ‘flying gas station’ just got one step closer to the skies

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    When Bonobos hit the e-commerce scene in 2007, it made quite a splash by doing two things a bit differently: pants and returns.

    The brand's pants are just as popular as ever. The startup's return policy, though: not so much.

    The policy has gone through several different iterations in its nearly 9 years of existence. It started with a policy of "lifetime" returns, which meant that customers could return any item to the e-tailer at any time.

    That was changed to a still-extremely-generous 365-day return policy in 2012. A year later, in 2013, it was changed yet again, and the 365-day policy applied only if you were exchanging an item or returning it for store credit. Cash returns were subject to a 90-day policy.

    Now, Bonobos has confirmed to Business Insider that the initial 365-day return policy is gone altogether. Exchanges or returns for store credit must be done within 90 days, and cash returns within 45. The new policy is reflected on the startup's website.

    Dominique Essig, Chief Experience Officer for Bonobos, told Business Insider:

    "We're constantly evolving as a brand and evaluating our policies to ensure they are customer friendly. Based on research and findings, we determined this would be amenable not just to our business but to our customers as well. We're proud to still offer a generous return policy to our customers, one that still is well above the industry standard."

    Bonobos' 45 day return and 90 day exchange is still more generous than e-commerce retailers like Net-A-Porter, which offers only 28 days to return an item, and Combatant Gent, which offers 30 days to return and 60 to exchange. Everlane carries a more lenient 90-day return policy, however.


    One theory for why the company was forced to change its policy is how much "strategic customers"— customers who take full advantage of generous policies — can cost a company like Bonobos.

    In a 2014 Medium post, startup founder Soren Larson wrote that, since Bonobos clothing ships without tags, it was easy to test-drive a piece of clothing, even wearing it out a number of times, before ultimately sending it back to the company and ordering something else at no additional cost.

    A sale to a strategic customer is therefore not really a sale, but more of a loan, Larson said. Bonobos made money on the bet that only a small number of its customers will be so strategic.

    Bonobos confirmed to Business Insider that no other similar changes are on the horizon. It has raised a total of $128 million in venture capital.

    SEE ALSO: Brooks Brothers introduced a more expensive version of its best-known shirt, and fans are loving it

    DON'T FORGET: Follow Business Insider's lifestyle page on Facebook!

    Join the conversation about this story »

    NOW WATCH: One of America's longtime wardrobe staples could become extinct

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    Uber CEO Travis Kalanick speaks to students during an interaction at the Indian Institute of Technology (IIT) campus in Mumbai, India, January 19, 2016.

    A San Francisco startup campus that housed companies like Uber and Spotify in their early days is expanding to London.

    RocketSpace, as the office space provider is known, announced on Tuesday that it intends to open a space in Angel, London, in early 2017. The space will be in a building that currently belongs to The Royal Bank of Scotland.

    Unlike rival WeWork, which accepts companies of all sizes, RocketSpace is specifically aimed at funded tech startups. In total, the RocketSpace London campus will be able to accommodate 1,500 members, allowing startups to grow their teams to 100 people before asking them to move out.

    Founded in 2011, the startup space provider has housed some impressive tenants in the US. Uber, for example, moved into RocketSpace's San Francisco building a month after it opened when the taxi-hailing company had just eight employees. Spotify, Blippar, and SuperCell have also done stints at RocketSpace.

    Like other coworking spaces, RocketSpace is providing office space, an internet connection, access to a cafe, collaborative workspaces, and access to an event space. Membership prices for RocketSpace in London are yet to be announced. 

    "London’s tech community continues to rapidly expand and drive innovation," said RocketSpace Founder and CEO Duncan Logan, in a statement. "Creating a physical presence here is critical to our expansion strategy and mission to build an ecosystem for innovation to thrive, across a global network of campuses. We are very excited about working with London’s tech entrepreneurs, who are creating some of the most disruptive technologies of the future."

    Join the conversation about this story »

    NOW WATCH: ASSAULT RIFLES AND BATH SALTS — John McAfee tells the inside story behind his outrageous viral video

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    saul robin klein index ventures localglobe

    Saul and Robin Klein are a father and son team who have invested in some of Europe's biggest technology startups. Between them they have backed TransferWise, Citymapper, TweetDeck, Graze, Zoopla, Songkick, Chartbeat, MOO and Farfetch. Saul Klein also cofounded LoveFilm and startup accelerator Seedcamp, and was one of Skype's original executives.

    Now the pair are joining forces for their own venture capital fund: LocalGlobe, which they say will invest in startups at the seed stage across Europe. So far the fund has announced investments in online mortgage advisor Trussle and also Estonian job search app Jobbatical.

    Business Insider met with the Kleins at LocalGlobe's office in London to talk about Europe's technology potential, whether we're in a tech bubble, overvalued startups, artificial intelligence and Brexit. You can read a lightly edited transcript of our interview below:

    We began by asking the pair about the current state of European technology:

    Robin Klein: The number of new companies being formed just keeps growing and growing and growing. We think seed capital of a kind that we provide is just fundamental to this ecosystem. It’s just so important. It’s what we’ve done for years, it’s what we think we know, what we think we’re good at. Fortunately there’s a lot more seed capital coming into the market. But it’s never going to meet the aspirations of thousands of founders who are creating great companies.

    Saul Klein: On the UK/Europe side, as my Dad said, we’ve both been involved in the industry now for [a long time.] I started doing this in October 1993, so well over 20 years since we put The Telegraph online. You add innovations, the first e-commerce transaction in the UK was 1995. I then went off to the US and spent 1995 to 2002 in the US so I saw the US bubble burst. I didn’t see the UK bubble burst. But we did invest in about eight companies at the time, including In the US when we saw the bubble burst there, our fortunate seed investment in the US was a company called Pyro Labs which was Blogger which got sold to Google before the IPO.

    The bottom line is that we’ve both lived and worked through at least three or four very significant cycles where things have been amazing then things have been terrible and ‘no tech company will ever get funded again,’ ‘no company will ever go public.’ ‘Everyone’s crazy, what are they’re thinking?’ ‘This whole internet thing is just these stupid kids.’ ‘It’s going to go away.’

    We’ve seen here in Europe and in the US these very, very significant cycles where the sentiment, whether it’s media sentiment, investor sentiment, public market sentiment, corporate sentiment, [they] have all gone through massive crashes. But throughout that, the internet has grown orders of magnitude. The number and the quality of entrepreneurs looking to start companies, that’s grown, and at the same time the cost of starting companies, the cost of distribution, has fallen significantly. We’ve seen and we’ve lived through those cycles.

    I would say that today London is where the Valley was in the late eighties. What I mean by that, [is] in the late eighties the Valley had had some pretty good successes like Intel, and Apple, and HP, but arguably its best years were ahead of it. There hadn’t been Google, there hadn’t been Facebook, there hadn’t been Twitter, there hadn’t been LinkedIn, there hadn’t been Dropbox, there hadn’t been Salesforce. And I think in London we’re at a level where we’ve had some successes, the ecosystem is really strong, apparently there are 60 accelerators in London, there’s seed funds, there’s Series A, there’s growth, there’s late stage, there’s public markets, there’s media, there are corporates who are engaged, there’s a government that’s engaged.

    So all of these ingredients are very strong, but actually, and this is one of the main reasons we’re excited to start LocalGlobe and excited to start it with a focus on London and the UK and a focus on seed, is that we think the next 15 to 20 years are going to be more exciting. And that’s also another reason why when we’re thinking about how to build the right kind of team, we’re explicitly looking to build a multi-generational firm out of the gate. My Dad being first generation, me being second generation, and we were hoping that the third generation partner would be a late twenties, early thirties person because we’re trying to build for the next 20 years, we’re not trying to build for the next few months.

    Business Insider: Where are we on the amazing/terrible tech cycle?

    RK: The first thing I would say is I think we talk about tech and I’m not sure it’s the right classification. I think what we’re seeing is businesses being built that are tech-enabled. Defining this as tech and non-tech has served us well over the years but I think it’s probably going to become outdated and I certainly wish that public markets would look at companies in a different way rather than saying ‘that’s a tech company, we need somebody else to understand that.’ We’re going to have to understand business models, we’re going to have to understand how technology changes business models in all spheres of life.

    SK: Goldman [Sachs] 18 months ago did a brilliant report titled ‘Tech is Everywhere.’ What they started to say is exactly this. It’s not [that] there’s tech and then there are other industries. There’s every industry then within every industry there are either insurgents or incumbents who get tech. So arguably in automotive, Tesla is obviously an insurgent who gets tech. And GM is maybe an incumbent who is starting to get tech. Then you look at hospitality, does Accor get tech? I don’t know, maybe they do, maybe they don’t. But they’ve just signalled that they understand that tech is important.

    RK: Well they had an understanding that it’s a different business model to provide hospitality. There’s a different service. And it is enabled by tech and wouldn’t have been possible without tech.

    SK: Is Axel Springer an insurgent? Is it an incumbent that gets tech? Yes, presumably. They acquired you guys and several others. There are plenty of people within that sector who don’t get tech.

    RK: Let me answer the question because you said ‘is tech going through the cycle?’ I think implied in the question is whether we’re living in a bubble. Are we going to see the same valuations? Are companies being funded and so on and so forth? And the answer to all that is yes. We’re in all of those things. There is an adjustment that is taking place, I don’t think there’s any question about that, but I don’t believe that the fundamentals are in any way weakened by this adjustment. If anything, I’d say the fundamentals are as strong as ever, maybe stronger and those fundamentals are more people are starting companies, the quality of people starting companies, the ambition that they have is greater than ever before, undented by the adjustment.

    SK: And the markets they’re addressing are way bigger.

    RK: Way bigger because people now understand they’re global markets and that’s another tech enablement, the ability to address global markets from an office this size.

    BI: Do you think that there are some companies that were funded in the last year that raised big funding rounds that are now starting to feel the squeeze?

    Martha Lane FoxSK: Yeah, and we’ve seen that. Having lived through three or four of these cycles, in every up cycle there are companies that are overfunded. Some of them, by focusing on fundamentals, escape that cycle and manage to do well. Actually, quite frankly, was an example of that. If they’d not gone public and raised the money they had they wouldn’t have had the capital to go through that cycle, rebalance their business and deal with the fundamentals. And there are other companies that if they don’t adjust quickly enough, will run out of capital.

    BI: Could you name any names?

    SK: It’s impossible to know unless you’re inside those businesses. But I do think that fundamentals is a key word. In 1999 there were 250 million people on the internet. Today there are 3 billion. And in the next five years, 3 billion is going to nearly 6 billion. So actually, on a fundamental level, we’re about to have the biggest growth period the internet has ever had in the next five years. So if you’re an entrepreneur and you’re an investor and you’re looking at, in the next five years, the biggest growth period ever, in something that’s already grown ridiculous amounts, what is your approach?

    Now, some companies would say, and some investors would say ‘land grab, land grab, land grab, let’s grow as fast as we can.’ That’s never been the right answer. Fundamentals, ie unit economics, understanding who uses your product, how to build a product that people engage with, how to make sure you’re not spending too much money to acquire customers that are not worth acquiring. All of those basic business truths have been through five years ago, 10 years ago, 20 years, 30 years and they’ll still be true in 30 years time.

    RK: The danger is not so much with the overfunding because I think if you’re overfunded you do have time to adjust. The danger is some of the overvaluations which make it very hard to raise further capital. So sometimes companies have to grow into valuations when things are on the up.

    SK: And they can if they have the capital to do it. As you said, there’s nothing wrong with being overfunded so long as you don’t forget about fundamentals. But if you’re overfunded and don’t follow fundamentals, that is a recipe for blowing up. And that is regardless of the cycle.

    RK: I think it’s smart business planning to raise a lot of money when markets are hot. I think that’s what smart companies do, providing they spend it wisely.

    SK: At the same time, I would say that London in particular and Europe has never had more access to capital in this sector. Never. I think I’ve also said you could take at least half the money out of the markets, particularly at the late stage, and there would still be too much money chasing too few good opportunities. I don’t think there is a lack of capital.

    I do believe very strongly, and we see it in our position because we are 100% focused on seed, when we look at the people we feed, ie the Series A funds in London, in Europe, in the US, just in London the volume of really strong Series A funds is unprecedented. And this is before you start to count some of the new funds that have come into the market like Mosaic and Felix and the British Growth Fund, and the funds from the Nordics like EQT and Creandum and Northzone looking to be active in London. German funds whether that’s Global Founders Capital and Cherry and BlueYard looking to be active in London and so I think this is why we wrote our blog post, ‘Why we’re so excited about London.’

    BI: You said 85% of the fund will go to London companies. What about the rest of the UK?

    SK: By London we mean London, Cambridge, Oxford, Edinburgh. The nice reason for being in Kings Cross is Paris is three hours away, Paris is as close as Edinburgh. Andy Weissman from Union Square made the point to me, and I think it’s right, that London has become the HQ of Europe. If you’re an Estonian company like TransferWise, you have a London base. London has really become this super-networked hub that refers to a slightly broader market.

    85% of that capital is going to what we call core deals, where people based in Edinburgh, maybe working in the Valley, but are hanging out in the office here, or someone who is based in the Valley but has a team of developers in Portugal and spends time here. As long as we can spend time and a high touch relationship with the founders, those are our core deals and that’s where 85% of the capital is going to go.

    BI: Are you looking forward to Google moving in over the road?

    RK: I think you’ve got to have patience for that. It’s going to be a while. They’ve got a great site and once they approve the designs they’ll start but I think it’s four or five years away.

    SK: Facebook is moving in, Havas is moving in.

    BI: Where are Facebook moving in?

    SK: Also somewhere in and around the Kings Cross area.

    BI: They’ve currently got an office on Warren Street which isn’t too far from here.

    SK: All of these guys are expanding like crazy here. One of the things that’s really exciting to me about this neighbourhood is the Crick Institute is about to open up, inside the British Library is the Turing Institute which is data science and academia. Central Saint Martins is here, Cambridge is 45 minutes away. And Paris as well. It just feels as successful as Shoreditch and Old Street Roundabout, we invested in, in Moo, we saw the evolution of Old Street Roundabout. Matt Biddulph from Dopplr named it Silicon Roundabout.

    Vehicles negotiate the Old Street roundabout in Shoreditch, which has been dubbed 'Silicon Roundabout' due to the number of technology companies operating from the area on March 15, 2011 in London, England. The relatively low rental rates and proximity to media and internet companies has made the area close to the roundabout a prime location for IT firms and web entrepreneurs. (Photo by )

    RK: London can and will have half a dozen or more really big clusters of early stage companies.

    BI: When will London get this $100 billion company that the US has quite a few of now.

    SK: I can tell you the exact date. It will be 2027, June 13.

    BI: Do you have any rough predictions? Will we ever have one?

    SK: For sure we will.

    RK: I think the more interesting thing is what conditions are required in order for that to happen. I don’t think anyone can predict it. One of the major things that has to happen is companies need to stay independent. For that we need a much stronger public market environment than we’ve currently got. It is growing but I feel that it definitely lags [behind] the US, and is one of the reasons why our great companies sell out to larger American companies generally.

    BI: The London Stock Exchange says startups can raise just as much money if they IPO here than they could on the NASDAQ.

    RK: We believe that. We also believe that given two and a half years, the P/E ratios even out as well between ourselves and the US. So it’s a myth to think that the US just values companies more highly. But what they do value more highly is growth. Whereas here we value cashflow more highly. It’s again a question of evolution and these cycles maybe they take 10 years. It’s taken 10 years for the ecosystem to build to where it is now from where it was.

    SK: There have been some extremely successful UK public companies. Obviously Rightmove, historically MoneySuperMarket, you were on the board there, Zoopla where you’re still on the board, Just Eat which is extremely successful, and not only is it extremely successful but when you compare it to GrubHub, and I think they actually went public more or less in the same week or month, significantly more highly valued than GrubHub as of today, as it should be because the fundamentals of the business were always better. And as the markets started to understand that you started to see the difference.

    But there are some companies where the US is a much, much more natural market to float. Mimecast being a good example where, with the best will in the world, the team and Mimecast would have loved to have floated in London and we were very involved with working with the LSE on this high growth segment and Mimecast was one of the companies that were targeted at that early stage by the LSE. And they ended up floating in the US because, quite frankly, if you’re an enterprise software company or a SaaS business, it’s way better to be floating in the US where you have an army of analysts and comps on the market that really understand you and your metric way better. That will come here.

    RK: And it’s likely that there will be [public] fashion and e-commerce companies like Zalando or ASOS or whatever because building global fashion businesses out of Europe is much more logical than in the US. Another comment in reference to Rightmove and Zoopla and so on: Those are not global companies. Those are just UK champions.

    SK: And MoneySuperMarket.

    Alex Chesterman Zoopla Property Group

    RK: Just UK businesses. These are businesses worth $5 billion, hugely profitable, cash generative and so on. And Axel Springer knows a lot about the Rightmoves and the Zooplas of this world. Those businesses are UK-only but are giant, giant businesses. I don’t think we give them enough credit when we talk about when are we going to build a giant web company.

    SK: But I think that the businesses that get, say, $100 billion or more are platform companies and we’ve not created platform companies yet. I think when you have an out of the gate opportunity to address a market of between $4 billion and $6 billion, that’s just on the consumer side, all of a sudden you can start to think of European or non-US companies creating those kind of platforms. Arguably Telegram is a next generation platform company. Certainly Skype was, but arguably we sold that one too soon.

    BI: To what extent can the government help produce conditions for growth and IPOs?

    SK: We’ve been on record several times saying that at least in the UK we’re really, really lucky that for a decade or more, and not just with the current government or with the previous coalition, but the Labour government as well laid down some really strong foundations around open data and I think we’re really, really lucky that we’ve got a Government Digital Service that is world-class, we’ve had a lot of support from the treasury to bring EIS and seed EIS funding into the early stages of the market.

    We’ve probably got one of the most permissive regulatory environments in the world around crowdfunding, we’ve got one of the world’s only entrepreneur visas, we’re the only G8 country where coding is mandated for school kids. The government has taken a proactive role in procurement which makes a huge difference to SMEs and to small businesses. There’s definitely always more that can be done but I think when you compare pretty much to any other G8 or G20 economy, we’re light-years ahead.

    It looks like Germany is starting to do a really good job, Portugal is doing an amazing job, France has also created a great environment for angels, it’s had some really good exits, so I think there’s actually quite a lot to be positive about.

    BI: What do you think of the Home Office clamping down on the Tier 2 visa?

    RK: I think this is really just closing some loopholes because that visa has been extensively used and a number of our companies have got assistance but with all of these things there’s bound to be some abuse so frankly I hadn’t heard about that but what you’ve just described, I don’t think is unreasonable. If a company wants somebody who’s highly prized, number one: A thousand pounds for the fee…

    SK: It’s not prohibitive.

    RK: It’s not prohibitive, it’s not unreasonable. And if they are highly skilled, and that’s really what we want, they absolutely should be paid more than £30,000. Because developers get paid more than that.

    BI: Some startups would say that in their early days they can’t afford to be paying that.

    Theresa MaySK: But then you give more in options or you hire people hopefully from within the EU where there is enormous amounts of talent. Or you hire people from the UK where there’s enormous amounts of talent and our universities are producing amazing amounts of talent every year in computer science, in data science, in graphic design, in industrial design.

    RK: The point Saul makes about options is the key here because what does a raw startup without much capital have? They’ve got stocks. The problem with high salaries anyway, whether they come from outside or inside, the only way to therefore attack it is be generous with options for the right people and what you’ll get in return is entrepreneurial developers.

    BI: What do you think of the latest AI craze at the moment?

    SK: The AI craze is at least 20 years old. The first company that I was involved in was a spinout from the media lab in Boston called Firefly, when I joined it was called Agents Inc. and we were developing autonomous agents and chatbots and personalisation systems that used data to understand how people behaved and to personalise the experience for them.

    Clearly this has been decades in the making. The things that have fundamentally changed in the last, let’s say, three to five years, one: Obviously a massive cloud computing environment that can compute unprecedented volumes of data. Companies that can collect and process and use unprecedented volumes of data, read Google, Apple, Microsoft, Facebook etc. And then a maturity around some of the applications for the industry. We’ve been very, very actively involved in investing in AI, machine learning, NLP startups for quite a while. At Index we worked closely with the SwiftKey team that’s absolutely brilliant.

    BI: Were there any that you think you missed along the way?

    SK: In the UK? Most UK investors missed DeepMind. And clearly they’re world leaders in the space. But I think what’s really exciting is that between Cambridge, where Apple have made an acquisition, where Amazon have made an acquisition, obviously DeepMind, and now Microsoft have acquired SwiftKey. But there are really, really amazing AI-driven businesses that are emerging and some of the companies that we will announce investments in are squarely focused in and around that.

    RK: It’s essentially a label for a technology that has been around for a very long time. I was actually thinking about this the other day because I graduated in engineering nearly 50 years ago and I specialised in a subject named cybernetics. I’ll try and remember what it was about. I’ll tell you what it was: It was AI. It just had a different name.

    SK: The Turing test is pretty old now, it’s from the fifties.

    RK: Have a look on Wikipedia. You’ll probably know more about cybernetics when you’ve read that than I remember but it was definitely AI. So I think we’ve seen that in the past. What is big data? It’s another name for a trend.

    BI: Why do you think the UK is producing so many of these brilliant AI companies?

    SK: I think it’s starting to show how strong our academia and research is in the UK.

    RK: AI has been taught at the universities now as a specialist subject for a number of years and I’m guessing those graduates are now finding applications because of the computing power and so on.

    SK: But I also think there are conditions that exist now that didn’t exist that make mainstream AI and the application of AI possible. Like cloud, like big data, analytics, connectivity as well. I think it’s another reason why we’re really excited to be in London and this connected to Cambridge and to Oxford. Not only is the UK producing some of these companies, and we were seed investors last year in Improbable, which I think is an incredibly interesting business, an incredibly interesting entrepreneur. But a lot of what, say, Improbable was trying to do was technically unfeasible three to five years ago. It’s both underhyped and overhyped at the same time. The reality is the applications are going to be way bigger and way broader than we think. But like all of this stuff, you’ve got to pick through the bullshit.

    BI: Which side of the fence do you stand on when it comes to AI being a risk or a threat? Is that over-sensationalised?

    RK: To society?

    BI: To humanity.

    SK: A good friend of mine, Jaan Tallinn, who was at Skype, who we did the seed round of Improbable with, and he seeded DeepMind, he’s created the Centre for the Study of Existential Risk at Cambridge with Martin Rees and Stephen Hawking. I don’t know if you’ve spoken to Jaan about this but he set this centre up because he’s genuinely concerned, as are some other people.

    I guess the way I would look at it is that there are lots of technologies that we have created over time, including nuclear weapons, that have existential risk. I don’t know if AI is one of them but the best thing to do is to study these things and to be actively engaged, and it’s great that people like Jaan are doing that in Europe. Obviously Reid Hoffman, Peter Thiel, and Sam Altman have put a billion dollars into OpenAI on the west coast. It’s great that people are researching this stuff.

    Oculus Rift (final consumer product)I wish, by the way, the same level of research was put into VR which clearly there are going to be mental health and other health-related issues with VR. As a parent, what is the recommended usage? How long should you let your kid be immersed in another world? Is it 15 minutes? Is it an hour? Where’s the World Health Organisation report on that? We create incredible new technologies the whole time that have positive and negative consequences and we have to study it and we have to be aware of the risks. It’s hard to know.

    RK: We probably need more scientists in government.

    BI: When you say mental health risks, do you have anything in mind?

    SK: Have you seen “Eternal Sunshine of the Spotless Mind”? If you are mentally immersed in an alternative reality, at what point do you pull the plug? And when you pull the plug, what are you coming back to? As a basic transitional element, obviously there are amazing positive benefits of VR. You can do a laundry list. Like with anything there’s going to be a flipside. The same is true with cybersecurity, the same is true with knives, with guns. This is the history of technological evolution.

    BI: On the AI issue, and talking about DeepMind. When Google acquired DeepMind, DeepMind made sure that Google set up an ethics board to look at AI and its potential. Google created that board but no-one knows who’s on it. Do you guys know who is on it?

    SK: Maybe it’s in the Panama papers.

    BI: Do you think Google should disclose who is on the board?

    SK: I don’t know. On some levels it’s great to know that the DeepMind guys said this is a fundamental enough technology, we’d like an ethics board. That makes me feel good. Who’s on it? That’s down to the journalists to figure that out for us.

    BI: Returning to government for a second. How much of a role does Tech City UK play at the moment, and how do you guys feel about that?

    RK: I’ve only recently joined the board, but I think Tech City was in some ways just a brand that was wrapped over the cluster that was there already. But as Saul pointed out, the government has been extremely supportive of it, and successive governments have been extremely supportive. Tech City is a vehicle for that. It’s a place where government can focus their attention on what is best for the industry.

    Gerard Grech, Tech City UK CEOI think they’re doing a fine job. Gerard [Grech] is an exceptional leader of Tech City and there are always going to be challenges, political and others, because they’re funded by government so people will always have questions, but they’ve got a number of great programmes. Saul’s a mentor in the Upscale programme, I think it’s been very, very well received by the companies.

    It’s very easy to be cynical and dismissive of when governments get involved in industry because one quite rightly needs to question the motivation often. The motivation here really comes from identifying the growth vectors in the economy and stepping back and looking at where the growth is going to come in our economy. It’s going to come from companies which are tech-enabled, to go back to our previous point. And how can they enable that? Not by trying to do the job of the startup or the investor or whatever, but to create an environment, and to create the various functions that are needed.

    SK: And a lot of visibility as well.

    RK: Absolutely, that’s so important.

    SK: The data they have surfaced, it’s brilliant. I don’t know if you’ve seen the Tech Nation report they put out. It avoids being London-centric. Being able to see, by city, in Bath, what are the key growth sectors? Are they creative industries? Is it cybersecurity?

    BI: Referring to Tech City as a brand, do you think that brand was damaged?

    SK: How?

    BI: Let’s say, for example, where they gave out nine visas out of 200. Do you think that there’s been recovery? How do you recover that brand, or do you feel there’s no damage to recover?

    RK: You know, frankly, I don’t think there is. I think some of the issues with Tech City are that it is very London-centric because it was originally named for London. I hear from the inside the amount of work that’s going on in the various centres around the country and it’s just not true that all the focus is in London. The clusters are being developed in all the centres. I think a lot of the criticism has been unjustified. Criticism is often politically motivated. Tech City is a brand that people have coalesced around, companies have recognised the value, and at the end of the day that’s what’s important. Entrepreneurs have recognised the value. It’s on its way to becoming an important brand.

    SK: I also think it has achieved a lot with very, very little resources. There was Eric van der Kleij, then Joanna [Shields], but Gerard has really got great resources. They’re running four, five, six different meaningful programmes, not all perfectly yet, but I think the role they play which is not quite government and not quite industry is a very hard road to travel. I’ve got nothing but enormous respect for how he’s done it . Not just him, he’s built a really great team.

    RK: I look at it more like a startup. Tech City is a startup. You’ve got to give startups license. They’re got to learn to grow into their skins and they’ve got to be allowed to make some mistakes. As long as the big vision is right and they are true to their vision and they execute with quality, which they tend to do, I think they’re going in the right direction. Personally I would rebrand it, not because it’s not a good brand, but I’d rebrand it Tech Nation rather than Tech City. Not because I think it’s negative, I just think that’s what it’s doing today. It’s not about London anymore, it’s about the whole of the UK.

    BI: It’s surprising that they haven’t done that already.

    RK: Well they did have Tech Nation as a brand. At the moment they’ve got too many brands. There could be Tech Nation London, Tech Nation Bristol…

    BI: What about the EU? The Financial Times published an article about the regulatory environment related to tech. Is that a problem that you see?

    RK: There’s a whole digital plan for Europe, and Saul alluded to it earlier, how a number of the European countries are starting to catch up. My post was really about the positive reasons why we should stay. We’re in, we’re in for the long term, and we’re in to lead. We’re not going to carry on carping from the sidelines, whinging about something that’s imperfect, because it is imperfect, but we’re going to stake our position as being long term supporters and take a leadership role in Europe. I think with the digital world we absolutely can. Because they all end up looking to us and saying ‘how did you do this? How did you build that cluster? What did you do about this? Let’s have a look at your EIS thing?’ All of those sorts of things.

    There are consumer protection issues always, and Europe is very alive to those. We’ve heard all sorts of issues in the past with privacy and so on. It’s quite right that that should be a forum for debate and for regulation. I think it would be a total disaster if we leave. I feel really strongly about it and the reason I’m so concerned is it looks like it might be close. If it wasn’t going to be close I’d be quite relaxed because I think good sense will prevail and we’ll stay in. It’s not just from an economic point of view, either.

    I just feel very strongly that one of the reasons the EU was set up was to ensure that we don’t have world wars taking place on Europe’s soil. We’ve kept the peace for all that time and we’ve got to keep that. That was not part of my blog post because I think it’s a much bigger issue. But I think the economic issues are very strong ones. Britain has got immense soft power. We’re probably the nation with the largest soft power in the world. We should use that power to the good of all.

    SK: I agree with all of that, but one of the things that has not really happened in the debate around Europe is ‘what are the positive reasons for being part of Europe and taking a leadership position?’ All of the polling data that looks at 18-30 year olds, there’s close to 75% of 18-30 year olds want to stay in. I think it’s because people under 30 who have grown up in this increasingly connected world, and not just connected through these devices, but connected through travel.

    Union Square Ventures, who we work with a lot and like very much, have this term ‘the nomad stack.’ Increasingly you’re able to travel, to work, to have affordable transportation in hundreds of cities all around the world. To me the biggest gift we can give to people is the ability to be connected, the ability to be mobile, the ability to have different types of cultural experiences, and at a time when London in particular, but the UK in general, is one of the most connected countries in the world, we should be going round to people who are forget 18 to 30, eight to 20, and say ‘the next 50 years are going to be a period of exploration that we haven’t seen since 150 years ago where we used to have a generation of great explorers like Darwin and Scott.’

    Everyone is like ‘well, the young people aren’t really going to vote.’ It’s a shame they’re not because if everyone showed up to vote it would probably be less close than it’s going to be because actually the young people, and the people who are going to have to live with the consequences of these decisions, people who are 10-30, they are connected, they want to be connected. I’m as concerned as you are and I really, really hope it goes the right way.

    BI: There are so many technology companies in London — how do you make sure you’re not investing in a Spinvox or a Powa?

    SK: One of the things you guys did repost was ‘surfers not waves.’ A very fundamental part of our investment thesis is informed by a couple of things: One is when a wave is big enough, everyone can see it. If everyone can see it they’re going to be tens or hundreds of people surfing that wave. AI, big data, cloud, cyber, e-commerce, drones, you name it. What we really believe in is picking the surfers, the people who are capable of navigating that wave and seeing it through to when either everyone else has fallen off or there are two or three people standing.

    The other thing is that we understand and we’ve learnt a lot over the years whether it’s on our own with our own investing with Index, with Seedcamp, we’ve learnt with some of our limited partners. The economics of venture are that 62% of the capital you invest, you’ll get a 1x or below ie you’ll not get a good return on that capita. You will make mistakes, companies that look brilliant for the first part of the wave, like Spinvox, will crash and burn, and there will be companies that look like crap like Tesla that everyone thinks is idiots and they’ll end up being rockstars. That’s just the way it is. If you don’t accept that as an investor you’re going to have a really bad time.

    I always say to angels: If you’re going to invest in startups you have to accept that most startups will fail, and sometimes for no good reason. That’s why it’s venture capital or risk capital. It is really risky. You have high risk and you have high reward. Why we like being at the seed stage is because if you develop the ability to work with companies at that really early stage when they are figuring out how to navigate their journey, if you can help those companies then get to the next level and work with an Index or an Accel, an Andreessen, an Atomico etc then they’ve got a chance. It doesn’t mean they’re going to succeed but they’ve got a better chance. You will always have those companies.

    Of the 150+ companies we’ve invested in, yep, there’s TransferWise, there’s Zoopla, but there are plenty of companies that crashed and burned and were written off and never went anywhere.

    RK: We’ve got a list of those, it’s just unfair to publish it. It’s unfair on them. 

    BI: How are food delivery startups doing? It looks like they’re getting a lot of customers but will they scale?

    SK: Just Eat is proven. [It’s a] Brilliant business. It started off being a brilliant business in Denmark. Ben [Holmes], my partner at Index, invested in it. It’s proven in the UK. It’s extremely successful in the UK and many other markets. I think you’re referring to some of the newer companies like Deliveroo who take a different approach. Again, Index led the Series A.

    One of the things that really impressed me about Will [Shu], the founder and the CEO, I remember the first nine to 12 months where we would get updates, he was maniacally focused on South Kensington or some postcode. He was all about optimising the fundamentals of the driver’s routes, the restaurants, ordering. His attention to detail was ridiculous. I remember as an investor I would complain to him. I’m in Golders Green and I was like Will, when am I going to be able to order from Deliveroo? And he was like, we’ll get there in the end.

    Deliveroo bike

    BI: They’ve expanded across pretty much all of London…

    SK: Not just London, the world! So there’s a business where you know that the CEO has paid attention to the fundamentals and got them right. Not in a city, but in a postcode, and then another postcode, and another postcode and then sort of understood what a city looks like and then went from there. I think that’s the sign of a great business.

    RK: What does happen when these categories grow like that is they do attract a lot of other incumbents. It often looks a lot easier from the outside than it is on the inside. So there are very, very few founders that could have done what Will is doing.

    BI: Do you think companies like Take Eat Easy will be able to replicate the success of Deliveroo?

    SK: I don’t know. Honestly I just don’t know enough about the businesses. I lived this experience when we did LoveFilm. Netflix was a public company, we could look at their company and see what they did, and you think like copy, paste. It couldn’t be further from the truth. Everything other than the fact we were sending DVDs through the post was different. It’s never as simple as it looks on the outside. It’s very challenging.

    When these waves get big, 50 to 100 companies start riding these waves but at the end of the day there are two to three left and those ones are extremely valuable.

    BI: How is Kano getting on?

    SK: The way I’ve sort of worked, and I learnt this lesson first at LoveFilm, where two to three years in we’d acquired ScreenSelect, when it was still Video Island, and hired Simon Calver to take over from me, and that was sort of the first time I’d started something and passed it on and let it go. I think about three years later I’d started SeedCamp with Reshma [Sohoni]. I was very involved for the first fund, and by the second fund Carlos [Eduardo Espinal] had joined and I was less involved, and by the third fund I was pretty much not involved.

    Saul Klein Seedcamp event

    The same is true with Kano. I started the business. It was a conversation my son and I were having at bedtime. I’d spoken to Alex [Klein] about it. I’d spoken to Yonatan [Raz-Fridman] about it. We got together in a room at Index, I introduced them to one another. They were running the company. I was very involved for the first six to nine months. Once they’d raised a seed round I was less involved. Once they’d raised a Series A I was even less involved. Today I speak to Alex once or twice a week but I would say I’m no more involved than a normal investor would be.

    BI: Do you see yourselves as one of London’s most entrepreneurial families?

    RK: For me it’s not a comparative thing. We are an entrepreneurial family. Whether we’re more, less, than anybody else, I don’t know how you measure that.

    BI: Who else is a budding entrepreneur in the family?

    RK: Saul’s son. But he’s only nine.

    SK: One of the things I definitely believe in is that the entrepreneurial mindset is very akin to the creative mindset. We focus on entrepreneurs in business but there are entrepreneurs in every walk of life. I think Rohan [Silva] for example. You knew he was an entrepreneur in government. You didn’t need to take him out of government to say he was an entrepreneur and do Second Home.

    There are headteachers, musicians, artists, journalists that are amazing entrepreneurs. Henry [Blodget] being one. Chris Anderson being another. Mike Moritz being another. So I think it’s a mindset. What I’m excited about is that mindset is one that is more mainstream now and more highly valued across society. I think encouraging the entrepreneurial mindset is more important than teaching it. There are no shortage of entrepreneurial programmes, classes, MBAs etc but that mindset is really important. I grew up knowing it was ok to start a business and not necessarily go through the milk round. Those are just permissions to be creative really.

    RK: I had a real problem describing to people what I did because entrepreneur didn’t exist or it wasn’t used. If people said to you ‘how would you describe yourself?’ then I was a business person or a business man. It’s a weird, almost embarrassing, term. I wish entrepreneurs had been valued in the same way then as they are now. I think we’ve seen a sea change in the last 10 to 15 years, undoubtedly. You speak to young people and ask what they want to be, a lot of them will use that term.

    SK: In different industries, you look at Ed Sheeran and he’s an amazing entrepreneur. He understood in his teens that if he was going to be successful in his profession, it wasn’t just about writing good songs and playing music. It’s actually understanding the entrepreneurial or business side of that profession. So, yeah, I think the more the merrier.

    BI: What are some upcoming investments that you're going to announce?

    SK: I can tell you we’ve made 18 investments since we started last year. So we’re relatively active.

    BI: What's the average investment amount for LocalGlobe?

    SK: The way we think about it is what do people need for 18 months of revenue-free runway? We think typically people are raising too little money at seed so we’re trying to do a bottom-up piece of work with the company and rather than saying ‘our average cheque size is X,’ we’re saying ‘how much money do you need to get to a good Series A where Index, Accel, Atomico etc, Balderton, Octopus, Mosaic, will say ok these guys are ready.’ That ranges from at the high end we’ll write a cheque for £1 million as part of a £1.5 million to £2 million round. At the low end, maybe £400,000. It’s really driven by what the company needs. We’re not looking to be the only investor in the round so we’re always happy to work with co-investors in London or outside of London. There are other great seed funds; there’s Passion, there’s Connect, there’s Episode 1. That’s just in London. And angels.

    RK: Lots of angels. We’ve got a big network of individuals.

    BI: Is there a formal partnership with Index Ventures?

    SK: Nothing special. I spent eight years at Index as a partner. Before that I worked with Index as an entrepreneur. Some of the folks at Index I worked with for 15 to 20 years. They’re close, close friends. We’re close to them but we work with everyone. Some of the deals we’ve already done, we’ve done a deal with Index, we’ve done 2 deals with Bessemer, a deal with Union Square Ventures, with EQT, with Felix, with Notion, with Mangrove.

    BI: Are there any investors you wouldn’t do a deal with?

    SK: For us it’s always driven by the entrepreneur and the entrepreneur has to make the decision.

    One of the things I think Index doesn’t get credit for when we talk about European startups, Index is probably one of the best European tech startups of the last 20 years. We look at it as a fund, it’s going to have it’s 20th birthday soon, and when I look at what Neil [Rimer], and Giuseppe [Zocco] and David [Rimer] started 20 years ago, that is a great European tech startup. So of course we’re going to show them stuff and work with them, they’re brilliant. But there are a lot of other brilliant people around.

    RK: Our customers are the companies we back. We’re entirely focused on what’s right for them.

    BI: What happened with Google Ventures in your view? They launched with five people. Now there’s two.

    RK: I don’t really know. I hear what you hear. It was US-led and people here couldn’t make decisions.

    SK: New funds, which they still are, not more than five years old, you change and you evolve your strategy. I think being an international fund out of the gate is really challenging. If you think about the funds that have equal partnerships, ie a single investment committee across geographies, there is Index, there is Bessimer, and I can’t think of many others. It’s really hard to do.

    You have to have an incredibly strong culture and you have to evolve that culture over many, many years. Index was in Geneva from 1995 and it took until 2002 to open a second office in London and then it took us from 2002 to 2011 to open an office in San Francisco. Managing three offices with one investment committee and one culture across two very different ecosystems, I mean the Valley, and London (and Europe), comes with challenges and it doesn’t surprise me that Google decided to evolve their strategy. Why and how, I don’t know. Many have funds in different geographies, like Sequoia and Accel and NEA, but very few have a single partnership across geographies.

    Join the conversation about this story »

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    Mark CubanThis post by John Dick, CEO of CivicScience, appeared originally on Quora as an answer to the question "What is it like to have Mark Cuban as an investor in your startup?"

    Mark got involved in our company just over three years ago, and has been a greater asset than I could have imagined.

    The PR boost we received from the initial announcement would have been worth the price of admission, but that was nothing. When I need advice or help, his responsiveness is unbelievable — and I'm not being hyperbolic.

    I literally can't figure out how he is so accessible, considering I'm one of countless people bombarding his email on a daily basis. I'm careful not to abuse it because I don't get the sense he suffers pains-in-the-a-- very lightly.

    He knows exactly what he can do for companies like ours: key introductions, killer quotes to reporters, an occasional retweet that gets our content in front of 5 million people, and solid product and business model ideas. I have to be thoughtful about when I enlist his help and when I don't.

    One thing I didn't expect was the number of people who would reach out to me, asking for an intro to Mark. It happens almost once a week. Can you send him my pitch deck? Will you ask him to speak at my event? Will you get him to try my product?

    It's pretty wild. But it also makes me sympathize with him — if I'm getting this many asks, how many do you think he gets? I've forwarded only one of those requests in three years.

    There's a lot about Mark as a shareholder/advisor that is spot-on with his public persona. He's no bulls---. He can get a strong point of view across in a 5-word email. He's very opinionated and has lots of ideas. There's no shortage of ego.

    I haven't pissed him off, as far as I know, and I'd never want to. I've never slapped him on the back, called him by a nickname, or drunk beers with him at a basketball game. Unlike some of my investors, we're not friends — not because we couldn't be, just because we don't have time. I have to stay on my toes. It's still business.

    Given all of that, he's cool as hell. He lets us write satirical press releases about him and run polls about whether he would beat Donald Trump in a campaign. He knows that what we're trying to do is really hard and doesn't lose patience.

    Our company is very lucky to have him on board.       

    SEE ALSO: An entrepreneur and investor gives his best 3 pieces of advice for people who want to start a business

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    nikhil basu trivedi

    Nihkil Basu Trivedi got his start as an entrepreneur early: in 2009, during his sophomore year at Princeton, he founded a startup called Artsy that helps art collectors find contemporary works. Artsy is still going strong today with over 100 employees.

    He joined Shasta Ventures in 2012, where he focuses on consumer tech startups, plus education, health care, and other areas of interest. 

    We talked to Basu Trivedi — that's his full last name —  for our feature on what happens now that Silicon Valley has moved out of its latest easy-money boom cycle.

    Here's a lightly edited version of our conversation:

    Business Insider: Describe what's going on right now in Silicon Valley. Is there a big change afoot?

    Basu Trivedi: The venture community has realized that a number of companies were funded at valuations that were far ahead of their fundamental progress as businesses, and that some of those companies are not actually that great fundamental businesses ... The ones that are not great might ultimately be zeros, so a bunch of people are going to lose a lot of money. The ones that actually might be great might still be able to survive as a result of that, but their last round valuation is a potential handicap to them being able to survive because they might need another round to survive.

    A number of companies will fail because they won't be able to raise a next round, they're just not great businesses, they're being outcompeted, they're losing money on every order.

    BI: What about raising a down round? Can't companies do that as a last-ditch effort to survive?

    Basu Trivedi: Sometimes the gap is so wide, and there are so many egos around the table, that just doesn't happen. Or instead of doing the brain damage associated with a down round and a total recap [recapitalization], they just sell the business.

    A lot of companies will survive because they scrapped together a round, and some of those rounds will be recaps. I've heard of companies already that have gone from valuations in the tens or hundreds of millions of dollars at the last round, to being in the single-digit millions pre.

    BI: Does it matter if you recap? What's so bad about it? Doesn't it give the company a chance to survive?

    Basu Trivedi: Often a recap is associated with a RIF [reduction in force], either pre the downround or concurrently with the downround. The business is not doing as well as it should be, it's not performed for whatever reason. There are often layoffs associated with it.

    That phrase, brain damage, gets used over and over again when it comes to recap.


    The key, though — what everybody has in their minds when they do a down round or a recap — is how do we make sure that the people around the table after that are incentivized to go for it? There's often a new option pool created as well, so that's even more dilution to existing investors, all the preferences get reset.

    That phrase, brain damage, gets used over and over again when it comes to recap. You have to rally all troops to do it again.

    It's particularly tough on employees who have left the company, exercised their options, bought shares, and those are all — if they're not worthless, then you're way underwater on that.

    BI: Almost like starting over again?

    Basu Trivedi: Yes. And that's almost how investors evaluate it. If you do a total recap at 10 million-pre [a $10 million valuation, before the added money of the new round] do we think it has 10x potential at 10-pre? Or 20x potential at 10-pre?

    Say you've already as an investor put in 5 million bucks or 10 million bucks into a company, that's all gone anyway. That's sunk costs. The mentality of doing a downround recap is it's effectively a whole new investment. That's one way we've approached these kinds of decisions at Shasta, and I know how other firms have approached it. Pretend this is a brand new company....would we do it as a whole new investment?

    But there's also shiny brand new company that just came out of YC that's raising at that exact same valuation. So the decision becomes, do you recap this thing that's got maybe a bunch of customers, technology, legacy stuff built, but you're recapping the whole thing and there's all the brain damage associated with that, or instead do you make a brand new investment in the brand new shiny thing, that's been around for only 6 months and is growing nicely, at same price?

    BI: What about companies that sell mostly to other startups and their employees? Catering companies? Fancy bars? Real estate companies?

    Basu Trivedi: If you talk to the investors who were around as the last dot-com bust of 2000 happened, there were a ton of businesses back then that were selling to startups.

    kind bars, activate, office, bi, dng

    There are good businesses that have SMBs [small-to-mid-size businesses], startups as customers, that are recurring revenue businesses that are must haves for those companies. You can't just get rid of payroll system or your HR function to cut costs. Obviously if you die, you churn.

    We very much prioritize companies if they are selling into startups whether they're core, they're must-haves, they're daily habits and behaviors, versus things that might be just nice-to-haves.

    BI: Have you been involved with or heard of companies cutting costs, cutting the nice-to-haves?

    Basu Trivedi: I don't have a good top-of-mind example for you. My intuition suggests it's definitely happening...It's got to happen. There are so many companies that are burning over 500k a month, that means they're burning a million every two months. A million dollars is a lot of money.

    BI: Where do you cut? How do founders make those decisions?

    Tons of companies have been putting together RIF plans in last 3 to 6 months.

    Basu Trivedi: The more impactful decisions if you look at burn are not food every day, they're people. So you start thinking about where do we trim? Where do we have fat in our organization, and the first to go is the trimming of the fat. Then in some cases, to make the business work, you have to go deeper into the muscle, and all the way close to the bone.

    Then it becomes prioritization, we look at engineering, and marketing, and customer success, and sales and all the different functions. Who are the strongest performers and not the strongest?

    Tons of companies have been putting together RIF plans in last 3 to 6 months. And a lot of those are first-time founders who have never done a RIF before, so there's a ton of inertia and worry if we make RIF and we're going to lose our growth engines. Because were going to cut these couple marketing people. Or we're going to cut engineering and that means our product's not going to get better at the pace it needs to get better. That's where the really tough discussions happen with the board.

    BI: When you look at potential investments, is there more scrutiny today?

    Basu Trivedi: Yes, there's more scrutiny today than there was 12 months ago around the fundamentals of the business.

    I think 12 months ago, I don't know if we invested in companies based on this, but we certainly took seriously some companies that we wouldn't take as seriously today. Because we were kind of worried about the unit economics 12 months ago, but maybe we felt like the consumer pain point was so huge, and the potential for it to grow explosively high, so we might have overlooked unit economics. Where today we are focused on the unit economics/gross margin question.

    ...Obviously, there's going to be less on-demand company investments. It's partly because of this unit economics question. It's also because people are looking at a company like Uber and Uber Eats and the things that it can do and realizing, man, when you have economies of scale, it's really hard to compete.

    BI: When will things recover? How will this play out?

    Basu Trivedi: Quoting our partner Doug Pepper — It's not like there are dark clouds. There's so much fundamental innovation that's going to happen in the next couple of years...

    Autonomous transportation, that has the potential to generate trillions of dollars of value across so many industries, also lead to a lot of lost value for incumbents that are going to be disrupted...A lot of interesting stuff around consumer finance, around health and medicine...

    What Doug said, "it's not as if there are dark clouds, it's just that the rainbows have gone away."

    Unicorn, rainbowBI: Any bright side to all this?

    Basu Trivedi: Hiring might become a little easier. If you have raised money then there's potentially less competition. It's more of a moat than it was. That's like a haves vs. have-nots situation. That's good for the haves.

    BI: Any good news for the have-nots?

    Basu Trivedi: If you look at it historically, the best time to start the next generational company has always been out of the ashes of correction.

    BI: How long will it go on?

    Basu Trivedi: I think we're going to be in this mode for next year and a half to two years. I don't see that changing because exits are not going to suddenly flood in. Everyone's being measured right now. 


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    brainlyOne of the things Michal Borkowski is most proud of is that his startup, Brainly, has created a place on the internet where being smart is cool.

    Brainly is a bit like Quora for students, a social network where children and teens come to help one another work through homework problems that are stumping them. "Peer-to-peer learning" is how the company describes it.

    Students earn points for the quality of their answers and can eventually climb into the leaderboards for subjects like math, biology, and so on.

    "On Brainly, when you show you have knowledge, you are cool,"Borkowski tells Business Insider. And the network even has its own stars, though not to the extent of places like Instagram.

    When Brainly started in Poland in 2009, the goal was simple: Bring the fun and useful elements of study groups to the internet. The startup has since grown to 60 million users, 81% of whom (48.6 million) are active on a monthly basis. Borkowski says one of the keys to the success of the platform is that its users give back to the platform and don't just take from it. About half of students who come in asking a question stick around to answer one later.

    Now Brainly is trying to supercharge its growth in the US, where Borkowski will say only that it has "millions" of users. It is raising $15 million in a Series B funding round led by Naspers that brings its total funding to $27 million. Borkowski says investors were most impressed by Brainly's traction in new markets, like the US, and the company's ability to easily scale the platform.

    Screenshot at maj 10 10 12 11

    Another goal of the fund-raising is to build advanced personalization into the network. Brainly wants to use machine-learning algorithms to predict what students are likely to struggle with based on the questions they have asked. Brainly could then preemptively connect them with students who might be able to help.

    And what subjects do students need the most help on?

    Not surprisingly, Borkowski says it's math. Brainly spans 35 countries, and Borkowski says that when the company enters a new market, it sees about 60% of the activity around math. But after about two years in a country, that drops to about 25% — still the biggest category but not overwhelmingly so.

    Students come for math help, Borkowski says, but then start to use the service for a variety of subjects.

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    Tim Draper

    If you are between 18 and 28, famous billionaire venture capitalist Tim Draper has a plan to turn you into the "next Steve Jobs."

    That's why he launched a school for young, would-be entrepreneurs called Draper University of Heroes, he tells Business Insider, which he turned into a reality TV show last year.

    The show, "Startup U," failed to attract an audience, was dropped from prime time, and there's no word yet if ABC will renew it or not.

    But even if students won't appear on TV, Draper has a new plan for the school. He just added a new nine-month program to the curriculum, starting in the fall, which he views as an alternative to a master's degree.

    This is in addition to the school's classic two months of "hero training" offered since it launched three years ago.

    There's a reason he calls it hero training. Before you can become the next Steve Jobs, you have to learn to be tough. Navy SEAL tough.

    Days of survival training

    Hero training includes "four days of survival training with military teams. We have Navy SEAL special forces and Army Rangers that take them to real survival training," Draper says.

    survival training jungleOnce students have spent those days foraging for food and shelter in the wilderness, the next step is city survival training, challenges that sound like what Donald Trump gave to contestants on his reality show, "The Apprentice."

    "There's another couple of days in the two months of hero training that's Urban Survival training," Draper says. Students have to go out and "sell something embarrassing, or go to San Francisco and come back with a job offer, on paper, in 24 hours."

    That job offer gives them the confidence that they can always quickly get a position, he says.

    As Draper says, "How to create a Steve Jobs? It's a way of thinking." The school admits people "that have that spark and we create an environment that ignites that spark."

    $12,000 to $40,000

    Once the students have learned how to survive, they are ready to learn about the tech industry — Draper U-style. The nine-month program will include learning about the newest, buzziest technologies.

    Tim Draper Startup UAlthough every class has a different curriculum, Draper says, students might explore Bitcoin — which Draper loves — learn design, and use the newest programming languages to build an app, or maybe a robot.

    They'll also draft a business plan, turn that plan into a pitch deck, and turn the pitch deck into a two-minute presentation and pitch it to "between 30 and 50 VCs," including himself, he says.

    He's dedicated a $1 million fund to invest seed money in startup ideas from the class, too, he says.

    But it's not a scholarship program. The two-month hero training costs $12,000. The full nine-month program costs $40,000, Draper tells us.

    Draper calls it an alternative to traditional school. That's important: This is not an accredited school. Students who finish the program do not earn an accredited degree.

    Just to compare, many accredited universities charge about $40,000 to earn a bona fide master's degree.

    Draper defends his school

    Draper U has been controversial in its three years. While some students have posted glowing reviews of it on Yelp, some have given it bad reviews.

    Draper says, "We definitely get mixed reviews. Our training is not for everybody."

    And The Verge's Russell Brandom once called the school a BA in BS.

    But Draper points to the alumni success stories as proof of the school's value. Draper U has had over 500 alumni from 53 countries who have created 200 startups and landed a total of $22 million in funding, he says.

    He points to businesses like biomedical startup nVision and conference-tech firm Loopd as examples of alumni startups that got funding.

    Not that Draper is worried about controversy.

    He has come up with a plan to turn California into six statesoffered to make a large charitable donation if people watched his reality TV show, and bought a huge stash of Bitcoin auctioned by the government after seizing black-market site Silk Road and is fond of making large public bets.

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