Ana Luisa - Jewelry for Womankind

Hot on the heels of a record female congress, I wanted to talk about a seed investment we quietly made earlier this year. It's the first investment I've ever led that's the result of a cold inbound email in response to a blog post. In this case a post about our digitally-native vertical brand (DNVB) thesis.

Ana Luisa makes direct-to-consumer jewelry that is purposefully inclusive, empowering, and accessible. 

From the same designers that previously designed fashion jewelry for brands like Kenzo, Tory Burch, Alexander Wang, and Ralph Lauren, Ana Luisa uses the same materials, manufacturing processes and suppliers as the large brands. The only difference is that they cut the brand and retail mark-up and, yes, "pass those savings on to you" :)  

High-quality pieces like these mini 14K solid gold hoop earrings start at just $65. 

I'm a sucker for value, but even more so for brands that are starting to have equitable, conversational relationships with their customers. And that are using their business to promote a particular view of the world. Ana Luisa encapsulates this in their tagline: jewelry for womankind.

From their commitment to responsible production, exceptional craftsmanship, commitment to quality, and transparent pricing (read more here), they're on to something big. Did you know that high-fashion jewelry is marked up 10-15x on production cost?

But even more than that I'm looking forward to the customer stories, the non-profit partnerships helping a diverse set of incredible women, and more product that explores the many facets of femininity and its modern interpretations.

From a venture perspective, backing a narrow vertical brand in a single market can be a tough proposition. What really excited us here was that customers are buying for themselves (most jewelry is gifting), they're returning in record numbers after a short period of time, and are telling their friends about the brand. Retention and referral are the key hallmarks of building a passionate community of customers that can be the basis for a very large company.

It doesn't hurt that jewelry, while intensely competitive, is massive global market. Fashion jewelry alone is $9.4 billion, while adding bridge jewelry makes it $20 billion in annual value. And it is growing at >10% per annum. 

So check Ana Luisa out - the discount code WELCOME15 gives you 15% off orders over $80 and the company ships globally. 

P.S. This is our first co-investment with Eutopia, the former consumer brand investment team of Otium. Really thrilled to be partnering with them. 

Decentralized software to power uncensorable free media

If you haven't, A Declaration of the Independence of Cyberspace by John Perry Barlow in 1996 is one of those early internet documents that you should read. 

From today's vantage point, JPB's words almost seem naive. The internet is increasingly regulated, monitored, censored, adulterated. Commentary of the effects of internet media on the "real" world is nearly always some lament about its pernicious influence.

I believe social media will eventually reveal itself as an overwhelmingly beneficial invention. But for that to happen, it must free itself from the shackles of political and commercial control. 

Attempts like Gab replace a flawed centralized network with another. Tools like Diaspora turned out to be incredibly difficult to use. The jury is out on Mastodon (I have not used it extensively yet). 

A new network should take some cues from WhatsApp. End-to-end encryption. Mobile first. Low, low bandwidth. No ads, with an option to subscribe. 

And then it should be open source, do all its computing at the edges, and devolve all power to the end user. 

There are some promising beginnings out there, things like Mind, Sola, Memo, Steemit. I'm going to spend time using all of them over the next few weeks and report back. If you have one that you like in particular, let me know.

Why are contacts still such a mess

I’m not a particularly organized person. I’m organized where it matters and the rest sort of… decays slowly. Especially physical documents are a mess. I forgot who said it, but someone called it the “first unused surface method of filing.”

The same is true for my computer file systems. Squeaky clean where it matters, total mess where it doesn’t. 

I’m in awe of those people who have everything squared away in an orderly folder structure. I’ve always relied on search. When Spotlight didn’t cut it, grep was my friend. It has saved my butt a number of times. 

One area of my life that reflects this organizational pattern is my address book. It’s perfect for the 100 or so people in my life that I actually reach out to. The rest are emails, randomly scanned business cards, stuff entered by an EA ten years ago, sync’d Facebook contacts, LinkedIn imports, what have you. Over 10,000 contacts.

Back when we were doing Qwerly (now a part of LinkedIn), we thought a lot about contacts sync as a v2. We ended up doing a B2B play that, if we were still doing it, would look a bit like FullContact in Colorado (they’re the ones that bought Mattermark). 

It’s crazy to me that 7 years later, contacts isn’t a solved consumer software problem. Everyone is running around with these partial, out-of-date, redundant databases in their pocket. And they’re the original social network.

vCard is a horrible format for a whole number of reasons. Contacts sync doesn’t work well (ever had the duplicate problems?). Facebook and others don’t really seem to sync down to device well for me (maybe it’s a permissioning issue); everyone is more interested in sucking up contacts and doing God-knows-what on the backend. 

When I think of building contacts consumer software, I think it should be fully decentralized. Everyone should have their own record and permission who gets to see what (name, email, phone number, postal address in increasing level of sensitivity). An app sounds like the right way to do that. 

Then scale it via OAuth to other apps: if you’re in contact with a person in Gmail, call them on the phone, meet them in person as tracked by calendar, prompt a data access permission flow. 

And don’t even think about replacing the address book. Just build it alongside it, without touching the old world. 

The nice thing about contacts, of course, is that you can grow virally (carefully, without spamming the world). 

For some reason every company we have ever seen try to build something like this has failed. I’m not sure why. 

If you are thinking about taking a crack at the problem, talk to the folks who did Bump, Brewster, Plaxo, who are now doing FullContact. I’m sure there’s a wealth of knowledge there.

And then if you are still crazy enough to try this, come talk to me. 

We're hiring an intern in our Paris office

A few months ago our colleague Yacine Ghalim moved to Paris to open a new Sunstone office there.

We love working remotely in venture as it's a great way to get full coverage of the European market. But the volume can be overwhelming and so Yacine is looking to add to the team in Paris by hiring an intern for 6-12 months. 

Clear track to a full-time analyst position with us, an apprenticeship model of development, and a chance to look at a high volume of French and European Series Seed and A stage companies. We're working out of Station F in the heart of the Paris ecosystem. 

You can read more here and apply via this Typeform

Reality as a series of connected graphs - Neo4j, the graph database, raises $80 million

Emil Eifrem and his team at Neo4j, the world's leading graph database company, today announced a Series E of $80 million, co-led by One Peak Partners and Morgan Stanley. You can read Emil's blog post here.  

Sunstone first invested in Emil and his company in 2009 in a $2.5 million seed round and has since supported the company in every financing, totaling $160 million in overall funds raised. 

We have believed in Emil's mission for a long time. Graphs are often a better way of modeling reality and certainly computationally cheaper when it comes to e.g. deeper level join operations. This advantage grows significantly with the complexity of queries. 

But graphs are more important than that. The relationships between people and between people and things are often a much better predictor of behavior than a lot of data points about a single object. 

This is not just true when you want to manipulate elections (ha!), but when you want to make purchasing recommendations, prevent fraud, analyze complicated networks in terrorist financing or money laundering, or simply power social networking applications.

For instance, Neo4j was instrumental in analyzing the Panama Papers, but it is also used by Walmart to drive personal recommendations or by eBay to speed ecommerce delivery routing

We're thrilled that Neo4j now has the funds to help power applications that go well beyond its original vision. Graph databases are a key component of predictive computing and we're excited for what the company will announce next.

Our migrant background

My wife's parents fled Romania under Ceaușescu in the early 1980s and came to the United States. It sounds so straightforward, but it was a journey racked with uncertainty and dangers.

The Ceaușescu regime was the most totalitarian and repressive behind the Iron Curtain. It caused massive famines, economic ruin, despair and death. My father-in-law went first, purportedly on a family visit to Houston, Texas. He left behind his wife and his two-year-old daughter. 

Once he had claimed political asylum in the US, the Romanian Embassy was notified. As a consequence, my mother-in-law was fired from her job as a teacher and repeatedly imprisoned and interrogated by the security services. For four years, they tracked her every move, ensuring she and her daughter had no income and no rights. In Texas, my father-in-law worked three jobs and tirelessly petitioned every government service and politician to reunite his family. 

Finally, in 1988 his wife and daughter were able to get on a plane to New York. My wife was six years old when she saw her father again. 

America for them was and remains the promised land. They're some of them most freedom-loving people I know. There's no room for "socialism" in this household - they suffered enough under it. They've worked hard here, building a life for themselves and their daughter. My wife went to an Ivy League college on a scholarship and then worked in NYC and London, where we met. 

My background is less dramatic, but I did spend most of my life in countries in which I was a foreigner. Always legal, mostly tolerated, but I know the desire to chase opportunity across borders. I grew up in Germany, the US, and Canada. Since then I've studied, lived, and worked in the US, the UK, France, India, Denmark, and Germany. 

Migration is a significant challenge for the world in the coming decades. We're starting to see the downsides of mass unregulated immigration in Europe. My heart is torn here, but it's a debate that's worth having between the extremes of fear and open borders. 

I'm writing this because my eldest daughter received her US citizenship today, on the basis of jus sanguinis (not the jus soli that's being debated). She's too young for the full-on ceremony, but it's an emotional day for us. America still holds the promise of freedom and exceptionalism in this family. It's still the shining city upon a hill. 

May it return to its senses and prosper. 

The Ackerman Bargaining Framework

I'm not a great negotiator when it comes to venture deals. 

The consensus seems to be that the VC has the power in negotiating venture deals, but I don't think that's true. We invest in less than 1% of the companies we see. So when I'm sitting across from founders that I want to back, I really, really want to make a deal work. 

My costs of walking away are very high. That's a terrible bargaining position to be in.

What's worse is that I'm an accommodator. I like to please people. My expectation of reciprocity is very high. I tend to give before I get, expecting the other side to improve my deal in return. And often that doesn't happen. 

So I've been reading a bit lately about how to be a better negotiator. The book I liked the most is Never Split the Difference, by Chris Voss. Chris is a former FBI agent who led international hostage negotiating. The book is simple but fun, with lots of interesting tidbits, and it has paid for itself a hundred times over by getting me an unexpected 30% off a recent shopping trip.

While you have to read the book to truly appreciate it, the part that really stuck with me is the haggling framework he calls Ackerman Bargaining. It avoids the predictable result of meeting in the middle and has some counter-intuitive bits that stuck with me. Most negotiations will include some haggling, and it's the part that most people would rather put behind them.

As Voss never tires to point out, however, "you fall to your highest level of preparation."

The framework has four steps, all fairly simple to remember:

1. Set a target price (the goal you want to get to).

2. Set your first offer at 65% of the target price.

3. Calculate three raises of decreasing increments (to 85%, 95%, and 100%). 

4. Use lots of empathy and different ways of saying no ("how do you expect me to do that?") to get the other side to counter before you increase your offer.

5. When calculating the final amount, use precise, non-round numbers. $15,630,200 pre is better than than $15 million pre. It gives the number credibility and weight.

6. On your final number/offer, throw in a non-monetary item (that the other side probably doesn't want) to show that you're at your limit.

So let's dig into this a little bit. The first offer is an extreme anchor. It rattles the other side because it's way outside the usually rational ZOPA range of what they expected. It pushes them into action.

You give the next offers sparingly, asking well targeted questions to see if you can get them to bid against themselves. I recognize that well because I do it to myself all the time. 

The next offers are staggered to signal that your opponent is squeezing you to the point of where they've gotten all they can. That makes them feel great about themselves - even after the negotiation is complete.

The non-round number is just human psychology. The more exact the number, the more we believe it has some basis in concrete reality. 

Finally it's key not to lose sight of the person on the other side of the table. You're negotiating a thing, not each other's value. 

Every bit of negotiating advice I've read makes it clear that empathy and respect is key. 

You're playing a game, but the objective is not to destroy each other. It's to come to a workable deal. 

Generative design

One of the areas in technology that I am most excited by is generative design.

We have a portfolio company in the space called Their newsletter is very much worth subscribing to. 

While's current focus is helping humans to augment creative work, at a more abstract level generative design allows you to specify the parameters of the design problem you're looking to solve. And then the computer takes those parameters and proposes one or more optimal solutions based on historical data and generated models, cost, physical constraints, etc. 

If you look around the world, the materials we use and the shapes we are familiar with are geometric, because those are easy to think about, easy to manufacture and easy to work with - for humans. But what was true in a mass-produced world doesn't hold in one where generative design and 3D-printing are pervasive. 

The resulting designs and objects are much more organic but also eerily alien. This is where evolution is taking us, and it's incredibly interesting.

The opportunity in Live streaming

We're seeing tons of activity in live online streaming in the US, but less so in Europe. That's a pity.

HQ Trivia, backed by Founders Fund, has brought an interactive gameshow format to live streaming on the phone. ShopShops, backed by USV, is bringing influencer-intermediated boutique retail to the world. NTWRK, backed by Jimmy Iovine (he of the amazing The Defiant Ones documentary), is another take on live shopping. Of course the "rethinking QVC" approach gets a ton of backing. 

All of this isn't that new. I remember looking at TinyChat around nine years ago, who were doing multi-person streaming and trying to build discussion rooms and communities. As with lots of live streaming (remember Chatroulette), these things tend to go camgirl-naughty fairly quickly. LiveJasmin is a phenomental business (if you're OK with that morally). 

And then of course there's, out of which grew Twitch. We've seen more and more people try to compete with Twitch. That's a really tough proposition. In terms of broad one-to-many streaming, the large players have sucked most of the air out of the room. Facebook, YouTube, Twitch, even Twitter, are just too good, the built-in audience is too big, the network effects too strong. 

Hence you need a deep vertical approach, preferably one with a native monetization model (see QVC above). In general I think there are two ways to go about this: one is communication; the other is entertainment.

In communication you need to go full (and free) utility. See if you can build a better FaceTime or Google Meet (or whatever it's called now). That's really tough in consumer. I know Confrere in Oslo, backed by Point Nine, are doing this using WebRTC for B2B. That sounds like the right take. 

The other approach is entertainment. And what's interesting there is that we've had over 90 years of experience in television. These one-to-many formats have had a long time to mature with TV as a platform. So the opportunity is really to take what works in television into niches that could be viable with a global audience. It's the old benefit of the internet: what's impossible given a limited domestic audience and advertising market could be a great business online.

If it's shopping, then it needs to wow by location, presenter, merchandise. ShopShops is onto something big here, but there's a lot of room for it to be much better than what they are doing today. It also felt very focused on Asia when I last looked at it.

I also think there's more room in gameshows, news, sports, reality. HQ Trivia is like the lottery version of that - high dopamine, big prizes, but ultimately a bit lackluster as a long-term format. And this stuff is _all_ about retention. 

We'd love to see more takes on what consumers will be passionate about in live streaming from the phone. 

What we look for in DTC brands

While working through the opportunity and talking to many companies over the last year, we have developed a fairly constrained framework that attempts to maximize the opportunity of a large, i.e. “category-defining” outcome.

In general, we prefer a highly differentiated product in a market with historically low product innovation. We believe pricing power is a desirable goal and prefer high margins. In this context, we believe high barriers to entry can be a significant moat (limited suppliers, complex manufacturing, regulations).

We like products that are easy to ship. We prefer zero-sum markets, where we effectively remove the consumer from the market post-purchase. Usage data should improve the product or service over time. We like consumables, especially ones that embed themselves into daily routines. We like timeless products that are not subject to rapidly changing trends.

In general, a high frequency/repeat purchase rate is good. It not only lends itself to subscription, but can support medium AOVs. Higher AOVs, while good for profitability on first transaction, frequently imply a low repeat rate. We like verticals that exhibit high brand loyalty, which also serves to drive repeat.

We prefer verticals where there are a small number of highly consolidated incumbents that dominate the market. We like when prices are too high. We prefer when the incumbents have limited direct relationships with their end customer and are overly dependent on mass broadcast advertising and offline retail relationships.

Similar considerations apply to team as in typical venture investments, but ideally a DNVB founding team covers several key skills. We believe the core ones to be ecommerce, performance marketing, branding, community/social, design/production, and logistics/supply chain. We strive to back teams that exhibit deep consumer insight and have a true “authentic connection” to their chosen vertical. We look for a higher purpose than mere financial motivation.

From a perspective of brand positioning, successful DNVBs are often “mass aspirational”, meaning they market a fundamentally mass market product as an attainable luxury good. The goal is to make the end customer feel empowered, smart (value for money), cared for, and encourage an almost tribal sense of belonging. An Instagrammable look and feel and seven-star customer service completes the package by encouraging the consumer to share experiences.