That's the term that Fred Ehrsam, founder of Bitcoin startup Coinbase, used to describe the current state of play in the Bitcoin ecosystem.
It's an interesting term, one that a) makes me uncomfortable as an investor and b) I'm not sure totally applies to a marketplace that is all about decentralization and openness. First of all, it's a real estate term, obviously. It applies to a finite, physical resource. As the saying goes, "They're not making more land."
When and where do land grabs happen? Shifts in population, transportation, and economic opportunity produce land grabs. Settlers in the Western United States in the 1800's participated in land grabs. The more real estate you could secure, the better off you were--sort of. Technically, there's only a finite amount of land in Wyoming, but there are so few people there, it's priced as if it was pretty abundant. You could claim a whole bunch of land. However, the land itself had more value in terms of what it enabled you to do rather than having some inherent transactional value in a marketplace--because it was so abundant. Even today, land in the middle of the country is still pretty much dirt cheap--but if you decided to be a rancher on your land, you could probably scratch out a living. Contrast that with Williamsburg in Brooklyn eight or ten years ago. Anything you bought could be flipped now for multiples of what you paid for it--regardless of whether or not you developed it. That's because there's a finite supply of land within a certain amount of subway minutes from Manhattan. There's only N number of plots that are walking distance to the Bedford stop on the L. Increased demand, finite supply, price goes up.
Is there a North Brooklyn real estate bubble? It's entirely possible. We've certainly witnessed recent real estate bubbles before--but they tend to be more pronounced in places like Nevada and Florida where there seems to be tons of land AND tons of excitement about that land. Excitement is overestimated, and development outstrips demand. Lot's of people build, but there's lots—too much—land to build on. Poof, bubble.
My biggest issue with Bitcoin is that the decentralized nature of the system, while potentially promising lots of opportunity to create value for people, may look more like the Midwest than Brooklyn. The actual supply of Bitcoin is somewhat capped, but that may mean that you'd rather be a currency investor than a service business around Bitcoin--because access is going to be open, distributed, and trend towards as free as possible. It's the kind of market where the second you start making a lot of money by being a provider of services, someone's going to come along, copy it, and give it away for free. Why wouldn't all of the Bitcoin supporters make currency conversion, fraud protection, and trasaction processing of various types free for all, to encourage use of the system?
In a Bitcoin world, you'll never be the only provider of something, because that only tends to happen in centralized, regulated environments. Take the internet domain registries. If anyone could sell any names, there wouldn't be as much of a profit to be made in the business as there is now. To me, the magic and promise of Bitcoin is that the friction in the financial transaction system (and hence the profits to be extracted--taken out of the system), will move to zero using technology.
E-mail might be a good example to think about. It's an open, distributed architecture that anyone can jump onto. It's about as democratized as you get. If you add up the sum total of all of the enterprise value created by e-mail related companies, the bulk of it didn't happen until almost 20 years after the first e-mails were sent. Companies like Lotus, or the spam blockers, virus checkers, bulk senders, authentication providers, marketers etc made their money quite a long time after the medium was invented.
On the other hand, are there benefits to being the first investors in Bitcoin related companies? I think there are, if you're a bigger, established fund, with long term minded LPs whose coin you can educate yourself on. By being early to a space, you start building the earliest network of thought leaders in that space. You gain a reputation and, most importantly, you learn. There have been studies done on venture capital returns that state that being first to market for an investor isn't necessarily a good bet with those early companies, but that it provides you with the opportunity to invest in better companies in that market later on. Your first investments in an industry tank, but your performance in that space overall is better over time.
I think the key is understanding which of these markets are worth being early to. There was a time when we thought virtual worlds were going to be that kind of game changing space--where everyone would have an avatar and we'd stop traveling around by plane. That didn't quite happen.
Nanotechnology was another space that investors piled into that was supposed to change the world, but didn't live up to it's promise.
You might even say the same thing for social. What's the sum total of all of the enterprise value that has been created around social, compared to the money that went into it from investors? How much of that value is concentrated in Facebook and LinkedIn? Social changed everything, but few companies actually made money off it and exited by being solely about social.
I like the idea of having a currency that doesn't get manipulated by big banks and political types, but I think I'll always wrap a $20 bill around my Metro Card and my credit card if I go out for a run, just in case. As a consumer, I like knowing that the FDIC insures the cash in my bank and that I'm protected against identify theft with my credit card. Call me old fashioned.
Does that mean I'll likely miss out on the next few years of Bitcoin related investing? Perhaps, but Google wasn't the first search engine and Facebook wasn't the first social network. History has shown that it's ok to wait until the next card gets turned over until you have a more stable environment to root in.
Board meetings are a pain in the ass.
Unless you're a well funded, growth stage company that has lots of hands on deck--tons of instrumentation that easily dumps out pretty charts and metrics, or luxury amenities like, well, time, most entrepreneurs probably feel like they could be doing more productive things than telling their investors what they did last month.
Same goes for update e-mails. "Frankly, this company is duct-taped together and will be for quite a long time, and shit hits the fan just about every day. Just the fact that we're still here is a major accomplishment, but now we've got to write a rosey little story about how things are great." When stuff is actually bad, you need to find a way to say it without freaking everyone out--and in the grand scheme of things, does it really matter? Shouldn't we just mail you a check in a few years if it works, and let you know when it's a tax write-off if it doesn't?
Obviously, investors might have a few issues with that--for obvious reasons. But, why then, other than "Because we want to know what's going on," should entrepreneurs make investor communication a priority?
1) Good Investor Communication Saves Time
When you have some kind of consistant methodology--metrics you track each month, a meeting that is already booked, a repeat call scheduled, you actually take less time than dealing with individual investor queries one at a time. Investors are less likely to ping you with random stuff when they feel well informed on a consistant basis. So, from a purely selfish perspective as an entrepreneur, if you really want to deal with investors less, you'll setup a good communications strategy.
2) If Investor Communication is Too Hard, Perhaps Your Management Process is Broken
If answering questions and coming up with a review on how things are going feels like reinventing the wheel, perhaps you haven't built in all the management structures you really need to run the business from a well informed perspective. You should already be tracking key metrics and be able to call them up pretty quickly. How much customer engagement was there, what profit or loss did you make on goods sold are all of the kinds of metrics that shouldn't take more than a few clicks. The more you know about what's going on with your business, the easier it should be to tell someone else about it--so communicating with your investors once a month should be a good kick in the pants to get that stuff going.
3) They Trusted You With Their Capital--Maintain That Trust with Transparency
Whether it's their money or their investor's money, a lot of trust went into investing in you. You are how the keeper of that trust--and you can choose to do things that maintain it or destroy it. While you're not likely to do anything unethical to completely tear it apart in one fell swoop, making your company into a black box is a good way to slowly erode investor trust over time. You owe them more than that. They deserve more than that for trusting you. Transparency helps create an atmosphere of trust. If things aren't working well--that's ok if I feel like, as an investor, you're telling me how bad it is, and that you're giving me a chance to be part of the solution by keeping me informed. I may not be happy about the turn of events, but I signed up to take this kind of risk--so it is to be expected. When an entrepreneur goes radio silent, I start to worry that there's more than meets the eye, things are worse than they are, and that I *could* be helping, but I'm being shielded from the issues. It makes me feel like the entrepreneur took my trust for granted and that, while I respected their ability to run the company, they don't respect my ability to provide assistance, or find someone who can.
4) Transparent Communication Across Your Investors Gains Leverage
If you divide and conquer--updating your investors individually--you're missing out on the potential that something one investor said could inspire some thoughtfulness on behalf of another investor. I might feel one way, but if someone more experienced in this matter weighs in, they could change my mind--helping the entrepreneur to build concensus among investors. I'll have my own opinion, but I'd like to know what other investors think, because maybe someone else around the table has a better idea.
5) You Can Never Know What You Don't Know
You could be the most experienced entrepreneur in the world, but you can't know everything. Getting outside perspective is the mark of a learning entrepreneur--someone who considers other possibilities and wants more information rather than less. You still need to be decisive and not freeze in the face of information overload, but if you can get someone to check your thinking on something without it being a big production, there can be a lot of benefit--even if it just reconfirms your thinking, giving you confidence to move forward or simply sharpens up the details a little bit. Sometimes, despite the fact that you're in the trenches everyday, there's something that you've missed. That's when I'd want someone looking across a number of different companies at my side. What haven't I thought of? Ask that and you become an entrepreneur that is much more prepared to go into battle.
If you need a way to keep your investors updated, you might look into this template.
Yesterday, I got profiled in Crain's about my investment philosophies. They do this cool lunch series where they try a new place and profile both a person and a place. We went to Brick, which is a sorely needed lunch spot by City Hall.
I made the following comment:
"I've looked at 2,000 companies, and I'm funding eight. It's not about picking the eight. It's about eliminating the other 1,992, and the eight are leftovers."
Don't get me wrong, I'm psyched about the investments I make--calling them "leftovers" doesn't really do them justice. But, it does emphasize one important fact: You absolutely do not know the future or know for certain that a company is going to be successful. No one does, despite the best Monday morning quarterbacking. VCs will tell you what they saw in a team or in a product early on, and most of those stories are revisionist history.
Not only that, saying stuff like "This is a great team" isn't really a good investment criteria, because lots of great teams totally fail. In fact, most of the investment criteria I hear, if applied as a filter, wouldn't work to build a good portfolio--early traction, great team... again, lots of people have still failed under those circumstances.
What I'm much more mentally comfortable with is this process of elimination. I'm much more certain about what won't work--teams that don't have talent to match the core challenge of what they're doing, or not playing in big enough spaces. What I'm left with is a bet where I'm saying "This could work." It's not a weak bet--it's a reasonable bet. I'm not going to convince myself that I'm way smarter than I am--that's a good way to fail.
I believe in my teams and their products, but I'm not drinking so much Kool Aid that I don't realize that I'm actually taking risks and don't know the future.
For the record, I actually really like leftovers. When I left for college, my mom told me that she finally figured out how much I was actually eating, because leftovers were piling up in the fridge and going bad.
I hear a lot of funny things about other VCs. This one doesn't really do early stage, that one doesn't really get consumer. It usually stems from entrepreneurs who have been passed up on. Often times, I've literally just closed on an early stage opportunity with that VC--so I'm quite sure they go early.
Beware of the intel you get on VCs from other startups. They'll often gloss over their own miscues and blame the investor.
What I never hear is "I failed to demonstrate product's value proposition." No entrepreneur has ever said to me "I totally see why every VC I pitch thinks my market is too small."
In fact, rarely do I ever find that founders are taking anything to heart from the feedback they're getting from experienced investors. Very quickly they go from retweeting every last but of drool that an investor advises to "Yeah, VCs are morons and if they knew anything, they'd be founders."
If you're not adjusting your pitch as you go through fundraising, it's you that doesn't get it--not the VCs. If I keep asking questions about your market, don't answer with feature ideas. Tell me who will buy this product, why it makes sense for them at that price point and how many customers are out there like that.
VCs are often wrong, maybe even most of the time, but it's a slippery slope to dismiss everyone who says no as "wrong". It's much more productive--and instructive--to think of them as uninformed or unconvinced. This way, the burden falls upon the entrepreneur to get them over the hump.
A founder's job is to convey a clear value proposition and a clear strategy for creating enterprise value. If the people who you pitch don't get it, either you've failed to communicate or you haven't done enough homework to show convincing proof. Yes, a VC needs to take a leap, but we're not going to leap into anything where the founder hasn't even a clue about his or her competitor's revenues--or the five other companies doing the same thing.
It's super easy to drink your own Kool Aid without putting yourself in an investor's shoes. They may not know the market like you do, nor have they experienced the pain point like you have. How can you convince them with sound logic, relevant facts, and firsthand research?
Seemingly overnight, a bunch of parking spaces disappeared in New York City--replaced by bike share racks. Lots of car owners aren't happy about it. For that matter, lots of people in the city have argued against bikes for years. Residents of Vinegar Hill signed a petition to prevent a greenway from going through their neighborhood--citing that "The Greenway would bring thousands of bikers from all over that would add noise, traffic hazards, and garbage to a neighborhood that currently has none of that."
Yeah, because all those bikers are usually seen tossing styrofoam cups off their bike as they ride--blasting boomboxes like it was 1985.
But it doesn't really matter, folks, because this is happening. Oh, it might not be your particular street and you may be able to fight off a particular lane or particular parking spot--but the bike thing? It's now. When 10,000 shared bicycles hit the streets of NYC, the flow of the Big Apple and the battle for street supremecy between cars and bikes will have shifted for good. And it's never going back. You better start looking both ways before you step off the curb and start watching to see if you're standing in a green bike lane.
You see, cities can no longer survive being congested by cars with one person in them and a billion parking spaces being taken up by cars that rarely get driven. We've lived as pretty selfish individuals--taking up way more space, creating way more garbage and casting a much bigger carbon footprint than the planet can handle. Things have to change.
We're being shoved, kicking and screaming, into a city that favors the greater good. Want to drink all the soda you want? Sorry, because the rest of us need to pay for your health care. Want to park your car on the street? Sorry, we need that spot for a bike share program. Don't like the Second Avenue construction? Sorry, new subway line being built in the name of improved public transportation. Broadway becoming a pedistrian plaza and car lanes disappearing--tough luck my driving friend. You just wait until 42nd street is next.
It's all moving towards a more sustainable city--one where shared resources and health are being prioritized over the individual. We're becoming more and more of a collective. Even the fight to hail a cab using your phone--it's all about efficient use of resources. If we can match one more empty cab with a passenger, and tip the balance of making it reasonable for one less person to own a car, it's going in that direction, and there isn't a union, interest group, historical stone or neighborhood organization that can stand in the way.
The balance in New York City has shifted my friends. I'm not trying to advocate for it--I'm just telling you how it is. You can fight it or join it, but it isn't turning back.
Welcome to "we".