Earlier in September 2013, I wrote a post about the three most significant venture deals for 2013. I was motivated to write it after AngelList finally announced. I was frankly surprised at how often it was read — my posts here aren’t too widely read. The danger in a post like that is that you leave people out (and their deals), but I still stand by the fact that transportation, mobile communications, and the venture industry are going through massive changes, and that companies like Uber, SnapChat, and AngelList make for significant investments in the sense they best represent the changes we see before us. That is not to say, however, that they will be successful. Time will tell…
In this vein, I’ve also been trying to think — What are the sectors where founders and investors got irrationally excited about in 2013, and what are the key themes driving them? Well, I’ve finally answered that question, so here are my thoughts, and yes, I essentially think 2013 is over for new ideas — sorry about that! (I do give honorable mention to “Internet of Things” and anything touching the enterprise stack, mobile or wearables, or the cloud, but those are all mega-secular trends, as they were important in and prior to 2012.)
One, Bitcoins. The allure of an encrypted currency masterminded by an anonymous monikered Japanese hacker is just too bright to ignore. There are just so many fascinating kernels within a Bitcoin, be it the elegance of the math involved in its derivation, the anonymity it affords users through cross-border transactions, the volatility in pricing and limits on the numbers of coins in circulation, the fact that coins must be mined using hidden keys, or the timing of its rise coinciding with a propped-up global economy where the only growing sector is in technology. As a result, investors started placing their Bitcoin bets, a Bitcoin-focused fund was launched, people started buying Bitcoins themselves (I just bought some right now), and it became the talk of Twitter. In researching Bitcoin-related companies for investments, I found three kinds — one, where you can exchange Bitcoins for currency (like Coinbase, OpenCoin, and BitPay), two, where you can trade Bitcoins indirectly for cash-equivalent tender (where I invested), and three, the infrastructure (storage, security, etc.) of the underlying network protocol which drives Bitcoin. Ultimately, what’s most interesting about Bitcoin to me is how the up-and-coming generations are more and more distrusting of institutions, including financial ones, and after the banks helped put us into a mess leading up to 2008 and now are reaping the rewards of being too big to fail, the times scream for another currency abstracted away from the state where people can freely store and exchange funds without the fear of insider trading and adverse risk.
My posts from 2013 on Bitcoin are: (1) The Theatricality & Deception Of Bitcoin [link]; (2) How Five Real Economists Think About Bitcoin [link]; (3) Fred Wilson Thesis On Bitcoin [link]; and (4) *Special mention, this panel included a talk by @Naval on Bitcoin which is my favorite [link]
Two, Drones. Earlier this year, I was listening to Swell in the car and came across a random podcasts talking about the drone industry. Somewhere in the discussion, an expert (who was legit, I remember) said that once drones hit the commercial market, the drone industr will mature over a decade to about an $80bn+ market. Um….Holy shit! That is why investors get so excited about the hardware potential, the corresponding software, and all the business use cases that come with automation like this. Imagine drones surveying crops, traversing mountains, and other types of data collection and surveillance. I would love to learn more about the sensors inside drones (much like phones) as well as the camera technology and software that’s possible with these machines, and how well (or not well) these devices will track with how smartphones evolved.
I don’t have any posts on drones from this year — my bad. But, if you know anyone working on these spaces, please let me know: Drone camera hardware; Drone camera software; Drone operating systems (like Airware); Other physical sensors inside drones, such as weather, location, Bluetooth LE etc.; and Deployment mechanisms on the drones
Three, Bridging Online “Taps” With Offline Logistics. Depending on what city you live in, chances are you’ve now been trained to tap your phone and get a specific service, like a black car, or a car with a pink mustache, a person to bring you a burrito, or your groceries, or someone to clean your car, clean your apartment, or clean your laundry, or ship your boxes, and so forth. Every week, a new service seems to launch that aggregates and organizes freelance labor (those with excess time) to help those who have money but not time. While one may wonder about the unit economics and margins of these businesses across the board, Uber and Lyft are leading the charge here making real revenues and addressing huge markets. A number of companies in these spaces are doing well, such as Postmates and Instacart, and there are some unsavory reasons as to why. I have invested in a few companies in this space, such as Instacart, Gyft, and a few soon-to-be-announced. I’ve also written about a part of the trend here, Recruiting The New Labor Force.
I do want end by sharing one important, sobering note on the last point, as to why these “bridging” companies are able to do so well so quickly…yes, mobile is part of the story, which quickly aggregates demand, and yes, the entrepreneurs are incredible, for sure…But…
The bad news is that the American economy has undergone a massive, massive structural change. The Economist reported that 95% of the economic recovery since the 2008 crisis has gone to 1% of the population. There is a big skills gap between technical jobs and those out of work and their vocational ability. People are stuck in their homes, many of which are either under water, or they don’t want to move and realize gains because the next purchase could put them in the hole based on rising prices. So, people are either out of work (and freelancing), or cannot move, and sometimes, both. “Those jobs aren’t coming back” sums up the situation.
What does this all mean? It means that a large part of the economy is unwittingly engaging in a massive race to the bottom. For instance, you can earn over $30/hour as an Uber driver in the Bay Area. That is outstanding and providing real work opportunities. People who were laid off or can’t find regular work can be Postmates during the day, Lyft drivers at night, and get their laundry taken care of for them by Prim. This race to the bottom has many, many implications. Someone who is unemployed will then have advantages based on their location (“I can be a Prim laundry person in San Francisco, but not San Diego”), or by their automobile (“I can be an UberX driver with my Prius, but I’d need a suitable black car to drive regular Uber”), or by their preference on work time (“I can work as a Postmate every night, when demand is highest”) and so forth. All of these companies are taking advantage of these structural changes to the economy at large and the labor economy specifically.
Now, how long will this last? Studies show more and more people are preferring a freelance style over working at one job from 9-5 daily, but these jobs pay hourly, often without benefits. Rents in cities are going through the roof. Student loan debts are reaching the point where they’re about 2% of what the mortgage crisis booked, and it’s growing. These jobs aren’t also creating more transferrable skills for those who work them, which reduces any economic agglomeration effects in the long-term. One way to think about this in real terms is the private transport market in a city like San Francisco. Now, I want to be clear and say that I’m a happy user of Uber, UberX, and Lyft — all great companies. San Francisco is undergoing a big economic transformation, but while more and more wealth moves from paper to liquid over the next 24 months, the city’s management is already so bloated that there’s little room or political will to improve the city’s poor public transit infrastructure. But, when you have a segment of the population with smartphones and more money than time, and you pair them with people who can hop in a car and supplement their income, you have a new marketplace forming that solves a big problem in the immediate-term but also fundamentally changes the interactions between city residents. In a place like New York, most everyone rides the subway at least somewhere — in San Francisco, the person on the bottom floor of your Mission townhouse could be your Lyft driver when you go out to that startup party in SOMA.
I could go on and on about why this is so important for online-to-offline startups to think about, but you get the idea. What it does mean, in the near-term, is that labor is readily available, and if it can be trained, organized, and delivered in a way that saves other consumers time, there is a potential business to be made. There are swaths of people who need jobs yesterday, and new companies like the ones I’ve listed help create a temporary, soft cushion at what would otherwise be a very rocky bottom of the economy.