tag:blog.maxniederhofer.com,2013:/posts Max Niederhofer 2018-04-26T05:00:04Z tag:blog.maxniederhofer.com,2013:Post/1276709 2018-04-26T05:00:04Z 2018-04-26T05:00:04Z Will GDPR kill small M&A in European TMT?

It can be cheaper, on a cost per acquisition basis, to buy a company that has customers who could also be interested in buying your product. That thesis has driven a lot of small M&A, not just in Europe but around the world.

With GDPR just around the corner, I'm sure like me you've been asked to renew your opt-ins for many email newsletters. I like it for the same reason I like when my credit card expires: it feels nice to be asked once in a while. And to be able to reset all that stuff.

But if that a new opt-in needs to happen when you buy a company, and the conversion rate of consumers opting in again is low (30%? 50%?), you won't be able to move a lot of the customers over. And consequently the math stops working for a lot of the smaller M&A transactions that work on the customer acquisition logic.

I'm sure there are lawyers working on this. Maybe it's not a real, real problem. Maybe there's a way to stay compliant (we're advising all our companies to err on the side of caution). But I've now heard it mentioned several times so thought I'd flag it here. 

tag:blog.maxniederhofer.com,2013:Post/1276630 2018-04-25T03:02:38Z 2018-04-25T03:02:39Z Ivory Ella

I learned about Ivory Ella today (showing my age again), a three year-old Connecticut-based company that donates 10% of its net profits to Save The Elephants. And since I'm a sucker for elephants, especially the baby ones, and this is one of my favourite charities, I thought I'd give the company a shout-out. Which they really don't need because they're amazing at Instagram

(Photo by Kiana Eyestad). 

Here's the backstory on Ivory Ella in Forbes. Now go buy some clothes and save some elephants. And then think about what else could be a good product x charity collab and be an entrepreneur who makes this world just a little bit better. 

P.S. My EWR-CPH flight was cancelled. I'm sitting in an airport hotel in Newark. Yay. 

tag:blog.maxniederhofer.com,2013:Post/1276262 2018-04-23T23:08:56Z 2018-04-24T13:37:43Z Let's raise the bar together - Europe should be competitive in DTC brands

I'm writing this at 35,000 feet from the confines of a Wifi-enabled SAS Airbus. I just watched Blade Runner 2049 which was visually uh-mazing but sadly didn't have a Tears in the Rain type moment... C-beams glittering in the dark off the Tannhäuser gate. Totally improvised nonsense but some of the strongest scifi poetry ever. 

I know I said I bleed blue and gold, but really at my core I'm not big on patriotism. On the other hand, I also don't believe in no nations, no borders (or sumsuch nonsense) because I'm not an anarchist and I actually enjoy the freedom that comes with security. I grew up as a Third Culture Kid in Canada, Germany and the UK, so I really have no home and few roots. Except cyberspace, really, but even that place has changed beyond recognition in the last 15 years.

As I was leaving Schengen, the new automated gates scanned biometric passports and took portrait photos. That did feel pretty Blade Runner and had me wondering how long I'll feel comfortable in Europe. It does feel like we're continuing to surrender freedoms on the continent.  

We're about to start our descent into Newark and going through my notes I'm struck by how massive the DTC segment has become in the US over the last few years. That Inc article mentioned 400 active companies. I don't quite understand why it should be so much bigger in the US than in Europe... once again. This isn't really out of a sense of patriotism as much as healthy competition. 

We have such a strong history of building luxury brands. That said, my theory is that many European companies have been competed upwards - meaning they've become luxury brands not necessarily by choice but because they couldn't keep up with the commoditization of their markets. They retrenched to what they were good at (making pretty stuff in small batches). 

When I compare companies like Horizn Studios and Away, part of Europe's losing ground again is a continued lack of access to capital. We just don't have the funds that do a fast-follow $10-25 million in an early-stage company. We desperately need a set of more aggressive, conviction-driven Series B investors in Europe. Which requires doubling or tripling the $6 billion or so invested in European venture per annum. 

But there are other reasons as well (this will probably get me in trouble): often European management lacks experience - domain expertise, prior entrepreneurship, strong corporate experience, etc. Or they don't have great advisors (there are some truly awful advisors in European venture). Some European companies - compare e.g. the European shaving startups to DSC or Harry's - also just seem to be OK with making decidedly worse product. And others yet seem strategically inept or much more shortsighted than their US competitors. I often also sense a pervasive lack of optimism and a lot of risk aversion. When in doubt, Europeans prefer to run lifestyle businesses. 

So I guess I'm here to remind you that we owe it ourselves to stretch. Reach higher. Raise the bar. If you and I don't do it, who the heck will? 

If you want someone to coach you on the journey of reaching your full potential, we're very much looking for aggressive DTC teams in Europe. We're fine if you're still in stealth or looking for pre-seed. All we ask is that you have an idea or part of the supply chain figured out. And the desire to build a really, really big company with us. 

Just leave a comment or send me an email to max@sunstone.eu.

tag:blog.maxniederhofer.com,2013:Post/1275911 2018-04-23T06:59:55Z 2018-04-23T11:02:31Z The Meta of DTC - investing in the pickaxes of DNVBs
We're continuing our big push in direct-to-consumer (DTC), digitally-native vertically-integrated brands (DNVB) at the moment with trips to New York, Copenhagen, and Stockholm this week. On the back of a few trends (easier to access supply chains, ecommerce logistics, variable marketing channels), there's a Cambrian explosion of these types of companies.

I'll write a post soon about what we look for in a DTC investment, but in the meantime I'd like to draw your attention to the meta layer of the secular trend of DTC: i.e. "selling pickaxes during the goldrush."

As you may know, this is an allusion to the California Gold Rush and entrepreneurs such as Levi Strauss selling supplies to miners, which turned out to be the better business.

Of course these are very different markets: there are orders of magnitude fewer people buying pickaxes and than people buying gold. But while gold is a commodity (and a non-zero-sum market), if your pickaxe is a lot better at helping people mine gold, then you're going to corner the pickaxe market pretty rapidly. And if your pickaxe business has network effects, e.g. you get better at helping people find gold the more people are using your pickaxes, then your position can become unassailable.

So what's the meta or "pickaxe" layer in DTC investing?

The big play here has been Shopify. The stock has been doing very well and we think it will continue to outperform relative to market. Incidentally, it makes me sad that we still don't run a hedge fund on the back of the insights we derive from private market investing.

I would not be surprised if the Shopify toolchain, like plugins and associated businesses like Printful, yield a few good DTC infrastructure investments. As with any "tools" business, there's a question whether it can meet venture investment criteria.

Logistics: while these are typically the same fulfillment providers as in retail ecommerce, we have seen a few businesses that lend themselves to DTC brands, e.g. by allowing businesses to start selling internationally at low volumes. Seven Senders in Berlin is an example, but we think there will be other ones. As Amazon increases customer expectations to same-day or overnight, we will see multiple attempts at building out competing infrastructure.

Packaging: we have seen a few businesses that innovate around packaging, making high quality, custom packaging accessible at smaller lot sizes. A good example is Packhelp in Poland.

Wholesale/Retail Aggregation: this has been a horizontal function that has seen relatively little innovation. Indigo Fair aggregates DTC brands and offers stock to relevant retailers. We love the concept and would like to see it in Europe. Let us know if you're working on something similar.

Marketplace/Shop Aggregation: next to operating your own shop, a lot of DTC brands are doing experiments on Amazon. For a whole bunch of reasons this might not be a great idea. We think there is space in the market for several non-Amazon marketplaces for innovative DTC brands, a little concept stores with distinct demographics. Think Farfetch for DTC. For example, I think an Outdoor Voices, a Cotopaxi and a Mafia Bags could very well sell alongside each other while increasing conversion and boosting AOV for everyone.

Marketing/Branding: of course these are mainly services and some design agencies have done much to help the DTC phenomenon (in Europe: Otherway, Proxy). But arguably the largest driver is variable online marketing costs (FB/Insta, Google). We've seen scaled influencer campaigns that are working and while we have not seen an influencer marketplace that we've liked, we think e.g. what Harper from Berlin is doing is very interesting.

Sourcing: it's not a secret that many DTC brands are using the same factory infrastructure as e.g. private label or even luxury brands. Making this a more transparent, even more accessible market could be an interesting business. Right now the approaches here mostly consist of classifieds type listings databases.

Have we forgotten something? Do you have an interesting company to suggest we look at? Leave a comment or send me an email to max@sunstone.eu.
tag:blog.maxniederhofer.com,2013:Post/1275685 2018-04-22T17:19:14Z 2018-04-23T04:25:23Z Truth is a pathless land

If what we seek is Truth, the only thing we should let guide us is an unflinching readiness to admit that we're wrong. 

If we follow a teacher, are we following truth? 

If we can look at the world only through the images we have made of it, only through all our learnings and our memories, are we seeing, really seeing it? 

What space between the observer and the observed?

Some of us are so proud of our intelligence, it traps us. We are abstract people leading abstract lives. 

The final barrier to Truth, of course, is truth itself. But surely truth is not a barrier to Truth? To which the sages say, the donkey that brings you to the door is not the means by which you enter the house.

Happy Sunday. 

P.S. Lots of Krishnamurti and Anthony de Mello in there. Somehow I doubt they'd mind. 


tag:blog.maxniederhofer.com,2013:Post/1275260 2018-04-21T11:12:07Z 2018-04-21T12:53:13Z Europe's vexing lack of legitimacy - deficient democracy and over-constitutionalization - and what to do about it

The Foundation Humboldt-University had its bi-annual meeting yesterday and the dinner speech was by Professor Dieter Grimm, a former law school professor and German Supreme Court judge, on just this topic: why the EU has a deeply rooted legitimacy problem. The following is based very loosely on his thoughts, though I've added some of mine + am sure to have omitted some of his. 

First off, while we elect Members of the European Parliament (MEPs), we do so by national election rules and we vote for members of national parties. Hence the elections are essentially national elections by proxy and are reported as such by the media. European issues are barely discussed. This is the first break with typical representative democracy. 

However, once those MEPs hit Brussels/Strasbourg (remember: the parliament moves every few weeks) the national parties they belong to don't actually make European policy. That happens in the parliamentary groups (EPP, S&D, etc.). Generally there's no program/platform before the election - that gets negotiated after. There are over 200 national political parties represented in the European Parliament. So there's your second break for a typical representative democracy. 

But the legitimacy problem goes further. While the EU doesn't have a constitution as such (remember the referendum that failed in France?), what we do have is "constitutionalization" of the EU by European courts. In a first decision in the late 1960s, the European Court of Justice decided that a common market implied the free movement of goods, services, capital, and labour (people, really). In a second decision of the same decade, the court decided (get this) that European law takes precedence over national law in all cases, always. 

And so suddenly all European law that was enacted essentially had the primacy of a constitution: it supersedes national law in all cases. And the subsidiarity principle, to which both the EU and national governments continue to pay lip service, was essentially voided. Let that sink in: anything Europe legislates has constitutional weight for the member states. It's the ultimate assault on national sovereignty. And it's the ultimate silliness from a legal point of view: constitutions should be lightweight, they should be things of principles that are very rarely subject to change. 

The power thus concentrated in Brussel is no longer derived from the sovereignty of the member states, which are represented in the European Council. Nor does the power derive from the sovereign directly, i.e. the people, because of the flaws of European representative democracy. And thus we begin to see the problem of the legitimacy of the EU and its threat to the sovereignty of member states and democracy in Europe as a whole.

The solutions are obvious: create European parties and run European elections on European issues. Implement the subsidiarity principle to de-constitutionalize the body of European law. Give the European Union a proper, thin constitution. And let lower-level problems be addressed by national or regional or local legislation. 

Alas, as in any existing power structure, the existing complexities and incentives seem to work against change. Getting all 27 member states to agree to anything has become a nightmare. There is no interest in creating European parties. Nor is there an interest in making Brussels less powerful. Catch-22. 

In my view it will take nothing less than a revolt of the most powerful member states to significantly alter the European system. Brexit and the Visegrad dynamics are the perfect storm. We need a renewed vision for a strong, united Europe with strong member nations. Alas, there's little indication that this will happen in our lifetimes unless we tear down the EU edifice first. Which is the type of restructuring to the European system that, my father and grandfather do not tire of telling me, has always resulted in war.

P.S. Book by Professor Grimm in German: Europa ja - aber welches?

P.P.S. If you want to be invited to the next afternoon meeting of the Foundation Humboldt-University in Berlin, let me know in the comments. The event is in German. 

tag:blog.maxniederhofer.com,2013:Post/1274916 2018-04-20T09:20:53Z 2018-04-23T10:22:14Z We're conviction investors - what does that even mean

We’re conviction investors. That means we rely on our own judgement to make decisions. And when we really like something, we're ready to pounce.

We don’t wait to see who else is investing. We don’t ask you to come back in a few weeks with social proof or other numbers. We don’t equivocate. We make you an offer as soon as we can, because we’re respectful of the entrepreneurial process and see you as our customer.

That doesn’t mean we don’t do our diligence. In fact, diligence is crucial for developing conviction. How do we know what to like if we don’t know what it is? 

So sometimes we’ll need more time than other investors in the market who are technical traders – and who will invest because of other folks in the round, because the segment is hot, because the founders are pushy, and so on. We feel we owe it to the founders to be more thoughtful than that. Our investment is a recommendation to the rest of the market and we take that role seriously.

The flipside of conviction investing is passing with conviction. We strive to avoid FOMO. We like saying No clearly and as early as we can. We want to be respectful of your time. Again, you’re our potential customer and just because we choose not to work with 99% of the customers who come through our door, doesn’t mean we think less of them. We’re just not the right investor in these cases.

Like everyone, we will sometimes be a little vague about why we’re passing. Mainly that’s because we don’t want to hurt your feelings. It’s awkward telling someone that our judgement of their capabilities or character is the main reason we’re not investing. And it’s not like people don’t change over time. Leaders and teams evolve. So when you feel our reasons aren’t super clear, frequently it’s a team issue.

When passing, we may tell you that our decision is often wrong – because it really is. Of course in the vast majority of cases we should have passed. But the false negatives are significant (we saw e.g. Zendesk, Spotify, Deliveroo at seed and failed to invest in any of them). Mistakes of omission in venture tend to get bigger over time.

We’ll also often tell you that we’d like to revisit our decision at the next financing round. Yes, that’s an option to change our mind. Because see above – we’re frequently wrong. But it’s also an invitation for you: at the next financing round, get back in touch and we’ll take a look. Just because we’ve passed doesn’t mean our door is closed forever.

What it isn’t, however, is the invitation to send us an email every two weeks to tell us how it’s going. If we wanted you to do that, we’d tell you. Assuming you’ll raise every 12-18 months, an update once every six months is the right sort of frequency.

 What most people don’t realize is that venture is very much a head, heart and gut kind of investing – more so than any other investment activity I’ve seen. And once the decision is made, I recommend dignity – you won’t win someone over at that point with rational arguments. You may if your metrics go gangbusters, you’ve added significantly to the team, or made other changes to the business. But explaining to us why we’re wrong when we already know that we're often wrong is mostly a losing tactic. 

That brings me to my last point: work with the nice VCs – and I don’t just mean charisma. Work with the folks that don’t posture, that aren’t overly aggressive, that aren’t pushy. You want to have calm, steady, wise people on your cap table – because it’s a long, long journey and the guys that let themselves be guided by fear before the investment will do so while they’re on your board, too. And the aggressive and greedy ones will be a nightmare when you have to sell the business.

Do we live up to all of these principles all of the time? Of course not - we're human, we make mistakes, we veer from the plan, we get busy and shortsighted and fearful. But as a statement of intent, this is how we see ourselves and what we try to live up to, every day. 

tag:blog.maxniederhofer.com,2013:Post/1274546 2018-04-19T12:15:29Z 2018-04-19T12:20:21Z Rethinking the scale-up organization: leadership is not an ego game

When you're five or ten people or even twenty, purpose takes care of the organization. Things happen organically. Everyone collaborates. There's the excitement of a new beginning (see Hermann Hesse's Steps). Product gets built fast.

But as you start to scale the business and hire more people and things start being a little chaotic, there's this one moment. I call it the "now it's time to become a REAL company" moment (I am not great at naming stuff). Usually it's a founder who contracts that feeling and then starts spreading it like a virus. 

 This is a moment of fear. Fear contracts and people contract it.  It's often the moment the company adopts a traditional domination hierarchy. Reporting relationships are set up. The first deterministic processes, foreshadowing the onset of the great bureaucracy, are introduced. Overnight the business becomes a less wonderful place to work. What most VCs don't see: this is often the point the business starts to lose its full potential.

 And the true insanity is this: as the company scales headcount to 100 and beyond, hierarchy as an organizational model ceases to work well. Instead, the founder/CEO realizes we need a variety of small, cross-functional teams. Responsibility and the power to make significant decisions needs to be devolved to the edge of the organization. Alignment should happen at the lowest possible level (subsidiarity principle, anyone?).

So why do most companies have to go through this phase? And why do many not make it across this "organizational chasm"? It's egoic leadership, a leadership that's driven by fear, the wish to retain the success that has been achieved (attachment to outcome), and a lack of trust. Most founders instinctively hire phenomenally well in the beginning, but then destroy that achievement by withdrawing trust and seeking control just as things start to scale.

My favorite (radical) book in this context is Reinventing Organizations by Frederic Laloux. I'm not saying adopt all of that - just be aware of the principles. And know that the very first step is _not_ to force things in your company, but to gently use the momentum that exists to guide things to their natural outcome.

*Leadership is not an ego game.* 


tag:blog.maxniederhofer.com,2013:Post/1273562 2018-04-16T18:41:33Z 2018-04-16T20:09:30Z Rocking the 'Gram: read this if you want to become Instagram famous!

I don't know whether you've ever seriously faced the issue of why your heart is so empty? I guess that's for another post. In the meantime, you're here because you clicked that baity link about becoming the new Insta sensation. Do you have a mirror? Look in it. Now back to me. Now... jk. 

Seriously I read a lot of books, some of them very silly. So here's my key learnings from the wonderfully titled "Read This If You Want To Become Instagram Famous." Which is a real thing and I read (well, skimmed) it. The things I do for you! But seriously, it makes for a great coffee table book. It's so pretty: 

I took these notes while browsing through the book. Here's how to become a God(ess) on the 'Gram: 

  • Hard Work. There's no overnight success. Insta is hard work and it has become super professional. Behind every great account, there's "a super snazzy snapper" (haha) who knows exactly what they're doing. Even if they kind of stumbled onto the formula (yes, there's a formula), they're now an execution machine. They probably live in that influencer house in LA. Good luck keeping up with their passion for themselves. Narcissus has nothing on them. 

  • Nail the Basics. Your @handle is obviously superimportant. You'll have to be creative nowadays to get something that isn't fugly long. Your picture is your brand identity aka logo and should be recognizable in thumbnail, so don't make it too subtle/detailed. Your bio should be English if your audience is global. Keep it short and add some emojis for personality. Or, you know, don't. Because emojis are so 2017. 

  • Technical Proficiency. Insta is all about the visuals. So there's a measure of being able to take an objectively good shot. Read about light - fresh shades make for fresh photos. Look at the lines - visuals where the lines lead from the edge into the photo draw in the viewer. Train your eye - see the hidden details in common things. Wait for the right light. Use colors to great effect. Just google photo composition and do that.

  • Consistency. You have to stand for something and then you have to keep delivering that. Change up the mix too frequently and you'll lose loyal followers. True for content. But this also means sticking to the same editing tools. Trust me, I screw this up all the time. I mean, I'm writing a blog post about being awesome on Instagram. Yesterday I wrote one about the market for something to believe in being infinite. Be less random than Max.  

  • Be Yourself. But Then Be Different, Too. The world wants your conformity. Your parents want your social respectability (you do, too, but from other people). Instagram wants you to be different but also not too different. Yourself, but not too much. You know what I'm talking about, weirdo. 

  • Think Omnichannel. While the 'Gram may be your main channel, other social platforms can push traffic and hence new users to Instagram. So check for the same handle on Snap and Tumblr. And maybe FB and Twitter if you're an oldfag like me (is 4chan language still cool? Showing my age here). 

  • Participate. Comment with care. And empathy. Treat people like people. This is generally very solid advice. 

  • Use Tactics to Get Noticed. Break-out accounts do break-out things - new and memorable and category-defining. To drive engagement, use poppers - pics that stick out. To increase retention, take a mini-series. From a composition point of view, getting down low or up high changes scenes dramatically. 

  • Editing Apps: use 'em. VSCO, Darkroom, PicTapGo, Snapseed, SKRWT, Cortex... and obvs Glitché (haha)

  • Be Human. Let your photos speak volumes. Tell true stories. Put yourself in your shots (partially). Be enthusiastic. Be relatable. 

  • Go for Geometry. Shoot straight on symmetrical architecture. Shoot flat lays (preferably food!) with lots of natural light. Full frontals. Create breathing space with powerful borders. People want order. 

  • Hashtags. Use them, but sparingly. No need to be so desperate. Don't copy generic ones - do your research. Also: you can hide hashtags in a comment that will disappear with volume. Also, don't forget about the weekend hashtag project! 

  • Geotags. Massively under-rated. Geotags lift engagement by like 80%. Even more so than a person or face or another user's handle (which are other good predictors of engagement). 

  • Become a suggested user. Don't over-cook your photos (Insta loves it au naturel). Keep it pure. Post consistently but not too often. Follow the zeitgeist.

  • Hot. The book doesn't talk about this, which is weird, but it is good to be attractive. More attractive people with exhibitionist tendencies tend to be more popular on Instagram. Just don't take off too much (that'll get you banned).

So if you're anything like me, at this stage you're a little disappointed in this beautiful book. Because it turns out the formula is pretty much the same as being successful online in any other way: make beautiful stuff that has meaning. Which just goes to show (we've known this for a long time) that you can't learn much about the internet from printed materials. It's better to just, you know, use the internet.

Thanks for letting me be silly today.

Much love,


tag:blog.maxniederhofer.com,2013:Post/1273072 2018-04-15T17:42:38Z 2018-04-23T16:17:20Z The market for something to believe in is infinite

This year marks my tenth year in VC, and the fifth year co-running our own firm, Sunstone Capital. I've backed a good two dozen companies at this point. And yet there's one lesson it took me a long time to learn. My friend Hugh Macleod sums it up well on this Hughcard, my absolute favourite of his work: 

Copyright Gapingvoid/Hugh MacLeod 

Hugh posted about his 2004 Hughtrain manifesto (2004 ChangeThis PDF here) a few days ago: The Hughtrain (2018 version). It's just as fresh - maybe more so given all that has happened in the last decade - as it was 15 years ago:

"We are here to find meaning. We are here to help other people do the same. Everything else is secondary... great branding is a spiritual exercise."

Go read it. It touches on a lot of things that we're going to talk about soon in our direct-to-consumer investment thesis. 

tag:blog.maxniederhofer.com,2013:Post/1272537 2018-04-14T07:42:05Z 2018-04-14T07:46:16Z Music Saturday: Tracking Treasure Down (Gabriel & Dresden)

I started in VC at Atlas Venture (now: Accomplice) in 2007, right around the time Last.fm sold to CBS (my first exit as an angel investor). The focus of that gig as an analyst/then associate was 90% sourcing and I worked 100 hour weeks doing just that. It never felt like work, looking at new products and reaching out to interesting people. At the time it was still possible to pretty much know every tech startup in Europe, something that seems crazy today. 

I have a vivid imagination (my whole family does) and at night I'd listen to music (no Spotify yet) while reading about emerging companies. This one track in particular I thought of as my "anthem"": I was there alone in the office at midnight, tracking treasure down. 

Good (if lonely) times. 

Hope you like the track (it's aged slightly!). 🤟🏻

P.S. these posts tend to be the least popular on my blog and I'm going to see if I will vary them. If you have suggestions of what other media content to post (videos of talks? podcast episodes?), let me know. And have a peaceful weekend, everyone.

tag:blog.maxniederhofer.com,2013:Post/1272255 2018-04-13T16:47:43Z 2018-04-15T18:10:56Z The worst thing about the tech industry and what we're going to do about it

Sometimes our industry tires me. Because everyone is always so exhaustingly successful. And smart and amazing and crushing it.

But all there is really is the Now, the present moment, and the quality of attention you put into your work. It takes a decade to become an overnight success, and sometimes more. And sometimes you have it all but there's no luck.

There's no such thing as failure. It's all a giant opportunity to grow. Which is easy to say if you're not worried about where your next paycheck is going to come from. Or how you're going to get out of bed if you're so sad.

While we're on the journey all we really want is to be listened to, accepted, and occasionally understood. Loved perhaps for what we're trying to be again and again every day. Or maybe just loved for no reason at all except that we are.

I'd like to build a venture capital fund around that idea. One that puts our joint journey at the center. One that doesn't deny that it's bloody fucking hard and that we feel so much sometimes.

That's what we're building here at Sunstone at the moment. And we've only just started.

tag:blog.maxniederhofer.com,2013:Post/1271841 2018-04-12T15:44:01Z 2018-04-15T18:12:49Z Innovation by ideology - what's new is the story

Back when I (too briefly) worked for Bruce Golden at Accel, he'd look at one of the companies I brought in and ask: what's the significant invention or innovation here? The question bugged me at the time and I wasn't sure why. Bruce encouraged arguing from first principles and frequently the stuff I liked wasn't fundamentally new, so we wouldn't proceed. There was no "better mousetrap."

It's the worldview of engineers and (many) business people. Make something ten times better and the world will flock to your door. You corner the mousetrap market by building a more effective trap. 

But many of the companies that I had seen succeed didn't do that at all. They did something slightly different, sometimes somewhat better in one dimension, and significantly worse in another. And it wasn't like the better dimension was 100x better - this wasn't an innovator's dilemma thing. 

What these companies did instead was change the conversation. They hit upon the zeitgeist or mainstreamed some subculture in an important way. To keep with the analogy of the mousetrap, today that consumer market (in Europe) is dominated by humane designs. There has been a silent but significant revolution in how we think about the sentience of animals and the primacy of humans in nature over the last 50 years. And the guys who started building non-fatal mousetraps tapped right into that - perhaps not even consciously but because it was the *right* thing to do.

I've gotten more conscious about this kind of ideological or cultural innovation over time. You can see it everywhere around us. It's human progress enabling commerce enabling progress. I'm a big fan of that cycle. And I nowadays recommend it frequently to founders.

Want to build a car subscription company? Why not make it just for electric cars. Want to build a digital FMCG? Start by removing all paraffins, perfumes, and animal testing. 

And so the world gets better, one small company at a time.

Image source: Bodha, Come Back to Yourself, a DTC aromatherapy company from LA (not in our portfolio)

tag:blog.maxniederhofer.com,2013:Post/1271354 2018-04-11T13:00:00Z 2018-04-11T18:59:15Z Travelperk raises $21 million Series B for its business travel SaaS platform

I met the Travelperk founders Avi Meir and Javier Suarez in 2016 through an introduction from Johannes Reck, co-founder and CEO of our portfolio company GetYourGuide. It was ten days after our first daughter, Charlotte, was born and I had to fly to Barcelona to meet these guys and here's a shout-out to my wife for being amazingly supportive in these situations 🤟🏻😍🚀

Avi and Javier were the real deal - serial entrepreneurship in travel, massive domain expertise from their time at Booking.com, the passion and ambition level to match ours, a sense of purpose. In business travel, companies have two bad options: either antiquated enterprise agencies that are both crappy and expensive, or a mess of consumer tools that result in a flurry of invoices, payment methods and general confusion. Travelperk fills that gap - it hides the complexity from the traveller by offering a complete end to end solution and not just a sexy interface (it also has a sexy interface). Its simple purpose is to "fix" business travel. We joined the $7M Series led by Alex Finkelstein at Spark Capital (Medium post from June 2016).* 

In the two years since our investment, Avi and Javier have put together a phenomenally capable team in Barcelona with some great hires from Skyscanner, Booking, and others. Demand has grown more quickly than forecast. Customers now include Transferwise, Typeform, Outfittery, GetYourGuide, CityJet and many more. Charlotte's grown a lot since 2016, but not quite at the 1,200% YOY rate that Travelperk has. 

The new $21M Series B is led by our friends at Target Global and Felix Capital. Sunstone participated above pro rata. The round brings total raised for Travelperk to $30 million and sets the company up for scale: scaling team (engineers, support, product management, sales), accelerating internationalization, and opening a slew of new markets.

We're thrilled to continue supporting Avi and Javier - thanks very much for having us along on your journey! 

Techcrunch post here

* The seed round was led by Robin and Saul at Localglobe. We would have preferred investing at seed, but didn't see the company back then. 

tag:blog.maxniederhofer.com,2013:Post/1270945 2018-04-10T09:31:32Z 2018-04-10T09:34:06Z Refragmentation and why corporates don't really get it

Refragmentation is a secular trend - meaning it's here to stay. The decrease in transaction cost that has empowered consumers is shrinking the boundaries of the firm (Coase) and making it more porous. Hence the Cambrian explosion in startups. Hence managing contractors becoming a core skill. 

In a refragmented world without lifelong corporate tenure, maintaining and providing value to your own network has become a key determinant of career success. Tech industry karma is alive and well - we're open and we give. When our people are successful, it's good for all of us. Pay it forward. 

Large companies are often stuck in a previous paradigm. Power and responsibility aren't devolved. The hierarchy can't process the edge cases and so starts inventing process and bureaucracy. And then people at the edges stop acting like people and start acting like corporate automatons driven by greed and by fear.

That's the thought I had when I saw this craziness that Holger of German Autolabs posted on Facebook:

I really hope that we find out who this is. Not unlike METRO's disappointing ad campaign, there are a set of rules about how to engage with small companies hoping to make a dent in the universe. This breaks most of them. 

tag:blog.maxniederhofer.com,2013:Post/1270528 2018-04-09T08:36:38Z 2018-04-16T16:20:21Z #taketheexit? Not quite yet, METRO

For a few weeks posters on the streets of Berlin have been pleading with developers to #taketheexit (see below). Ostensibly because of poor working conditions in startups. 

Having been involved in a fairly large number of startup companies at this point, I've seen crunch times, shitty offices, and managers who succumbed to their anxieties and shouted at employees. The latter is never acceptable. I'd always encourage anyone to #taketheexit from an abusive or otherwise toxic environment. 

But overall, people love working at startups for a whole number of reasons: more freedom, more responsibility, less need to conform, fewer overheads, fewer stupid meetings, a strong sense of purpose/meaning, higher impact, cooler people, fewer rules and regulations, etc. 

So the axis of working conditions is a bit of a weird one as a dimension of competition because it was always very unlikely that the advertiser would be able to compete. Maybe with "fewer hours." 

Today it was revealed that METRO, the retail group, is behind the campaign. Too bad only that they don't list any jobs on their Work With Us page. Feels like a pretty big investment to screw up conversion that way...

If you want to make people shop a bit more frequently at METRO companies, or increase average order value there, or make sure there are fewer hiccups in the METRO supply chain, by all means do go work at METRO.

But for those of us who want to change the world, feel free to stay in startupland a bit longer. We love having you and are working hard to #giveyoutheexit you deserve. 

tag:blog.maxniederhofer.com,2013:Post/1269471 2018-04-06T06:48:00Z 2018-04-06T06:48:00Z Insta shoppable posts go global

I'm a bit late with this due to Audrey's birth, but we finally have shoppable posts in Germany, France, Italy and Spain (after the feature launched a year ago in the US). 

Tagging products in posts has shown to yield a significant increase in engagement (Glossy). And of course you can now track more accurately what that engagement means for conversion. 

We're always looking for great European brands that are kicking butt on Instagram. I'd love to know your favourites. 

tag:blog.maxniederhofer.com,2013:Post/1269226 2018-04-05T16:30:53Z 2018-04-17T15:24:09Z ...and we're back!

Meet Audrey:

Everyone's happy and healthy and this papa can get back to his continuing obsession with European direct-to-consumer, digitally-native, vertically-integrated brands from next week. 

Much love,


tag:blog.maxniederhofer.com,2013:Post/1265506 2018-03-26T19:21:41Z 2018-03-28T06:18:13Z Brief hiatus
We are in the hospital for the birth of our second daughter. Regularly scheduled blogging to resume after major life stage change event is complete. 

Much love,
tag:blog.maxniederhofer.com,2013:Post/1264861 2018-03-24T20:09:44Z 2018-03-25T22:34:54Z The top 20 books on consumer branding and consumer marketing for tech entrepreneurs and VCs
As you may know, we're doing a big push on direct-to-consumer, digitally-native, vertically-integrated brands at the moment. This is on the back of one very promising consumer packaged goods/FMCG investment that I can't talk about yet (but hopefully will soon). For a variety of reasons we love DTC brands as a venture investment hypothesis, especially at seed stage. I should write a post about that. 

I have a PhD (well, really, a German Dr. rer. pol.) in marketing for writing about the "Antecedents of Marketing Performance in Recession" (and other periods of uncertainty). But it has been a long time since I've brushed up on my branding literature. And so I asked the folks on Twitter and Facebook what books they'd recommend.

Here are, in the order they were recommended, 20 books on branding and marketing. I hope they are useful to you.

Interesting: 2x Al Ries & Jack Trout in the first five minutes. Notable absence of old branding folks like David Ogilvy, Alina Wheeler, Wally Olins (though David Aaker made it). Lots of Marty Neumeier! Hugh Macleod from left field with Mark Earls (will read that for sure). Glad Seth Godin made it (remember the purple cow thing?) Some interesting peripheral ones (I loved Let My People Go Surfing and liked Shoe Dog), but I did not list Naomi Klein's No Logo because like me y'all read it in 99, right? Different times.

I read approximately one non-fiction and one fiction book a week, so I hope to get through a number of these over the next quarter. I'll write brief reviews for the ones I find most intriguing/useful.

And, if you're seeing this post just now and your favorite branding/marketing book isn't on here - please contribute. I'll update the list as new recommendations emerge.

Much love,

P.S. Yes, these all contain my Amazon affiliate link. I spend thousands of dollars a year on books. Consider this my way of funding research. It will result in better Christmas and birthday presents for everyone I know. 

P.P.S. Pretty links below! 

tag:blog.maxniederhofer.com,2013:Post/1264101 2018-03-22T15:15:00Z 2018-03-22T15:41:21Z 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.
tag:blog.maxniederhofer.com,2013:Post/1263798 2018-03-21T09:23:32Z 2018-03-26T00:08:50Z 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...:

Max Niederhofer, Qwerly from Mashery

tag:blog.maxniederhofer.com,2013:Post/1263300 2018-03-20T07:00:04Z 2018-03-27T03:26:35Z 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. 

tag:blog.maxniederhofer.com,2013:Post/1263192 2018-03-20T07:00:03Z 2018-03-22T07:00:05Z 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. 

tag:blog.maxniederhofer.com,2013:Post/1263023 2018-03-19T10:49:10Z 2018-03-26T18:00:28Z 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).

tag:blog.maxniederhofer.com,2013:Post/1262807 2018-03-18T20:32:20Z 2018-03-18T20:32:20Z 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. 

tag:blog.maxniederhofer.com,2013:Post/1262309 2018-03-17T10:24:31Z 2018-03-17T10:24:31Z 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. 

tag:blog.maxniederhofer.com,2013:Post/1262059 2018-03-16T14:21:51Z 2018-03-19T08:14:05Z 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)

tag:blog.maxniederhofer.com,2013:Post/1261615 2018-03-15T10:45:04Z 2018-03-21T15:23:46Z 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)
tag:blog.maxniederhofer.com,2013:Post/1261364 2018-03-14T16:29:58Z 2018-03-14T16:29:58Z 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.