The Future Will Look Different From The Present

I’ve been thinking about the future a lot lately. While I’ve always read a lot of science fiction, The Hyperion Cantos shook some stuff free in my brain. I’ve finished the first two books – Hyperion and The Fall of Hyperion – and expect I’ll finish the last two in the next month while I’m on sabbatical.

If you have read The Fall of Hyperion, you’ll recognize some of my thoughts at being informed by Ummon, who is one of my favorite characters. If you don’t know Hyperion, according to Wikipedia Ummon “is a leading figure in the TechnoCore’s Stable faction, which opposes the eradication of humanity. He was responsible for the creation of the Keats cybrids, and is mentioned as a major philosopher in the TechnoCore.” Basically, he’s one of the older, most powerful AIs who believes AIs and humans can co-exist.

Lately, some humans have expressed real concerns about AIs. David Brooks wrote a NYT OpEd titled Our Machine Masters which I found weirdly naive, simplistic, and off-base. He hedges and offers up two futures, each which I think miss greatly.

Brooks’ Humanistic Future: “Machines liberate us from mental drudgery so we can focus on higher and happier things. In this future, differences in innate I.Q. are less important. Everybody has Google on their phones so having a great memory or the ability to calculate with big numbers doesn’t help as much. In this future, there is increasing emphasis on personal and moral faculties: being likable, industrious, trustworthy and affectionate. People are evaluated more on these traits, which supplement machine thinking, and not the rote ones that duplicate it.”

Brooks’ Cold, Utilitarian Future: “On the other hand, people become less idiosyncratic. If the choice architecture behind many decisions is based on big data from vast crowds, everybody follows the prompts and chooses to be like each other. The machine prompts us to consume what is popular, the things that are easy and mentally undemanding.”

Brooks seems stuck on “machines” rather than what an AI actually could evolve into. Ummon would let out a big “kwatz!” at this.

Elon Musk went after the same topic a few months ago in an interview where he suggested that building an AI was similar to summoning the demon.

Musk: “I think we should be very careful about artificial intelligence. If I had to guess at what our biggest existential threat is, it’s probably that. So we need to be very careful with artificial intelligence. I’m increasingly inclined to think that there should be some regulatory oversight, maybe at the national and international level, just to make sure that we don’t do something very foolish. With artificial intelligence we’re summoning the demon. You know those stories where there’s the guy with the pentagram, and the holy water, and he’s like — Yeah, he’s sure he can control the demon? Doesn’t work out.”

I need to send Elon a copy of the Hyperion Cantos so he sees how the notion of regulatory oversight of AI turns out.

Screen Shot 2014-11-03 at 6.36.19 AMI went to watch the actual interview, but there’s been a YouTube takedown by MIT, although I suspect, per a Tweet I got, that a bot actually did it, which would be deliciously ironic.

If you want to watch the comment, it’s at 1:07:30 on the MIT AeroAstro Centennial Symposium video which doesn’t seem to have an embed function.

My friend, and the best near term science fiction writer I know, William Hertling, had a post over the weekend titled Elon Musk and the risks of AIHe had a balanced view of Elon’s comment and, as William always does, has a thoughtful explanation of the short term risks and dynamics well worth reading. William’s punch line:

“Because of these many potential benefits, we probably don’t want to stop work on AI. But since almost all research effort is going into creating AI and very little is going into reducing the risks of AI, we have an imbalance. When Elon Musk, who has a great deal of visibility and credibility, talks about the risks of AI, this is a very good thing, because it will help us address that imbalance and invest more in risk reduction.”

Amy and were talking about this the other night after her Wellesley board meeting. We see a huge near term schism coming on almost all fronts. Classical education vs. online education. How medicine and health care work. What transportation actually is. Where we get energy from.

One of my favorite lines in the Fall of Hyperion is the discussion about terraforming other planets and the quest for petroleum. One character asks why we still need petroleum in this era (the 2800’s). Another responds that “200 billion humans use a lot of plastic.”

Kwatz!

Eating Dinner Alone

Kasa SushiI arrived home from Boston last night at 5:30pm and realized I had no plans for dinner. Amy was still in Boston since her Wellesley board meeting doesn’t end until mid-day today so I voxed Seth, Ryan, and Jason to see if any of them were around for dinner. Seth was just landing from Vermont where he had been at Ello for the past few days, Jason was in NY at dinner, and Ryan was already at home having dinner with his family.

I thought about who else I might want to have dinner with, since I rarely eat dinner alone. I love eating dinner with Amy or one other person. Four people is my natural limit – me / Amy / another couple, or a small-ish business dinner. Six is my max – I can handle it – but I always feel at my limit. Once we get over six people at dinner, I end up focusing on the person to the left of me and the person to the right of me and that’s it.

I realized I just wanted to be alone for dinner last night. As I got to downtown Boulder, I pondered where I wanted to eat. The TV show Cheers popped into my head and I realized that the closest place in Boulder I have to Cheers is Kasa Sushi. I adore the owner Mimi and think her husband Mr. Kim is great. I know most of the wait-staff at this point and recognize the sushi chefs. Their specials are unique and outstanding and there is often something off menu for me. When I don’t feel like ordering, they just do Omakase and bring me whatever they feel like.

I wandered into Kasa, gave Mimi a hug, said hello to everyone (they responded with konbanwa), and was ushered to the sushi bar. They know which sake I like so a flask of it showed up. I asked for a few things and the food started coming. I’d brought my Kindle to read, but one of the sushi chef’s was new so we started talking about his first two months in Boulder (he was from New York and was loving Boulder.) The conversation expanded to including everyone around, since I was the only person in the restaurant for the first 20 minutes.

I had a small-ish dinner but big conversations. I felt completely comfortable “dining alone” and was more in the moment during the meal than I often am. I as walked home, I felt lightness in my step, probably some from the sake, but a lot from the conversation at Kasa.

As I walked Brooks the Wonder Dog around Boulder’s Central Park for his nighttime walk, I thought about how I rarely spend my alone time in the context of others but without electronic devices. When I’m truly alone – in the car, on a run, meditating – I’m alone. But when I’m on a plane, on a train, or waiting in a busy place for someone I’m almost always buried in my laptop or my phone as a way to avoid all the humans. But last night, just being alone, with others, where I felt comfortable, with no electronics, was really nice.

Mimi, Mr. Kim, and everyone else at Kasa – thanks for making we feel at home whenever I’m with you. It’s nice to go somewhere for dinner where everyone knows your name.

The Trap of Relative Value

Yesterday, at The Calloway Way event at MIT, I ran into Joe Caruso. I’ve known Joe for a while – we met through Techstars Boston, where he’s been a great mentor and very active angel investor.

He had just read my post on being uncomfortable with the phase of the current cycle and told me an anecdote from the great Internet bubble of 2001 that I hadn’t heard.

A guy came up to me and said “I just sold my dog for $12 million.”

I responded, “WTF – who would ever buy a dog for $12 million? That dog must have gold plated teeth!”

The guy responded, “Nope – but it’s a normal dog. But I was able to get two $6 million cats for it.”

When I got back to my room last night, I noticed Fred Wilson’s post from yesterday Averaging In And Averaging Out. In it, he talks about how he handles public company stocks that he ends up with either via an IPO or a sale of a company he’s involved in to a public company. We have somewhat different strategies, but we each have a strategy, which is key.

This morning I woke up to an email thread from a founder of a company I’m an investor in. He’d gotten a random note asking about his valuation when we invested relative to another financing that was just announced. When we made our investment, the company got about 3.5x ARR. The other company, which was much smaller at the point of investment, got an 11x ARR valuation.

My response to the specific situation was:

Valuations have increased on a relative basis.

They raised relatively little so probably had supply / demand on their side – which drove competition and enabled a higher price.

VCs are currently living in FOMO land so they’ll overpay for aspirational value in the future if they see growth.

There’s a lot of inefficiencies at these price levels. 

A “good price” is when you have a willing buyer and a willing seller, both happy, and willing to work together on whatever path you are on!

Each of these examples got me thinking about the relative valuation trap.

In the first case, we’ve got a dog and two cats. Who knows what they are worth – you can get a dog for free at the pound and as far as I can tell cats believe they belong to themselves and do whatever they want. But trading one dog for two cats, where the person owning the cats values them at $6 million each, means you can “mark your dog to market” which is currently $12 million. Now, if you can find someone to give you $12 million in cash for the dog, you have a $12 million dog. But you can carry it at a value of $12 million for as long as you want if you don’t want to sell it. Granted Rule 157 says that you need to mark it to market every quarter, but that’s a different messed up issue.

In Fred’s example, he does a great job distinguishing between optimizing and satisficing. Two weeks ago Twitter stock hit $54 / share. Today it is trading at $42 / share. Should you have sold it at $54? How about $52? How about $49? Or, now that it’s fallen to $42, maybe it’s time to sell it at $42. If you have it at $42 and believe you should hold it because it was recently worth $54, you are falling into the relative value trap. You should hold it because you think it will be worth more, but not because it was recently worth $54. It could be worth more or it could be worth less – making your decision on what it used to be relative to what it is today is a trap.

In the financing discussion, it’s easy to look back in time and say “wow – we got too low a valuation.” It’s just as easy to look at valuation in current terms and say “that’s not high enough” because you heard of someone else, relative to you, that got a higher valuation. Or it’s easy to feel smug because you got a higher valuation than someone. Unless we are talking about the final exit of the company for cash or public company stock that is fully tradable, this is a trap. It’s like the $6 million cat and the $12 million dog. How did someone come up with the valuation?

A simple answer is “well – public SaaS companies are currently trading at 6x average multiples so we should get a 6x ARR valuation.” There are so many things wrong with this statement (including what’s the median valuation, how do it index against growth rates or market segment?, what is your liquidity discount for being able to trade in and out of the stock), but the really interesting dynamic is the relative value trap. What happens when public SaaS companies go up to an 8x average valuation? Or what happens when they go down to a 3x valuation? And, is multiple of revenue really the correct long term metric?

As I said in my email this morning, A “good price” is when you have a willing buyer and a willing seller, both happy, and willing to work together on whatever path you are on! I deeply believe this – my goal is not to get the best price, but a fair price. I don’t subscribe to the philosophy that both parties should feel slightly bad about the terms of the deal, meaning that each had to compromise on things they didn’t want to in order to get the deal done. Instead I’m a deep believer that both parties should feel great about the deal – the terms, the participants, and the dynamics.

Ultimately, whatever stage you are in, you should be focusing on building long term value. It’s always a mistake to optimize for the short term, and when you do, you’ll often confuse relative value as justification for specific behavior.

NewCo Boulder: Open House Tour of Innovative Companies in Boulder

Forget those business conferences with long speeches and boring panel discussions. On November 18, Boulder’s most innovative businesses will open their doors to the public to celebrate Boulder companies who drive the networked economy. NewCo Boulder is a city-wide event that takes you right into the corporate offices of over 40 of the most innovative and successful companies around Boulder, offering attendees a tour rather than a company description packet.

At NewCo, attendees will sign up for a free pass to visit any of the participating organizations, from software companies, to restaurants, to non-profits and more. During the event attendees will check out the offices of the some of the most interesting and inventive companies around the city and take part in an interactive presentation about what each organization is doing to make an impact on the global landscape.

I am proud to serve on the Board of Advisors alongside Nicole Glaros, Larry Gold, Walter Knapp, Seth Levine, Sean Maher, Jane Miller, and Kimbal Musk. Boulder’s NewCo team, Rich Maloy and Tim O’Shea, have pulled together an impressive group of organizations across a wide range of industries in the community.

It’s an opportunity to see what Boulder businesses are doing and where it actually takes place: offices, breweries, bakeries etc.  Attendees can learn from their strategies and executions, gain some insights from their successes, maybe even drop off a business card or resume. The event is open to everyone and it’s free for the Boulder community.

For more information on NewCo Boulder including the companies participating, please visit: http://bdr.newco.co

Have questions about NewCo Boulder 2014? Contact Rich Maloy, Engage Colorado: rich@engagecolorado.com

What’s Old Is New Again

I know I’m getting old. I remember in 2007 when the idea of a super angel appeared, where successful entrepreneurs were suddenly angel investors making 10 or more seed investments a year. This was a “new” innovation that was celebrated with much fanfare.

Between 1994 and 1996 I made 40 angel investments with the money I made from the sale of my first company. I was referred to as an “angel investor” – I didn’t get the super angel moniker back in the 1990s, but I was often referred to as promiscuous.

Every day I’m reading about a new thing in the startup world. Big corporations are splitting in two or spinning off divisions that are being funded by VC firms. The amount of VC investment each quarter is growing, with us now in the $10 billion / quarter zone, rather than the $10 billion a year zone. Strategic investment is in vogue again, with virtually every large public company trying to figure out how to fund startups. Hedge funds are once again allocating big money to private companies and lots of cross-over public company investors are trying to get large dollars into private companies pre-IPO.

What’s old is new again. As we know from BSG, “All this has happened before, and all this will happen again.”

There are definitely new and interesting things happening this time around. If you haven’t noticed AngelList, you are missing what I think is one of the most interesting phenomenons around. And I’m deep in another one, Techstars, which has helped spread the mentor-driven accelerator model around the world.

Every cycle has a different tempo. We are in a very positive part of the current cycle. But it’s a cycle, and we know that by definition we are likely to have too much, and then a correction, and then too little. Welcome to life.

This part of the cycle always makes me uncomfortable. I love innovation, but when things that have been done before get talked about as though they are new, and no one bothers to try to remember what happened, why it happened, and what went off the rails, that’s uncomfortable to me.

Don’t live history, but study it. Remember it. And make better decisions and choices the next time around.