Terrible, Horrible, No Good Very Bad Week: November 18, 2018 Snippets
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This week’s theme: Amazon, Facebook and Crypto have Very Bad Weeks, narrative-wise. Plus Clearbanc joins the Social Capital family, and Netskope announces their Series F financing.
Ok, so who had a worse week? Was it Amazon, whose HQ2 announcement made people so mad that the Wall Street Journal’s op-ed section and Alexandria Ocasio-Cortez agreed with one another? Or maybe Facebook, already on thin ice over the past year, after an incendiary New York Times exposé that prompted many to wonder whether heads will roll? Or, perhaps, the worst week of all of them goes to the cryptocurrency community, who after working a divisive and hilarious fork war between two rival Bitcoin Cash faction each led by their own charismatic sham artist, had the SEC formally announce that practically all ICOs were and are illegal in the United States? Tough call!
Some weeks you get the bear, and some weeks the bear gets you. But every once in a while, there are weeks where the bear doesn’t just eat you; the bear does so in a way that paints an utterly hilarious caricature out of your most exaggerated faults. There are weeks where if you asked their harshest critics, “what would be the most embarrassing possible news story that could get exposed about this company?”, even they couldn’t gleefully think of something this good. This week was one of those weeks for Amazon; it was one of those weeks for Facebook; and it was one of those weeks for Crypto.
Amazon:
The reputation / caricature: “They’re a thousand-tentacled life sucking monster that wipes out local ecosystems and doesn’t pay taxes.” Is that fair? Well, “continuous consumerization” in all its forms was a phenomenon before Amazon, it’ll be a phenomenon after Amazon, and its pros and cons will forever be argued about endlessly. Amazon just happens to be extraordinarily good at it. And it is not untrue that this relentless focus on serving the consumer has fostered some persistently recurring stories, like warehouse workers suffering through all kinds of indignities (admittedly true at least anecdotally) and the fact that they don’t pay taxes (although they do collect state taxes now, it is true that they didn’t during their early days; and they still don’t pay much corporate tax because they’re too busy reinvesting their cash to report very many profits!). Comparisons to 19th century monopolies like Standard Oil or the railroads are becoming increasingly common, yet Amazon has forged ahead with flexing their muscles all over the place. Such as…
This week’s news story: Well, the Amazon HQ2 season of The Bachelor/ette has finally come to a conclusion (with a twist announcement that actually, Amazon will now get another two senators!), and let me tell you, people are not happy about it. After a long period of parading around the idea that an Amazon HQ would serve as a shot in the arm for some heartland city, Amazon went and picked New York City and Washington DC anyway. Furthermore, all of the losing cities had the further embarrassment of everybody laughing at what ridiculous incentives and tax breaks they had grovelled with in their bids; the only exception being Toronto, having politely told Amazon’s subsidy team to get lost. But the worst detail of all was…
The kicker: The NYC site selected in Long Island City, Queens, was supposedly slated to become public housing. Worse, since the HQ selection process was coordinated at the New York State level and championed by Governor Cuomo, the city doesn’t get to have put the site change or the subsidy up for a vote. But that’s facing some pretty ferocious (and appropriate) resistance, so expect this frustration to not go away any time soon. Either way, the idea of funded public housing getting replaced by a publicly funded helipad for the richest man in the world is a pretty disastrous metaphor for a company whose biggest threat at this point is government action. But despite all that, Amazon somehow didn’t have the worst Wednesday in tech, because…
Facebook:
The reputation / caricature: “They’re destroyed the fabric of civic society, created a platform for reality-denial at massive scale, and turned everyone’s social life into a PR facade.” Is that fair? Ok, I mean, come on. Snippets readers should know at this point that I’m not about to unfurl a giant banner that says “Facebook Bad”; but I am willing to say that plenty of people would do so enthusiastically. And even the biggest Facebook boosters I know, many of whom wake up and go to work there each morning with genuine, honest and good-hearted conviction to help connect people in ways that make the world better, will admit that Facebook’s had a pretty tough year, public perception-wise. Facebook really didn’t need another PR crisis on its hands. But this week, it got…
This week’s news story: A “PR PR Crisis” on its hands! On Wednesday, the New York Times published a real thunderdump of an article that, let’s just say, does not portray Facebook in a very good light. Rather than being about any given crisis that Facebook has gone through over the past few years (Russian hacking, hate speech, Cambridge Analytica…), the piece was about Facebook’s efforts, both internal and with outside help, to contain damage and narratives over that period. As Casey Newton astutely pointed out in his newsletter The Interface, it was a crisis “where the PR itself became the crisis”. And a lot of the details of what happened, many of which are more reflective of the nature of the PR industry than of Facebook in particular, are shocking a lot of readers who don’t necessarily know, or want to know, how the sausage gets made. (Other allegations, however, were quite Facebook specific and we won’t go into them but they were pretty problematic.) But the worst detail of all was…
The kicker: The kicker was one particular detail in which Facebook’s PR firm allegedly stoked an online campaign to implicate Facebook’s critics with MAGA Culture- boogeyman George Soros. Think about this for a second: the knock on Facebook has always been “It has become a platform for the worst kind of reality-denial culture war fake news”, but not that Facebook itself was engaged in this behavior, indirectly or otherwise. Facebook obviously denies being complicit in this, and I’m inclined to give them a pretty generous benefit of the doubt, but still, yikes. Meanwhile…
Crypto: (It’s ok. We all knew where this one was going.)
The reputation / caricature: “It’s an ungovernable rat’s nest of scams that ten years in has found no actual product market fit with regular users except for get-rich-quick schemes.” Is that fair? We’ve been talking about crypto for the past three weeks and I really don’t feel like writing about it any more, but if you really want a refresher on Snippets Crypto issues you can read this, this, this, this, this, this, this or this one. IN SUMMARY: this year has been really not fun for people who spent 2017 preaching about the decentralized, tokenized future and selling all of their worthless fiat (and, possibly, their Bitcoin) in order to diversify into ICOs. And it got even worse on Friday, because…
This week’s news story: The United States Securities and Exchange Commission released a statement concluding that, in contrast to what many in the crypto world had promised would never happen, ICOs most definitely count as securities offerings. While a select few people like Preston Byrne and Stephen Palley felt quite vindicated, having insisted to the deaf ears of an exuberant community over the past several years that this day would come, quite a few other people are in a spot of trouble. That’s because it means that, as of this point, the American ICO in its current form is dead; and although other jurisdictions remain less hostile, marketing ICOs to American buyers without going through the formality of registering them as securities is now cut-and-dry illegal for anybody. (That doesn’t mean American ICOs are permanently over, but when/if they come back, they’ll need to be done as legal securities offerings with new business models, which is a world away from what had been going on last year. Unfortunately, not that many people can articulate a reason why these projects need to be on a public blockchain anymore, if they can’t freely ICO… hmmm… ) Adding to the grim news was the announcement that the SEC will in fact be pursuing charges, not just against the most egregious offenders, but against all kinds of projects, big, small, red, blue, anywhere. But the worst news is…
The kicker: Retail customers who bought tokens in an ICO are allowed to sue for their initial investment back, in real currency. If customers follow through, that would mean certain bankruptcy for ICO’d projects who raised a bunch of money in Ethereum and did not convert immediately to US Dollars or some other fiat currency. Or, at the very least, reimbursement at a steep loss. (Odds are they didn’t; with prices surging as they were, all but the smartest probably held or even doubled down!) If they raised $10 million worth of Ethereum then, and spent none of it, they’d only have $2 million today available to pay off anyone who asks for their money back. Not good. Not good at all.
Some weeks you’re the dog; some weeks you’re the fire hydrant.
Narrative violations:
Millennials don’t need cars? Their debt loads say otherwise | Kevin Wack, American Banker
Peer Review: the worst way to judge research, except for all the others | Aaron Carroll, NYT Upshot
Look both ways before you cross the street:
Ban on Gene Drives is back on the UN agenda, worrying scientists | Ewen Callaway, Nature
Podcast episodes for your listening enjoyment:
Kansas City versus Kansas City | Planet Money with Noel King
Ray Dalio discusses major financial crises | Masters in Business with Barry Ritholtz
The War of the Worlds, 80th anniversary Deep Dive edition | Radiolab
How we got here:
Facebook and the Fires: toxic smoke as bleak backdrop, and metaphor | Kara Swisher, NYT
How this all happened | Morgan Housel
Other reading from around the Internet:
China unveils design for $5 Billion particle smasher | Dennis Normile, Science
Meditations on Axios’s Smart Brevity Longform | Lyz Lenz, Columbia Journalism Review
How a former Canadian spy helps Wall Street mavens think smarter | Landon Thomas, Jr
Three Feet From God: an oral history of Nirvana ‘Unplugged’ | Alan Siegel, The Ringer
In this week’s news and notes from Social Capital, first up we have once again a new family member to announce: Clearbanc.
Clearbanc raises $70M to give startups ad money for a rev share | Josh Constine, TechCrunch
Clearbanc is an interesting company with a really interesting origin story. It’s also perfectly timed with a theme we’ve been speaking to at length recently: the changing nature of ad spend as a percentage of fundraising and startup expenses. As Chamath wrote in our annual letter a few weeks ago, the VC backed startup ecosystem is facing a moment of reckoning, as an increasing percentage of raised capital is being spent on user acquisition and growth at all costs. For companies that are purportedly investing that money to build differentiated capital, spending it instead to be the highest bidder for Google Adwords and Facebook custom audiences is concerning, to say the least. But there’s another kind of company for whom that is exactly where they should be spending their war chest: customer product companies, for instance, who sell something people want today and legitimately need to drive traffic towards profitable sales, today. But, as we’ve shed sufficient ink arguing, this isn’t always the best use of venture capital dollars. But who else will step up? Banks won’t offer loans to these companies, since they have few assets. But someone ought to!
Enter Clearbanc, and their origin story. Its founders Michele Romanow and Andrew D’Souza had started angel investing together, and going in on some of the deals that Romanow was seeing on Dragon’s Den, a Canadian version of Shark Tank (hold your jokes till the end, please) on which Romanow is a regular judge. D’Souza explains: “We started investing together in some of the deals we would see from Dragon’s Den and often found that an equity investment wasn’t the right structure for these consumer product companies. They had great economics and had found a niche of customers, but often didn’t want to exit the business at any point. They needed money to acquire more customers, scale up their marketing efforts and online ad spend. So we started to do these revenue share deals.” These revenue share deals found immediate product market fit with their audience; Romanow and D’Souza, both already serial entrepreneurs, seized the opportunity and founded Clearbanc.
After spending a few years under the radar, Clearbanc has now made an entrance with $70 million of new capital raised, from Emergence Capital, Social Capital and several other investors. Based on Stripe, Facebook ads and other ground-truth metrics to ascertain the health and acceleration of a business, they then underwrite subsequent ad spending in exchange for a share of the revenue plus a six percent interest fee. Compared to what banks will offer (or, usually, won’t offer at all), this is a great deal — and exactly what a whole lot of startups are looking for. The great unbundling of Venture Capital will be a long and unpredictable journey, but we can clearly see one slice of that future in Clearbanc. As D’Souza puts it, “Our goal is to be the first and last backer of a successful business.” They’re currently hiring for software engineering and business development positions in Toronto: if you or someone you know is interested, head to clearbanc.com/careers.
In other fundraising news, Netskope has raised a Series F round of funding from Lightspeed Venture Partners, Social Capital, and several other firms:
Cloud securer Netskope raises $170 million, sprouts ‘unicorn’ horn | Robert Hackett, Fortune
No one can put it any better than Netskope’s CEO Sanjay Beri, who gave Fortune his frank and honest motivation behind the fresh funding: “You innovate or you die in security.” Their full-court press for more innovation comes at a critical time for Netskope and for the budding cloud security industry as a whole. For one, increasingly public and problematic breaches of late have helped fuel an increasing urgency to prioritize data, cloud and web app security. Meanwhile, the increasing diversity of bring-your-own mobile devices and sometimes even laptops, combined with a nightmarish number of permissions, interactions and permutations to manage, is compounding the challenge facing the enterprise security team. And furthermore, the steady transition away from on-premise computing and into the cloud is finally unlocking the C-level attention and cash resources needed to address these issues; but those dollars are aggressively fought over by enterprise sales teams around the globe: step into any airport and you’ll see why. (To paraphrase Patrick Collison’s joke: if you assemble enough enterprise cloud security ads, an airport spontaneously forms around them.)
Fortunately, there’s Netskope. (And, credit where credit is due: fortunately there are Netskope’s competitors, too. We’d obviously love to see Netskope win the market, but it’s also a very good thing for the ecosystem to ripen, and for competition to fuel even more security improvements for their customers: data security impacts everybody.) Netskope is headquartered in Santa Clara, and is hiring for a number of positions there and at its engineering hub in Bangalore; they’re also always looking to hire for customer success positions in cities around the world; head here to find out what positions and where.
Have a great week,
Alex & the team from Social Capital
