Notes for TWiST ep.615 — News Roundtable! Market mishigas, funding & IPO fall-outs, Apple AI & VR, on-demand, 2016 outlook

Jason Calacanis, Danielle Morrill, Katie Benner

It’s news roundtable time at ThisWeekInStartups: Jason is joined by Danielle Morrill (CEO and founder of YC-backed Mattermark) and Katie Benner (reporter at the New York Times) to discuss the state of international financial markets, VCs taking a step back to wait and see how the scenario is going to unfold, Uber and it’s takeover of the on-demand economy, Apple acquisitions, Amazon Echo, Theranos scandal and how fraudsters typically react when they are exposed to the public.

Without further ado, let’s dive into the notes of what’s been told in today’s episode (if you want to watch it - you should - here you have the links: audio, video).

Forget to subscribe to the ThisWeekInStartups podcast on Itunes at your own peril.


Guests

  • Danielle Morrill, founder and CEO of Mattermark, a startup selling access to a database of all startups, tracking different data and assessing their health
  • Katie Benner, New York Times reporter writing about Apple, startups, venture capital since June

Financial markets in 2016

  • Markets have imploded in the beggining of 2016: they lost 10–20% in January
  • Venture investing has declined as well in the third quarter of 2015
  • During summer, investors have started to think that things are getting overvalued — so they pulled back a bit in the last quarter, to wait and see what happens
  • Founders have gotten too bubbly themselves, their expenctations for how much their companies are worth were getting out of hand
  • They want to make it an investor’s market, not a founder’s market
  • Economics in some companies were not good, so they had to enforce more care with spending and costs

Is there gonna be a market crash or it’s just a correction?

  • Something is happening and there will be repercussion to the tech industry, even if it won’t be caused by a bunch of overvalued unicorns. Like 2008, banks failed and chains like Walmart felt the hit.
  • Cheap energy and cheap oil and a strong dollar could be good for consumer companies: Americans have more money to spend on buying other stuff
  • Danielle thinks there is more than 50% chances of a stock market crash and bear market
  • Katie isn’t so sure we have yet reached the tipping point and it’s still unclear what will be the trigger (China financial crisis, debt crisis etc)

How Mattermark tell how in trouble a company is

  • You can tell by the data which companies are in trouble by looking at
  • a. timing between founding rounds (if it’s been 16 months, they are not going gangbuster and they have raised no money they may be close to the end of their runway and struggle to raise more)
  • b. employees count, if they have lost employees in the past 6 months
  • You can get these data on Twitter, Facebook, Linkedin, Hacker News

Effects that an investment crunch can have

  • Startups will be run more efficiently, hiring freeze or cutbacks and more focus on making money, becoming profitable
  • We won’t see companies being shut down as much as being sold
  • Reason: they invest money and if the company gets sold, they get a predetermined amount of money out (the equivalent of what they put in)
  • Common share holders and employees don’t have this protection and don’t get a lot of money in these cases
  • All founders founded with convertible notes with lots of debt will want to convert it into equity and getting an equity investor involved
  • Convertible notes are great to raise money quickly and cheaply but if they build up and the business becomes real, it should be equity
  • Another thing you’ll see: companies with convertible backers will be offered more money in inside rounds to extend their runway, without the public knowing it
  • Raising money has been easy in the past years, you meet with 20 investors and you get 5 to invest, pretty amazing
  • When Danielle graduated YC, there was 80 companies and half of them raised money
  • On each batch 2 o 3 companies end up doing great, about 10 do ok and the rest are either meh or go bust
  • Mattermark had 115 seed investors, found through AngelList
  • With all the ones she talked it was a coin flip whether they would invest, 50–50 chances of saying yes
  • It wouldn’t be extremely hard now but lots ofinvestors are taking a break from investing into startups, waiting to see what happens

IPOs

  • People planning to IPOs will want to wait to see how things evolve, there’s too much uncertainty and volatility, it’s too unpredictable
  • Some companies should, they can build great product with the injections of capital from the markets but investment bankers are probably telling them to keep it
  • Danielle would IPO her company in this company, she believes it would be an opportunity
  • Great companies like Google, Facebook, Apple, Microsoft that have lots of cash could want to buy them at a cheaper price (if they can fit them into their long term vision and not screw them up)

Business categories that didn’t work out as well as thought

  • Groupon, Living Social kind of sites: daily deal sites as a category not going to be as big as thought
  • Flashsales sites are going away

On-demand app category

  • At the end of the day, if they are profitable they survive
  • Raising their prices though (like Instacart did) could put pressure on them and turn customers off (even if people are getting addicted to being served by all these services that do stuff for you)

Uber killing car ownership

  • Jason is considering to go full Uber, he likes to close his eyes, read or write emails when in a car
  • Uber is not subsidizing drivers and they are angry
  • Unlike Lyft, you can’t tip Uber drivers: the UX flow is kept as simple as possible (choose destination and pay) that adding a tip will mean adding an extra step (if surge pricing is on, you have a second decision to take)
  • Every time they have cut their prices, they have made up the difference with the drivers and they have always been right
  • Ever since prices have been cut, people have been using Uber more
  • They are trying to kill car ownership, Jason knows people in LA giving up their cars to go full Uber (they pay the same but they don’t have to drive and have more time to spend for other things)
  • You don’t rent cars anymore thanks to Uber
  • Amazon went public early on and wasn’t profitable for a long time, took the IPO money and built great product (AWS; Prime etc)
  • Uber instead of going public with the idea of a taxi service is experimenting and laying the infrastructure for becoming the #1 in the demand-economy for everything else, not just taxi
  • Learning how to route things and people and apply at a much higher scale
  • UberEats app is going to be his own app and Uber drivers in the future may also be the ones doing food deliveries (other services: laundry etc)

Apple deficiencies

  • At Apple they realized they are deficient in the areas of machine learning, artificial intelligence and virtual reality — those will be huge platform or huge source of growth and innovation
  • Not surprising that Apple lately bough Emotient, a facial expression analysis — they already have facial recognition and hired Dog Bowman, computer science professor at VirginiaTech and VR expert

Amazon Echo

  • Jason loves it, you can ask Alexa to set timers, play music or the next episode of TWiSt
  • She’s always listening and she’s connected to your Amazon account: the more info a service like this has the better it will be
  • Security issues: if Echo records all your conversations, hackers could access them (and listen to them in real time)

Zombie companies

  • Jason warns Danielle not to go down too hard on startups that are dying, based on her data
  • She has built a following, she has the data and the credibility among the tech public that if she says something, whether it’s true or false, it has consequences
  • She’s about the democratization of access to information: why should only Jason or Sacca and investors know that a company is dying? People who may thinking of going to work there should know as well, it affects their careers

Theranos scandal

  • Jason has lost all the respect for Theranos founder Elizabeth Holmes when she attacked the journalist that wrote the Wall Street Journal article claiming Theranos can’t deliver what they promise.
  • She went after the individual instead of presenting data to prove him wrong.
  • She was yelling and screaming on Twitter and getting other people to attack the journalist and she’s playing with people health
  • How you react in a crisis is so critical and the way they reacted is indicative of fraud to Jason

If you have enjoyed these notes, follow me on Twitter for more.

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