A Few Small Things
Angular Ventures Weekly Issue #175: For the week ended February 21, 2023
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A few small things
Gil Dibner
So it’s my turn to write the column this week, and — I must be honest — I don’t have much. On Saturday, I landed in London with my family after a few days off. Tomorrow (by the time you read this), I’ll be in the air to the US on business. And I’m not even packed yet. My head is elsewhere, and there is no time for an attempt at depth. But as I scanned my mind looking for something to write, a few ideas popped up that I wanted to leave here:
What’s said in public vs what’s said in private. Last week, I wrote a Twitter thread on what’s really happening with VCs right now, and why a lot of LPs are pretty frustrated and unhappy with how many VCs have been conducting themselves. The thread got over 1M views on Twitter, more than anything else I’ve written. The key point I was trying to make is that a lot of different types of bad VC behavior are converging right now, and LPs are not happy with this at all. We hear this frustration from a lot of LPs — and after I wrote the thread, my inbox and DMs were full of LPs and GPs reaching out to say that the thread was “spot on.” But at least some of the public discussion of the thread had a different tone with some people saying it was an over-statement or disputing its conclusions. What I take away from this is that what is said in public and what is said in private are often quite different. In public, people in the VC industry usually have a narrative to sell. In private, people (especially LPs) are willing to call out the industry’s worst behaviors and name the worst offenders. The messages delivered in private can be harder to hear — but they carry more weight.
Bad cops and blind spots. Over the past few months, I’ve found myself having to step up several times in the context of a board meeting and deliver some pretty difficult messages. On some level, the message “cut burn and extend runway” is easy. It’s copy-paste. You can find it on a million blogs and podcasts. But on another level, impacting the trajectory of a company by causing founders to actually hear and internalize a set of messages that they really would prefer to ignore is not easy at all. That sort of conversation sometimes spans many months, involves many people, and requires a careful reading of the situation and the right balance of tone, volume, and content. I am sure I have lots of room for improvement. But one mistake I will not make again is to remain too quiet while a company runs full speed at the wall. These difficult conversations are painful, but shutting down a company that could have survived is far worse.
Paper value vs. real value. I’ve been thinking a lot about the nature of value: the paper kind we VCs report to our LPs and the real kind: the kind that customers get from a product and one that turns — ultimately — into cashflow. In these turbulent times, the paper kind is pretty much meaningless. We do report a fund “multiple” to our LPs on a quarterly basis, but what we can not report effectively on is the underlying value that our companies are building. But we feel it every day, steadily being built: in the Slack channels where companies are reporting on their customer interactions, in the calls we have with advisors who express increasing enthusiasm and the significance of a product becomes clear, in the weekly pipeline updates of CEOs as the quarter’s numbers get a bit more solid every week, and in the quiet calm of founders who can sense product-market-fit approaching. What it says on paper about the performance of our fund or some other fund is just a number — a momentary theoretical TVPI. What we feel when we talk to founders is the real value building just under the surface of the value numbers on paper.
The long slog ahead. 2023 is well under way. We are almost in March. The macroeconomic climate seems to have stabilized somewhat, and the geopolitical climate is only getting wilder by the minute: China and the US are at loggerheads, the Ukraine war is dragging dangerously on, Trump is running for President, and in Israel the inmates are running the asylum — at least for now. By now we have all internalized that the boom times are not coming back any time soon — and probably never. By now we have all done our best to extend runways and adjust our sales playbooks to the new reality. The rest of 2023 and probably the beginning of 2024 will feel like a long, difficult, and exhausting climb out of the depths. The economy (and, with some luck, geopolitics as well) will eventually recover. The IPO window will eventually open again. Optimism will return, and with it, some slightly easier fundraising processes for founders may start to happen. For now, however, we are all settled in the long slog ahead. There is some comfort in knowing where we stand and that we are all in this together.
Gil
EVENTS
Mar 8 / The Evolution of Collibra’s Product Positioning & How They Created a Category
Stan Christiaens, Co-Founder & Chief Data Citizen, Collibra
FROM THE BLOG
Why (and How) Investing in Billboard Advertising Sometimes Makes Sense
Part I of a series on non-standard growth experiments.
The Hierarchy Trap
Hierarchy is an important tool for providing structure and alignment, but it can easily grow like a weed if not managed.
The Tech Recession of 2022
What lessons can we learn from the successes and failures of the 2010s?
No One is Having Fun Right Now
And that’s okay.
EUROPE & ISRAEL FUNDING NEWS
Bulgaria/Aerospace Systems. Dronamics raised $40M for its autonomous cargo drone fleet.
France/Employment Marketplace. Brigad raised $30M for its freelance marketplace for hospitality and care workers.
Israel/Security. Oligo raised $28M for its runtime application security and observability solution.
Switzerland/Semiconductors Systems. UNISERS raised $14M for its machines that offer a new level of performance in the difficult task of detecting extraneous extremely small particles that ruin chips in production.
Germany/Energy Services. Cylib raised $8.6M to take end-of-life batteries, recover the resources and output new raw materials.
UK/Financial. Sikoia raised $6M for its loan onboarding and risk management platform.
WORTH READING
ENTERPRISE/TECH NEWS
Wolfram explains ChatGPT. With ChatGPT continuing to impress, it’s worth reading this explanation from Stephen Wolfram of how it actually works. This is by far the best layman’s explanation of what the underlying model is doing, and is a useful primer for anyone, especially those with no technical background. A brief excerpt: “[What] ChatGPT is always fundamentally trying to do is to produce a “reasonable continuation” of whatever text it’s got so far, where by “reasonable” we mean “what one might expect someone to write after seeing what people have written on billions of webpages, etc.””
Lessons from a week with Sydney. This was a big week for Bing and Bing’s OpenAI-powered chatbot code-named Sydney. A few interesting pieces from around the internet: (1) Ethan Mollick, Associate Professor at Wharton, wrote an interesting piece disaggregating the two types of AI represented by Bing’s Sydney: the AI “search” engine and the superpowered chatbot. Mollick’s take, in short, was that the search engine was incredibly useful, and the chatbot was incredibly unsettling (despite knowing there’s no “intelligence” at work). (2) Erik Hoel, a former researcher at Tufts, wrote a much more alarmist reflection on Bing’s Sydney (aptly titled “I am Bing, and I am evil”), comparing it to the invention of the atom bomb. (3) A similarly alarmist piece
from Kevin Roose in the New York Times, and a post excoriating Roose’s piece from Mike Solana of Founders Fund.
Immune engineering. A fascinating (and exciting) piece from Elliot Hershberg on the promising field of “immune engineering,” a.k.a. programming immune cells to cure complex and system genetic diseases. This idea has been proven out already with CAR-T cells engineered to target leukemia cells in an experimental therapy that has left patients cancer free for over a decade. Hershberg makes the case that this could be the next great area for therapeutic innovation. What other immune cells can be engineered? As Hershberg says: “What if we could engineer every immune cell — and every possible combination of immune cells — to cure every disease? This is clearly an incredibly far out vision for the future of immune engineering, but biology needs more big visions if we are going to reach our full potential.”
HOW TO STARTUP
Defensibility and competition. An excellent overview from Elad Gil on how startups build defensibility over time, and what defensibility might look like in the age of artificial intelligence. Gil’s point is that most startups don’t start with any sort of defensibility. Defensibility emerges over time based on either what they build (e.g. a slew of complex integrations can be challenging for competitors to match, product nuance can reveal hard-won customer insights that are difficult for competitors to parse) and what is built on top of them (e.g. if they become a platform). How does this all relate to AI? From Gil: “The takeaway is that serving a customer need well is often more important (and harder) to think about than defensibility. In many cases defensibility emerges over time — particularly if you build out a proprietary data set or become an ingrained workflow, or create defensibility via sales or other moats. The less building and expansion of the product you do after launch, the more vulnerable you will be to other startups or incumbents eventually coming after and commoditizing you. Pace of execution and ongoing shipping post v1 matters a lot to building one forms of defensibility above. Obviously, if your company is defensible up-front it is better then if it isn’t.”
What ails Google? A clarion call from Praveen Seshadri (founder of AppSheet, acquired by Google) on what ails Google, and what needs to be done to turn it around. There are lessons in here for every startup founder out there on how to stave off the inevitable decline in productivity that companies face as they scale and start to focus more on protecting their core assets than building new, ambitious businesses. A stinging opener from Seshadri: “Google has 175,000+ capable and well-compensated employees who get very little done quarter over quarter, year over year. Like mice, they are trapped in a maze of approvals, launch processes, legal reviews, performance reviews, exec reviews, documents, meetings, bug reports, triage, OKRs, H1 plans followed by H2 plans, all-hands summits, and inevitable reorgs.”
HOW TO VENTURE
C3 but not for me. Evan Armstrong makes the argument that investing in “AI” will be harder than investors think by focusing on C3.ai, one of the most “pure play” enterprise AI companies out there, which is down 83% YoY.
Incuments (and bootstrappers) rejoice. Tyler Tringas of Calm Capital argues that the AI revolution will benefit the big players (who can invest to develop the large foundational models) and the incumbent category leaders (who will add AI to their core customer experience). Many of the VC-backed players now are “features” not products, according to Tringas. The other winners: bootstrappers, who, with AI-powered tooling in hand, just got the biggest productivity gain ever and can now compete with the big boys on much more equal footing.
PORTFOLIO NEWS
Vault Platform has shared their Integrity Innovators 2023 list, composed of thought leaders and ethics and compliance professionals who embody active integrity.
Snyk has a new strategic alliance with Dynatrace.
Sisense’s CEO, Amir Orad, spoke about how data democratization and innovation in data use cases will impact businesses in a recent interview.
