Helping Big Get Small - Why I invested in Orchard's effort to help institutions participate in online lending
Over the last few years, we've seen a lot of technologies start out in the consumer world and "infect" the enterprise. This creates a large opportunity for companies who see consumer trends and understand enterprises well enough figure out what it will take to get them to participate. This is essentially the bet that Box has made relative to Dropbox. Early on, there were lots of reasons Dropbox didn't work for companies that were more than your four person startup, and that's what Box focused on.
Online lending, specifically peer to peer, is one of those markets. The market has exploded on the consumer side, with companies like Prosper and Lending Club seeing huge successes matching lenders and borrowers. It's been a huge win for consumers, too--on both sides. You can borrow money at much better rates than credit cards or payday lending, and many investors on the platform are seeing high single digit or even double digit returns on their money with low default rates.
It was only a matter of time before larger money managers started looking at these platforms and finding their returns attractive. Funds are even being raised to take advantage of these opportunities--but it isn't exactly easy for an institutional player to go lending out $25 at a time on a peer to peer platform.
Sure, these platforms have some basic tools for you to put more money to work--but they don't have the depth and complexity that sophisticated asset managers need to manage a portfolio, especially when compared to what's available in other asset classes. There's a need for secondary markets, which also would require third party pricing, ratings, etc that would help make this asset class more attractive to institutions.
It's not unlike what happened in ad tech. The more tools that got created to allow sophisticated, targeted buys and various types of repackaging to allow thoughtful media management, the more buyers found a way to make it work for them. That's why it's not surprising that the team at Orchard, which just announced a $2.7 million dollar round, has roots in the ad tech world. In addition to having strong chops in the data and credit risk areas, this team helped built AdMeld into what became an important component in the DoubleClick Ad Exchange. They get marketplaces and now they're making these lending marketplaces work for institutional players.
I'm excited to have made an investment through Brooklyn Bridge Ventures alongside Spark and Canaan in their initial round. This has a lot of components of the kind of deal I look for, even though it's a larger initial round than I'm used to participating in. It has a strong team that has a unique perspective on their space, and the background to execute on it. It's still super early, despite the size of the raise--they hadn't raised anything before this and are working to build out their product offering. Plus, I was early to committing--the first fund to say yes and offer a number. That's important to me as I try to establish myself as someone willing to plant that flag even if you don't have any other supporters yet. I understand how frustrating it can be when the first question a VC asks you is who else is in. I might be wrong, but you can't knock me for lack of conviction. This is a team that I believe in and a market I'm excited to see develop. Good luck to Matt, Jonathan, Phill, David and Angela.
*Small note: This is the sixth of twelve teams that I've backed out of Brooklyn Bridge Ventures that I've backed that had a female co-founder. I'm seeing way more mixed teams and I'm excited about the diversity of perspective that I'm seeing in these founding teams.
When governments go through leadership changes, it is generally expected that their whole staff gets replaced. It's a bit weird to comprehend for those on the outside. When a new CEO for a company is hired, you might change out a few people, but you wouldn't replace all the key folks. The turnover would be detrimental to company culture.
Same goes for a baseball team. You wouldn't hire a new GM and just immediately get rid of your All-Star players.
But, this is government. It's not the real world. :)
That means that just about every position is going to be up for grabs, including the newly created Chief Digital Officer position held by Rachel Haot. I was asked who I thought should get it, and my first response was, "So, what do you want that person to do?" Obviously, each person is going to handle their job in their own way, but I thought it would be useful to go back to the first press release describing the job.
It says the job is about:
"...improving communication with residents and businesses by enhancing government transparency and working closely with digital media. Sterne will work closely with the City’s Department of Information Technology and Telecommunications as well as with individual City agencies and stakeholders to ensure consistency and accessibility of information. This is the first time the City has hired someone to streamline digital media communications across a broad array of City agencies. Sterne is tasked with helping to make NYC.gov more user-friendly, ensuring that agencies integrate social media opportunities and serving as an advocate for the digital media industry in New York City."
On one hand, it sounds a bit like PR... mentions of communications, information, advocacy, etc. I'd contend, though, that it's actually a product manager job.
Think about it...
- Communicates with stakeholders--both internal and external
- Works with tech
- Insures consistency across products
- Makes the user experience on the web better
- Keeper of the vision of the digital experience that is the city government
That's what product managers do. They figure out what everyone needs by talking to everyone, and then enables both business and technical stakeholders to work together--since, as Office Space taught us, you can't have the customers talking directly to the engineers.
Plus, product managers excel at getting other people to work on things that are not their direct reports. They don't have their own staffs, and tech doesn't report to them. They're responsible for a product, but they have to work collaboratively. That feels a lot like what someone working to coordinate the efforts of multiple city departments would have to do.
Speaking of multiple city departments, the role currently sits within the Mayor's Office of Media and Entertainment, but that's probably not exactly the right place for it. It should probably report to both MOME and DOITT, the city's tech arm that actually builds and maintains the tech that the goverment users, at the same time. That's usually where product sits--with dotted lines to both the marketing/business and technology functions of a company.
So who should it be?
Here's a name for you: Jenn Vargas.
She's a product manager who is also a designer and developer. She's from the NYC area (Bayonne, NJ) and she went to Cornell--the school at the heart of NYC's tech education expansion. She spent time on the west coast, but then came back to work at standout NYC tech companies like Etsy and Birchbox. Jenn has also taught at General Assembly--and if you're going to get government online, you're definitely going to have to do some teaching.
Plus, she fits my two criteria for the job:
1) She's awesome.
2) She probably doesn't want the job. (In fact, she has no idea that I'm writing this.)
This is the kind of job that would come with a ton of visibility so there are going to be a bunch of people who would want it. That's exactly what you don't want--someone who wants the job to make themselves visible.
You would best be served to have someone who would absolutely dread getting dragged to press conferences and would rather just work to make a product great. We've come a long way with our nice new website and better social presence, but there's lots of work still to do. Bandwidth is at third world levels and open wifi is rare, to pick out an easy one.
Obviously, we'd need to consider a slate of candidates--and if this is truly a position that involves transparency, why not crowdsource some leeds? Bill DeBlasio should just post a tweet asking for suggestions. Get all the minds working! If anything, that was a knock on the Bloomberg administration--doing whatever they wanted behind closed doors.
If you're going to break from politics as usual, why not have an in depth, public discussion about the role? Heck, post it as a Quora question.
Who should be the next Chief Digital Officer of New York City?
If I was going to start a venture capital fund around a theme, I'd pick something a little different. Forget Enterprise, or Mobile... It wouldn't be "networks" or any other standard classification of startup. No geographic focus.
I'd start a fund around "Play".
Play, it seems, is making a huge run and should be positioned for success for a long time.
Sure, people have been playing with things for years, but the businesses created have been in the gaming space--experiences with winners and losers, leaderboards and points.
What I'm most bullish about is wide open, free-form play--the act of exploring, creating, and being curious. I don't think there's anything more important that you can teach a kid than to be curious about the world, but we've run into a problem where resolution had gotten so high, we don't have to imagine anything anymore. Instead of the Legos I grew up on, where I took random bricks and made them into things I'd never seen before, you've now got disassembled toys. You buy the Lego Star Wars spaceship in pieces in order to put together the Star Wars spaceship--not to mention that because it's Star Wars, the spaceship you build already comes with characters and a story.
No imaginaton needed. You don't have to play, you just replay. We're fed so much content that our ability to generate unique and original ideas feels like it's in jeopardy.
Coupled with education systems lacking for inspiration, anything that can create a spark in a child is in high demand.
Scarcity + high demand = Happy VC all too willing to fund playful things and entrepreneurs ready to play.
I'm talking about companies like littleBits, which makes tiny circuit-boards with specific functions engineered to snap together with magnets--"juiced Lego". There's Makerbot, which let you print out 3D objects you design yourself at home. Minecraft let's you create whole worlds online from the most basic elements.
Tinybop, a company my fund invested in, calls its products the "toys of tomorrow", and it's first app, the Human Body, doesn't have a way to win, but it does have a handbook for parents. Instead of cheat codes, it provides a lot of questions to inspire your kids to think and explore. Goldieblox, sort of like an erector set for girls, and Kano, a DIY computer kit, are focused on getting kids interested in engineering and science.
These companies are not only getting millions in VC investments, but huge revenues as well. Parents are making the "how much do you love your kid" market a very lucrative one to play in.
And it's not just parents in the US. When Tinybop launched, they weren't just the #1 education app in the US, they went to the top in over 100 countries. Being #1 in education in China meant being the country's #8 app overall, lest you need a reminder of how important the rest of the world thinks of education.
So if you're toying around with something you think can inspire kids, you might want to grab some time with a VC (especially if you're in NYC).
In a seed or friends and family round, tough questions, in the eyes of many founders, signal an investor that will either a) never get to the writing a check part or b) be such a pain in the ass afterwards that it might not be worth taking their money. Especially if you already have the round circled, without anyone giving you a hard time, why bother stopping for that one investor who wants more detail on how you're going to scale?
Personally, I learned an important lesson when I was raising the seed round for my startup, but I didn't learn it until we folded almost two years later...
Tough questions are a godsend.
Running a startup is going to be difficult. Something isn't going to go your way--product development, hiring, revenues. Angel investor Jeff Stewart once told me that either the product takes twice as long and costs three times as much to build as your plan, or takes three times as long to build and costs twice as much--you just don't know which one.
Whatever it was--I wish I had been better prepared for it. My fundraise was relatively easy. It was a party round before anyone used the term--twenty one angel investors including a lot of top names. Everyone supported *us* and no one really put our feet to the fire.
I wish they had.
Of course I appreciated their support, but there were so many questions I wish I would have had answered before I took anyone's money--questions that I see a lot of founders not having to answer before they raise. There are some really great folks who are essentially cashing in their social capital, building off their character, relationships, or even just the coolness of what they're up to. It's really not good for anyone in the long term.
Your next round isn't going to get raised like that. In a seed round, you can get by on who you are or some buzz or social capital, but a Series A is about the kinds of plans and numbers that come out of a rigorous dedication to traditional business processes. You may be able to get away with raising a seed round without even taking a guess around the economics of an individual salesperson, but don't attempt to raise $5mm without knowing that answer--and if it turns out not to work, why wouldn't you want to know the answer to that question a year ahead of time at your seed round?
I can't tell you how many times I've said to a founder, "I'm not trying to be a pain in the ass" when I feel like I might be the only one asking these types of drill down questions. It's really for your benefit just as much as it is for mine. I know the world is going to change and assumptions are going to be wrong, but if you don't have any assumptions to start with, you're going to drift aimlessly.
Plus, if you're not the type of founder who wants tough questions, then you're probably not who I want to back anyway--so I find that going deep during the due diligence process is a good litmus test on the founder.
Because at the end of the day, you may not like the process but you need someone to have high expectations of you and to ask you the tough questions.
You want me on that wall. You need me on that wall.
When I saw Coin, the all-in-one card, buying it was a no brainer. Instead of carrying three credit cards, a bank card, and a host of other random plastic in my wallet, I get to carry one card.
No convincing my friends to join some social payment network.
No shaking, waving, bumping, twirling or any other things I've never done to have to pay for anything.
No worries that if my phone runs out of battery, I won't find myself in first world technology induced poverty.
Swipe like usual, but better.
There's something to be said for just letting people do what they do normally, but using technology to make it better. I don't know if that means that Coin will be a great company, but as a product, I can't wait to get mine.
Fitbit and other wearables get this right as well. Snap it on and then--just do what you normally do. Walk, eat, sleep, done. It works without you haven't to remember to record a workout, check-in, or push a button.
Canary, a portfolio company of mine, takes advantage of this in the security space. Millions of people install ADT and then forget to set it or can't remember their codes--because it's a new behavior. For years and years, I've been walking into my apartment without having to type in a code. If I suddenly got ADT, I'd probably never remember to set it--but Canary is just set it and forget it, only letting me know when unusual stuff is happening in my apartment. I love services that work so discreetly that I might not even remember that I have them--instead of needing me to remember to use them.
Perhaps this is a common theme in my portfolio. SocialSignIn, software that turns wifi into an engaging social marketing channel, operates on the same premise. Tons of venues are already providing wifi. End users, well, we've already been mindlessly seeking out open wifi nodes like little bandwidth zombies for years. (WIFI=BRAINS!! in this analogy.)
This kind of product development comes from an insightful entrepreneur who is a great observer--someone who often has a diverse network or likes people watching. If all your friends are just like you, and you're a young tech geek, you're more likely to believe that people will change habits to do some cool thing that your friends are doing. "Normals" and people who aren't 22 tend to be a little more engrained in their habits--so services have to come to them versus the other way around.