What are “Solo Capitalists” and why are they winning?

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Traditionally, Venture Capital has been driven by the firm. 

The fundamental idea was based on VC Partnerships, with the sum of all partners and investments professionals adding up to more than the individuals themselves. The traditional VC firm with multiple partners has the ability to come across more investment opportunities and be able to better diligence those opportunities. The firm model was seen as lower risk, with more checks and balances in place before cutting a big check.

With the pace of startups right now, though, the firm model is sometimes being left behind. Startups are being built and scale faster than ever. Companies like Deel are reaching unicorn status, scaling from $1m in ARR to $100m, in less than 2 years. Information and deals flow more efficiently, and referrals and trust building happens online and, to a certain degree, in much shorter cycles. VC firms see many more deals, but often they can’t move fast enough.

Funding for startups has also changed, especially at the earliest stages. Good ideas and founders get funded faster than ever, sometimes in days instead of months. Many startups are continuously fundraising. The lines between early stage investment stages (Pre-Seed, Seed) blur together into a series of continued SAFE investment. VC investments builds momentum alongside the company’s business momentum. The notion of waiting for a “formal” big party round is replaced for many founders with several funding chunks providing them with the liquidity they need to continue to scale their businesses.

With the profound changes in startup building velocity and funding ecosystem, it shouldn’t be a surprise that new types of VCs are disrupting the traditional model. The firm model, with its bureaucracy, can’t always keep pace with startup growth. The Solo Capitalists is one model that emerged.

New models are often considered reckless by the old VC guard. But, Solo Capitalists are outperforming many of the traditional funds.

Before we dive into why, let’s first cover the definition of “Solo Capitalists”. Solo Capitalists are typically:

  1. The sole investment decision maker in their fund (and the only General Partner)
  2. Run a lean shop. They often don’t have an Office or Staff (other than Ops and Backoffice, often run by the likes of AngelList and Carta)
  3. Writing larger checks than Angels and competing directly with VCs, raising $50m+ funds and investing $1m+ into funding rounds
  4. Increasingly support their portfolio company’s beyond the early investment stages, leading or investing alongside other VC firms in subsequent rounds all the way to an IPO


Leading “solo capitalists” manage more money than many funds. Oren Zeev manages more than $1.5 billion without additional investment support. Elad Gil, Josh Buckley, and Lachy Groom manage funds in the hundreds of millions with similarly lean structures.

So why does the Solo Capitalist model seem to work so well?

Ultimately, it comes down to the customer.

Entrepreneurs are the customers for VCs (I tend to think about LPs more as partners on the journey). Do founders need VC partnerships? Often they don’t. What founders crave is a single decision maker they can build a trusted relationship with. A partner for the journey who can be hands-on when necessary and understands the business and its evolution.

Founders want a single decision maker who can move as quickly as their business needs (no more “let’s talk again after our next Monday morning meeting”), is unhindered by firm politics or status (no “unfortunately the Senior Partner decided that your business is not one we can continue to support”), and can make informed decisions with full understanding of the business (Why would another partner in the firm investing in Enterprise Software weigh-in on a Consumer investment?).

Further, Solo Capitalists benefit from freeing up the most valuable asset VCs have: time. Without significant operational and partnership overhead, the Solo Capitalist’s time is dedicated to making investments decisions quickly. Solo Capitalists win through speed, empathy, and expertise. Many are current or previous operators, giving them empathy for founders’ journeys. Some bring unique expertise to the table, too.

Naturally, there are potential pit-falls to Solo Capitalists. A single person can’t be an expert in more than a few areas, and having a team of smart folks around the table to weigh-in can help investors avoid missing obvious (and less obvious) hard questions that should get asked ahead of investing. Solo Capitalists often mitigate some of those concerns by seeking help from advisors and experts.

Established institutional LPs are aware of this trend and are increasingly backing Solo Capitalists. University endowments and other institutional investors have funded several top managers. In doing so, these LPs seem to have made peace with the risk of having a solo GP. A side benefit for LPs is that Solo Capitalists are typically more efficient and may generate higher returns due to lower management fees.

Increasingly so, the Solo Capitalist model is a win-win-win to all sides of the Startup funding table — Founders, General Partners, and Limited Partners.

Recursive Ventures top 100 Global seed investor

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Humbled to share that I’ve been chosen #17 on the inaugural Business Insider Seed 100 – The best early-stage investors – list of Global seed investors made by Business Insider and Tribe Capital. Very thankful for the opportunity to support amazing startup founders. Read more about my investments and strategy at Recursive Ventures.

https://archive.is/8M4fu

Berkeley SkyDeck accelerator – application now open

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I’ve recently joined Berkeley Skydeck as an ambassador. It’s a wonderful program and a great fit for startups who are interested in building their business in the U.S. and more specifically in Silicon Valley.

On top of investing $100k, SkyDeck offers a lovely shared office space in Berkeley, and has resources lined up for founders working on deeper technical challenges in Life Sciences, Robotics, and AI. By tapping into the broader UC Berkeley research community the program offers access to faculty as well as cutting edge research labs.

2020 cohort application is now open. Startups can apply here. I’ve recently chatted with Israeli media on the topic (in English, and Hebrew).

On-demand is not a “winner takes it all” market

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A bit over a year ago I was invited to invest in Lyft’s series F ($1B mega round led by GM) as part of syndicate. Even though the investment was too late stage for me I was intrigued and decided to dig in.

I learned early on that some of the existing investors are selling their stock in secondary transactions. That struck me as odd. Lyft was doing very well back then, almost quadrupling GMV in the last year. I talked to one of the investors and he told me that they believe the on-demand ride economy would behave like others in the consumer space – “winner takes it all”. Uber has won, they hoarded too much cash and control the drivers – the supply – taking everybody else out of the market. He claimed that the Marketplace network effect will prevail and will crush all competitors, including Lyft.

A year later Lyft and others are alive and kicking. Not only are they back in the game, but they are also starting to take the lead in their segments and geographies. While Uber has been self imploding here and here Lyft has quadrupled yet again and has become the more beloved brand. In China, Didi has been able to beat Uber and push them out of the country.

The “winner takes it all” dynamic doesn’t seem to hold for the on-demand ride market.

I’d like to propose a different take. How about we start thinking about Uber, Lyft, Gett, etc. like we think about Carriers. There is a place for multiple carriers players in the market, AT&T, Verizon, T-Mobile and so on. They will compete over price and service and each will capture different audiences. It will be glorious for consumers – prices will continue to drop and the service will get even better.

Will it be good for the on-demand ride companies? Can Uber justify a $70b valuation ? time will tell, but I suspect Uber’s (and others) valuation will be challenged in the next few years and it’s not going to be pretty.

The convergence of SaaS and Consumer

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Silicon Valley loves talking about the next big trend and how it impacts the world, so it should come as no surprise that the convergence of SaaS and Consumer technologies (or “Consumerization of the Enterprise”) has been on the radar for a while now.

But there are less discussions about what it takes to win in the “new age” of SaaS companies, nor about the shift in mindset and skillset that startup investors and founders have to undergo to succeed.

To be successful in the “new age” of SaaS Founders and early employees need to have a mix of SaaS and Consumer DNA. Vertical Market Networks, B2B2C companies, and software solutions serving Small and Medium Sized businesses (SMBs), are scaling quickly because of consumer-like characteristics.

Vertical Market Network (read more here) are scaling faster than ever because they are creating virality among businesses. Honeybook (which dubbed the concept of Vertical Market Networks) connects SMBs in the event space, bringing together wedding planners, photographers, and florists, among others, to serve a customer for their project. One service provider usually takes the initiative and starts inviting others, virally growing the reach of the platform. A virtuous cycle begins, similarly to what you would expect in a Social Network, but in this case a business professional network.

B2B2C companies are not a new thing. In the past B2B2C companies were mainly focused on their primary customer – businesses. If businesses were happy the company was successful. But what has been an fairly easy task is becoming harder and harder. Feedback channels from consumer to businesses are prolific and effective and low quality B2B2C products instantly reflect poorly on the brand. Gone are the days where you can have a crappy mobile app and get away with it.

The quality bar required to meet consumer demands, especially in Mobile and IoT, is ridiculously high. Millions of apps flood the app stores and tech startups are going after any connected appliance you could put in your home. Consumer expectations are insanely high and users have little patience for error or quality issues. Everything needs to have a premium feel. If on the web the cost of an error would result in 1x consumer confidence loss, an error on mobile would lead to 10x loss. Even consumer companies have a hard time doing mobile right. One great quote from Facebook: “When Facebook made the move to mobile, it had to ditch its “break a few eggs to make an omelette” mentality, a big change in the company’s core values.” (read more about it here)”. For B2B2C companies to succeed they have to put both the Business and the End-user first. Almost mission impossible.

Last but not least, Businesses themselves are changing rapidly. The United States labor market has been undergoing a substantial shift toward small-scale entrepreneurship. The number of proprietors – owners of businesses – who are not wage and salary employees, has skyrocketed.

Building solutions for SMBs isn’t significantly different than building products for consumers, and requires a shift in focus. The line between work and personal is blurring away, and business users have no patience for systems that don’t meet their demands as a user. Companies serving Small Businesses need Product Development professionals who understand how to build products that have world class User Experience and breathtaking design. Economies of scale is key and Product Growth professional help solutions scale as fast as it takes to serve an online ad.

One example of a company that nailed it is MileIQ. MileIQ publishes a Mobile App that automatically logs all rides and lets you easily deduct or expense miles with total peace of mind. Most of their users are sole proprietors or professionals using MileIQ for businesses. However, the company has been built from the ground up with a consumer mindset. MileIQ invested early in hiring Mobile Growth specialists and being ahead of the curve in mobile acquisition. The focus enabled the company to scale the number of paying users in a very short time period.

That is why I particularly like supporting SaaS founders that have a mixed background of Consumer and Enterprise. The team should first and foremost excel in building a product businesses love and achieving success by scaling Sales and Marketing.
However, founders will stay ahead of the pack by baking “consumer-like” characteristics into their product, make it viral, a pleasure to use, and a product businesses and their users will rave about. The companies who embrace that will shape the next wave of innovation in business productivity.

Bots are great for the Enterprise, not just for consumers

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2016 was already declared the year of bots. While potentially being slightly over-hyped, it seems that many consumer companies have been putting a lot of meat behind their conversational UI efforts.

Facebook is banking on its messaging apps to get back into becoming a leading platform again. They are already allowing users to chat with businesses for customer service and have integrated with Uber to allow people to call an Uber through Messenger. Up-and-comers like Kik are thinking about “importing” WeChat’s success in China to the US.

If indeed there is a broader shift away from traditional point-and-click apps to chat-based user interfaces that is a shift not just for consumer tech but also for the Enterprise. The same fatigue that consumer have with apps is also true for prosumers occupying a work station at work. They get several software solutions for HR, a few more for communication and social networking inside the organization, Many more to sharing content, and so on and so forth.

The transition to bots and conversational interfaces could represent a major point of disruption in the interface paradigm, leading to a slew of incumbent startups going after traditional Enterprise players. There are so many options to explore. What about a conversational analytic platform? How about search and information queries inside the org. run by an bot talking to multiple folks? Maybe a friendly HR bot can help you out with employee benefits? and believe it or not there is already a conversation lawyer out there called Ross (http://www.rossintelligence.com/) courtesy of IBM Watson.

But what about the distribution of those services? Companies like Slack are looking at chat-as-platform as a major next step and that could be one entry. Another simple and under the radar channel is email. Plain old email, requiring no apps to install and barely any configuration to hustle with.

Case in point is Clara. I love my Clara. She might be dumb as hell sometimes, but that is when the human kicks-in and corrects course. Hopefully there is some machine learning going on when that happens as the service seems to improve all the time. I’ve recently surveyed folks who have engaged with Clara only to find out that 90% had no idea they are talking to a machine, with the 10% that did know being Silicon Valley folks who just happened to hear about Clara.

And off course there is Siri and the now Alexa from Amazon. The other I came back home and my three years old toddler has totally lost interest in his previous hobby, the iPad. He spent the entire afternoon busy bossing Alexa around, cracking up whenever she replied to his commands.

Although Alexa currently just resides inside Echo, a consumer product mostly occupying kitchens, I’ve actually started using Alexa for more and more semi work related chores. For example, she is excellent at figuring out what my next meeting is an how traffic is looking (“Bay Bridge traffic is awful today. Thanks for asking”) I can see a natural evolution to engaging with a “personal assistant” – Alexa for business – making every employee a tad more efficient.

All in all it’s exciting development, making technology more accessible and helping us humans become more efficient at whatever we set out to do, including business.

What’s wrong with the Smart Home?

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For a while now we have had a slew of companies big and small promise us that the age of the Smart Home is finally here. The industry has seen a rash of early products that have raised soaring expectations and contributed to an expanding universe of ideas – it has become one of the hottest topics in IoT over the last two years (see my post about CES earlier this year – http://www.itamarnovick.com/internet-of-things-is-all-the-rage-at-ces-this-year/)

The “Smart Home” is an idea representing the culmination of many consumer-focused technologies, resulting in a magical residence equipped with lighting, heating, electronic devices, information, entertainment and other home components interacting together seamlessly and controlled remotely. This concept has fueled the imagination of entrepreneurs and tech savvy homeowners. Even my wife got used to having August the Smart lock gracefully unlock the door for her when she comes back home. Yes, she is loving it, thanks for asking.

However, Despite the “future is now” proclamations by industry observers, Smart Home technologies have been in the works for years and even though the first wave of Smart Home products is out there in the market I think we are very early in this cycle.

There are too many blockers and products are not working as well as they should. Here are a few challenges that have been plaguing this market.

Products not yet ready for mass market
While people are interested in the technology, they also aren’t ready to buy it. And I don’t blame them. Many products feel like a V1 or even a beta, with a disregard for usability and an incoherent story about what the product can do for people. This mean that anyone interested in buying a connected product quickly encounters a cautionary tale that makes them think twice about spending $200 on a connected door lock.

Connectivity standards
WIFI and Bluetooth are just not a good fit for connected home devices. Even Bluetooth Low Energy (BLE), which is a newer standard is not a great fit. It’s nobody’s fault, but the devices and consumers who buy them end up paying the price. These standards haven’t been designed with IoT devices in mind and don’t support use cases such as super low latency with consistent very reliable connection.

ZigBee and Z-Wave have been touted for years but market adoption of both is still anemic. Case in point – have you ever seen a smartphone that has any of these new IoT standards?

End point solutions vs. Platforms
So far, with the exception of SmartThings and a few others, the big promise of having connected devices talk to each other has not been delivered. The solutions that are selling well are actually all point solutions – Dropcam, Nest Thermostat, Canary, etc.
Non of these devices are “Platform” today. Unfortunately, the few platforms that are out there are not playing nicely with the leading point solutions leading to a frustrating user experience.

I think 2016 or 2017 will be a wonderful year for Home Automation filled with breakthroughs. Now all we need to do is fast forward to that time… I can’t wait for my fridge to start talking back to me when I forget to throw out my out of date eggs.

How big Companies (often) lose on Mobile

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The mobile explosion is simultaneously the biggest opportunity and biggest threat for established brands and companies. Unfortunately, many big companies just keep failing on this front.

A lot of companies do this:

mobile

It’s a big mistake. Mobile has to be front and center, an inherent part of the company’s DNA and not an afterthought. Mobile requires building new capabilities within the organization with a strong focus on Product and User Experience (UX).

On Mobile UX is 10x more important than on the web – it’s not just the small screen size. It is the nature of user interaction with mobile devices. Interactions often happen in snippets of time – 5 seconds here, another 10 seconds there. Users demand immediate satisfaction and have very little patience. Often users are just trying to do one thing and they want to do it well or use the best application out there to make it happen.

Platform and device dependency are both challenging. Android device proliferation results in a sea of different screen sizes, chip-sets and overall device capabilities. Some devices are excellent and others are so bad there is no way they would make your app shine. Being at Apple and Google’s mercy is a pain point that requires changing how engineering approaches development inside organization. Coming in with an approach that basically dictates moving your Web assets to Mobile is bound to fail.

Folks working at bigger companies sometimes ask me what is the best way to be successful on Mobile. My answer is that it’s best to treat your mobile project like a an independent startup. Hire people with the right skill-set, give them as much independence as you can and all the tools they need to build a product they love. If they will love it, there is a much higher chance to that rest of the world will fall in love as well.

“Internet of Things” is all the rage at CES this year

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IoT had a massive presence at CES this year (2014), with a big focus on Smart home devices. The hype around the “Smart home” is just getting started… Who doesn’t wants to a have a fridge that can tweet all by itself?

More seriously, It’s fascinating to see how quickly new devices are getting to market these days. Hardware is hard, and yet a lot of startups are building devices quickly. Here are some cool devices that I’ve seen on the floor:

Canary

A DYI all-in-one Home Security system still in pre-order. It’s had a very successful IndieGoGo campaign and the excitement over it seems well-founded. The Canary is a powerhouse of sensors with HD camera, microphone, thermometer, motion detector, air quality sensor… you name it.

The also have a friendly mobile app that goes with the device, enabling you to see what went down in your home in the last day (or more if you pay for the extended plans). It’s basically a life-stream of the HD camera showing highlights of the day (based on movement and such). Looks pretty neat.

With no Door Open/Close, just a single motion sensor, and no home monitoring solutions Canary will be hard pressed to replace a full-blown home security system. However, if you Rent or don’t want to pay a monthly subscription fee Canary might be a good fit for you.

Revolv Hub

The Smarthome needs a brain to be smart and quite a few folks are off to the races to build a so called “hub”. The grand vision beyond this is that in the future all the “smart” devices will be able to talk to each other and somehow make sense of all the chatter.

Revolv is one of the latest contenders to this category and has been working on some cool stuff. The Revolv Hub is a master controller of devices, connecting your devices to a smartphone app. The Hub supports 10 wireless standards , including Z-Wave, Zigbee and a slew of others. Off course it also supports regular Wi-Fi devices to backlink it all to the cloud. Revolv is working with some big names like Sonos, Philips hue, and Yale locks, but with automatic firmware updates the team is committed to bring many more devices to the fold.

The intriguing part is how Revolv puts all those devices together through their app via triggers. For example, If you move within 100 yards of your house, the Kwikset smart lock can unlock the door and yous Sonos device can turn up the heat.

SmartThings

SmartThings is another hub that wants to lord over your home devices and also a successful graduate of crowdfunding campaign. While SmartThings handles smart devices using Z-Wave and Zigbee wireless protocols just like Revolv, SmartThings’ secret weapon is optional sensors that tell you when the dog leaves the house or a window is left open.

The SmartThings app also works with IFTTT (disclamier: IFTTT is a Life360 partner) meaning you can setup protocols like “If I come within 50 feet of the hub, Then unlock/heat up house.”

SmartThings made quite an impression at CES with their “house” (Check it out - https://www.youtube.com/watch?v=5DQfhdK5qMw)

Nest Protect

Nest (the smart Thermostat company) is coming up with yet another product that is aimed to disrupt a dormant and un-sexy category. This time they are going for… Smoke Alarms.

The Nest Protect smoke alarm is all about the human touch. Instead of having annoying sirens go off, it it kindly speaks in a human voice and alerts you of smoke (and where it’s coming from) or a carbon monoxide leak. To dismiss, simply wave at the Nest device. It’s also got a beautiful design (compared to any smoke detector I’ve ever seen) and a battery life that lasts up to ten year.