Zero-sum markets and CPG

I stumbled across this term in a post by David Pakman about Dollar Shave Club from 2014: for DTC, he says, "invest only in zero-sum markets."

Zero sum is a situation in which a participant's gain or loss is exactly balanced by the losses or gains of the other participants. In this context, "a customer buying your product means they stop buying your competitor’s products."

It's an interesting thing to think about, because "zero-sum" isn't quite repeat rate/purchase frequency, strength of brand affinity, or whether the vertical lends itself to subscription. It's a measure of whether you fill that need for the consumer for a certain amount of time. The closest I've gotten is the old "vitamin versus aspirin" analogy, but even that doesn't nail it.

It's a potentially very useful criterion (if true) because it lets you eliminate a lot of possible investment opportunities: everything that is fashion, for instance. Then again, as my colleague Deepka notes, non-zero-sum doesn't stop Glossier from being successful with lipsticks, eyeshadow, etc. Or Allbirds, for that matter.


But we will certainly pay more attention to businesses that "remove" the consumer from competition because, c.f. Thiel, that's one way of building a (temporary) monopoly.

P.S. Glossier is cool to the point of where I want them to have a men's sweatshirt.

The Facebook vampire squid and why non-normies don't have a right to be surprised

From 2010 to 2011 I co-founded and ran a data marketing company called Qwerly, which appended metadata to email addresses and social media usernames. You'd ping our REST API with an email or a username, we'd do a bit of magic and serve back some JSON that listed social media profiles, location, photos, associated URIs. It wasn't so dissimilar to what a Rapportive or a Rapleaf did and it piggybacked off the available APIs, e.g. for finding friends by email addresses, as well as the rel="me" microformat to discover new websites and social media profiles.

The core bet that didn't really pan out was that the social web was getting more diverse and interesting and meta-profiles would have value. We figured this could be a cool consumer play, like a decentralized Friendfeed. But as we rolled this out, we saw the opposite was happening: 80% of our results were from Facebook. 

And so we opened an API to see what people wanted to do with our results. And found that people really valued social data: to populate CRM systems, email lists, to make call center agents' conversations better, to target marketing. And so we pivoted to B2B. 

Qwerly the B2B business was almost instantly profitable. Our biggest customer was Mailchimp, who used us to populate email lists with social profiles. But we also had political customers (an NDA prevents me from saying which campaigns). The volumes were impressive. For example, when we sold the company, the database had hundreds of millions of profiles. We never had to raise money. But we did get some inbound investor interest - from In-Q-Tel. Not surprising.

To their credit Facebook, while allowing us to do what we did, was keen to preserve privacy controls throughout the chain. So if a marketing manager somewhere had been blocked by his ex-wife, he shouldn't be able to see her information. 

We prided ourselves on only serving "public" data, i.e. what you'd see searching Google or if you weren't logged into any one service. So that wasn't really a problem for us (though the constant re-OAuthing sucked). But of course the way we appended data relied on using private or frequently hidden APIs. We quickly realized this privacy stuff was harder than expected.

We ended up selling/merging Qwerly into Fliptop, which was acquired by LinkedIn in 2015. A primary reason was that we were scared that Facebook would end up killing the whole social data industry.

Well, they didn't. And I think most people in tech knew that. At least anyone that was in the "app" business knew that data was being traded quite openly. One way was via "acquisitions" of Facebook apps. 

Today there are big vested interests in keeping Facebook the way it is. Businesses love the Facebook marketing machine and there seems to be very little demand elasticity to price increases in its advertising. Government, now posturing about the awfulness of it all, has always had a big interest in a more transparent populace and the means to control it. Heck, most people I know only know they kind of dislike Facebook, but they can't imagine their lives without it. 

The fact that a WhatsApp co-founder is tweeting #deletefacebook is too little too late. WhatsApp was a company that said: we're never going to serve ads, we're going to show you that we can build a large social messaging app on subscriptions, we're going to do right by users. Well, that promise was worth less than $20 billion in case of these guys, so I have little sympathy here. 

I am not sure where we should go from here. I loved the internet without Facebook. I hate the monopoly on advertising and attention and M&A for social that is the Facebook vampire squid. But we seem to have done a poor job creating alternatives to Facebook. The application layer of the decentralized web seems years away. Mobile vertical communities can work but by definition they're more niche. The implicit messaging infrastructure of iMessage is cool, but Apple isn't good at building social. From Snapchat, Musically and Path to Meerkat and Periscope, Houseparty, and many others, long-term retention and engagement isn't very good on most social properties. And the ones where it's good or has potential to be good are acquired by Facebook. 

Perhaps it's time to turn East to learn how to build new consumer platforms in the US and Europe. Anyway, here's some old slides from a presentation we did at a Techcrunch event. Knowing what you know now, it does sound more ominous than it did at the time...:

Autonomous cars should be free software

So you probably heard by now that an autonomous Uber killed a woman in Arizona. There was a human operator behind the wheel, but the car was in autonomous mode. 

Of course we don't yet know what really happened (EDIT: preliminary police statement indicates likely not fault of self-driving car | UPDATE: the video is pretty damning - suggest huge problem for Uber). 

The promise of autonomous mobility is fewer deaths. I'm very excited about self-driving cars for other reasons as well. I love the vision of living further outside of cities that are less full of cars, with fewer traffic jams and less wasted time commuting. 

But what I don't understand, on the road to self-driving (sorry), is why we're letting proprietary tech take over such an important part of our lives yet again. Or, as a comment on Hacker News put it, "Why can a private, for-profit company "test" their systems on the public roads?"

Socialize the losses, privatize the profits? That doesn't seem right. And so, as with other software that has such enormous potential, as long as it's using public infrastructure we should probably insist that it be free software (as in freedom, not beer). You should be free to inspect, to modify and to share both the training algorithms and the machine learning models that result. At least as long as you're purchasing or leasing the vehicle. The same should probably be true for government licensing bodies above all. 

Otherwise we'd have no idea what that software is meant to do. Which is crazy if you think about it. 

What to eat (while building a startup)

Stop clicking on that 'bait!

But while you're here, I very much enjoyed this Q&A-style article about current knowledge in nutrition: "The Ultimate Conversation on Healthy Eating and Nutrition."

Maybe it's confirmation bias, but I do believe the best diet while building a startup is the one that cuts out all the things that actually _have_ nutrition labels. Also cheat days. You gotta have those. 

On a more serious note, most founders I know don't self-care enough. Go work out. Eat healthy. Get more sleep. If you're feeling down, there's no shame in talking to a professional - be it a coach or a therapist. Both will make you a better founder. 

Sunstone seed investments (€100K to €500K): investing earlier and earlier

Over time my partners and I have learned that we care much more about the "Who" and the "Why" of a company, rather than the "What." That's not to say that the "What" doesn't matter. We think that our companies should win because they make products that deserve to win.

But in the context of our investment strategy, who the founders are and why they do what they do are our key criteria for making an investment. Not only are we much better at assessing people and motivation than we are at predicting what's going to sell. But we've also found that companies usually take a few iterations to really settle on product and market. And finally that when great people meet even a mediocre market, they tend to build something sustainable and special.

In the areas where I'm focused - B2C, direct-to-consumer brands, marketplaces/platforms with a consumer angle - I'm therefore going to be investing earlier-stage than ever. I'd like to be your first cheque (how American!), even if it is only €100-500K.


Over the weekend I looked at our median investment size in Sunstone Technology Ventures Fund IV and it was over €2M. I'd like to bring that back down to €1-1.5M. And the way to do that is to back 5 or more companies at inception in the next 12 months.

If you want to show us your company, the fastest and easiest way is to put your information directly into our Dealflow system via this link (Typeform). The old school way, via max@sunstone.eu, still works as well (but slower).

Consider Phlebas

I'm currently reading book #1 of Iain Bank's Culture series, Consider Phlebas. I bought the 25 anniversary box set, so will make my way through the three books. I'm much better versed in fantasy than science fiction, so if you have suggestions - please comment. 

So far, Banks' work is delightfully weird and refreshingly written for what feels like deep genre. I also love the title, which is taken from TS Eliot's Waste Land:


               IV. Death by Water

Phlebas the Phoenician, a fortnight dead,
Forgot the cry of gulls, and the deep sea swell
And the profit and loss.
                                   A current under sea
Picked his bones in whispers. As he rose and fell
He passed the stages of his age and youth
Entering the whirlpool.
                                   Gentile or Jew
O you who turn the wheel and look to windward,
Consider Phlebas, who was once handsome and tall as you.

Consider Phlebas, indeed. Amazon announced in February that it has acquired the global television rights, making this a likely original series in a year or two. 

Music Saturday: Jazz and the 90s, my first ever Spotify playlist

Pär-Jörgen of Northzone and Fredrik of Creandum had great retrospective posts (here and here) on the Spotify story this week. I never saw Spotify at the Series A (I was at Atlas at the time - here's Fred Destin's Twitter thread reminiscing) and my current partners at Sunstone also passed on that round.

After Skype, ARM and Supercell, Spotify's debut (WSJ, paywall) is testament yet again to Europe's capability of building truly global, sustainable technology businesses. I am in awe of what the team there has built over the years - it just continues to be so much better than the offerings by Apple, Google, Amazon, Rdio, Napster and whoever else tried... (Jay-Z?). 

I went back today to see what my first ever Spotify playlist was (I joined in 2009) and it's "Jazz and the 90s", a slightly histrionic, cheesy but ultimately catchy jazz cover album of various 90s hits. Yes, I'm showing my age here. Best enjoyed as background music. Here's the embed:

P.S. If there's one thing I could change about Spotify, it's their tendency to do zero-rating deals. Please, please support net neutrality and don't let yourself be instrumentalized that way. 

What the US looked like before the EPA

Jason Kottke (happy 20th!) has a post today about what America would look like without the EPA. It has links to the interesting series about the EPA on Popular Science.

I share the Ron Swanson view on government ("as little as possible"), with a few key exceptions. One of those is the natural environment. It's actually a truly "conservative" cause and it baffles me that the GOP doesn't seem on board with that.

We haven't yet found a good way to give common goods real costs. It feels like that could be a blockchain application (though before government adopts something like that... look at the mess that is carbon credits). 

Anyway, some of these pictures of the US in the 70s are incredible. I am very thankful to the environmental movement of the 80s.

The George Washington Bridge in Heavy Smog. View toward the New Jersey Side of the Hudson River, 1973 (Chester Higgins / EPA)

Detroit Lake the Dam, 09/1973 (David Falconer / EPA)

International Paper Company Mill at Jay on the Androscoggin River, 06/1973 (Charles Steinhacker / EPA)

Setting up a DTC Y Combinator in Europe - seed investment in direct-to-consumer brands (€100K-500K)

Ryan Caldbeck (Google Sippenhaft if you were going to say anything) has a very good thread on Twitter (h/t Deepka, Marius, Max, Sia) about figuring out the revolution of direct-to-consumer brands. Read the whole thread starting here:


Lower barriers to entry in supply chain (globalization) + zero barrier to entry in retail (direct ecommerce) + variable marketing costs (internet) = a Cambrian explosion of brands.

This is a big big deal, because the markets are huge (trillions) and the old brands are tired. Low R&D for years + stuck in industrialization mass media consumer advertising retail intermediated mindset = easy to disrupt.

We're currently thinking hard at Sunstone about setting up a program to make it easier for would be DTC founders to get started. A mini-YC or EF, we'd give you €100K to figure out whether what you want to do is viable and put together a team. Then another €500K cheque to test product-market fit. We could do ~10-20 of these deals a year.

UPDATE: Since this post, we have started making seed (€100K-€500K) and Series A (€1-5€M) investments in direct-to-consumer brands all across Europe. If you're running this type of company, we'd love to hear from you. 

There are two easy ways of getting in touch:

- you can put yourself directly into our dealflow CRM via this link (Typeform)

- or you can email me at max@sunstone.eu (this is a bit slower because I get a lot of email)

Google bans crypto ads (this is good)

Have you accidentally turned off your ad blocker lately? Because you could be making $5,000 a day mining sh*tcoin on your Nexus 6.

Yes, this has gone too far. We're actively scamming the normies now. I told my dad about BTC at $300. Well he didn't care then and I really, really don't want him to start caring now.

So Google decided to ban cryptocurrency ads today. Which is an example of ethical capitalism or the consequence of US tort law, take your pick. It also banned a few other financial products, like spreadbetting or CFDs. 

When I looked at the numbers of spreadbetting company IG Index a few years ago, I saw that they were churning through their entire customer base every year. People would give them money, lose that money "trading", then leave. And IG Index would then go and reacquire a new customer base with the message that this is a highly-leveraged trading account. Which it wasn't - it was a casino where the house always won in the end. That's a fine business if you're an entertainment company and your customers are adults who understand that. But IG Index wasn't saying that and hence I've never owned IG Index shares.


To some extent, crypto (or at least what the loud parts of crypto have become) is worse. Don't get me wrong: I'm a full-on crypto anarchist. I love this stuff and I'm totally on board with going stateless. But please don't market crypto to my dad, because he doesn't know what you're solving for:


I think it's true that any investment that's driven primarily by advertising is a bad idea. If you've ever ridden in a black cab in London, you've seen those asset management firms. Or the private banks on the ski slopes in Switzerland. Both are really bad places to put your money. The same is true for crypto that's advertised on Google.

I'm happy that Google is joining Facebook in getting rid of these ads. Perhaps this will put a damper on the full-on scammers for a while.