Flying to Israel

We are sitting in Terminal 5 en route from Houston to Tel Aviv. I have never been to Israel - we don't invest there - and I'm looking forward to a few days touring the country, and two days of board meetings + dinners. I'm excited to see all the folks around the companies. 

I came across the below while reading about the Holy Land.


The Pilgrim by Sophie Jewett

"Such a palmer ne'er was seene,
Lesse Love himselfe had palmer beene." 

NEVER TOO LATE


Pilgrim feet, pray whither bound? 
Pilgrim eyes, pray whither bent? 
Sandal-shod and travel-gowned, 
Lo, I seek the way they went 
Late who passed toward Holy Land. 

Pilgrim, it was long ago; 
None remains who saw that band; 
Grass and forest overgrow 
Every path their footing wore. 
Men are wise; they seek no more 
Roads that lead to Holy Land. 

Proud his look, as who should say: 
I shall find where lies the way. 

Pilgrim, thou art fair of face, 
Staff and scrip are not for thee; 
Gentle pilgrim, of thy grace, 
Leave thy quest, and bide with me. 
Love shall serve thee, joy shall bless; 
Thou wert made for tenderness: 
God's green world is fair and sweet; 
Not o'er sea and Eastern strand, 
But where friend and lover meet 
Lies the way to Holy Land. 

Low his voice, his lashes wet: 
One day if God will—not yet. 

Pilgrim, pardon me and heed. 
Men of old who took that way 
Went for fame of goodly deed, 
Or, if sooth the stories say, 
Sandalled priest, or knight in selle, 
Flying each in pain and hate, 
Harassed by stout fiends of hell, 
Sought his crime to expiate. 
Prithee, Pilgrim, go not hence; 
Clear thy brow, and white thy hand, 
What shouldst thou with penitence? 
Wherefore seek to Holy Land? 

Stern the whisper on his lip: 
Sin and shame are in my scrip. 

Pilgrim, pass, since it must be; 
Take thy staff, and have thy will; 
Prayer and love shall follow thee; 
I will watch thee o'er the hill. 
What thy fortune God doth know; 
By what paths thy feet must go. 
Far and dim the distance lies, 
Yet my spirit prophesies: 
Not in vigil lone and late, 
Bowed upon the tropic sand, 
But within the city gate, 
In the struggle of the street, 
Suddenly thine eyes shall meet 
His whose look is Holy Land. 

Smiled the pilgrim, sad and sage: 
Long must be my pilgrimage. 


Source: The Poems of Sophie Jewett (1910)

Peak venture in Europe? Private markets make for strange numbers

There's little point calling the top of a market. If you're right, you're the harbinger of very bad news. If you're wrong, you're a pessimist.

The news that European venture financing has slowed considerably in Q3 was surprising (VentureBeat based on Dow Jones report, [PDF]).

European VC financing in Q3 according to Dow Jones was $5.2 billion (€4.5 billion), down 21% year-on-year. We already knew the number of financings is falling. This trend is continuing: 9% fewer deals than in the same quarter last year. According to Dow Jones. Which kind of is the operative qualifier here.

If you look at Invest Europe numbers (the association of the venture capital and private equity industry in Europe), the Dow Jones numbers don't make that much sense.* According to them, European venture firms invested $7.4 billion (€6.4 billion) in total in 2017, a ten year high. That would assume international investors make up more than 50% of the market in Europe (I really doubt it). 

Anecdotally, the market in Europe at growth stage is red hot. Lots of new capital, deals happening very rapidly, limited diligence being done. Things have changed dramatically over the last five years.

In Series Seed and early Series A (€2-€5 million), we are seeing more hesitancy and more waiting around for syndicates to emerge. That's a pity, but it's the reality of a market that had a large influx of new funds which are still finding their feet.

Perhaps this is what a peak feels like. Overall Europe is a sleepy backwater compared to China and the US. 

But I hesitate in calling the top of this market. There's still so much potential in Europe and companies can really emerge from places not previously perceived as hubs (see UIPath, Wargaming, Outfit7). 

*If you disagree, please comment. Zero ego here - more interested in the truth and clean data.

The Inboard M1: Surviving in Copenhagen for 24 Hours

Our portfolio company Inboard makes the M1 electric skateboard, an awesome smart urban transportation tool. Here's Ammar from Yes Theory about a day spent surviving in Sunstone's hometown Copenhagen for 24 hours with nothing but an Inboard M1. It's a fun short video to watch:

Inboard has recently announced The Glider, an electric scooter. Rather than spend your cash feeding the networks of Bird, Lime, et al. who are cluttering up our cities with inferior ride experiences, the thesis is that you're way better off owning a fantastic piece of smart hardware that can get you all around town. 

While Inboard hasn't announced prices for the Glider, you can sign up free here for your spot on the waitlist + exclusive access to the pre-sale price.

Image result for inboard glider

Introducing Simby: fighting the smartphone zombie apocalypse

Humans are social animals. We have an innate need for connection. There are good evolutionary reasons for this (you stray from the pack, you die). Or if you prefer, psychological reasons (security, validation, affection). Or even spiritual reasons (shared metaphysical truths). 

Product designers have ruthlessly exploited this need to feel connected. It may have started out rather innocently when we learned how to design good websites. But for a decade or more it has been intentional. To maximize retention, engagement, ad sales, to keep you always on.

As an industry we have let the dopamine loops of smartphone apps slowly replace social proximity and living in reality. But that dopamine reward is temporary, ephemeral - it creates addicts. So your hand strays to your phone countless times a day.

The average smartphone user picks up their device 80 times a day. And scrolls 6 miles a year. Higher than Mount Everest. An infinite loop of mostly worthless content engineered to keep you addicted.

We're fiends, junkies, addicts, users. It is making us more lonely. Less connected. Less healthy. Poorer. And it is by design

The tech industry is harvesting your distraction and monetizing the personal data they generate from it. And they have zero incentives to let you out of the hamster wheel.

We invested in a company last year that's trying to change this. Trying to put you back in control of where you look first thing in the morning. What you think about when you have a minute to spare. How you interact with technology in your life. To get you back to living in reality. 

That company is called Simby and it goes against everything that the tech industry today is built on. And so they're raising an army. 

You can read more about Simby here. Or you can find out what they're up to by signing up for their launch on http://simby.com/

Please join me.


Credit: Steve Cutts

Persisting log-ins to news subscriptions across mobile social media

I subscribe to the Wall Street Journal and the New York Times. I recently dropped the Economist. 

One thing that really irks me is that when I click through on WSJ or NYT links on social media, particularly Twitter and Reddit, I regularly find myself looking at the paywall again. 

iOS12 is a big step forward: seamless 1Password integration, FaceID, and I'm in.

But I don't understand what happens here. Are the browser built in to the Twitter/Facebook/Reddit apps all stand-alone/sandboxed? No sessions/cookies shared between Safari and them? Is it because I use Chrome as my main browser on iOS and should I stop doing that?

Is there a way to share credentials in a persistent and secure manner between services? Feels like OAuth has been around for some time.

UPDATE

Comment from developer Kuba Suder, who I worked with in Poland ages ago and who now does independent development work for Mac/iOS & in Ruby:

"...there is no way to reuse your cookies saved in Safari e.g. in the Twitter app. (But it should remember your logins across separate sessions in the Twitter app.)

There are two ways to implement an in-app browser: WKWebView, basically a view that shows rendered content that you need to build UI around (e.g. in the Facebook app), which has separate cookie storage for every app; and SFSafariViewController, which pops up a standard Safari screen with all controls and even uses your configured content blockers (e.g. Tweetbot, now also official Twitter app) - which actually *did* share cookies with Safari at first, but it was changed in iOS 11...

Apple said it's because it's more convenient if you can log in to one account in Safari and to another account in some app, but it's probably all done mostly for privacy, to make it impossible or much harder to track users across apps (because you know so many companies will keep trying to do that, even though they can't use device IDs anymore and the advertising ID is unreliable - e.g. branch.io is kind of built for that specific purpose).

There are a couple of other APIs in the SDK that can let you reuse Safari logins in apps, but they're only meant for OAuth-like workflows, i.e. you authenticate the user and get some kind of token and log in the user into the app itself (not to an in-app browser)."

So if it doesn't remember my logins across separate sessions in the Twitter app, I'm probably just doing it wrong somehow. Feels like yet another thing Apple should throw into Settings (perhaps reuse subscription permissions from News?). In any case, thanks Kuba! 

Truth, Love, and Growth: the strange, strange values at the core of Sunstone Capital

Values are not what you say they are; they are what you live. - JLM*

I tried to codify our values at Sunstone a while back. And then I ground away at them. And distilled them. And discarded some. And whittled away further. And then I stopped with the metaphors because jeez.

What I came away with is: the core values of how we operate are Truth, Love, and Growth. 

Some of my colleagues, especially our awesome associate Deepka, have some resistance to the concept of "Love" in a business context. So the way I usually frame these values is honesty, kindness, and the pursuit of excellence. But to dig a bit deeper, here's what I mean:

1/ Truth

Truth comes in many guises. It is the pursuit of what's real, not what we wish reality were. It is the willingness to shed bias, ideology, entitlement, assumptions, interpretations. About ourselves, about others, and about the world. It is the willingness to question, without fear and without hope. 

Sounds like a cliché, but the "without hope" part is really important.

Truth is in the honesty of what we say. The refusal to hide behind industry phrases ("fiduciary duty", anyone?). To not obscure what it is that we want (= a big outcome). But also to not let fear or greed cloud our judgement, or muddy the conversation. To let what's real or discovering what's real together serve as a basis for the partnership we have with our founders.

Only truth can be a foundation for trust. If you lie, spin, coddle, manipulate, coerce, direct - your company (and your life) is built on sand. Transparency, integrity, clarity, accountability - these are all facets of truth. 

Truth is not for the faint of heart. It goes deep. Deeper than 99% of people are willing to go in their lives. Because the first step is to see yourself, clearly and without compromise.

In its ultimate consequence, perhaps, truth is only accessible through the heart: "...it is only with the heart that one can see rightly; what is essential is invisible for the eyes." - Antoine de Saint-Exupéry in The Little Prince 

And hence it is intricately linked with Love.

2/ Love

Let me stop you right there because I can see you getting queasy. 

We have been sold a version of Love by the liberal media**  Hollywood  the music industry  generations of sentimentalists that is conceptually so far from the Truth (see above), it takes real commitment to uncover its meaning.

Love is not infatuation. It is not co-dependency. It is not attachment. It is not desire. It is without jealousy, without envy. It is the result of truly seeing others and the world. "If the heart is unobstructed, the result is love." - Anthony de Mello SJ 

Love is more than empathy; it is compassion. It is kindness. It is magnanimity and generosity and the desire to improve the human condition. It is respect, for others and for creation (both the making of things and the making of the world). And as such it is also humility. 

Love defines relationships. Relationships without love are just transactions. And so, like truth, love is at the heart of trust. 

When you walk to the end of this journey, you get to what the Buddhists call the illusion of separation. This is a worthwhile path.

Love is not an idea; it is a Truth. And hence I briefly considered collapsing the two, but it seems to me like the Truth of the World and the Truth of Love are necessarily symbiotic; and to know one without the other is to handicap both. To see reality without love, or love without reality, makes both poorer. 

Love is the original miracle (for a given meaning of miracle - not the water/wine kind).  

When I explain the value of Love to founders, I always say things like "honesty tempered by kindness". But it is really more than that. It is that with every fiber of our being, our existence as a company is to serve them and their journey. This is full commitment. No backsies.

3/ Growth

This value was originally called progress, and then excellence. And it still is excellence, at its core. What else would you possibly want to grow towards except perfection?

But growth encapsulates more of what we're going for. No one is born excellent. There is talent, disposition, often experience. But excellence is a pursuit, a path of being that realizes there are step changes and plateaus on this journey. 

To continue to progress upon the journey implies an innate desire for Growth.

When we look around our companies, we see the ones with this desire to pursue excellence clearly and early. It is the speed with which they pick up the phone to their customers (not to us***). The tone with which they answer the call. The state of their office. The quality of their reporting. The people they hire. It is everywhere. 

As I said in my post on the psychology of venture capital, most VC partnerships are somewhat dysfunctional, mildly chaotic organizations. At Sunstone we battle with the entropy of a partnership organization doing very manual work. And we take things, and we fix them, and we leave them better than they were before. Every day. 

Our belief is that by compounding these decisions, companies evolve an execution ability that is simply better than the rest of the industry. If not perhaps in quantity, then in quality.

Growth of our portfolio companies is an organizational imperative for us. Without it, we don't have a business. But at the heart of this growth is not top line, metrics, increasing rounds of funding. It is first and foremost about the growth of the founders of our companies into world-class leaders. And that's a very personal journey.

To encourage this growth requires care (see above: Love), and encouragement, and resources. Over the last few years, we're seeing more founders take up our offer to introduce them to executive coaches, to take time to develop a personal management philosophy, but also to just get the basics of their organization right. 

I think it may have been Booking.com who had this as a corporate value: "tend the fields." Ain't that the truth. Foundations are key.

---

So there you have it: the somewhat strange, or at least unusual, values at the core of Sunstone Capital. The beauty of them is that they take zero effort: they have emerged naturally from who we are. Codifying them is only helpful as a reminder when we face difficult situations in which we might be tempted to stray from the path (fear and greed). 

And, of course, as marketing :) 

Footnotes:

*JLM is a fount of wisdom. Go read his blog "The Musings of the Big Red Car" and see what I mean. Start with CEO Shoptalk

** This was a joke. Jeez.

*** The speed with which founders answer us on email is often a negative. Why are you hanging out in front of your keyboard emailing in real-time with your investors. Go run the company! 

Fear and loathing in venture capital

A core principle of venture investing is putting the founder first. Most firms do so in marketing; more and more are living it. That’s different to when I started out in VC more than a decade ago. And it’s a great change.

So the following should not detract from how hard it is to build a company. The founders are and should be central. To them belongs the glory. They are in the game; we are on the sidelines (if we’re doing it right). 

That said, I thought it would be interesting to write about some of the psychology of venture capital from the inside.

You can find quite a bit online about the psychology of VCs from the perspective of a founder raising money. And how to take advantage of it. From the article by Roberto Bonanzinga:

“There is a sort of unwritten law that if you are a venture capitalist you cannot perpetrate any fear, any weakness or hesitation.”

Thankfully, along with talking about how hard it is to be a founder, that’s changing. Brad Feld has written about depression. Fred Wilson has written about being an anxious investor. Fred Destin’s blog is subtitled “How I learned to stop worrying and love entrepreneurs.”

Here’s what’s psychologically difficult about being a venture investor, for me. All sources are anecdotal or autobiographical:

1/ Timescale

The feedback loops in venture are very, very, very long. And that may be an understatement. 

The average good investment will take eight to ten years to mature. Some of the best ones take longer. Sunstone led the seed round in Boozt in 2007. The company went public on NASDAQ OMX in 2017 (~$500M market cap). Add to that a lock-up period and we’re a good twelve years into the relationship before we’re liquid. 

The best venture investment I ever got to work on, Zoopla, took only seven years from seed financing by Atlas Venture (Fred Destin) to $1B+ IPO. And another four years to its acquisition by Silverlake for $3 billion earlier this year. That’s lightning fast in my world. And yet it is also more than a decade to the eventual amazing outcome.

Or take the average company funding cycle: 12 to 18 months. On average it takes about a year before you know whether an investment you did will get the capital to “turn over another card.” It’s a year spent working hard, cheerleading, trying to align all the pieces. And then you can’t raise because the contrarian thesis that let you back this amazing team was… well, contrarian.

And that psychologically is the cruel thing: all of your companies that fold will do so early. Many in the first 18 months (hard). Some after raising a second round (more painful) and some only after multiple rounds, on the last mile (extremely painful). 

Those hardest ones are doing great for a very long time, and then something goes really south - the market evaporates, management falls apart, the financing environment changes. And you’re sitting there with a sky-high post-money, a huge amount of liq prefs above you, bleeding cash, losing people. And you have meaningful capital in that company that at this point you’re just trying to save. Yes, the company but also the capital.

Conversely, all of your companies that do great will take for—e—ver to get there. I know VCs that had three children before their star company sold. That got married - twice. And sure that’s OK: let your winners run. All I’m noting is that the good ones take a long time, while the bad ones fail pretty fast (relatively).

So you don’t really know how you’re doing until you’ve spend around five to ten years of your life as a venture capitalist. Imagine doing something for a decade before you know whether you’re any good at it. 

I don’t know a single VC who didn’t struggle with this in the early to middle of their career. It’s heartbreaking when great, high-potential companies fail. Remember, these are all extraordinary people, working on something amazing. And it falls apart around them and you were (more likely than not) the last bag-holder that had to say no.

This is also when you start doubting yourself - no matter how much your more experienced partners and peers tell you that this is normal and if less of your companies fail, you’re not taking enough risk. 

This where you first see that you need real grit as a VC. And (super-human) patience.

2/ Control

Newsflash: all those terms and downside protection and material decisions you got when you drafted your docs? They mean nothing. You’re never in control. The founders are in control (hopefully) and on key decisions the board, as the capital-C Company, provides input.

But it’s the founder that plots the course, the crew that sets the sails, the market that provides the wind. And for some companies, all they let you do is get you on deck once a quarter to show you how nicely they’ve curled the lines. I’m exaggerating, but in some cases not so much.

Realistically, all you can do is guide, advise, question. And in that respect, learning to let go as a VC is not so different from learning to let go of your attachments more generally.

Weirdly enough, this is especially tough for former operators as board members. They’re still used to doing doing, even if they’re great at delegating. They expect to be the boss.

No control is also an excellent test of temperament. This is where the screaming VC appears - the ones who have lost confidence and are now seeking control in counter-productive ways. It always backfires. You’re not in control and once you lose composure, you’ll lose more of what little influence you had. 

3/ Multiple customers

Most venture firms I know are somewhat dysfunctional organizations. The partnership model lends itself to mild chaos. 

We’re fortunate at Sunstone that we’ve chosen the Benchmark model of equal GPs - equal salary, equal carry, equal everything - and have evolved over time a depth of friendship and collegiality that makes things very easy. We don’t sell to each other - we try to seek truth, jointly. 

But realistically you still have at least two customers for everything that you do: the founder and your partners. This can complicate matters, especially for VCs that have a tendency to “go native” with their companies. Note when someone talks about a company and says “we” in partnership meetings. There’s a fine line between the empathy/compassion needed to be a great partner to the founder, and feeling yourself as a part of their team. 

And then, at least a few times a year, we meet with our own shareholders, in some views the third “customer.” We’re lucky in that we have a small, stable set of Limited Partners that understand venture capital. So we don’t have to sell to them either - they understand that at different times in a fund, venture can look a little ugly. 

But I know of other funds where this is different and a part of the VC anxiety is that they need to actively spin the panoptikum that is their portfolio in the middle of its lifecycle to LPs that are more used to the navy-suited cowboys of private equity.

Of course the founder is the customer. But the stakeholders of the venture capital process - sourcing, decision-making, reporting - are many and can result in elevated heart rates. 

4/ The Grind, the Coalface, the Hustle, the Inbox… the FOMO

Venture is a very, very manual business. It’s mostly communications and relationships. The greatest tragedy of venture capital of the last decade is the exponential multiplication of inboxes. I now get deals on WhatsApp, Insta, Facebook, LinkedIn, Slack, … the list goes on. 

And like the grind at the coalface, you’re never done. That inbox zero is an illusion, you know that. Like the vein, the lode, the next best amazing company may be just one hustle around the corner. All you need to do is put in 30 more minutes, get on that other call, take that extra trip… 

Because ours is a game of power laws, if you miss the Facebook/Google/Spotify/Netflix that you could have looked at, you’ve not just screwed up your quarter or your year. You’ve screwed up your entire career. And for what? So you could hang out with your kids or take that cardiologist appointment? Exactly. :) 

Operating like this is a way to drive yourself crazy from anxiety. And yet some of the best investors I’ve met carry at least some of that anxiety. They’re still hungry. They’ll still show up at Drew Houston’s apartment at 9am on a Saturday morning.

I don’t know how I feel about being that way for another twenty years. 

5/ Master of the Universe 

Great activity tends to spawn great feelings of… productivity. The story that Jerry Colonna tells of his same-day West Coast trip from NYC rings very true (he ended up fainting in front of his daughter as he returned home). 

The position one has as an investor is incredibly privileged. There’s a responsibility that comes with that. And so you want to do right by your portfolio, your partners, potential founders, and the “market.” You’re in service to everyone and everything, and above all of course (consciously or not) to yourself, and so you end up doing stupid things like same-day trips, and unnecessary conferences, and voluntary red-eyes. Because you’re young and strong and invincible.

Until, of course, you’re not. And so you have to manage this flurry of activity because it draws you in if you’re not careful. It’s like the monkey mind. Scratch that: it IS the monkey mind.

6/ Ego

People want to talk to VCs. They want to talk to VCs because they’re hoping for funding. Not because VCs are particularly more fun at parties (well, now that I’m in my 40s: “dinner parties”). 

Many VCs, especially older ones, have developed behaviors to deal with this onslaught (“instead of pitching me here, could you send me an email…”). Some just become assholes. This is the way of the world.

At any tech gathering, as a VC you’re the prettiest girl in the room. Everyone secretly hates the prettiest girl in the room. Don’t let it go to your head, either way.

7/ Money 

I’ve now invested in 3+ founding teams that have built companies that have sold for over a hundred million dollars. They’ve become very rich. And I have not. Because such are the economics of venture capital.

Of the four funds that I have been a part of since starting in venture, the first one has started paying carry. And that’s actually great - more than 50% of VCs never see a carry cheque.

I made a decision five years ago that venture was going to be my career, for as long as the industry will have me and there are great teams to back. 

But occasionally the “opportunity cost” monster rears its ugly head and I spend a night lying awake dreaming up an amazing company to found. And then I go and tell my wife to do it, which at this point is very annoying to her.


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So there you have it: my list of the the root elements of fears, anxieties, and other emotions, of working in venture. It’s the greatest job in the world. And sometimes it really, really sucks. Just like being a founder.

P.S. I could spend three days re-drafting and editing this to death. But I prefer it as stream of consciousness. Assume it’s like the old school “dictated, not read.” I hope that’s OK (there I go again with the anxiety). 

A TV Guide for the Netflix Era

There's an article in the WSJ today: The Internet Gave Us Great TV—Now Where’s Our Great TV Guide? (paywall). 

In an effort to keep you watching (and paying), original programming budgets are skyrocketing. Netflix is ramping spend again, reportedly from $8 billion to $12 to $13 billion. Amazon is following suit. Even Apple is spending a billion. 

Times are great if you're anywhere close to the TV business. And they're great for consumers, too. 

I get most of my TV recommendations from social media or Reddit. But sometimes I'm at a loss of what to watch - and it's not improved by choice. I hate when I end up watching stuff I don't like, or when I find myself rewatching things. 

Netflix' 98%+ recommendations are more like 50/50 for me. 

We've seen a bunch of TV guide apps that try to help you decide what to watch over the years. For example, Berlin-based JustWatch or SF-based Reelgood. We've struggled with whether these types of plays become great businesses, but they're certainly answering a consumer need. 

The key issue is that they don't make a great jumping off point. I tend not to remember their existence when the decision point comes. And their recommendations are too RT/IMDB-based, rather than personalized to me. 

It's a hard problem given that the data is in the silos of Netflix/Amazon and your set-top box (if you haven't cut the cord). But it's a worthwhile problem to solve. Reelgood is the one that seems to really try to close the loop. 

My first angel investment was Last.fm, which applied collaborative filtering to music listening behavior. I haven't found a similarly well-implemented service in TV streaming yet. I'm sure it's already out there. 






How well you listen is a key factor of your success as a founder

Listening is one of my favorite topics. It's something that has historically been challenging for me.

Often I know quite a lot about a topic. And I make assumptions going into a situation. And then my mind runs very quickly towards analysis. 

But here's the thing: assumptions mean you listen selectively. You hear only what confirms your biases. 

And rushing towards analysis means you've moved to processing when what you should be doing is gathering information. Your mind drowns out what is the most important part of a conversation: what the other person is saying. 

Revisit your assumptions by turning them into hypotheses. Assume you don't know what's true. You're seeking to falsify. It's a process of discovery, not confirmation.  

And then leave behind your mind by making the other person your sole focus. 

This might sound like a metaphor (you're still thinking, aren't you?). But I'm not sure it is a metaphor. I mean get in the zone, the flow, of truly, deeply, actively listening. Be nothing but a sponge to that. Including watching for all those cues that nature has prepped you for: the twitch, the squirm, the grimace, the gesture. 

When you feel like you're not understanding, try to slow down the conversation. Smile. Ask open questions. Don't let yourself be led towards reacting. The point is to take it all in, and then create the space to respond.

Walk around a day like that and see whether this makes a difference in your life. 

Or, you know, don't - humans don't seem to learn through prescription. Figure out for yourself whether what I've said is true. 

Quant VC funds are coming: here's my playbook

You can read the whole thread here. Worth it as always with Ryan's tweetstorms.

Faced with the growing volume of companies in the market and the constraints of a $130 million early-stage fund at Sunstone, we did significant work on this problem in the 2015/2016 time period. 

I had previously been part of the teams at Atlas Venture (2007-2010) and Accel Partners (2012-2013) that tried to leverage structured public data about companies. This was also the thesis of my angel investment in Mattermark. We would aggregate data from all public sources - Crunchbase, SEC, press, social media - to build Markov chains that look at likelihood and quality of both next raise and eventual outcome.

There were always several issues: on the one hand, data quality/availability is poor. The sample (N) isn't the total population - many great companies are fairly secretive. On the other, the information advantage (IA) was non-existent: what came out of these models was akin to the Correlation Ventures results. I.e., if Sequioa does a Series A in consumer, you should try and get into the Series B. If Matrix does an enterprise software deal, that's probably a good company. Well, no kidding, but good luck getting into that deal if it's doing well. 

So at Sunstone where we are focused on Seed and Series A, we tried something very different: we ignored the company data and instead focused wholly on the founder. We aggregated CV-level data of founding teams across ~5,000 companies and ran a vanilla LSTM neural network on it to make predictions about whether a company would get financed and what the quality of its investor base would turn out to be.

The early results were promising: while data quality was still a problem, we didn't mind as much. As a small fund, it's OK to run the model and end up with a small set of companies that you can then manually screen. False positives were less of a problem than in other use cases. Remember, at that point we hadn't even looked at what the company does. Out of 1,000 screened companies, the model would recommend we invest in ten companies. All of which looked promising. 

Getting this right would solve the dealflow issue for a small fund entirely. We were super excited. If this worked, we could focus all our attention on being amazing for these ten companies - both before and after investment. 

Not only could we be very aggressive in reaching out to them - we knew we were likely to want to make the investment. So we could buy them flights to come see us. Have them picked up at the airport by a driver. Spend two days with them, really getting to know them. Give them the Zappos treatment. Freeing up all the time spent sourcing and evaluating investments also meant we would be free to spend most of our time helping our existing companies. This was a game-changer.  Dealflow would be handled by a machine!

We took our prototype and pitch to Y Combinator. Partially because it was fun to go through the process, partially because this felt like it might be a separate Sunstone fund. We got through to in-person interviews and had a great chat with Sam Altman & company. In the end, YC felt like it would be competitive but offered to introduce us to their LPs.

Alas, as we tried to scale the approach we found that data quality became a harder and harder constraint. Of all founding teams in the market, too few declare themselves as founder of a company before their seed round on LinkedIn. Many companies that met our criteria  had already raised. In the midst of the frustration, our very talented developer Michael Hirn left for the beckoning world of crypto. 

Two years on, I'm starting to feel the itch of another attempt. Given the constraints around N, what's critical is generating own data. I still believe in the IA hypothesis that the founding team is the best predictor of a good venture outcome - at least at Series Seed and A. 

To that end, I'd like to develop a founder self-assessment tool that takes into account founder experience, disposition, personality traits, skills, etc. Think a Hogan type assessment. That data would be correlated with self-reported prior success criteria, publicly available data about the company, and compared to a model of currently successful founders. 

We previously assembled this type of data manually for around 100 companies in Europe that were $100M+ outcomes and got to super-interesting results: e.g. you should have at least one immigrant on your team, social cohesion is key (you should have worked or founded something together), having a failed or moderately successful startup is a plus, etc. But we also felt like there were key things we were skipping, questions like: does this person have a good social support system? Are they self-aware? Are they good managers? 

A founder assessment like this would need scale - it should be taken by as many founders as possible. Possibly with some sort of "coaching" slant like "we'll let you know what to work on to become a world-class founder." As a minimum I'd like to have 25,000 responses.

Once you felt good about your data, your model and its predictions, you could turn it into a fellowship-type seed programme: "have you and your team take this assessment. It will take 30 minutes and if you get through, we'll give you $100-250K to get started." Again: game-changer.

The firm on the back of this would again have solved the dealflow issue, but it would also have a natural value-add: to take the assessment and coach founders to greatness based on their results. What should they be working on? What weaknesses should they be aware of? What strengths should they play to?

When Marc Andreessen said he thought venture was one of the few industries that couldn't be automated by AI, I thought "this sounds like what I would say if I were an accountant." It can undoubtedly be done. It will be done. The question is: will it be done by us?

If you're qualified and feel like helping me build something like this (read: data scientist, HR/psychology background), let me know. Could be a very worthwhile endeavor and Sunstone would provide an awesome platform to do this together.