The deal has been rumored for weeks. While the exact dollar amount was not confirmed, earlier this month that Microsoft was in talks to invest as much as $10 billion.

The deal follows a $1 billion investment in 2019 from Microsoft into the AI startup. That deal made Microsoft鈥檚 Azure the exclusive provider of cloud computing services to OpenAI.聽

鈥淲e formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform,鈥� , chairman and CEO of Microsoft. 鈥淚n this next phase of our partnership, developers and organizations across industries will have access to the best AI infrastructure, models and toolchain with Azure to build and run their applications.鈥�

Microsoft is in a battle for AI dominance with other tech giants such as and .

Big money for AI

Earlier this month the startup could be valued at $29 billion thanks to a new tender offer.

Venture firms and were reported to be in talks to invest in the offer that would have allowed them to buy shares from existing OpenAI shareholders.

OpenAI had been valued at $14 billion during a tender offer in 2021.

Related reading:

• ChatGPT Creator OpenAI Could Be Valued At $29B In Tender Offer 鈥� Report
• Writing-Focused Startups Draw Big Bucks
• The Promises And Perils Of A Decade Of AI Funding
• Billions Of Dollars Roll Into AI-Enhanced Cybersecurity
• AI Could Transform Medical Imaging 鈥� So Why Don鈥檛 We See It More?
• From Wigs To Fish, Some Very Quirky AI Startups Got Funded In 2022

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Last week, distributed a memo to founders and CEOs of its portfolio companies about the worsening economic situation as coronavirus spreads, and many other media outlets reported.

I鈥檝e also seen posts all over from people cautioning about a slowdown in VC funding and reacting with concern to the tumultuous state of the public markets.

So I decided to ask around myself.

I didn鈥檛 get as many replies as I expected. Perhaps folks just don鈥檛 want to share their revised strategies. Perhaps they鈥檙e still trying to figure it out. I鈥檓 not sure, but for now, here鈥檚 what , general partner of Austin-based, told me on the topic. (For those that don’t know,聽Silverton Partners is arguably one of Austin鈥檚 most active early-stage VC firms with $384 million under management.)

Warning to executives

Flager shared with me some highlights of a note he sent out to key executives across Silverton鈥檚 portfolio this week.

Essentially, Flager said it is 鈥減rudent to assume that fundraising velocity will slow from the fast pace we鈥檝e seen as investors take time to process the new macroeconomic environment.鈥�

He pointed to what transpired economically in 2001 (after 9/11) and 2009 (after the economic downturn) as a reference to what people should likely expect to happen this year.

鈥淢ost investors react to uncertainty with increased caution. Travel restrictions will also make it more difficult to meet investors,鈥� Flager wrote.

Additionally, he said that valuations will likely see pressure from multiple angles.

鈥淔irst, volatility in the stock market and declining multiples will inevitably play through to the private markets. Companies that haven鈥檛 鈥榞otten the memo鈥� and are still recklessly buying growth and burning lots of cash doing so will increasingly be viewed as risky and will see that risk premium reflected in their value,鈥� Flager continued in his note to executives across Silverton鈥檚 portfolio. 鈥淚n some cases these businesses will not be able to attract additional investment at any price. Do not be one of them.鈥�

He also suggested that if a startup in Silverton鈥檚 portfolio is in the middle of closing a round or in the latter stages of a fundraising process, 鈥渋t may make sense to take additional capital.鈥�

鈥淢ore runway in this environment could mean the difference between life and death for your business,鈥� Flager said.

In September 2019, we covered how Silverton had filed paperwork signaling its intent to raise not just one, but a pair of new venture capital funds. The firm was reportedly aiming to raise $120 million for its sixth fund, as well as for a $20 million 鈥渙pportunity fund.鈥�

In May 2018, we reported on the firm closing on its fifth fund, in which it raised $108 million in an oversubscribed round of funding.

Silverton has made 131 knownover its 14-year lifetime at least 42 of them 鈥� and had 28 known . Startups it has backed include insurance comparison marketplace , as well as and , a woman鈥檚 shaving products startup that was recently acquired by P&G.

Some of Silverton’s more recent investments include participating in Austin-based last-mile delivery startup $10.5 million and cybersecurity company $21 million Series B raise (which was led by , 鈥檚 venture arm).

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At sufficient scale, the computational complexity of machine learning model training overwhelms general-purpose CPUs. The work will get done; it might just take a long time. Data scientists and machine learning researchers have long used graphics processing units (GPUs) because of their highly parallelized architecture and relatively abundant on-chip memory available.

But as industry and research groups alike seek more efficiency and need to accommodate ever-larger quantities of information, more specialized computing hardware is required for the task.

Headquartered in Bristol, U.K., is in the business of producing silicon purpose-built for munching through machine-learning math at high rates of speed and using less electricity than GPUs. Benchmarks for Graphcore’s (IPU) that it offers notably less latency and higher computational throughput, and uses less power than GPUs.

The company that it raised an additional $150 million in fresh investor capital in an extension of its Series D round. The extension was led by ; new investors and joined in as well. The deal also saw participation from a number of prior investors. The was closed in December 2018, netting the company $200 million.

The Series D extension values Graphcore at $1.95 billion, according to the company. Taken together, the company has raised $460 million, according to SA国际传媒 data. The company’s shareholders include the likes of , , , various associated with , , and , among .

In a press release provided to SA国际传媒 News by the company, Graphcore highlighted a number of milestones from 2019. In partnership with strategic investor Dell Technologies, the companies co-developed and launched the DSS8440, a production-ready server built around Graphcore’s IPUs. Alongside Microsoft, another strategic investor, the company launched the Microsoft Azure IPU-Cloud service, as well as the IPU-Bare Metal Cloud service it launched in partnership with . The company’s publicly announced customers include Microsoft, , Carmot Capital, and European search engine company .

The company says the new round brings its cash reserves up to $300 million. Graphcore has plotted for itself an ambitious growth plan. According to its press release, the company has devoted significant resources to research and development efforts. The company doubled headcount in its Bristol headquarters, as well as its engineering center in Oslo, Norway. It says its sales and support office in Palo Alto, California also saw similar up-scaling in 2019. The company also opened a new sales, support and engineering office in Beijing, alongside an engineering center in Cambridge, U.K., and an operations facility in Taiwan.

“Demand for our Intelligence Processor Unit products is increasing at existing and new customers and the outlook for our business in Fiscal 2020 is extremely positive. The major investments that we have made during 2018 and 2019 will help us to meet this strong demand by extending the capabilities of our technology and ecosystem, and will support long-term revenue growth and returns for our investors,鈥� said Graphcore CEO Nigel Toon in a statement.

The company declined to answer questions from SA国际传媒 News about its revenue and profitability, whether it has its own fabrication facilities, what the company’s future exit prospects might look like and whether it may be affected by Brexit or the emerging SARS-CoV-2 virus situation in Asia.

滨濒濒耻蝉迟谤补迟颈辞苍:听

The largest growth year over year in funding includes meat alternatives, indoor farming, robotic food delivery and cloud kitchens. Investment in startups operating what the report terms upstream–closer to the farmer and before聽 retail–increased 1.3 percent year over year, accelerating in the second half with the highest numbers for H2 on record. Alternative proteins ( raised $300 million, , $90 million and , $75 million) and vertical farming ( raised $100 million, , $100 million and , $82 million) drove much of this. The whole sector showed 250 percent growth in the last five years.

Closer to retail and grouped as downstream in the report are eGrocers, restaurants, delivery and home cooking, which saw an overall decline of 7.6 percent year over year. The largest sector decline is food delivery by 56 percent year over year.

Agritech and foodtech experienced growth in investments in regions outside of Asia and North America. According to Louisa Burwood-Taylor head of media and research at AgFunder 鈥淓urope continued its trend for growth across VC industries posting a 94 percent increase in agri-foodtech funding, while Latin America had a breakout year, closing $1.4 billion in agri-foodtech funding across 40% more deals than in 2018; that鈥檚 more than the entire LatAm VC industry in 2017. Africa also more than doubled its funding in the space.鈥�

Notable investors in the sector cited by the report include venture investor , corporate investors and , and late-stage private equity investors , , and .

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There are plenty of companies operating outside the unicorn and public company spotlight, but that doesn鈥檛 mean their stories aren鈥檛 worth sharing. They offer a peek around the corner at what鈥檚 coming next, and what investors today are placing bets on.聽

Without further ado, let鈥檚 check out a few rounds from the week that was in venture land.

Be My Eyes

I don’t know how you’re reading this, but you are. Most of us read with our eyes, but some read with their ears or their fingers. Blind people frequently have options when it comes to reading, but there’s more to life than just reading.聽

Imagine going to a grocery store and stepping up to the bakery counter. You might be able to read a label with your eyes, but if there’s no label you could still probably figure out what type bread you’re buying based on its color and shape. But what if you couldn’t see (or see well)? What are you going to do, touch all the bread to figure out its size and shape? Get real down low and smell ’em all? (Which, for the record, sounds lovely, if a little unhygienic.)

You’d probably ask someone who can see for some help. That’s the kind of interaction a service like facilitates. Headquartered in San Francisco, the startup founded in 2014 connects blind people and people with low vision to sighted volunteers over on-demand remote video calls facilitated through the company’s mobile applications for Android and iOS. The sighted person can see what’s going on, and offer real time support for the person who can’t see.

The company this week that it led by . In 2018, Be My Eyes launched a feature called “Specialized Help,” which connects blind and low-vision people to service representatives at companies. , , and are among the companies enrolled in the program.聽

Be My Eyes initially launched as an all-volunteer effort. The company says it has a community of more than 3.5 million sighted volunteers helping almost 200,000 visually impaired people worldwide. According to SA国际传媒 data, the company has raised in combined equity and grant funding.

Wildnote

The environment is, like, super important. It’s the air we breathe and the water we drink. Regardless of your opinion on environmental regulations, most come from a good place: Ensuring the long-term sustainability of life on a planet with finite resources by putting a check on destructive activity. Where there’s regulation, there’s a need to comply with it, and compliance can be kind of a drag. There is a lot of paperwork to do.

is a company based in San Luis Obispo, California. It’s in the business of environmental data collection, management and reporting using its eponymous mobile application and web platform. Field researchers and compliance professionals can capture and record information (including photos) on-site using either standard reporting forms or their own custom workflows. The company’s data platform also features export capabilities, which produce PDFs or raw datasets in multiple formats.

The company from and , the corporate venture arm of . Wildnote was part of the 2019 cohort of The Heritage Group’s accelerator program, produced in collaboration with , which aimed to assist startups working on problems from “legacy industries” like infrastructure, materials and environmental services.

Enveil

Encryption uses math to transform information humans and machines can read and understand into information that we can’t. Encrypted data can be decrypted by those in possession of a cryptographic key. To everyone else, encrypted data is just textual gobbledegook.聽

The thing is, to computers, encrypted data is also textual gobbledegook. Computer scientists and cryptographers have long been looking for a way to work with encrypted data without needing to decrypt it in the process. has been a subject of academic research and corporate research and development labs for years, but it appears a commercial homomorphic encryption product has hit the market, and the company behind it is raising money to grow.聽

The company we’re talking about here is . Headquartered in Fulton, Maryland, the company makes software it calls ZeroReveal. Its ZeroReveal Search product allows customers to encrypt and store data while also enabling users to perform searches directly against ciphertext data, meaning that data stays secure. Its ZeroReveal Compute Fabric offers client- and server-side applications which let enterprises securely operate on encrypted data stored on premises, in a large commercial cloud computing platform, or obtained from third parties.

Enveil raised $10 million , which was led by . Participating investors include , , and . The company was founded in 2014 by and has raised a total of $15 million; prior investors include cybersecurity incubator and , the nonprofit venture investment arm of the .

Image Credits: Last Week In Venture graphic created by聽 Photo by Daniil Kuzelev, via Unsplash.

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Over the years, Iguodala鈥檚 funded over 40 companies including , , and . As an investor and a board member, he helped the company grow and go public in April 2019 with a billion-dollar IPO.

In recent weeks, Iguodala has taken on new roles in both the basketball and startup worlds. He recently joined the with . And on Feb. 5, he was for Catalyst Fund, the venture capital arm of Catalyst鈥檚 focus will be on early-stage investments in companies founded by African American, Latinx and female entrepreneurs.

For 鈥� Head of Funds and Managing Director , Iguodala鈥檚 investment experience and network, combined with his 鈥渉is passion for supporting entrepreneurs from diverse backgrounds,鈥� is a perfect fit for the firm鈥檚 Catalyst Fund.

Since its formation in 2011, the fund has backed .

Catalyst Fund Principal (a Muslim of Indian descent) told me the fund gives her and Iguodala a chance to help back founders who might not otherwise have access to capital and networks.

鈥淲e both come from unconventional backgrounds, and we want to be able to help founders who also come from unconventional backgrounds,鈥� she told me. 鈥淲e both truly believe talent and brilliance is equally distributed amongst individuals and that we can help get them the right level of resources.鈥�

In a telephone interview, SA国际传媒 News caught up with Iguodala to hear more in-depth about his and Husain鈥檚 plans for the fund, and just how the NBA star got into startup investing.

CB News: How did you get into startup investing in the first place?

Iguodala: About 8 or 9 years ago, I started seeing a large return in the tech sector in the public markets. From there, I got interested and wanted to dive deeper into learning how I could invest before companies hit the public markets. I started seeing the growth in the private space, and that eventually led to where I am now.

Things I look at are: market size, does a company have a competitive advantage, can it fight off tech giants like , and ? I also look at founders and their vision–where they see themselves in 10 years. I ask myself, 鈥淗ow can I personally add value to a company, not just from a capital standpoint?鈥�

CB News: What鈥檚 the most interesting part about investing in startups and helping them grow?

Iguodala: For Fatima and I, it鈥檚 really exciting. Look at technology, and how it鈥檚 changed our lives from everything to scheduling a flight or getting my son鈥檚 basketball game schedule. Everything is on my phone these days, and how we move in general is so much different than just say, eight years ago. Technology is doing so much to make our lives more efficient. So when I鈥檓 looking at that, this is an exciting time to be in this space. Not only for capital gains, but what you鈥檙e adding by having involvement in people鈥檚 day-to-day lives over the next 20, 30 or 40 years.

CB News: How does being a pro basketball player help you when it comes to making startup investments?

Iguodala: I just joined a new team, , in basketball, and one here at Catalyst. With the Heat, I was hyper focused my first couple of times on the court. While every team runs the same plays, each one has different terminologies for them. So I鈥檝e been watching and learning on the fly, and having to figure out things fast.

It鈥檚 similar in the tech space. There鈥檚 different terminology and different acronyms for different industries and teams. Different companies have different vibes, some are more laid back and others are more buttoned-up. I have had to learn how to add value to different cultures within companies in the same way as I have with different teams.

There鈥檚 lots of egos on both sides. I thought it was just in the sports world, but I see it too in tech in other VCs, entrepreneurs or the best engineers. So I鈥檝e had to learn how to deal with different personalities in both sports and investing. I鈥檝e also learned to adapt and learn about different industries, from consumer to enterprise brands for example.

CB News: As someone with an unconventional 鈥渘on-traditional VC鈥� background, what skills or perspective do you have that make you a better investor and startup consultant than someone who may not have this diverse background?

Iguodala: I鈥檓 really excited because what we鈥檙e doing with the Catalyst Fund and what we represent is investing in underrepresented communities, and determining how we can put them in our ecosystem and help them grow in a responsible and sustainable way.

Being a minority, you have to have a grander scope in terms of the people you deal with on a daily basis. Many of us have that back against the wall mentality, and a passion and grit.

Every morning I wake up with a chip on my shoulder, and know I have to wake up with that passion and juice to go and prove myself. I鈥檝e learned that I have to sacrifice, work hard and step up when it鈥檚 my turn. I鈥檓 ready to help other unconventional founders, and founders who are underrepresented in funding in the tech space, in their own journey.

Reporter’s note: For more on NBA players who are also startup investors, check out this article I wrote last summer here.

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Yesterday announced that it has acquired , a Bellevue, Washington-based startup founded in 2008. The SaaS company helped customers “plan cloud migrations and continuously optimize, monitor and analyze IT environments,” according to its website.

Given Microsoft’s push to grow its Azure cloud computing service in competition with Amazon’s AWS, the purchase seems to fit current corporate strategy in Redmond. In a , Microsoft wrote that the deal will “complement Azure Migrate […] making migration an easier process for our customers.”

Clearing a path to the cloud is a good idea if you want to sell more cloud products.

We aren’t incredibly interested in the enterprise migration dynamics, however. We’re more curious about Microsoft’s pace of acquiring startups. We’ve tuned our ears closer to the beat of acquisitions in recent months as the IPO market works to get a portion of the global unicorn population public; can there be enough startup liquidity before a material market correction to provide real returns to the investors behind venture capital?

From that prism, Movere is an odd duck. The firm has no known raised private capital according . However, with an 11-year operating history, and a deal large enough to draw a Microsoft blog post, the deal was sufficiently material to warrant an update of our deal tracker.

Here’s the latest concerning Microsoft’s buys, with a quarter-to-date figure in place for the current Q3 2019:

The Movere deal makes Q3 2019 the most active quarter at Microsoft for known startup buys since Q4 2018. One more and it will represent the strongest tally since Q2 2018, whose eight acquisitions likely represents a peak that won’t be replicated for some time. Certainly not in what remains of the current calendar quarter.

Aside from , Microsoft development and cloud tooling. Movere is, therefore, an unsurprising purchase, joining deals like (data security), (PaaS), (real-time data). If you’re looking to exit your startup, and work in the cloud space, here’s a reminder that at least one giant is buying.

滨濒濒耻蝉迟谤补迟颈辞苍:听.

This is Demo Day week, which means that startups are taking an increasingly rare center stage in the tech world. SA国际传媒 News, along with our friends at TechCrunch, sat down yesterday to record an interview with right after the first round of pitches concluded. More on that shortly.

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This morning, however, we’re taking a quick peek at three things that caught my eye, namely Redmond’s acquisitiveness, the growing consensus concerning WeWork’s S-1, and a nibble from the public markets that I think matters.

Into the breach!

Microsoft’s Startup Appetite

has its own venture capital shop, is putting money into the new — creatively named Vision Fund 2 — and is also using its accounts to snap up younger tech companies. It did that again today, acquiring , which the smart a “Java specialist.” I quote there as we both know I’m no Frederic Lardinois when it comes to code and code-oriented things.

But the deal was the聽蝉别肠辞苍诲听that Microsoft pulled off this聽month, so it was time to break out our trusty chart and update it:

In digging up the data this morning (, in case you wanted to see the entire list) I found out that I’d missed Microsoft’s buy of . Briefly, PromoteIQ, based in New York, had raised a before it was acquired. jClarity, based in London, had no known external capital raised during its life.

It’s only halfway through the quarter, perhaps we’ll see Microsoft pick off a few more startups before we reach October.

No One Knows How WeWork Works

One issue I had when writing our two main pieces on The We Company’s S-1 (here, and here) was a fear that I was missing something. Something tremendous, something so wonderful it gave a forward revenue multiple of 15 when it appeared to generate frantically little gross margin.

Maybe I didn’t miss anything. Bloomberg , who said this:

鈥淭he prospectus is a masterpiece of obfuscation […] If the underlying facts were positive, why would a company go to so much trouble to prevent you from understanding them?鈥�

A round of applause. The problem with The We Company’s S-1 is that you can find whatever you want in it. You can paint a positive, or negative image of the company from its data. And that’s probably a bad thing; most S-1 filings are less controversial because they are easier to understand. It’s harder to dispute something that is simple, and readable.

More when it prices.

Facebook Hearts Journalists

I have never found the narrative that Facebook and Google are responsible for the death of journalism too fair; the question of ad revenue share is a product question from my perspective, and the two tech giants offer better targeting. What did we think would happen when the media lost its grip on local, and niche audiences?

But something that I do enjoy all the same is when the companies who have leveraged machine intelligence through human-crafted algorithms have to turn around and lean on people. Especially in:

Facebook has long relied on algorithms to select news stories for its users to see.

Now the social network wants to rely on something else for the same task, too: humans.

Specifically, Facebook plans to hire a team of editors to work into the world of publishing.

It’s nice to know that I may have a job in ten years.

滨濒濒耻蝉迟谤补迟颈辞苍:听

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骋别苍茅: Welcome James Currier founder, angel investor turned into a fund manager with the founding of NFX fund in 2015. Why NFX?

James: We said let’s try to build a venture firm with network effects. We believe that the most interesting, most impactful things have big network effects. Originally we started with an accelerator. We dropped that two years ago. We were doing 15 companies per class. We either need to scale up to 80 per class, to get the random effect, to make that model work. Or we needed to scale down and increase the percentage ownership. In the end we decided to scale down and increase the percentage ownership and be a straight fund.

骋别苍茅: Why the name NFX?

James: It stands for network effects. What we realized in about 2010, is that all the companies we had invested in as angels, that we were really excited about, all had network effects. They were growing. They were defensible. Mostly about defensibility.

骋别苍茅: Given that we’re in the Internet era and everything’s connected, does almost every company have a network effect?

James: About 20 percent of the business plans have network effects in them, and 80 percent don鈥檛. So if you’re a medical device, a synthetic biology company, SaaS software, enterprise software, or direct to consumer products, these things do not have network effects. These things have scale effects. They could have embedding effects, or they could have brand effects as their defensibility. But in the digital age, there are very few defensibilities left.

骋别苍茅: And why don’t they have network effects?

James: So the basic definition of a network effect is that every new user or new customer makes the product more valuable for every other customer. The first time we saw network effects was with telephones.

骋别苍茅: Which companies have stood out with a huge network effect?

James: Just look at the most valuable companies in the world. Microsoft is still one of the top market cap companies in the world, and they’ve been working on that two sided platform network effect since 1976. And then you’ve got Facebook, you’ve got Google, and you’ve got PayPal.

There’s like five or six of us who just spend so much time looking at this, at Harvard Business School, from Intuit, and a few others. There’s actually some interesting what we call 鈥渟ocial network effects,鈥� but not social network. One of them is naming. So 鈥渓et’s grab an Uber鈥� is a real problem for Lyft right. 鈥淕oogle that鈥� is a real problem for Bing, Once Google became a verb, that’s an incredible social lock. It’s just awkward for me to use Bing if you tell me to Google something. That鈥檚 right on the edge of brand. Brand is different or the bandwagon effect.

骋别苍茅: What other companies have a network effect?

James: Think of the big valuable companies, Uber, Lyft, and Slack. The more people in your company that use Slack the more valuable Slack becomes for you. Dropbox. Once my designer said, 鈥淗ey, I’m going to be sending you the mocks of the website on Dropbox鈥�, and suddenly 76 people signed up in the next 48 hours because we had to get his mocks, all the engineers did and all product managers. Airbnb, the more properties, the more buyers. The more buyers the more properties. eBay,聽 Amazon Marketplace. More than 50 percent of all transactions on Amazon are now going to the marketplace. They鈥檝e basically taken over what eBay was 15 years ago. It鈥檚 a two sided marketplace network effect. IOS. If you look at Apple’s market cap. It was $42 billion. And then they added iMusic for sharing music. And then they added iOS. Those were their first two network effect products. And then their market cap went up by 10 or 15 times. Before that they were selling hardware and software.

Since 1994, since the Internet connected everything, we looked at the 336 companies which have become worth over a billion. We looked at each of their business models and said, 鈥淒id they have a network effect at the core?鈥� And if they did we looked at the market cap. 70 percent of the market cap came from companies with network effects, 30 percent did not. Yet only 20 percent of the businesses had network effects in the business plans, and 80 percent did not. So that seemed like a huge imbalance. So that’s why we decided to do NFX in 2010 but we didn’t get around to it because I was still running .

骋别苍茅: What else are you trying to fix in venture?

James: We鈥檙e trying to help seed stage founders figure out how to navigate to their best investor. And that’s why we built to find the best investor for you. We don’t take salaries. We use the management fee to hire engineers and staff to support the company. We are building a platform to help the ecosystem.

We build our own CRM, and data analysis. And we’ve got an internal group which helps with pitch development, which helps with PR, culture building, hiring. Within a few weeks we’ll just answer so many questions, so that the founders can get back to product and iterating.

骋别苍茅: Your most recent fund is $275 million, a pretty large seed fund, which you raised in April 2019?

James: We are a seed and pre-seed fund. Instead of investing over two years we’re going to invest over three years. We’re still going to be investing one to three million and lead seeds. In this fund we will make 35 investments. Four of them will be at a valuation which we would all consider to be a Series A, which is over $20 million. But we’ve also done probably 10 pre-seeds where we put in $250K, and help the company figure out what they want to do.

骋别苍茅: What are the valuations for pre-seed and seed rounds?

James: Valuations for pre-seeds are typically one million dollars pre-money. For a seed round I guess the average would be about eight or nine million dollars pre-money. Our sweet spot for seed is investing is about $1.5 million in a round.

骋别苍茅: How many companies do you meet in a year as a team?

James: We evaluate 3,000 companies a year, and then we’ll probably meet with 400. And invest in 15 companies in year.

骋别苍茅: You invest in the Bay Area and Israel. How do you help startups build a network effect?

James: We’ve published this about the 13 different network effects. Starting with聽 the physical, which is the telephone or Comcast in the middle. And then you go into weaker and weaker network effects as you go out.

Once you understand each of these, you can start to imagine how to add these network effects to the various businesses. Whoever adds a network effect first wins. Because it adds more value without you doing anything. Someone signs up and pays you money, and suddenly your product is more valuable for everyone else. We’ve written long articles about and their defensibility. They’re not going anywhere.

骋别苍茅: Facebook from what I understand worked hard to get each user 10 to 20 friends. Once you have that network you were never going to leave.

James: 10 for Facebook, 16 for Twitter, and 6 for Path. We call that network density

骋别苍茅: Path however was not successful?

James: They weren’t because they were too late and the other platforms were largely serving the needs of people. Facebook messenger is a personal utility, which is actually stronger than Facebook. I can make payments, my wife wants me to pick the kids up at school. I can’t leave. Whereas Facebook, I can turn off.

Interestingly enough, the reason I exited the companies that I have is because they didn’t have network effects…Because if you really want to make聽 an impact in the world, the best way to do it is to run a network effects business like Nextdoor, or LinkedIn, or Tencent.

Stan, who’s a minor partner at an NFX, is now running Facebook Messenger. He and I have been talking about building the global currency since 2004 when I bought Blue.com with the intention of either building a spiritual group, or building a global currency.

I never got to do it, but he’s doing it as a part of Facebook. So once you get in a platform like that you have the opportunity to actually do these important things for the planet. Had I had a network effect business, I would not be a VC, I would be running that.

骋别苍茅: Given that you’re investing in such an early stage, how do you perceive growth focus in our industry.

James: So let me be clear. Network effects is about defensibility and retention. Viral effects are about growth. Network effects are not about growth. It is about retention. It is about keeping people in. Network effects reduce churn.

We also want companies to grow very quickly, because fast growing companies attract the best people. Fast growing companies have more opportunities to do more creative stuff. Fast growing companies means that they’ve hit on something important to somebody. That is different from the sugar-coated viral growth of 2004, that people think of as growth hacking. We were very good at that, at that time. We did a bunch of that between 1999 and 2007. We invented a lot of A/B testing methodologies, and a lot of the viral loops. But since Facebook shut down Facebook Platform, virality has gone to near zero across the digital world.

骋别苍茅: What is virality?

James: Virality is when a user of yours gets you another user for free.That was a 1998 to 2012 thing. It had a good 14 year period, and then it was over. But a very interesting period, with a lot of math, a lot of iteration.The culture of Silicon Valley, that we think of as Silicon Valley came from that age of rapid iteration, and changing all the time, and never sleeping. It was very exciting. It’s like running a 24 hour news program because things were changing so fast.

骋别苍茅: Viral still seems to be here for users recommending brands?

James: Yes, there are still incentivised as viral programs. If you get someone to try Lyft, I’ll give you 20 bucks. Those are very popular. But that’s not for free. And in fact, for most of those companies their cost of user acquisition to the channel is higher than just buying ads on Facebook. But they don’t want to stop it, because it makes so much sense. And it gets the users to attach their own brand to the brand of the company.

So what we talk about is more fundamental growth. And that has to do with the name of the company, what is this thing for people, how valuable is it compared to the alternative, how do you lower the barriers to friction for people to use it. These are fundamental growth issues as opposed to growth hacking.

骋别苍茅: So would you throw growth hacking out?

James: We do throw out growth hacking, except for the iterative culture that growth hacking bequeathed us. Because there was no A/B testing until about 1999. You can鈥檛 A/B test a shoe, or a computer, or a car. You put it out there. It works or it doesn’t. The mentality of A/B testing, the mentality of iteration, and letting go of what doesn’t work and trying something until it does, that we want to keep.

But the idea of creating very slick viral flows across the Facebook platform. Those days are gone. Even Upworthy, which was viral with their positive psychology stuff, which I loved, that’s dead now. is dead.

There are fundamental growth principles that are very deep. Which means you gotta get the founders to change the name of the company. The old name, no-one can remember it. No-one can spell it. Every ad you put out there, you鈥檙e going to lose 40 percent of value, because no-one can remember the name.

We need a stronger voice in this community about the creative product culture that brought us here, originally, as the waves of money culture flow over us. And figuring out how to create a protected area for entrepreneurs and founders who care more about the product and customer than they do about money. It is just a switch. Money can be second. You need fuel to grow, to attract talent to build the product. But that’s not the goal. And if it’s money first and creative to get the money, that’s really different. It’s really sour.

骋别苍茅: Do you think Silicon Valley has gone that way?

James: If you’re writing a blog post and or tweet and you want someone to pay attention to it, you gotta put the numbers in. For instance, a lot of journalists say unless you have a financing they can’t really write about you. I think it’s because it’s the path of least resistance to aggregate confidence in something.

骋别苍茅: This whole ecosystem is becoming global. Do you think that’s a protection against this money first culture, or do you think that just travels from Silicon Valley.

James: I think it travels, because people perceive Silicon Valley through the eyes of the bloggers and journalists. And the people tweeting out. And what they are聽 blogging about is the money, and who made what. Because that’s what people click on and read. So people outside understand if I go to Silicon Valley, I can make money. Silicon Valley is a product. People are incepting that I get money if I go there.

骋别苍茅: So how do you change that?

James: I don’t think we can stop that. But I think we can create a pocket of people, and language, and writing, and events like the lobby. And the stronger the community who wants to keep it about creativity, and about product; and the more of Silicon Valley we influence; the more the products will be influenced; the more of the rest of the world we influence to really go after the creative future, rather than 鈥業 made a lot more money than you and therefore I have more worth.鈥�

骋别苍茅: What wave of technology are you riding?

James: We are riding synthetic biology. We are finding two-sided platform network effect businesses in the synthetic biology area where there’s three technologies which are all three on Moore’s Law sort of curves.

What is synthetic biology?

James: It’s essentially applying computation to the measurement and design of biology. You can do a lot more now, than you could because you have robotics, which are getting much cheaper, and are able to do 600,000 tests in an hour, versus six tests in five years. Machine learning, machine vision, and AI is getting better and better at processing and speed. Then the actual editing, the sequencing cost is coming down. Which is opening up vast new capabilities people haven’t even thought of. We are now waiting for the founders. There’s this gap between what the tech can do today, and what the founders are even thinking of doing, which is exactly where you want to invest.

骋别苍茅: This is for disease prevention?

James: For disease, agriculture, oil and gas, replacing palm oil, and impossible foods. It touches almost every industry. It is incredible.

The other thing we see happening right now is that there has been enough fintech infrastructures built on top of the old rails, so that it’s becoming easier and easier to build faster and faster fintech related companies, or fintech enabled marketplaces, fintech enabled brokerages. The ease of developing in the fintech area, through regulation is much easier than it was three or four years ago.

骋别苍茅: Is this due to platform players in the fintech?

Companies like that make it easier to get an API, or . So that’s another technology wave that we’re going with.

I feel as if the waves of tech change are slowing down compared to where they were in 1994 to 2012, because of TCP/IP and then because of mobile devices, opened up a huge Pandora’s box of potential. We haven’t had one of those big tectonic shifts since 2008. These are micro changes but the markets are so much bigger. Then the access is so much bigger. So the cost of acquisition is so much lower than it was in 1994 to 1998, because so many more people are on these networks and are easily addressable. So I think that’s making up for the fact that it’s not necessarily a tech wave. It’s a scale wave.

骋别苍茅: What are the two companies that you are excited by and why?

James: based in New York is doing financial products in the real estate sector. They allow people to buy residential houses for cash. It’s a product that the agent can give to their buyer and then get the other agent to use the other side. So the network effect to new agents using Ribbon lowers the cost of house acquisition, and increases the amount of cash transactions.

So I go from saying I offer you $100k for your home and I’ll get a mortgage to saying I’m going to give you cash but I’ll give you $95k right now. And you say deal, done. And so Ribbon takes 2 percent. I as the buyer save 3 percent. You get the cash you want. The agent gets the transaction done. They each make their commission. Ribbon gives the cash for two to eight weeks for the transition to take place. And then the home buyer gets a mortgage. It really helps when you want to buy a home before you sell your other one. I can’t afford to buy a new home, until I sell my old home.

Another one would be , which is the largest repository of CRISPR IP in the world, which is gene editing. , a co-founder is a discoverer of CRISPR. They’ve created a platform play, and then they’re working with pharma and agricultural companies to develop diagnostics and therapies to edit change in a responsible way. The more people use the platform, the fewer experiments everyone needs to do because things have already been checked off. And there’s just more data available.

骋别苍茅: Anything we did not cover?

James: We as founders have built 10 companies prior to starting NFX. Despite the money culture, we have exited for $10 billion. No other group has done that. It is about 2x any other new venture firm. As a venture firm of founders we’ve really been in the trenches for a while. I’ve made so many mistakes and have so much scar tissue. Let’s build a venture firm which is about building companies from the operators perspective who have been in their shoes. And that brings ethos, and respect, and authenticity to the conversation. That’s one thing that I think is important to us. We don’t dislike VCs who haven’t been operators. There are a lot of great VCs. But if I’m a founder, I want a founder.

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Recent details a dramatic decline in American sentiment regarding technology companies. After enjoying positive opinion for years, technology companies have seen their public perception slip.

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Notably, the declines aren’t too partisan. It isn’t rare to see American sentiment change quickly based on the turning of our internal politics (see , for example), but in this case members of both the major political parties have seen their views of tech turn more negative in recent years.

The data is stark. According to Pew, the percentage of Americans who viewed technology companies as “having a positive impact on the United States” has “tumbled 21 percentage points , from 71% to 50%.” Among Americans who are Democrats or lean in that direction, positive sentiment regarding tech companies’ impact has fallen from 74 percent to 54 percent since 2015. Republicans and folks who lean in that direction saw their views slip from 72 percent positive to an underwater 44 percent over the same timeframe.

How many聽 Americans say that technology companies have a negative impact on “the way things are going in the country?” That figure rose from 17 percent in 2015 to 33 percent in 2019. That’s nearly a doubling in less than half a decade.

So What?

Tech companies big and small depend on consumer trust to get work done. Seeing trust fall among a very profitable portion of the global population (American tech companies are brilliant at extracting value from American DAUs; see , for example) is a cause for concern for technology companies that want to acquire new users and expand their revenue.

It’s not going to be easier to acquire customers if the pool of potential customers is curdling against your industry. And according to the Pew data, trust and faith in tech companies is doing just that.

You can see why in both honest and cynical terms. In the honest category, some tech companies have been poor actors; some technology companies are ; some growing technology companies have had to ; ; many tech companies , so that they can pay them less (); many gig jobs are set up to but avoid the legal ramifications of such control (i.e. employment); one company managed to find a way to ; the ; you can add to the list, I’m sure.

Staying in the honest criticism category, some of the innovation that we flocked to wound up not being so great. Facebook’s ability to connect you to friends wound up as a way for the firm to to send you texts about coming back more often to the service. That sort of thing.

Cynically, you can complain that tech companies can be silly (true, but immaterial), or strange (same retort), or focused on the wrong problems (not every tech project that winds up being serious has to start that way).

At the same time, tech does a hell of a lot of good, allowing us to do more, more quickly in an increasingly competitive world. Technology itself made it possible for me to write to you this morning. Indeed, I’d hazard that it was the superpower-like power that tech has given us over time through its various revolutions (radio, then television, wired Internet, wireless Internet, etc.) that contributed to why we liked it so much. That and the companies that powered it often stood at an angle to the world. Google was a perfectly lovely odd duck. (More recently it’s famous for , and for trying to build a .)

But there was a lot to like about Google before it became the incumbent. Now when I think of Google my first thought is how slow Chrome has become and how mobile Google search is so full of UI-bloat that I’m considering giving Bing a try. So I suppose I at least partially fit in the category of companies losing some optimism concerning tech companies.

Adoption Of The New

It’s hard to note change when you’re in the middle of it, but I wonder if the erosion of public optimism regarding technology companies will slow adoption of new services. That could favor incumbents and dent startups.

Which brings me to something that , an old colleague and present friend of mine wrote for The Next Web, my old home. In a piece entitled “,” he riffed on the fun times when things like Google Wave launched and the Internet ground to a halt as everyone jumped aboard to give it a try.

Two sections, in particular, resonated:

It鈥檚 healthy to have a critical attitude to the technology that plays a much bigger part in our daily lives than it did 10 years ago, but I can鈥檛 help but feel we鈥檝e lost a healthy level of enthusiasm for embracing new things, too. All too often, new technology is greeted with questions about how it might make the world worse, rather than better. […]

Tech has become a much more important part of our lives over the past decade, but I do worry that by focusing too much on the dominance of tech giants, foreign interference in elections, deepfakes, and everything else that scares us about the future, the media is leading us all to lose our sense of wonder at the little ways tech can make our lives better.

In a sense, the second paragraph details why the first paragraph is happening. Because big tech companies have been rather bad lately (here’s some from this week, for example, that made me mad), consumer sentiment is changing. More clearly, big tech might be poisoning the well for smaller companies.

You can see a piece of that in reaction to privacy legislation, worries that big companies will wind up entrenched at the cost of smaller companies.

I should confess my own biases before we go. I’m a technology optimist, but I think I’ve become net-neutral on many technology companies. Once public, a company has an insatiable drive to continue revenue and profit growth. Those demands will eventually clash with ideals, and, at times, what’s best for consumers. These pressures are not unique to the technology world. Indeed, they are merely a facet of capitalism, a method of structuring economies that I favor over others.

But if technology companies are going to arrogate all sorts of power and authority over our data, we can demand more from them. And the Pew data shows that Americans are.

I just hope that we don’t lose all of our optimism about the power of technological change because some tech companies can’t seem to find where they put their ethics.

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