Capital-as-a-Service: October 29, 2017 Snippets
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This week’s theme: introducing Capital as a Service.
This past Wednesday, we had a big announcement at Social Capital: the introduction of a brand new product called Capital as a Service.
Led by Social Capital partner Ashley Carroll, Capital as a Service funds early stage companies based on their fundamental metrics and merit: no expensive coffees, “warm introductions” or designer pitch decks. Founders fill out a form, upload their transaction or engagement data, and then get a response: helpful data-driven feedback on their submission and their business, and hopefully a financing offer as well. Over the past six months, Ashley has led a stealth pilot MVP of CaaS that evaluated over 3,000 companies and led to the successful funding of several dozen of them.
Capital as a Service is a big step into the future, and like most big steps, it goes against the grain of a lot of conventional wisdom: “That’s just the way things are done here, and that’ll never change.” The funny thing is that the Venture Capital industry, which makes a living by betting on change that disrupts and reorganizes other industries, still holds this steadfast belief about itself: that’s just the way things are done here. It won’t change.
As Ashley writes in her post, which you should all read:
“It’s not true that there are too many dollars in venture.
Today it seems fashionable to say there’s too much money in venture. You can look left and right and see companies solving one-percenter problems raising new rounds of funding when they should be failing fast and cheap. Or companies incinerating heaps of venture dollars in spectacular fashion that would have been better served by less funding and more focus. But it’s not because there’s too much money, it’s because that money is chasing too few opportunities.
At the same time, the world abounds with big, weighty unsolved problems and among the 7.5 billion people on the planet there is no shortage of talented people who aspire to solve them. So it’s not that there are too many dollars in venture, we’d argue in fact that there are too few. This was the belief that Social Capital was founded on, and we’ve sought out the most challenging problems from the start. However, across the industry at large, the allocation of dollars is highly inefficient. While this dynamic persists, we all lose: founders, employees, investors, and most of all the society that stands to benefit from novel solutions to the world’s hardest problems.
It’s not true that great ideas come only from Silicon Valley.
Many of the world’s hardest problems are felt unevenly across the globe, and often the entrepreneurs with the most context, the most authenticity, the most expertise, and the most drive to solve them sit closest to the problems themselves. From connectivity to labor market efficiency to healthcare access, many of these problems aren’t acutely experienced in the small number of financial hubs around the world. And the entrepreneurs best positioned to solve these problems don’t always look or sound a certain way, don’t always mingle with the right people, don’t always know the secret handshake. So, many of these ideas, many of these entrepreneurs, many of these teams struggle to raise meaningful amounts of capital. I’ve met with founders and teams on six continents, and I can tell you from personal experience that they don’t struggle to raise capital for lack of talent or drive or ingenuity, they struggle because they don’t match the traditional mental model of a Silicon Valley VC deal.
It’s not true that data can’t be applied to venture.
The reason that too many dollars are chasing too few opportunities is because the anatomy of traditional venture capital hasn’t changed in the past 30 years. Face-to-face interactions and human judgement, followed by (at best) a few thin Excel models and relationship-driven diligence creates a high propensity for bias and a low propensity for scale. This is a classic example of a sector ripe for disruption. Today, every industry is being revolutionized by the application of data: from healthcare to logistics to media and beyond. If the operative question is whether early-stage investment decisions can be better made with data than intuition, using virtually every other discipline as a guide the answer is almost certainly yes.
This is not a new idea for Social Capital. Data has been in our DNA from the start. Our partners have previously been operators, applying data to build both unicorn startups and multi-hundred-billion dollar public tech companies. We’ve built Social Capital on the belief that this data-oriented approach would yield not only the best investment decisions, but also offer the most actionable insights to the entrepreneurs we partner with to make their companies best in class. And we’ve proven the model time and time again: many of our most storied investments were not based on intuition or gut or affinity or bias, but on data, benchmarks and empirical evidence. To date, the application of this data-based discipline within our decision making framework has been fairly manual. We’ve shared our methodology for assessing product-market fit, and each time our Venture and Platform teams collaborate to apply it by hand when we learn something new about what makes a successful business model, but to truly achieve global scale we must augment this solution with software. That’s why we started experimenting with an approach we call ‘capital-as-a-service’, a new operating system for early stage investing, built on the principles of data-based decisions and architected for global reach and scale.”
Let there be no doubt: it’s time to build the future of venture.
Social Capital will let data decide where it invests | Polina Marinova, Fortune
Social Capital has started investing in startups, sight unseen | Connie Loizos, TechCrunch
In the 24 hours after launch, more than 1,000 companies signed up. You can too, at socialcapital.com/caas.
Watch your speed:
The new laws of explosive networks | Jennifer Ouellette, Quanta Magazine
Toxic VC and the marginal-dollar problem | Eric Paley, TechCrunch
Trouble ahead; trouble behind:
Bitter CRISPR patent war intensifies | Heidi Ledford, Nature
The advertising industry has been living a lie | Mike Shields, Business Insider
Just crossed my mind:
The problem with #metoo and viral outrage | Jessi Hempel, Backchannel
Oliver Sacks: a journey from where to where | Radiolab
Changing demands on peak power:
GE locks down major grid data deal with Exelon’s utilities | Julian Spector, GTM
Shell acquires giant Newmotion EV charging network | Clean Technica
Crypto doubts, big and small:
Hardware wallet vulnerabilities | Karl Kreder
Warren Buffett on bitcoin, self driving cars, and life | Makail Johannesson, Marketwatch
The bitcoin boom: asset, currency, commodity or collectible? | Aswath Damodaran
Other reading from around the Internet:
A dozen lessons from Megan Quinn about a growth mindset | Tren Griffin
How to bootstrap your startup’s HR (and when not to) Nora Jenkins Townson
Stranger Things’ creators on Season 2, Binge TV, and foulmouthed kids | Peter Rubin, Wired
Why Trello failed to build a $1 Billion+ business | Hiten Shah, The Journal Blog
Material inspired by ocean mussels could lead to self-healing plastics | Robert Service, Science
And just for fun:
Amazon should just build HQ2 in my apartment | Kriston Capps, City Lab
In this week’s news and notes from Social Capital (aside from the big announcement of Capital as a Service, of course) we’ve got a few progress updates and milestones from around the family to share with you.
First up, a shoutout to Cozy, who reached an important run rate milestone recently: $1 billion in annual processed payments. That’s 10x what they were doing two years ago, and 1000x what they were doing four years ago:
A billion reasons to remain focused: making big milestones at Cozy
Cozy’s team of 33 people in Portland now run their flagship product for over 285,000 units, with 10,000 new landlords and 30,000 new tenants signing up for Cozy every month. Cozy apartments are sprouting up all over the country, pretty much everywhere you look:
If you’re a landlord or have friends who are, definitely give Cozy a look — you can also check out their companion site, Landlordology, for some helpful free tools and resources for landlords and property managers. Great job all, and keep up the great growth.
Check out a really nice video about Remind by the team at Google Play, highlighting some of the founders’ childhood experiences and how it gave them the inspiration for what become Remind. You can read more about what’s up with the Remind team here, as they’re midway through another school year and always have news to share. They’ve been particularly active in helping their communities affected by disasters such as the California wildfires and Hurricane Harvey, and hit an important milestone of 10 billion school messages delivered.
Airmap has rolled out automated airspace authorization for drone operators right through their app, a huge step forward for drone operators everywhere:
And finally, Inside Intercom’s San Francisco event was a great success, wrapping up a whole series that included similar events in London, Tel Aviv, Toronto, Seattle, and many more around the world. It all sound out, so hopefully we can expect an announcement about next year before too long.
Have a great week,
Alex & the team from Social Capital
