Making Things, Reporting, and Valuations

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Michael Schrage on Culture
Making Sense:

Online, in social networks, making sense of news has become more complex — increasingly it is about providing context along with fact-checking. Complexity underpins all of our systems, including currencies.

  • Reported.ly puts its social-first journalism model to work covering the Charlie Hebdo attacks. Nieman Lab: Over the next 18 hours, Carvin and his small team divvied up the coverage, with an eye towards providing context but also playing to the strengths of certain channels. As Carvin told me, one of the biggest goals of Reported.ly is fitting coverage to the right platform — finding what kinds of storytelling works best on Twitter versus Reddit, for example.
    But the work of Reported.ly is more than simple aggregation and amplification. A large part of their work is trying to verify and factcheck reports already circulating.
  • Article: Swiss Currency Has Shot Up 15% So Far Today. Here’s Why That Matters. MoneyOkay, so it’s been a big day for currency traders—and anyone planning on a ski trip to the Alps. But what’s this mean for me? The wildness in the market underscores the big economic story of the moment: Europe’s slide toward a recession. In a globally connected economy, weak demand in Europe could weigh on the recovery in the U.S.

Making Do:

Seriously, what happens when all listings for a service have the same number of stars? What happens when you have no access to the person you want to talk to about their work? What happens when your revenue strategy needs rethinking?

  • Review Inflation: What Happens When Everyone Has 5 Stars? Greg SterlingBusinesses are starting to become much more sophisticated about online reviews as well. They understand the importance of these consumer trends and are increasingly asking customers provide feedback and review them on Yelp, TripAdvisor and other key local sites.

  • Frank Sinatra Has a Cold – Gay Talese – Best Profile of Sinatra. EsquireIn the winter of 1965, writer Gay Talese arrived in Los Angeles with an assignment from Esquire to profile Frank Sinatra. The legendary singer was approaching fifty, under the weather, out of sorts, and unwilling to be interviewed. […] Talese remained in L.A., hoping Sinatra might recover and reconsider, and he began talking to many of the people around Sinatra — his friends, his associates, his family, his countless hangers-on — and observing the man himself wherever he could.[…] The piece conjures a deeply rich portrait of one of the era’s most guarded figures and tells a larger story about entertainment, celebrity, and America itself.
  • On the way to $ 220M in funding, Instacart quietly changed its business model. GigaOmin the last year, the company shifted its revenue strategy. It is allowing some grocery store partners to price their own goods on Instacart. In return, the grocers pay Instacart a fee to service their locations.  It explains why for some grocers the products cost the same on Instacart as they do in store, but for others the price is more (or, confusingly, less).

Making It:

Making things is having a come back — from learning how to experiment with code, all the way to making actual products and all kinds of stuff in between. This is much more than the DYI movement, it is the Maker Movement gaining momentum.

  • O listicle! My listicle! Dave Winer: You want to learn how to code? It doesn’t get much simpler than this, at least for real-world examples. Please, use my code to learn from. That’s one of the reasons I put it out there. To help budding developers, of all ages, genders, races, or country of origin.
  • General Motors may ‘kick the tires’ on Google’s self-driving car. C|Net: In a statement to The Wall Street Journal last month, Chris Urmson, the head of Google’s autonomous vehicle project, said that the prototype relies on 64 lasers that scan across 360 degrees, a camera and GPS map data to generate a map of its surroundings and drive safely. Google uses software and algorithms to make the car react to predictable and unpredictable scenarios. That GM is at least considering working with Google on a self-driving car is good news for the search giant.

[quote by Michael Schrage; h/t Bud Caddell]


Conversation Agent – Valeria Maltoni

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Halo Report: Angel deals see rising valuations, but shrinking round sizes in Q2

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angels

Much of the discussion around bubbles and rising valuations centers around venture capital investors and late-stage, gravity defying financing rounds. But before most companies make it to that stage, they find support and backing from a far less institutional class of investors: angels.

CB Insights, in its Q2 2014 Halo Report compiled in partnership with Silicon Valley Bank and the Angel Resource Institute, delves into a similar set of changes taking place in the angel investing landscape. The big takeaway is that valuations in angel rounds increased from the prior period, but the gross investment amounts have actually fallen.

In Q2, median pre-money valuations for angel rounds were $ 3 million, according to the report, up from $ 2.7 million in Q1 of this year and $ 2.5 million across all of 2013. This trend of rising valuations is one early indicator of a mini-bubble in the startup ecosystem, but it can just as easily be explained by the increase in addressable market size for many companies, and thus the need to expand more quickly and broadly in order to win a desired market.

But despite this rise in valuations, funding rounds fell to a median of just $ 600,000, down 40 percent from the $ 1 million figure seen in Q1. It’s worth noting that these rounds are essentially flat from the year-ago quarter, Q2 2013, when the median round size was $ 595,000. The data shows that rounds tend to be the smallest when they are completed entirely by angels, but the median (and mean) round size increases when angels co-invest with VCs.

Digging deeper, deal sizes in the Internet sector dipped from $ 1.8 million to just $ 800,000, while the mobile/telecom sector saw a smaller decline from $ 1 million to just $ 700,000 median deal size. Collectively, Internet, Healthcare, and Mobile made up 70 percent of the recorded deals in the sector and drew 73 percent of all invested capital.

Perhaps unsurprisingly, California and New England ranked the highest in terms of angel deal volume at 19 percent and 16 percent respectively, but the number three market, Texas, at 11.7 percent is a newcomer to this list. Noticeably absent from the top are New York and the Great Lakes regions which attracted just 8.8 and 9.3 percent of angel deals respectively. The under-appreciated mid-atlantic region was actually the fourth most active region at 11.2 percent of all deals.

As we’ve discussed recently, the deals completed at a company’s earliest stages can have profound impacts on future funding and growth. In this way, angels, through both their capital and their advice, play a crucial role in the company building process.

One issue that has been a hot topic of discussion lately is the shifting classifications between Seed, Series A, and Series B rounds (and stage companies). Depending on the amount raised at each stage, it is not uncommon for companies to re-raise within the same “stage,” such as a seed extension or an “A-1” round. But it’s also becoming common for companies to effectively skip a stage, whether intentionally or as a consequence of raising a larger-than-average amount of seed capital, jumping for example from a Seed to a Series B round. This can be problematic when companies learn that VCs will be judging them on an entirely different (and typically more stringent) set of criteria than previously expected. In these instances, experienced and savvy angel investors can be worth their weight in gold.

Another hot topic in the Valley of late has been rapidly rising burn rates. Sure, entrepreneurs are supposed to invest in growth, but many prominent investors have lamented publicly that there’s not enough rainy day planning in the startup ecosystem, and that when the market eventually turns, there will carnage as a result. This is less of an issue at the seed or angel stage than later in a company’s lifecycle, when high salaries and fancy offices become more commonplace. But the financial discipline and company building ideology instilled at this early stage can have a major impact on companies later in life.

Gathering data on the angel investing ecosystem can be a difficult proposition, as is predicting its fluctuations from year to year. Angels invest their own money, and thus are beholden to personal financial circumstances. They also have the luxury of sitting out entire quarters or years if circumstances change, whereas VCs are allocators of LP capital and have an obligation to do deals. While many angels approach investing with a great deal of professionalism, the lack of LPs or even fellow investment partners typically means a different level of accountability and discipline. In this way, many angels get branded (fairly or not) as dumb money.

There’s no question that angels play a crucial role in the startup ecosystem. The more insight we gather into the health and shifting landscape of this segment of the investor population the better. One quarter is a relatively small sample size from which to draw lasting conclusions, but the larger trend suggests that early valuations are in fact increasing, while round sizes stay roughly the same. In many ways this is a reflection of the larger “entrepreneur friendly” trend that is gripping Silicon Valley and startup ecosystems everywhere. So long as money is cheap and valuations continue to rise, expect to see this trend continue. But sooner or later the music will stop and the trend will reverse course. Angels, like VCs and entrepreneurs, would be wise to prepare for that day.

But, as the adage goes, you can only lose your money once. Missing out on the next great deal could mean missing out on growing your money several times over. And therein lays the game, if you have the stomach for it.

PandoDaily

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