Danny Crichton

This week, I focused on several major Asia tech and finance stories that will radically reshape the divide between the U.S. and China. Several of these stories have been issues debated for years that are now seeing resolution, such as MSCI’s decision below. It’s a constant reminder in Silicon Valley that despite the region’s power in tech, many others around the world are plotting to compete effectively.

Xiaomi CDRs, SoftBank’s successors, and China’s Samsung investigation

China is launching a new financial vehicle known as Chinese Depository Receipts, which are mirrors of a similar vehicle in the United States known as American Depository Receipts. This mechanism allows local investors to invest in foreign companies, without the logistics of moving money across borders or handling foreign account holdings. In other words, it dramatically expands the pool of capital for companies, which can drive up their valuations. Given that most Chinese tech companies are based outside of mainland China, the CDR mechanism will allow many of them to access mainland investors for the first time.

ZTE fined $1 billion

This was a major story in the U.S./China trade war over the past few weeks. In the end, it looks like the Trump administration voted to merely penalize the company rather than kill it. The sudden shock that the U.S. could just shut down a major Chinese company though is now being called the country’s Sputnik Moment, and has already pushed the CCP to double down on indigenous tech development.

With index changes, American are sending billions to China (whether they know it or not)

MSCI will include domestic Chinese A-shares for the first time. Given that trillions of dollars are indexed against MSCI’s emerging markets indicators, the decision will likely mean that

Ethics is extraordinarily important for journalists, analysts, and researchers. I have posted an ethics statement on this website, so that any conflicts real or perceived can be understood by my readers. It will be updated as needed in the future.

Image by Martin Bowling used under Creative Commons.

2018: Venture Capital Disrupted

Princeton University
Danny Crichton / April 5th, 2018

Personal Background

Readings
Venture trends from the field
Building a startup today

Agenda

Personal Background

Narcissism

Readings

Essays

Venture Trends

Life in 2018

1.Blockchain

Quite possibly the only trend that people are talking about today
Massive excitement in blockchain (including but not limited to cryptocurrencies)
New avenues for funding (ICO vs. venture)
Massive regulatory risk that still is not mitigated
So early - revolution has not yet happened and may not for several years

2. Huge Biotech Excitement

Massive interest in “deep insight bio” - software and bio
Massively increasing valuations
Political pressure and regulatory reform from FDA
Global increase in spend

3. Startup Frontier IS increasingly “complex”

Growing realization that complex ventures are only interesting investment area
GovTech, “smart enterprise”, “emerging tech,” logistics, cybersecurity, and other new investment themes are very popular these days
Problem: partner talent not always matched with themes

4. Asset class arbitrage

SBIR program increasingly used by startups to launch
Early-stage SV VCs are competing ferociously with traditional funders given better economics
Remains to be seen if long-term returns will match today’s enthusiasm

5.New Strategies for building regulated startups

More venture firms specialize purely in the political aspects of startup building
Ready-made playbooks from Uber/Airbnb etc. make it easier to grow
Longer-horizons on VC funds (e.g. MIT’s Engine)
How to avoid “binary outcomes”

6. Center of gravity remains in SV

SV is less a center of gravity today for traditional startups - more diverse regions
But in regulated businesses, there is a need for the services (legal, etc.) that only SV can provide

Building a Startup Today

Life in 2018

1. Finding a niche Is hard

Unlike consumer apps where “imagination” can take you to your destination, regulated

I have been slowly reading through Katrina by Gary Rivlin. The book, written 10 years after Hurricane Katrina struck New Orleans, analyzes the storm’s aftermath and the process of rebuilding. The politics here are riveting, and it is both heartening and disheartening to see how a city can come together around tragedy — as well as still bitterly fight the “old fights.”

So far though, the bigger lesson to me is how much the media got wrong in the days immediately after the storm — and this is crucial — how much of that coverage later drove decision-making about what to do in the city long-term.

This in some ways is not a revelation — it is hardly surprising that some facts are wrong given how rapid the media covers breaking news events. But I do think we forget in the constant firehose of news and stories from around the web how little permanence any of this news actually has.

Let me take Trump’s election victory as an example. His upset win — against the odds posted by organizations like the New York Times — became instant fodder for reporters and analysts across the political spectrum. We had the theory of the white working class, the Clinton campaign ineptitude logic, the FBI investigation logic, foreign propaganda from Russia, etc. etc.

A year into this administration though, can we say for certainly that this president is going to be a momentary blip in the flow of history, or is he going to be one of the most important presidents and usher in a Trump era of American history (or obviously something in between). Isn’t it nuts that with all of the reporting and discussion emanating from the media the past year, we can’t even really answer this most fundamental of questions.

Historians like

It’s another year, and another year of great books. One of the goals of this year was to write more reviews of books that I have read — as you can see from the archives, that failed miserably except for a capsule blog post about Cixin Liu’s Three Body Problem. I am making no promises about this next year.

That said, there were a number of great books that I read this year, and I hope more people read them as well. As I wrote about last week, I am attempting to be more deliberate with what I am reading. So there is more fiction this year, and I hope that trend continues next year.

Pachinko by Min Jin Lee

This was the single best book I read this year. First and foremost, it is an amazing novel about the challenges of a family on the edge of society trying to make it between two cultures, Korea and Japan. But at its heart, it is a meditation on the challenges each of us face as we are confronted with events far beyond our control.

Pachinko is a Japanese parlor game that’s sort of a more gambling-oriented pinball (Google for more careful discussion of the importance of the game to Japanese culture). While the operator has some control over the balls in the game, ultimately, those balls are going to bounce against obstacles, mostly on their own, and winning or losing the game has more to do with the odds of the parlor than any specific actions on the part of the player. Yet, the feeling of skill — of control — is critical to the belief that we have agency in a harsh world.

Lee managed to layer that high-level metaphor into the family at the heart of her novel.

I have two problems: one is that I read a lot of books. The other is that I buy a lot of books. Unfortunately, my credit card is more plentiful than my time these days, which means that I have an increasingly large number of books that I haven’t read yet. I even bought a separate bookcase in order to hold all of these volumes. I currently have approximately 300 books in my apartment, and about 20% of those are unread.

I read a post (which I have since lost) which said that the basic rule of books is that if you bought a book and haven’t read it within a decade, you probably should just find a way to give it away. Books should fundamentally be exciting — they transport us to strange new places and can show us both the past and the future. There is a tragedy when books become burdens — reminders of all the interests and wonder we once held and no longer have time for.

And we really don’t have time for so many works. Every year, there are millions of books published if we count self-published as well as traditional publishers. Indeed, there has been a veritable explosion of books published in the last few years. Even when we filter for quality, the deluge is just extreme. I once tried to only buy books that were rated five stars on Amazon: and my wish list still kept growing. Seriously, try just to keep up with the top prize winners every year — you are still going to get 10,000 pages of content per year.

I think there are two sides to this. One is that I am addicted to reading, and I am weaning myself off of it. That might sound like

This tweet inspired me to write up this post:

Key point of piece : With signals of authority and tone erased from our information environment, we have a wide, systemic crisis in news . pic.twitter.com/TfC9p0FafL

— emily bell (@emilybell) October 29, 2017

This is an apt description of the problem of modern “content.” Journalists are now lined up next to native advertising partners. Ads often take on more signals of authority than researched pieces. We once were able to distinguish between all of this, but as we have blurred the lines, we have empowered those who want to bamboozle us (Russia?) while disempowering our most thoughtful writers and researchers.

While a lot of the focus in the media the past few months has been around Facebook, Twitter, Google, and other tech giants, I think the real fault lies in ourselves. We are the ones who don’t seek out high-quality information, or ensure that the content we read isn’t garbage. We are the ones who blindly read native advertising even though our tingling truth filter is letting us know that we are being led on. Sure, the internet has made it harder to know who is smart and who is secretly a dog on the Internet, but it isn’t that hard to verify this stuff.

Here are the strategies to inoculate against bad content:

1. Stop reading brainjunk - always run through a loop before clicking a link and reading an article. Is this publication legitimate? Who is the author? What is their background on the topic? Do they seem to have the right qualifications to write this article? Have they written something before? Avoid unsigned articles — everything is written by someone, and there is no good reason why you shouldn’t know who that someone is. Also

I was having two separate conversations with my friends this week, and both were complaining about recent challenges around promotions, In both cases, their managers had assured them that a promotion was in the offing, and that it was merely “paperwork” that remained before it would be processed. In both cases, promotions were delayed for these employees, engendering cynicism in an otherwise productive relationship.

Another friend of mine recently discovered that he was being paid significantly lower than other people at the same firm with the same experience and job title. Not a small pay difference, but something on the order of 40-50% of salary. When he checked around with colleagues, it seemed that others had worked harder to negotiate better bonus structures over the years, since their base salary rate was roughly the same. Since he hadn’t re-negotiated in three years, his salary had fallen massively behind.

In all three of these cases, people were good workers, but terrible communication from their respective companies has massively diminished their enthusiasm for continuing their careers. In fact, all three emphasized the need to move on to other firms, since it seemed that the best way to move forward in their careers would be to negotiate their salary with a new company. What a loss for their current employers, who will see valuable talent walk right out the door.

There is a bit of a zero-sum conversation that happens around promotions and salaries — companies can promote this person or this person, or raise one salary and keep the other level (to maintain the same budget). We rarely get out of this box to ask why we are having this conversation in the first place.

Two thoughts come to mind here. The first is that there needs to be better processes, probably