Hello readers! As we approach the end of the year, we’ll have a few posts looking back on the year that was (and maybe one on the decade too; stay tuned for that.)
This week, a fun post I’ve been looking forward to writing for some time: a look back at my five favourite “I, too, think ____“ moments on Tech Twitter this year. (As you know, “I, too, am contrarian” is to me the iconic line for the tech community, hands down.)
Enjoy as we count down five great times this year that the entire tech community swarmed together to collectively insist, “I, too, believe that ____”, what was the story that prompted it, and what was the backdrop - the underlying anxiety, performance, or ultimate subtext behind the swarm.
#5: “I, too, believe that the Pitch Memo is a superior format to the Pitch Deck.”
What happened? Back in April, Parker Conrad’s new startup Rippling raised their $45 million Series A with a written “Pitch Memo”, instead of the traditional pitch deck made of powerpoint slides. (You can read the memo here.)
For the next few days, Pitch Memos were the topic of the day on VC Twitter. Behind the obligatory lip service and obvious posturing, there was an undeniable undercurrent of, “if this actually catches on, we’re in so much trouble.”
What’s the subtext? Let me be clear, first of all, that I like the idea of pitch memos. I’m generally in favour of forcing functions that make you clarify what you believe, and what you’re trying to convey. (Amazon’s famous six-page memos are a classic example.) I like them, not because they make life easier for VCs or even make the founder/VC interaction runmore smoothly, but because they demand better thinking.
But here’s the problem with that. Pitch memos don’t improve your case as an investment; they clarify your case as an investment, and your skill as an investor. They’re kind of threatening, to be honest. If you’re founder, Pitch Memo discourse is a bit unsettling: if written memos actually get adopted as a new fundraising standard, you’re likely going to get away with a lot less handwaving in the future. If you in a position where a pitch memo will help your case, rather than hurt it, then it probably doesn’t matter what you use, because you’re a good investment anyway. Otherwise? Uh oh.
Investors have a different kind of challenge. As Conrad correctly pointed out, VCs write up memos anyway for deals they want to present to their peers at partners meeting. So on the one hand, having the entrepreneur come to you with a memo that’s already written is really helpful. But then what is the VC supposed to bring to the table on Monday? Well, more writing and thinking about the deal, presumably - but you can’t just restate what the founder already wrote, since then you won’t look smart in front of your peers.
So it forces the VC to also engage in more critical thinking, and write it down in a way that exposes whether they really know what they’re talking about in front of the other partners - and the founder themselves. No one actually wants this! Well, I mean, founders want the VCs to do it, and VCs want the founders and their other partners to do it, but few people are honestly eager to go under the microscope themselves, and forced to actually write down something coherent. We’d love a better process, but not one that makes us individually look worse.
So instead we did the sensible thing: we praised pitch memos for three straight days, made sure we were all seen as thoughtful writers ready to embrace a new standard of clear thinking, and then went right back to the same old, perfectly fuzzy slide decks that we know and love.
#4: “I, too, think it’s irresponsible that we all uploaded our faces to Russia.”
What happened?FaceApp, the app where you upload a photo and it makes you old, or another gender, or a baby, or whatever, has viral popularity peaks from time to time whenever a new filter comes out or simply when people are bored and the time is right. July was one of those times, as Twitter and Instagram were full of artificially aged faces - until! A software developer named Joshua Nozzi tweeted out:
The internet lit up into panic mode, even after Nozzi deleted his original tweet and apologized for creating the panic in a blog post. It became a huge deal, even going as far as the US Senate, where Senator Chuck Schumer and others demanded “answers" about why everyone was uploading their faces to Russian servers. You know how it is.
What’s the subtext? Look, nobody is actually all that concerned that the Russians have their face. Perhaps some people were genuinely concerned about their whole camera roll getting uploaded to some St Petersburg server, which admittedly could be compromising. But everyone got really worried about looking like a mark in public.
Internet security is one of those aspects of everyday life that’s just baked into almost everything we do now. It’s had some a major episodes in the American cultural zeitgeist for a while - from the 2016 election to celebrities’ leaked nudes to the ransomware crisis hitting hospitals, schools and other institutions. Getting hacked, or otherwise accidentally compromising yourself, is a perpetual worry. It doesn’t help that the world has technologically become so complex, and so opaque, that very few people can honestly articulate what “good security” actually entails anymore, or what they are or aren’t doing to protect themselves. It’s genuinely hard.
But then something like this happens, where all of a sudden a collective panic sweeps through everyone as we realize, people will click on literally anything. People will download anything, and fall for anything. And when something as popular as FaceApp (which, by the looks of it, at least half of my friends and Twitter follows played around with) gets cast into doubt, you see these two shockwaves of recognition blast through the internet: the first being “Oh no, this is bad, people are such idiots” and then immediately afterwards, “Oh no, I did this. I am the idiot.”
This go-around of FaceApp discourse felt particularly stupid - not the Russia part but the “always assume the worst” part, as if it’s a collective moral failing. We’d already gone through a similar sort of rumour a few months prior, when the idea got tossed around that FaceApp was actually a ploy by Facebook to get us to upload our pictures so that they could train their AI models. (Listen, I’m pretty Facebook already has our pictures.)
So what happens, inevitably, is this huge tidal wave of fake-introspective “tHe pRoBleM iS Us” sermon-ing that helpfully absolves any one person from looking like a mark - the only way to not look silly is to inject fake gravity into the situation, and that’s exactly what we did. Can’t say we don’t look after each other!
#3: “I, too, am concerned that Superhuman puts tracking pixels in its emails without asking consent.”
What happened? Superhuman, the email productivity tool best known for reinventing the “Sent from my iPhone” flex for a new digital generation, became a Silicon Valley Darling over this past year as VCs and operators alike fought to get past its waitlist.
Then in June, Mike Davidson (a respected blogger, founder & former VP at Twitter) dropped this tweet that shattered those good vibes in a single shot:
If you somehow missed all of this, one of the features that Superhuman built for its users was read receipts - the ability to see whether a recipient has opened your email. Nice, useful feature that you see in many communication tools.
However, Superhuman went a step further by providing its clients with a running log of every time that email was opened, along with the time and location of each instance. They used something called a tracking pixel to do this, which is standard practice for websites and online analytics but not something you’d expect in a personal email. This is pretty bad practice, for a bunch of reasons that Mike outlines. Not long afterwards, Superhuman founder Rahul Vohra issued an apology, and Superhuman made some changes that helped quiet the uproar.
What’s the subtext? Reporting on people’s locations without their genuine consent (getting them to open an email does not count) isn’t ok, and that was a real concern that surfaced immediately. But there was another nervous undercurrent coursing through the discourse over the few days where this was a big issue, which is that an awful lot of people had to pretend for a few days that they know what tracking pixels are, how they work, and when they’re used.
I mean, look, I’m one of those people. I can kinda explain what a tracking pixel is: it’s a tiny image that the user never notices, which when opened (automatically by your browser), sends the image server back some data about who’s opening it - what’s your IP address, what kind of OS or browser you’re running, what’s your screen resolution, that kind of thing. They're used as a basic but effective way to follow users around the internet, and find out if they’ve ever been somewhere - like whether they’ve opened an email, for instance.
But I can’t actually hold my own in any kind of sophisticated discussion about how online analytics ought to be used, what are best practices, what’s ethical versus irresponsible, and what we’ve simply accepted as a part of life on the internet. I can’t actually contribute to a real debate around ad targeting, analytics, and the digital footprints we leave online. I’m like a child walking into that conversation. And you know what? So are 99% of people on VC twitter.
But everyone had to pretend otherwise for 3 days, as the outrage cycle swung wildly back and forth between “how dare Superhuman do this” to “how naive are you to not understand how the internet works” to “this is why the internet has become so terrible” to “your own newspaper’s online website loads 49 pixels and tracking scripts when I visit it, get a clue about where your paycheck comes from.” It was so tiring. Anyway, we’ve moved on, and no one understands it any better now, either.
#2: “I, too, think it’s outrageous that Adam Neumann and his family are WeWork’s landlords."
What happened? Of course you knew that WeWork was going to make an appearance in this list. So many things happened with WeWork this year that it’s really hard to only go with one. If I had to pick, though, my favourite WeWork outrage cycle was relatively early on in the story: when we learned that Adam Neumann and his family were acting as landlords to WeWork, leasing back buildings that they'd purchased with money on loan from WeWork.
Remember, this was before the collapse. At this point in time, most people believed (or, at least, assigned a reasonable chance) that WeWork was going to pull off their IPO. (JP Morgan and Goldman Sachs certainly thought so!) The dominant tone here was “I can’t believe they’re going to get away with this; this can’t be okay.”
What’s the subtext? Believe it or not, people in tech may know a lot about some things, but they don’t know everything. Specifically, tech people don’t know everything about capital structure. They know how a VC-backed cap table works, because that’s what they have experience with, but a VC-backed cap table is actually sorta simple: a startup is a stack of different levels of preferred equity, the whole thing loses money, and hopefully one day it will stop doing that.
But WeWork is not a typical tech company; it’s a lot more like a real estate company. It has to deal with actual assets, which throw off actual cash flows. It enjoyed a very attractive valuation relative to how much lease income it brought in, so it obviously wants to optimize for that. In doing so, it had to somehow pull off two irreconcilable things: engineer its capital structure to keep richly-valued and poorly-valued assets and cash flow streams in their optimal boxes, while also growing at 1000 miles per hour.
You know what’s a great way to get this done fast? Have the founder and his family own the buildings, and lend them the money to buy them! So what if the founder is getting a great deal. It’s worth it to WeWork, because the benefit of being able to do all of this financial engineering quickly instead of slowly is just massively worth the sweetheart deal. I know that in hindsight WeWork’s board looks pretty bad and ought to be held accountable for a number of decisions, but this isn’t one of them.
Now, when Tech Twitter found out about this story, it became an immediate outrage case - but as we’ve seen before, part of what fuelled the narrative is the fact that fairly few people in tech have ever actually spent time learning how the sausage gets made in real estate or other asset-heavy industries. The whole discourse was really strange, because it was about this issue that tech twitter almost never talks about, and really doesn’t understand that well. (Not like that stops anyone.)
The result was that as soon as Newmann’s family leaseback arrangement became common knowledge, everyone immediately jumped on it as an example of egregious founder overreach - but then slowly, and uneasily, got exposed to the idea that maybe, just maybe, they’d misunderstood the situation. Eventually, most everyone reached a reasonable, fair and nuanced understanding of the capital structure arbitrage in WeWork’s business model, and proceeded civilly from there. Just kidding! We all lost our minds and it was great fun.
#1: I, too, think that startups should pay more attention to being profitable."
What happened? Uber happened, basically.
Here’s a prediction you could have made at the beginning of 2019 (and many did) that would’ve been 100% guaranteed to be right, one way or another: whatever happens with the Uber IPO will dominate the whole narrative of tech for the entire year. If Uber had crushed their IPO, 2019 would’ve been the year that software ate the physical world, the year that Capital as a Moat ate the startup world, and the year that officially pushed San Francisco housing over its final cliff.
Instead, 2019 was the year where gross margins mattered, where bits-to-atoms companies came under intense scrutiny, where Stripe took over as the most aspirational tech company, where the Softbank Story turned into a catastrophe, and above all, the year where all consensus was lost as to what defines a tech company anymore. (Bay Area Housing is still a genuine tragedy though.)
Relatedly, 2019 marked a turning point for one of tech’s new favourite parables: where Bill Gurley's “Selling Dollar Bills for 95 cents” story officially jumped the shark.
What’s the subtext? I know I say this every episode, but startups are hard. You can’t know the economic value of what you’re building, because you’re betting that the future will be different in a meaningful and fundamentally unknowable way. You can’t really know the gross margin of something you’ll sell in ten years, or how elastic it’ll be. You can’t know how much it’ll cost to get there, and you can’t know the value of your own equity.
Amidst all of this uncertainty, you have to figure out how create positive momentum - if that involves spending money, raising money, or any kind of guesswork with money in between, so be it. Want to burn hot? You’ll grow faster, but you’ll be at the mercy of future capital raises. Want to burn cooler? You’ll be closer to positive cash flow, but you’ll have a harder time creating customers and a harder time competing. Everything is a tradeoff, and managing that momentum is like riding a bicycle. It’s true that you can fall over, and the faster you go, the harder you’ll land. But it’s also true that bicycles let you get places you never could before.
That’s part of why this year’s overwhelming tech narrative - profitability, profitability, profitability - just felt so exhausting and disingenuous. “Watch your cash flow” used to be important advice that made you unpopular in tech; if you were saying it in 2014, you were doing something important. But now it’s like a fashionable catch phrase. “I, too, think that startups should make money instead of lose money.” Oh interesting!
This year was just so full of “Hello, startup who’s raised $200 million from ruthless growth funds, has seasoned executives on board, and knows their landscape better than anyone - have you ever considered that there’s something called a gross margin you might like to know about?” Oh, how useful! Thank you, Twitter expert! I’d never thought about that before - that maybe, instead of losing money on each product we sell, we just make money instead. Ah! Genius.
2019 was the year that Profitability and Gross Margin Discourse turned away from “what is the right amount of risk to take” and turned towards this bizarre kind of performance, a bit like telling a group of professional cyclists who’ve just crashed in a race, “you know, you really should have on training wheels if you’re going to crash like that.” It was also the year that a whole new batch of people started repeating the 95 cent dollars story, unaware of the 4D chess game being played in the meantime by its author.
But more than anything else, 2019 was a year where “I’m the person who pays attention to gross margins” became a sought after kind of label or self-image. It won’t be this way forever, but for the time being, it’s been hijacked as a performance given by people with the least at stake, who are the most desperate to sound like competent insiders.
And that’s why this year’s first place award for “Most exhausting Tech Twitter Discourse” goes to Profitability. Congratulations! Best of luck defending your title next year against some new up and comers, “I, too, think this antitrust case is overreach”, “I, too, would like to weigh in on this free speech debate”, and most exhaustingly, “I, too, think that the Bay Area is a monoculture.”
Permalink to this post is here: The top five “I, too”s of 2019 | alexdanco.com
Not a lot of reading links this week (sorry) but here’s some more Tether news! I mean, I’m not sure if it’s really “news”, but the New York State Attorney General’s office is continuing on with their case against Bitfinex, Tether and their owners in the NY Supreme Court.
A couple other good ones:
And finally, some great news to end the week: Cousin Greg is going to play Adam Neumann on TV.
Have a great week,