California, I’m coming home

After a decade on the east coast, I’m excited to announce that I’ve returned back to the west coast as an early stage investor with Matrix Partners in the Bay Area. I’m beyond excited to be joining this incredible team to help invest and support the next wave of bold entrepreneurs.

The last ten years in Ithaca and then NYC have been transformative. I’m lucky to have had the opportunity to learn at a couple of great schools and then learn some more at the first few stops on my career journey. Most recently, while working in the High-Tech and Fast Growth Tech practices as McKinsey, I worked with a dozen companies on everything from marketing & sales to customer success to go-to-market strategy. It was rapid-fire exposure to many of the key challenges founders and management teams face in the early stages and as they scale.

While I enjoyed this experience immensely, I found myself wanting to work with founders earlier in their journey and over much longer periods of time. Being there with the entrepreneur as an advocate through both good times and bad is what makes a successful outcome all the more rewarding. So when the opportunity at Matrix opened up, I knew I had to go for it.

Matrix Partners has been quietly but consistently racking up wins for four decades over ten funds—a deep track record that few firms in the venture business can claim to have. In the early days, Matrix invested in the likes of Apple, SanDisk and FedEx. More recent investments include: Acacia Communications, HubSpot, Oculus and Zendesk. And there are some great companies in the portfolio well on their way like Lever, Namely, Quora and Activehours, among many others. The firm is also very well positioned internationally with presences in both India and China.

More important than this track record though, the team at Matrix is full of high quality people. The group has a diverse set of skills and a wide range of expertise (check them out here), but they share one thing in common: a deep commitment to supporting the visionary entrepreneurs who join the Matrix family all the way. And they do this with integrity, class and style.

I’m pumped to be joining this team, making the move back to CA and beginning to meet the founders and operators building the companies of tomorrow. If you’re embarking on this journey – let’s chat!

You can find me on LinkedIn, Twitter and Quora. I also actively write about technology, startups and investing on my personal blog here

Core & Emerging Platforms as we Move into 2017

Innovation at the platform level (whether it be improved hardware, changes in infrastructure or new ecosystems) has always led to new opportunity at the application level for both entrepreneurs and the investors that back them. As 2016 winds down and we look ahead to 2017, it’s as good a time as any to take stock of the innovation we’ve seen at the platform level in the last few years and the trends in tech that will drive new opportunity in application software.

More specifically, I see four core and emerging trends that will continue to dictate opportunity in B2B software: (1) continued dominance of cloud, (2) acceleration of mobile enterprise, (3) increased attention to AI (more specifically machine learning) and (4) the rise of AR & VR – particularly AR in the B2B setting. The figure below provides an overview that will be explained in further detail below:


(1) Continued dominance of cloud

This is an “old” one but a good one. Of the four platform trends this is the most established one and has produced the most opportunity to-date.

From a horizontal perspective, the cloud has penetrated (though not yet dominated) every function within the enterprise. Salesforce is the prevalent choice for most in the sales / CRM functions. Companies like Workday, Cornerstone and SuccessFactors have gained real traction within HR. Eloqua, ExactTarget and Marketo are widely used marketing tools. NetSuite has a strong presence in ERP while Zendesk is a strong force in customer success. And there are many other more recent horizontal SaaS companies that have made big waves: Slack, Stripe, DocuSign and DropBox are just a few of many that had big years in 2016. And there are many more opportunities remaining in relatively untouched areas like: sales ops, SMB-focused HR tools, inventory management, market intelligence and customer care analytics.

Vertical software, is still very much in its infancy. There have certainly been some early winners like Veeva (life sciences), RealPage (real estate) and Fleetmatics (fleet management), but there are many more industry cloud winners to come. Industries like manufacturing, construction, logistics, agriculture, oil and gas and others have slowly begun moving to the cloud after remaining cloud-allergic for many years. 2017 will be a big year for many of these industries and the vertical-focused, category-winners that reshape them.

(2) Acceleration of mobile enterprise

Aggregate mobile enterprise revenue in 2016 was just under $100B –pretty solid for a platform that didn’t exist 10 years ago. However, this one is also just getting started. Forecasts show this number doubling by 2020 (and I wouldn’t be surprised if the growth rate is higher than that). Part of this growth is fueled by increased vertical software opportunities. Procore is a great example of a company delivering a vertical specific solution (in construction) via mobile enterprise. Industries like education, insurance and real-estate will soon follow.

(3) Increased attention to AI  

2016 really marked THE year when AI (or more accurately, machine learning) really came into focus in the startup and venture community. As seen in the figure above, deals done and investment dollars poured into the sector have grown exponentially in the last 2-3 years. In that time, AI has done a few interesting things:

  • It has re-opened the door in a real way to more horizontal software opportunities giving rise to the “disruption of the disruptors.” Suddenly, machine intelligence has allowed for greater insights and better products and services that opened the door to new entrants looking to enter horizontal spaces.
  • It has allowed for more focused solutions that really benefit from machine learning applied to large data sets to flourish. Little Bird (a market intelligence and data analytics company based out of Oregon) that was recently acquired by Sprinklr is a good example. AI powered point solutions like Little Bird, once bolted onto larger platforms (like Sprinklr’s social media management platform) can exponentially increase the utility to their enterprise customers.
  • It has brought back IBM’s relevance among innovators and early stage companies. Ironically, rightly or wrongly, IBM’s Watson is the most common machine associated with machine learning. Whether IBM is able to harness the potential of AI remains to be seen, but the company attempts to be mounting a bigger challenge to be a dominant presence in the space rather than giving way to the big four (Apple, Facebook, Amazon and Google) as it did with consumer devices, social, ecommerce and search.

Expect AI to be a powerful trend in 2017 and beyond, with both startups and established players getting involved, especially as the technological innovation becomes more advanced.

(4) The rise of AR & VR

AR and VR are the furthest off in terms of real platform potential and 2016 was largely a pretty big disappointment for these platforms. The biggest thing in AR/VR in 2016 was Pokémon Go, which was an entirely consumer play (and appears to largely have been a fad). I expect VR to still be a few years away from going mainstream –and even when it does, it will continue to be a consumer play.

That being said, I do think in 2017 we will see the start of some AR-based software applications that will gain traction among enterprises. And by 2020 forecasted revenues in AR will near $120B. Some of the important early verticals AR will start with will be healthcare, manufacturing, defense and architecture among others. Some of the early startups playing in these spaces, that I’ll be following in 2017 include: CrowdOptics, APX Labs and Pristine.

Grow fast or die slow: Why unicorns are staying private

In today’s world, technology companies worth more than $1 billion—and many worth $10 billion—have fewer reasons to go public than they did in the past. It’s a new paradigm shift that has really changed many of the dynamics in the startup community. A few of us in McKinsey’s High-Tech practice put together an article on the software IPO environment and the implications for founders and VCs. We hope it’s an insightful read.

The full article is available here.

Revisiting EdTech: Opportunities for 2016 and Beyond

It’s been a few years since I’ve written extensively about education technology and the opportunities that exist in the space. Since my last set of posts back in December of 2012, the space has continued to be a fast growing sector with much opportunity. Back in 2012, the sector was a $4.1T industry globally. That number just topped $5T in 2015 with a 7% CAGR. Unsurprisingly, the education sector remains the second largest industry, trailing only healthcare in terms of global market size.

Likewise, venture capital investment has picked up substantially in the last 3 years. In 2012, Series B investments totaled just $159M—that number is expected to top $500M in 2015 once the final numbers are published. Similarly, deal activity across all stages has picked up. In 2012, the total number of deals across VC/PE was ~500 deals—that number will reach nearly 800 deals by end of year 2015.

Most importantly, exits have finally begun to provide some hope for returns. A scarcity of exits has long been one of the big problems for entrepreneurs and investors considering EdTech. Indeed M&A activity has historically been slow (<1% of all M&A exits from 2002-2012) and IPO showings have often been abysmal (e.g. Chegg which fell 23% during its IPO debut and now has a market cap of just ~$620M, half of its opening day valuation.)

In the last three years, however, there have been a handful of successful EdTech IPOs including companies like 2U and Instructure. Others, such as Coursera, Udacity and Edmodo, are all not far behind in the IPO pipeline. M&A activity likewise has been quite strong. In fact, U.S. EdTech companies tend to command higher revenue multiples than the average tech exit—3.2x for EdTech companies vs. 2.5x for the broader tech industry. Furthermore, M&A exits themselves over the last 5 years have been fruitful with 25 buyers spending more than $100M on U.S. EdTech companies.

exits-1438648868.jpgSource: EdSurge

Yet despite this progress, there remain a wide array of inefficiencies and unsolved problems. Specifically, I see 6 promising near-term opportunities for entrepreneurs to take advantage of and for investors to invest in. In no particular order here are a few thoughts of what we will see beginning in 2016.

1) Cloud SaaS will finally replace on-prem at the school district and system admin level

Having spent time working at the district level in education policy, I was always amazed at how archaic many of the tools districts and school systems use at the city-wide/admin level. Software tools that track important mission-critical information such as attendance, student demographics, building information, zone data, etc. across schools within a district are still often hosted on-premise, using archaic databases and outdated software with GUIs that look like they were designed in the ‘90s. Below is an example of what the NYC DOE ATS currently looks like:

Untitled.pngSource: NYC Department of Education

I suspect that in 2016, as much of the IaaS and PaaS layers begin/complete their moves to the cloud through services provided by the likes of AWS, Azure, SoftLayer, etc, we will begin to see more B2B SaaS applications layered on top to replace the traditional on-prem software solutions. This will bring much needed functionality, analytics and a cleaner user experience to the education world. This in turn will increase productivity for educators working at the district and administrative level across school systems.

2) Learning content will be far more personalized

Recent survey data showed that less than 50% of teachers reported having digital resources that could be used to meet teaching standards. Moreover existing technology solutions often are not tailored to individual students and their specific needs. The next generation of student-centric software tools (across grade levels and subjects) will provide high levels of granularity and insight into the specific needs of individual students allowing for an end-to-end customized experience across lesson planning/ delivery, class activities and periodic assessments. This will be even more important for special needs students in ICT, 12/6:1 or similar learning environments. Personalizing learning content will ultimately allow for a more tailored learning experience and better long-term knowledge retention.

3) K-12 teacher development will rely more heavily on software platforms and tools

As it stands today, professional development for teachers is largely untouched by software tools and applications. At the district level, spend on professional development for K-12 teachers in the U.S. is ~$3B and usually takes 1 of 4 forms: (1) periodic school-wide workshops, (2) observation of other teachers, (3) coaching (usually by a more experienced teacher) and (4) generic online research.

In 2016, we will begin to see more PD content move to the cloud as doing so makes training teachers: (a) less expensive, (b) more accessible and (c) more personalized. Horizontal HR solutions like Workday, Cornerstone OnDemand and PeopleSoft will be re-built / tailored for the education sector enabling professional development in education to be more sophisticated and effective.

4) Higher education software tools will focus more on degree completion  

As the Baby boomer generations’ offspring (Gen X) move beyond the college-age window, the college enrollment growth rate will begin to slow and the focus for many higher-education institutions, from a revenue perspective, will shift away from recruitment/ matriculation and towards retention/ graduation. As of 2012, ~50% of all college students were in at least 1 remediation course.

In the years ahead, there will be a greater focus on retention and remediation of students already admitted into colleges. Software tools will increasingly be used for (1) recruiting the right type of student to admit, (2) providing BI and predictive analytics platforms for identifying and tracking high at-risk students and (3) supporting remediation instruction for at-risk students to get them back “on track.”

5) Online courses and degrees will become more relevant

While online courses (including MOOCs) and degree programs will never replace the off-line experience, these offerings will increasingly be used to supplement off-line instruction as well as provide a new delivery format to non-traditional segments (such as continuing education students). Two important trends are happening that will accelerate the pace at which this happens in 2016: (1) online courses and degrees are becoming more socially acceptable (many programs have been accredited, employers are increasingly hiring graduates from these programs, etc.) and (2) the infrastructure (managing enrollment, handling payment, providing tech support, hosting platforms, etc.) to provide these offerings is cheaper and more readily available.

As such, we will see a greater number of higher education institutions join the ranks of UNC, USC, ASU and many others that provide courses and degrees online. This trend will create a range of software opportunities across: video collaboration, course development and delivery, student / faculty services and recruitment / retention.

6) Demand for software tools that teach skill-based training will increase  

As colleges increasingly charge exorbitant tuition fees while failing to equip graduates will real skills, demand for skill-based programs, vocational certifications and other alternative teaching tools will increase. In 2013, the number of vocational certificates granted was nearly 1M—up 35% from 2005. Similarly, from 2013 to 2015, the number of graduates who graduated from coding programs (such as Codecademy) increased 630%+.

In 2016, we will see an even greater emphasis on tools for skill-based training. Some of this will be purely software delivered via the cloud and some will be more hybrid: software mixed with in-person training. Companies like Lynda (acquired by LinkedIn), Udacity, General Assembly and Udemy have already made significant dents in this space. We will see much more of this in the upcoming year.

Venture Debt: An Alternative form of Financing

In the tech ecosystem, we often associate entrepreneurial financing almost exclusively with venture capital. As a result, most of the fundraising resources for entrepreneurs are geared around venture capital. Likewise much of the media attention in the startup financing world is focused on venture capital investments.

The reality, however, is that there are many different forms of financing beyond traditional venture capital financing. And the type of fundraising instrument used is as important as the quantity being raised and who it is raised from. There is quite a bit of information out there about raising from friends and family, angel investors, crowd funding platforms and several of the other more common sources of financing outside of venture capital. But there is very little information about financing a startup through debt.

As such, Brian Feinstein of Bessemer Venture Partners, Craig Netterfield of Columbia Lake Partners and I put together a white paper on venture debt, which was released last week. It’s meant to be a fairly comprehensive guide for entrepreneurs who are interested in exploring venture debt as a viable option. Feel free to check it out here and send us any questions as they arise.

Updated Resource Section

I recently updated my resource section to include a variety of papers and presentations I authored or co-authored while at Columbia Business School. As I was sorting through my hard drive and getting rid of old files, I realized that a lot of time and effort went into some of these and that someone, somewhere might find some of this information useful.

So I’ve uploaded some of these thought pieces under 3 different sections:

  • Investment Memos: This sections contains three different investment memos on Airbnb, Prosper and Starwood. The first two are focused on later stage venture / growth equity investments whereas the Starwood memo is more of a traditional Buy/Sell/Hold analyst report.
  • Roadmaps & Theses: The next three sections contain a set of VC style investment roadmaps from the two internships I did in venture. The first deck is a roadmap focused on wearable tech, specifically Google Glass, from my time at Gotham. The second deck is a playbook on vertical saas opportunities that I put together for BVP. The final paper is an initial viewpoint on the manufacturing software sector that I put together for BVP while doing a deep dive into the space.
  • White Paper & Thought Pieces: The final section is more or less a catchall for a few other pieces that I thought were interesting but didn’t naturally fit into the other two categories. This section contains an in-depth analysis on M&A activity in the tech sector and the resulting implications for venture investors. This section also includes a deck that very accurately projected iPhone sales for Apple in Q3 of 2014 before actual figures were announced. Both of these papers rely extensively on regression analysis and other statistical methods.

So there it is, a few resources that I thought were interesting. I’ll continue to add to this collection as the opportunity arises.

The Age of the Unicorn: Traits of Today’s Unicorns & Their Marriage to the IPO Market

A few days ago, Dan Primack and Erin Griffith from Fortune put out an article entitled “The Age of the Unicorn” along with a nice list of the 80+ unicorns currently in business. In addition to providing a working definition of the “unicorn” (essentially a pre-IPO tech startup that has reached a $1B market value), Primack and Griffith go on to describe some of the characteristics of today’s post-bubble unicorns and why these companies have become much more commonplace. I decided to spend a little time looking at their list and gathering a little bit more information on these companies.

The first trait worth noting about today’s unicorns has to do with their actual valuations. While the mean valuation of these companies is nearly ~4B, this average is heavily affected by a few of the upper outliers—companies like Xiaomi ($46B), Uber ($41B) and Palantir ($15B). There are only 8 “decacorns” (companies with a $10B+ valuation); the majority of these companies fall in the $1-2B range. In other works, the collection has a long tail of companies that are “just barely” above the unicorn threshold. Importantly, these valuations are all on paper. For the founders and investors involved, these numbers are largely irrelevant until there is an exit to provide liquidity to these valuations (more on this towards the end of the post.)

Another characteristic worth noting is when these companies were founded. The average company life of these unicorns is 8 years—not all that surprising until you consider the fact that many of these companies have been unicorns for several years before Fortune published this list. In fact, the speed with which some of these companies have reached unicorn status is unparalleled. 7 of the companies (~9%) were founded in the last 2 years and 31 (~40%) were founded in the 6 years since the financial crisis. A mere 12 unicorns (15%), are dot-com survivors (founded in 2001 or earlier).

A final characteristic of the unicorn list worth noting is where they were founded. The chart below shows a story that is not all surprising—namely that the Bay Area is still King when it comes to producing fast-growing tech startups. That being said, the Bay Area’s “share” of unicorns, at 44%, is certainly not what it used to be. China is clearly a major force in the production of unicorns as is NYC and Europe. The surprise from a geographic perspective appears to be Southern California in 4th place—bolstered by the likes of SnapChat, SpaceX and JustFab. While not shown in the chart below, Boston and India are both tied for a close 6th with 3 unicorns each. Interestingly, each of India’s 3 unicorns are in the online retail/commerce space: FlibKart, SnapDeal and InstaCart.

unicorn location

There has been much debate on the drivers behind the growth in the number of unicorns, the macroeconomic implications of more privately held $1B+ companies and the possibility of a growing bubble. Griffith and Primack’s article provides a great overview of these debates and other related issues. One implication that is pretty evident, however, is that the IPO markets need to continue to stay strong in the next few years or venture investors are going to face disappointment. A quick example will help illustrate this point.

Let’s say you’re a VC who recently invested $100M into the latest round of a fast growing startup at a $900M pre thus providing the company with unicorn status based on its $1B post. As a VC, you’re looking for at least a 3x cash-on-cash return on this investment. In order for you to realize that type of return, the company you invested in needs to exit for at least $3B. Very few companies in the F500 can afford an acquisition of that size. Thus, in order to realize that kind of return, you will push the company (and its management team) to go for the IPO. This push for an IPO may be aligned with the founder’s goals but it may also come despite the attractiveness of an acquisition from the founder’s perspective. Even if there is full alignment on exit strategy, the whole thing will unravel if the IPO markets cool and there is no demand for these assets. Thus, the Age of the Unicorn is strongly tied to the strength of the IPO market. In the coming months, I think we’re going to hear a lot more speculation from the venture community on this very topic.