Q3 and Q4 of 2016 were the quietest months on my site, a true blogging drought. I apologize for that, but work and life got in the way. But, that will change soon, starting now, as I now have time and energy to get back into the swing over the holiday, and am putting together a new process to write on a more frequent basis in 2017. I hope you get something out of it, and of course, if you disagree with anything I write, please do let me know!
So, now 2016 is about to end. Good riddance? I’ll avoid the larger political storylines and stick to reflecting on what happened to startups, the VC market, and myself this year. Briefly, here’s what transpired and why I think it’s important:
Large M&A By Both Tech And Non-Tech Incumbents: While technology companies like Microsoft paid $26B for LinkedIn or Salesforce shelling out $750M for Quip, 2016 was a year in which M&A led by incumbents outside of technology world dominated headlines and surprised observers. We all understand intuitively that technology will flow, like water, to seep into every industry and reinvent it over time — what we didn’t understand was how much fear certain industries may feel, such as automotive manufacturers or traditional retailers, may have felt. To that effect, we saw Unilever shell out $1B for Dollar Shave Club and Walmart drop $3B+ for Jet.com; while Ford Motors purchased Chariot and, of course, GM purchasing Cruise Automation for over $1B. There weren’t many notable exits in 2016, but these outcomes were huge and were concentrated wins for a small handful of teams and investors. And, while tech investors understand the game of selling startups to traditional technology companies, the specter of having a new buying class of non-tech incumbents presents both a challenge — most venture firms don’t have as deep network penetration into these industries as they do into tech — and a huge opportunity, one that could represent potentially even bigger outcomes than previously imagined. (Incidentally, this could in fact be accelerated with the incoming administration’s desire to ask U.S. corporations to repatriate overseas cash holdings, where the cash could be spent tax-free in buying new assets.)
Mobile Video As A Mainstream Consumer Behavior: Native SMS clients on our phones, like iMessage, or third-party communications apps like Facebook Messenger, Slack, and others satisfy many asynchronous use cases — we share our location, pictures, screenshots, emojis, and much more, and it all works without really having to use new apps. Even my parents prefer texting now over email, and they love email. But, there’s one big behavior missing from these native clients, a behavior promoted by Facebook with “Live” and Twitter with “Periscope” (though these seems to have been the 101st product feature they’ve flubbed), a behavior Snapchat brilliantly exploited with Stories, a behavior which Facebook ruthlessly copied via Instagram Stories, and a behavior Snapchat upstaged everyone with in launching Spectacles, their own custom eyewear/camera hardware. In 2016, we saw some of the biggest venture capital firms in the world plunk down some serious cash to invest in startups such as Tribe (Sequoia), Marco Polo (Benchmark), HouseParty (Greylock, Sequoia), and Musical.ly (Greylock, GGV), while other existing apps added group or live video capabilities, such as Kik and Facebook Messenger, among others. So, I can understand why new mobile products tuned for live video are attracting new users, and it will be interesting to see what new behaviors and networks emerge as a result of this small but interesting opening provided by traditional messaging apps. (Notable Mentions: 1/ Voice as an interface, a full year for me with Echo and Dots, and I cannot imagine going back; 2/ Pokemon Go with Niantic Labs, but that seemed to be less of a trend and more of an amazing phenomenon.)
Buzzword Bingo Alive, Well, and Actually Quite Real In Early-Stage Investing: I recently ran a Twitter poll where I asked the crowd which of the following technologies felt the most like the web felt in 1997-99 — blockchain, AR/VR (shorthand for augmented and/or virtual reality), AI/ML (potentially misleading shorthand artificial intelligence and/or machine learning), and others like voice interfaces, automation (remember bots?), and others. It’s not a statistically significant poll, but I was surprised to see each answer garnering roughly the same percentage of votes among the crowd. So, while we may hear all these buzzwords to the point of rolling our eyes, for many, these trends are real, tangible, and very close on the horizon — and in some cases, already in the market and delivering real value. Only time will tell which waves will barrel onto shore like social networking or mobile messaging or on-demand transportation and logistics did, to name a few. When these waves come, it will feel fast to us, even though we are expecting it. If you’re reading this, there’s a good chance that you already believe that you’ll dabble in buying various app coins, or that your glasses will display real-time information, or that an autonomous agent will answer your emails and learn your preferences and language behaviors, or that your young child’s first computing interface may be through voice and natural language. We know the buzzword waves will come, we just don’t know when. Those who do time them well will be rewarded handsomely.
More And More Money Flooding Into Tech And Startups: It would’ve been rational to assert that money should’ve gotten tighter and more expensive after the major stock market correction in Q1 of 2016; or at least after Brexit this past summer; or at least after one of the greatest political upsets in American history; or at least after the U.S. FED signaled the first interest rate hike (along with a few more for 2017)… but, no. The stock market keeps going up, flirting with the 20,000-mark, and more and more funds worldwide with very different motivations have a desire to invest (in)directly in the technology world, investing right into companies, backing new funds, providing private-market liquidity for fashionable stocks, and helping structure “special situations” that have arisen as a result of the hangover caused by the 2014-15 startup investing frenzy. As a result, we have more sovereign wealth in the Valley, more corporate money, more family money, which in turn create more funds, more funding rounds, and more… you get the idea. Money has been cheap for a while, and those who have it often want to park it in technology. I often wonder how lucky I was to move here in 2011, oblivious to the fact that, right around that time, the entire world economy was shifting to being driven by technological change, and that change had epicenters in Silicon Valley and across The Pacific in China. By luck, I get to live right smack in the middle of one and have indirect exposure and learning to another in my venture partner role with GGV.
In a nutshell, this is what I’ll remember about startups, tech, and investing from 2016. I know there’s a bunch of other big headlines (like Fake News — blah), but this is what I focus on and affects how I do my work. Soon, I’ll have more to share of what I went through personally and with Haystack in 2016 (maybe tomorrow night), and I will take a few days to think about what I’m preparing for in 2017. Stay tuned and Happy Holidays to you and yours!