Danny Crichton

One of the most rewarding, yet peculiar, learnings about working as an investor in venture capital is that you constantly see clusters of start-ups spring up around the same problem. Indeed, one of my proofs that Silicon Valley is an efficient market is that these problems are seemingly identified by everyone at the same time, and so the difficulty in investing is simply choosing the best of the breed and moving on.

In the past year, I have seen clusters form around loyalty cards in local businesses, analytics APIs for mobile, and new designs for resumes, just to name a few that come to mind. None of the founders I have met in these clusters are “me-too” – they seem to have legitimately all come to the same problem from personal experience or through asking the right questions to a target customer. That’s innovation working correctly.

The peculiar part of this observation is how many obvious problems don't seem to get a cluster of start-ups at all. Sometimes these problems, some examples of which I’ll discuss shortly, are not small at all. In fact, I would go so far as to say that these blind spots in the market are where all the future value will be made in innovation. Many of the category-defining companies of the past few decades were all built around problems most people didn’t even know they had.

Why do some problems get a bevy of start-ups, and others seem to languish untouched? I think there are several key reasons, including that some problems are actually quite difficult, and founders lack specific experience in that area.

The one that bothers me most though is blindness. There are problems that have been here for years, that lack high quality

What do we do when there is no path to building a career?

It wasn't so long ago that job training was a core component of almost any career path. When factories hired new grads, there was an expectation that the staff would train the new worker to use the machine tools, to properly evaluate the tolerances of finished goods, and to understand the overall process of how the factory operated. Indeed, unions often put heavy priority on training in their collective bargaining agreements.

The same pattern could be seen before in law, medicine, and other professions, where new graduates were often given years to build their skills and reputations under supervision in apprenticeship-like positions. Corporations built management training programs to ensure that in 10-20 years, they had talent coming up through the ranks that was prepared to handle the complexities of their businesses.

All of that is changing, and it doesn't bode well for younger workers just entering the workforce. In law, upwards of a quarter of graduates from the top 25 schools are underemployed. That is a staggering waste of talent. The same is true in financial services – Goldman Sachs permanently canceled its entry analyst program just a few years ago, and now only hires among its intern population. Factories are also refusing to train new workers, expecting them to have already received job training at specialized and expensive technical schools.

This is the problem I am calling the "disappearing ladder." The gateways to many careers have now largely disappeared for younger workers, and it isn't clear to me that any new system has replaced it. These ladders are disappearing across all industries, in both "middle class" and "upper class" professions.

The underlying causes of this labor

One of the most common questions I get as a VC from seed-stage company founders is "Should I take money from institutional VCs in a seed round?" That's a difficult question, and every start-up is going to have their own approach in answering it. I'll try to work through what to think about in this post.

Any time a company raises a venture round, investors are curious to know whether the current investors in the company are also participating. The reason is simple: the investors who probably know the company best are the ones already on the cap table. They get the investment updates from the CEO, and should be intimately familiar with the business and its future prospects. Thus, their further investment in the company sends a strong signal of how current investors see the business performing. If they are attempting to increase their ownership, it indicates they are bullish on the company. If they are trying to avoid putting more capital into the company, that is probably a sign that the company is no longer a good investment.

This is one of the most visible signals for a company raising capital. Its importance should not be understated.

When it comes time to raise a seed round, many company CEOs try to game this signal by placing only angels and micro-VCs in the syndicate – essentially, any investor that doesn't have the capital base to offer more money in a future round (or so little that it isn't material). In other words, they prevent their company from sending a negative signal, since none of their investors could participate in a future round even if they wanted to.

The downside to this approach should be obvious though – while you limit your downside,

Rumors continue to swirl that Facebook is currently negotiating a buyout of Waze, the popular social mapping app. The app was founded by three co-founders, Uri Levine, Ehud Shabtai, and Amir Shinar, and is based in Israel with an office in Palo Alto. As part of a potential Facebook acqusition, the Palo Alto team would be merged into FB's Menlo Park office, while the Israel team would be used as a launching point to launch Facebook's engineering efforts in that country.

TechCrunch today ran an article that discussed whether the creation of the Facebook office would harm the nascent start-up community in Israel. The article's author, Mike Butcher describes a conversation:

Because, he says, although the Waze R&D center could be a beach-head for a full-blown Facebook R&D shop, and thus good for Facebook, “it could have catastrophic effects upon local early stage startups’ ability to compete on salaries and benefits.”

His argument is that if a big company like Facebook stays away, then the Israeli tech ecosystem is more likely to be able to “push more innovation” towards Silicon Valley, which would be in the “best interest of both the local startup industry and Facebook.”

Certainly, such a large acquisition inside such a relatively small country could well change the successful dynamics of the Israeli eco-system. If it became a mere engineering centre for Facebook, Apple and Google, the implication is that we might not see quite the same levels of startup activity as we’ve seen emerge in the past from Israel.

That is almost certainly overstating the ‘problem’. It’s more likely that the experience of being inside these big tech companies in Israel is more likely to create a virtuous circle of new entrepreneurs,

lang: en

Data is becoming the central force for change in society. As we increase the sophistication of our analytical tools, there is more and more pressure on decision makers – whether in companies or in government – to utilize data and "insights" in their deliberations. Unfortunately, this opens up many of these decisions to a dangerous hack: controlling access to data can easily determine the outcome of major decisions. Just take a look at some of the recent stories where manipulating data access was key to a decision:

1. Several states have or are considering passing laws that restrict the ability to film slaughterhouses. Perpetrators would be subject to punishment that could include being placed on a terrorist list. Video tapes of slaughterhouses are one of the key pieces of evidence for animal rights groups to push policies that encourage humane treatment of animals. By banning videotaping, these legislatures are trying to control the debate on animal rights by limiting the evidence that can be introduced.

2. For years, the National Rifle Association has used its lobbying powers to prevent the collection of gun data by the government. Furthermore, the Centers for Disease Control have been banned by law from considering any research into firearm violence and its effect on human health. Again, access to data becomes key to a major policy issue, in this case gun violence. Without gun data, policymakers are forced to choose actions based solely on argumentation and rhetoric, without the deep scientific research that would lead to the best outcomes.

3. Federal funding of comparative effectiveness research on healthcare in the United States is contingent on researchers not making formal recommendations about different medical treatments. This sort of research is used to show that two treatments – which may have widely different costs – have the same efficacy in

lang: en

Springtime is in the air, and so is the annual cleaning of this blog. I have taken a break over the past few months to consider what I want to focus on in my work, and in my writing. That process has now been completed, and with any luck (and a little bit of tea), new posts will begin to emerge on this website.

I want to indicate a couple of changes to the editorial content and the website for those who have followed me through all of the iterations of my website over the years.

1. I have changed the name of my blog over the years from Informed Skeptic, to Danny Crichton, and now, "Hacking VC." I think this new title best describes what the focus of my writing will be in the coming year, namely thoughts and ideas that come from my work as a venture capitalist in Silicon Valley. There will also be some code examples occasionally as I learn new programming languages and libraries over the next couple of months and years. In addition because I cannot restrain myself, I will also include a random smattering of foreign affairs and politics in here. Sorry in advance.

2. I have refreshed the theme (yet again). There is now more focus on the content, with a greater width for columns as well as a simpler design. I'll never stop tinkering with the layout, but I like where this is right now.

3. I have started using Twitter more – you should follow me if you haven't already.

lang: en

It has been almost two months since I last posted on this blog. That is a surprisingly long time for me, considering I have been blogging for almost 5 years now, almost without a single month being missed (the last gap was during the endgame for my undergraduate thesis).

This last month has been a month of change – new goals, new tasks, new home (having moved to SF this past month). As I execute on my goals for 2013, I realized that the amount of time that I spend on this blog is out of proportion to my own personal benefit from it. I intend to come back to this blog at some point in the future, but for now, it is going on hiatus.

As always, I am available by email. Send a note if you have something to say. Otherwise, hopefully regularly scheduled programming will return soon.

포린 폴리시 Foreign Policy가 내가 어제 한국의 경제 성장에 관해 올린 포스트에 대해 정반대 입장을 담은 기사를 내놓았다. 대니얼 알트먼 Daniel Altman은 한국의 전성기는 진작에 지나갔으며, 일본의 성장이 그린 호(弧)를 한국이 그대로 따라가고 있다고 주장한다.

한국의 경제 성장률은 1990년대 초부터 감소해오고 있고, 전반적인 추세로는 일본과 약 20년 정도의 딜레이를 보이며 따라가고 있다. 도시화라는 측면에서는 시간 차이가 15년에 가까울지도 모르겠으나, 유사성은 명백하다. 또한, 15년 후 한국 인구의 연령대 분포는 일본의 현재 모습과 매우 비슷할 가능성이 높다.

알트먼의 주장은 전반적으로 옳다 – 일본과 중국의 경우와의 밀접한 연관성은 분명 존재한다. 그러나, 아주 명료하게 경제 성장률에 집중하는 기사가 아시아 경제 위기와 도쿄 부동산 거품을 언급하지 않고 지나가는 것처럼 보이는 것은 흥미로운 일이다.

이 위기들은 동아시아 국가들로 하여금 지속 불가능한 정책들을 피하도록 만들었다는 점에서 매우 중요하다. 닷컴 거품이 결국 실리콘 밸리에 오늘날의 왕성하고 강력한 인터넷 사업가 문화를 선사한 것처럼 (이번에는 정말로 제대로 된 비즈니스다!), 도쿄와 서울도 그들의 개발 모델을 가지고 내부적으로 많은 문제를 직면했으며, 각 도시의 위기는 개혁을 야기했다.

불행히도, 많은 이유 때문에 일본은 결코 개혁을 완전히 수행하지 않았다. 가장 중요한 것은 중앙 부처와 (일본의 회사들을 운영하는) 기업주들 사이의 힘의 균형을 근본적으로 바꾸지 못한 정치 수뇌부의 무능이다. 이는 일본 기업가들의 목표를 약화시켰고, 차세대 소니를 만들기 위해 일본의 투자자들이 필요한 경제적 자유를 막았다. 일본은 현재 너무나 많은 문제를 직면하고 있어서 (20년간 직면해 온 상태다) 터널의 끝에 결코 빛은 존재하지 않는 듯해 보이는 지경에 이르렀다.

서울은 '1997년의 IMF 및 그 이후’에 발맞춰 구조 개혁을 단행하기 위한 독자적인 접근법을 개발했다. 그러나 현재까지 기본적이고 정통적인 보호 무역을 벗어나, 보다 더 자유 무역을 중심으로 하는 모델로 나아가겠다는 의지를 보여주지는 않고 있다. 이는 보통 힘든 이행이지만, 이스라엘 같은 나라들은 강력한 사회 보장 제도와 경제에 대한 국가의 간섭을 유지하면서도, 자유 무역 중심의 경제를 창조하는 하이브리드 접근법이 남아 있다는 것을 보여준다.

부정적인 내용에도 불구하고, 기사는 꽤 긍정적인 내용으로 마무리를 짓고 있다. 한국은 동아시아 이웃들의 결과를 지켜볼 수 있으므로, 궤도를 수정할 수