Voyager: The Greatest Hack In History

Great entrepreneurism does not always happen in the private sector.  In the early 1970s, Gary Flandro, an engineer at NASA-JPL found that the planets would line up in the late 1970s for the only time in the next 175 years.  He worked with Sylvia Miller and the other JPL mathematicians & coders, who were almost all women at that time, to develop a trajectory whereby a spacecraft could slingshot around each planet’s gravitational field and come close to all of the planets to take the first scientific readings and photos of all but Pluto.  (This cadre of women developed the trajectories of every NASA mission, and were instrumental in the design of most of the rockets themselves since before NASA was NASA.) They called the mission the “Grand Tour.”

NASA funded two probes which were upgraded Mariner spacecraft complete with a U238 electric power source designed to last for 50 years.  When the Space Shuttle program started, the expensive Grand Tour was defunded.  However the spacecraft were mostly built so NASA gave the permission for a shortened “cheap & cheerful” mission which would go no farther than Saturn.  Off went the two Voyager spacecraft in 1977.   Unbeknownst to NASA, the women coders had compartmentalized the software which would allow the Voyagers to complete the grand tour (instead of slingshotting into the sun) and the engineers built Voyager to survive interstellar space where gamma & X rays are much stronger than in the solar system.  This included its custom radiation hardened RCA CD4000 Silicon on Sapphire (SOS) CPU which had less horsepower than a 1980s calculator.

The Voyagers returned incredible photos and data from the planets including the famous “Pale Blue Dot” photo of earth seen through the rings of Saturn, which the famed astrophysicist Carl Sagan waxed eloquently about in his popular Cosmos TV program.

YOU ARE HERE:

After the huge success and popularity of the Voyagers’ missions, JPL finally told NASA that the probes had the hardware and code built in (within 40 kilobytes of total memory!) to allow them to continue through the solar system (visiting Neptune & Uranus) and out into interstellar space.  It was up to NASA to decide whether they wanted to continue to fund the radio ground stations, data analysis and mission control.  NASA jumped at the chance and upgraded their radiotelescope ground links into a global network (the Deep Space Network) to receive the ever-fainter Voyager radio broadcasts as they fly ever farther from us.  The Dish at Stanford (I managed to catch the full moon in the background here) has been used as part of that network.

Both Voyagers passed through the heliosheath (that, thanks to our sun, protects us from annoying things like gamma rays) and out of our solar system recently and are now the only man made objects in interstellar space.  In the process they discovered interstellar gravity “bubbles” that better explain stellar and planetary orbital wobbles, that our solar system gravity is asymmetrical which explains oddities here on earth, and interstellar shockwaves are created by our sun’s coronal mass ejections which make space “rough” and may better explain why stars seem to flicker in the night sky.  39 years after launch and 20 billion km away from Pasadena, both are functioning well and are expected to last past their 50 year power source life.  The Voyager mission continues here.

This breathtaking mission is considered NASA’s greatest scientific achievement (Apollo is  monumental but less scientifically significant than Voyager) and ranks on par with the greatest explorers of all time.  All because a handful of entrepreneurial women seized the initiative and hacked in some unapproved code.  Here’s to the crazy ones, Sylvia Miller, Helen Ling, Susan Finley, Barbara Paulson and many others.  They deserve a Nobel Prize, and we clearly need more women in science and technology. Their story is here.

 

 

 

Why We Love “Selling CEOs”

HealthCrowd makes healthcare delivery more effective by delivering personalized messages that help patients comply with their healthcare programs such as getting them personalized appointment reminders.   For example, Healthcrowd has increased Medicaid program effectiveness over 20% to help make Healthfirst’s Medicaid program the most effective in New York state.   Patients are healthier and costs are lower:  win-win.

Credit is due to founding CEO Bing Doh‘s laser-like focus on each customer’s specific needs.  Bing is what we call a “selling CEO.  ”   She lives the ABC of sales (Always Be Closing) but her technique is Always Be Listening.  We’ve found active listening to be a characteristic of our most successful entrepreneurs:  they are closers but their focus is on listening to the nuanced needs of their customers to determine how they can best serve them which, of course, results in revenue.

As Bing puts it  “every interaction’s objective is keeping the customer happy by delivering the HealthCrowd experience, furthering the deal through additional value creation, and expanding the relationship by building champions across the enterprise.”

There are other important characteristics of selling CEOs.

•  Selling CEOs have the sales pipeline in their head and can discuss the priority, status and actions of any account in detail.   (We’ve learned to listen for that.)

•  Selling CEOs are the company’s Chief Revenue Officer (CRO) even if there is a VP of Sales.

•  Selling CEOs suffuse a customer-focused mindset for the entire company from product development to customer service.   You’ll find that the developers can talk in detail about specific customer issues.

Most importantly, selling CEOs live the fact that revenue is unique:  everything else is just cost.  Every CEO should think of their company this way, however not all “live it” like selling CEOs do.

The Pink Ribbon: Investing In A Healthcare Breakthrough

Startup Capital has a history of helping bring healthcare innovations to market which is perhaps the definition of doing well by doing good.   Our first such investment was in InBone (acquired by WMGI) which revolutionized ankle replacements, dramatically improving mobility and balance.  We invested in Attainia whose capital equipment marketplace helps hospitals get the best price on expensive equipment by making vendors compete.   And we invested in AGIS which helps people get critical eldercare information and affordable access to long-term care insurance.

Our newest investment is something special.   QView Medical was founded by three-time successful entrepreneur Bob Wang who has dedicated his life to breast cancer detection including inventing modern mammography and ultrasound.  QView has the potential to dramatically increase early-stage breast cancer detection rates when it is usually treatable.   This is game changing from a treatment effectiveness and mortality perspective.

Breast cancer is the leading cause of cancer deaths in women:  over 500,000 deaths per year.  Early detection can achieve up to a 98% cure rate, but today’s technology limitations mean most breast cancers are found too late when treatment is difficult, costly and often has tragic outcomes.

QView’s artificial-intelligence based computer-aided-detection technology uses radiation-free 3D ultrasound so there are no side effects.  Nor is it expensive & time consuming like MRI.  Better yet, 3D ultrasound imaging is effective on many women with smaller and / or denser breasts where mammography is often ineffective.

One of the SCV partners had invested successfully in Bob Wang’s previous company and has known him for many years.  Consequently when Bob told us about QView, we jumped at the opportunity.  It’s rare to be able to help bring a technology with the potential of saving millions of lives into the world.  We hope QView does just that.

As we are investing in the technology of the future, Startup Capital is also making a donation to the National Breast Cancer Foundation to assist those with present needs.

 

 

Has The Singularity Arrived?

There is much press these days about “The Singularity” and when and how it might happen.   There’s a good case that we are living the early phases The Singularity now – we just haven’t realized it.  The definition of the Singularity was advanced in 1958 by John Von Neumann the mathematician who created the architecture of 99% of computers including the one you’re reading this on.  It posited that computing technology progress will accelerate ever faster (square function thank you Moore’s Law) leading to artificial intelligence (AI) that ultimately exceeds that of humans “beyond which human affairs, as we know them, could not continue.”

Crikey, right?  Yet a billion of us are already in the midst of a hybrid computer / internet / human Singularity.  This Singularity is enabled by smart-phones made polymorphic by the ever-expanding range of apps, fast ubiquitous wireless connectivity and cheap & infinitely scalable “cloud computing“.  As a result, humans can do far more with far less than just a decade ago.

This Singularity is closer to William Gibson’s epochal 1984 sci-fi novel Neuromancer (the first winner of all of SciFi’s triple crown of awards) which coined the terms cyberspace, wetware (virtualized human intelligence), and “jacking in” to the “matrix” we now know as the Internet.  We have already subsumed many signs of a Gibsonian Singularity without noticing and one thing is already better:  we are always wirelessly “jacked in.”

The computerized crowdsourcing of human intelligence (what the CIA calls “humint”) plays a significant role in this Singularity.  Google has infinitely augmented our memories and knowledge along with Wikipedia, the first crowdsourced reference service.

We interact in cyberspace with most of our friends, family and colleagues far more than in person.  Our virtualized selves inhabit virtual worlds like Facebook, Instagram and Twitter.   We play games against virtual opponents in virtual worlds on the internet.  And our avatar selves are always there for our avatar friends 24 x 7 even as we sleep.

We have also started to augment orientation and thinking with crowdsourced cyberintelligence.  One example is  the Waze (owned by Google) mapping direction service like  that uses a computer AI fed by data crowdsourced from our collective smartphones that routes us past traffic slowdowns better than any human.  Similarly, crowdsourced Uber and Lyft cars transport us via the optimal computer-selected car at the push of an app-phone button to wherever we want to be.

The change this Singularity has already wrought is massive.   Politics is almost unrecognizable from 10 years ago.  Cyber-revolutions harnessed the crowdsourced social sentiment of millions via Twitter and Facebook and overturned or rocked governments across the Middle East, Europe and Asia.  In democracies, local issues and national races are now won or lost with personalized multi-way cyberdialogs on a scale unimaginable even ten years ago.   President Obama (who has 60M Twitter followers – almost half the registered voters in the U.S.) is the first President elected because his AI personalized cybercapaign’s collective intelligence outstripped his opponent.

Investment is equally changed with algorithmic trading used in over over 2/3s of all trades.  This has produced new regulation and new kinds of market failures such as the “flash crash.”   However, algorithmic trading may reduce market failures from rogue traders such as Jerome Kerviel who bankrupted French bank Soc. Gen. and honest human errors such as LTCM which the Fed. bailed out to avoid a global market meltdown.  A more  autonomous evolution is “Cyborg finance” is emerging which is causing concerns about feedback loops where computers create, consume and analyze information in a feedback loop that could go awry.

In the commerce sector, the humint of crowdfunding platforms Kickstarter  enable technologies like CAD and 3D printing to bring the best ideas to reality in a way that lets individuals and small companies compete against corporations thousands of times larger.  These range from Pebble, the first smart app-watch in 2012 to a remarkable bee hive – both of which raised over $10M in crowdfunding and are now reality.

This Gibsonian Singularity remains subject to commercial and political pressures because it is costly, profitable and powerful.  Governments that understand that a crowdsourced Singularity can turn the table on oligarchic power and seek to pre-empt that.  China, (and more recently Russia) has, for this reason, replaced uncensored social media like Twitter, Facebook, Youtube, and WhatsApp with state censored equivalents in a “1984” version of the Singularity :  Weibo, Renren, Youku, and WeChat allow China’s government to spy on its population and manipulate popular opinion to ensure support of the state.   Yet humans have used technology to work around this manipulation via wifi-based peer-to-peer messaging apps like Firechat and that cannot be easily blocked or tracked by governments.  Firechat powered the Iraqi, Turkish and Hong Kong uprisings when cellular networks and social media were shut down by governments.  BitTorrent’s (internet based) peer-to-peer Bleep messaging app. may pass WeChat in general use.

These are all indications the messy real-world Singularity is accelerating as Von Neumann predicted.   The next wave will incorporate ubiquitous computing including wearables and massive amounts of new data from billions of Internet of Things (IoT) devices connected by IoT-optimized wireless networks like our portfolio company Iotera. 

The average first world resident has become blithely used to a future that was hardly imaginable just eight years ago when Steve Jobs introduced the iPhone.  His prescient view of the future now encompasses 1B people who are living The Singularity.  Two billion more people are likely to join The Singularity within 10 years.

Reality rarely turns out to be as pure as theory, and William Gibson’s messy vision of a connected humint + computer future may well be how the Singularity plays out vs. a “bright light” moment where computing, by itself, suddenly outstrips humans.   That may turn out to happen, however humans have already become bionically enabled by technology and that will continue with more and more powerful digital tools expanding our own capabilities.

The actors on the stage of history rarely realize the significance of events until they have passed.  If this is so, we are probably already living The Singularity.

Bitcoin Doesn’t Scale. What’s Next?

That’s a pretty bold statement which I’ll explain here, along with some thoughts about evolutionary paths for Bitcoin and other digital currencies.

Bitcoin’s technology is based on what is known as a “blockchain” which is a record (think ledger) of every Bitcoin ever “mined” (created) and every transaction and owner thereof in numerical form.   Got that?  The blockchain encapsulates every single transaction to every single Bitcoin from and to every single owner and repository since the invention of Bitcoin.

Bitcoin’s blockchain is not a centralized database like credit cards or bank accounts.  Copies of the blockchain are kept by every Bitcoin repository or exchange – there is no “central master record” because a core part of the fundamental distributed tenant of Bitcoin was to avoid a “central bank.”

A year ago, the blockchain was approximately 13GB. Today it is 26GB.  The number of Bitcoin account holders has quadrupled to about 6 million during that time.  Yet there are only 86,000 daily Bitcoin transactions (5.6 transactions per second) and that is up just 50% from a year ago.    In other words people are largely buying or selling Bitcoins as an investment but rarely buying stuff with them.  The real challenge is that, without fundamental changes to its blockchain technology, Bitcoin has a hard limit of 7 transactions per second due to technology issues outlined below below.

But Bitcoin is posited to be an easily useful currency –so what would happen if Bitcoin did become a currency that transacted on the level of cash or credit cards?

Each Bitcoin transaction adds about 200 bytes (0.2k bytes) to the blockchain: sender & receiver account identities, and the unique ID of every single unique BTC (and fraction thereof) involved in that transaction.  So today, 2.6M Bitcoin transactions per month x 0.2k bytes = +520 MBytes per month added to the blockchain.

Mining adds significantly more to the blockchain as it becomes more complex. Each minute about 20kBytes is added to the blockchain by mining = 864MB per month.  Close enough to round up to 1GB per month. This matches the current ~1.5GB per month blockchain growth rate noted above.

Now let’s look at what the block chain growth rate would be if BTC transacted like credit cards.

The average monthly credit card transaction volume is 10,000X greater than Bitcoin at 20 billion transactions per month.   20B transactions per month x 0.2kBytes per transaction would cause the blockchain to grow 4 Terabytes (TB) per month.  The blockchain would reach 50TB in just over a year which is impossible to nimbly move and amend by every merchant and account keeper.  Even running at just 1% of credit card volumes would create a block chain of 500GB in a year.  This is the reason that BTC is presently hard-limited at 7 transactions per second.

What does this mean?   It suggests BTC, in its present distributed incarnation, cannot be a mass payment mechanism because you can’t process a transaction without the buying and selling accounts having access to the entire realtime blockchain.   For example, I acquired a few Bitcoin three years ago and they have sat in the same account since.   If I bought something with these Bitcoins, the transaction would need to reach back through three years of blockchain records to find my ownership and BTC numbers in order to authenticate my ownership and the deal.   This is why the blockchain must be read and updated for each transaction.

So that drives us to the notion of whether scalability requires some kind of central repository (or a few repositories) with the “master” blockchain.  That starts a real chain of questions because, by definition, Bitcoin has no central governance.   Who would keep that (those) master record(s)? Would it be one or more of the “big 5” mining cooperatives?  Will efforts such as the Coinbase’s new regulated exchange (which can, of course, support any digital currency) help, (disclosure I am an account holder but not an investor)?  Or do efforts like these turn Bitcoin into a pseudo-central banked oligopoly of the kind that Bitcoin was designed expressly to countermand?

It remains to be seen whether a later generation digital currency that is designed to scale better, supersedes Bitcoin through market forces or whether Bitcoin’s efforts to evolve stay ahead of the curve.  A risk is a Bitcoin blockchain “fork” will fail technically or fail to be supported.  What then?  One of the contenders is Ripple aka XRP (formerly known as OpenCoin), the second largest digital currency by value and the largest in the foreign exchange trade (disclosure I also own XRP but am not an investor in the company) due to its speed and fluidity in exchange (Bitcoin transactions take minutes due to the unwieldy blockchain.).  It uses a consensus ledger managed by a small group of authorized exchanges, and as a fixed total # of Ripples were issued on day one, there is no mining load on the ledger.  Fed officials have commented positively on Ripple’s emergence and its refinement of Bitcoin roots.

In the meantime, does this relegate Bitcoin to be a reserve investment instrument like gold which appears to be its main use / value today as transactions are growing more slowly than the number of Bitcoin accounts.   Fiatleak dramatically shows us (in realtime) that Bitcoin purchases have already become concentrated to a very few countries.   And would such a digital currency have any value because it lacks real utility unlike other reserves like gold which is physically beautiful and genuinely useful as an electric conductor that does not oxidize.

There are few articles on scalability of Bitcoin which should be important to any digital currency user or investor.   This, from always excellent O’Reilly  is among the best.  Regardless, solutions must quickly move beyond white papers if Bitcoin is to scale to its market potential.  (Mahalo to Ryan Ozawa for contributing to these thoughts.)

Let the discussion begin.

PlayFab: Cloud Services Revolutionizes The Game Industry

We are thrilled to announce the first investment from our second fund:  a co-lead investment in a (literally) game-changing cloud-based company.   We expect Playfab’s cloud-based “Games as a Service” (GaaS) will change the interactive game industry in the same way that our portfolio company SWITCHFLY revolutionized the travel industry by powering bookings for dozens of top travel companies like American Airlines, Marriott, Amex Travel, British Airways, etc.  Why?  Because Switchfly’s scale & cloud economics allows it to do bookings & metrics better, faster and cheaper than even the biggest individual players.  Bloomberg TV explains this way better than me.

Cloud-based economics change everything when they arrive in an industry.  It drastically reduces companies infrastructure development time and operating cost with better and cheaper solutions than they can afford to develop.   This allows companies to focus more on their core competences – like flying for American Airlines.   PlayFab helps game developers customers like Edge of Reality and  Uber Entertainment and build better games.  As Maya Rogers, CEO of Blue Planet Software (Tetris®) puts it “PlayFab brings the kind of comprehensive service that lets game developers focus on what they’re really good at: making games.  More often than not, building and maintaining the backend for a game takes more resources than the actual game development. PlayFab aims to take these headaches away, and we’re very excited about that.”

PlayFab delivers the only one-stop shop fully integrated GaaS making PlayFab plug and play simple for game developers on every platform from iOS and Android to Steam and Facebook and most dev. environments (e.g. Unity3D, Cocos, etc., etc.).   Everything from player login & identity, in-game purchasing, inventory and management (all that clothing and weapons), game and player status, gamer challenges, player rankings & leaderboards, plus game marketing.  PlayFab also provides server provisioning including automatic on-demand capacity management to ensure game-play stays fast as the game grows.  Most important PlayFab serves up a complete dashboard of metrics for game developers so they can see what’s working and what’s not and tune the game.

Sound complex?   It is.  PlayFab has been in stealth production for three years serving up 10s of millions of game sessions with millions of registered players (including 3 top 10 Steam games), hundreds of millions of in-game purchases delivering millions of $ in revenues to their customers.

CEO James Gwertzman knows this industry’s pain having started Sprout Games that was acquired by PopCap (think Bejeweled – one of the all-time hit games) and then going on to build and PopCap’s Asia unit.  James decided that PlayFab should not take a % of revenue “because the app stores already charge you too much” and be FREE for new and small games because James realized that no one knows who is going to create the next great hit game.  Rovio is a great example – a small studio in Finland with 52 shots-on-goal, then the colossal hit Angry Birds®.  Once a game passes a threshold of usage, PlayFab charges a (very) small percentage.   Win-win.

This is the power of PlayFab’s Games as a Service.  We can’t wait to see what develops.

 

 

If There Were Oscars For Startup & VC Movies…

There aren’t too many movies in the eligible category and even fewer that are award-worthy.   These few, however, are interesting, fun and have real-world value.  What are your favorites?

 The Social Network based on Ben Reznich’s thoroughly researched page-turner The Accidental Billionaires:  The Founding of Facebook.   Social Network is the only movie that gives a real insider-view of the crazed breakneck speed of a startup.  Like a real startup, it starts before you realize you’re in it and accelerates from there, rolling up people, events and features like a semi-guilder snowball going down hill.   The object lesson is the single-minded intensity coupled with domain expertise that great founders bring to their startups.  It’s not all sugar coated, with plenty of insights into selfish and litigious behavior that one can view as either necessary to delivering on a single-minded mission or tyrannically selfish, or somewhere in between.   Regardless, it is the best insight into one (let me repeat one) epoch-defining startup.  Something Ventured:   The Story of Risk, Reward and The Original Venture Capitalists A movie by and about the folks that invented the industry that we, and the world, now takes for granted.  They invented the term sheets we all still use and even the language.  The risks they took were huge and we all stand on the shoulders of the technologies (and even term sheets) they invented:  the microprocessor, the PC, video games, biotechnology, consumer software and the web; Insightful and moving.

The American Experience:  Silicon Valley.  This is how it all began, long before venture capital, when Silicon Valley was known as Paradise Valley and filled with apricot and cherry orchards.  It is the story of the guys who became Nobel Prize winners that invented transistors and then chips.  Most spun out out of my former employer Beckman Instruments to put the silicon in Silicon Valley.   It’s technology, it’s people (I’m lucky to know a few), it’s nostalgia and it is a history that is fast disappearing from the place that spawned it just 50 years ago.  If you want to understand how it all began from the guys who really did it, there is no better watch.

The Startup Kids is a short and different kind of movie.  It’s largely by and for entrepreneurs and entirely interview / clip based.  It’s not a great movie (most sites rate it 2.5 stars) but it IS the most “naked” movie about what a startup is about.  It’s honest about the need to work incredible hours and for your team to have mad talent across several skill sets and no guarantee of success.   We are, today, experiencing a slightly 1999 view that “anyone can do a startup and succeed.”   While the movie may not succeed as a movie, it does make that point well.

Sweat The Hard Stuff First

Startups are nonlinear systems.   That is they don’t go better just because you and your team work hard and “get stuff done”.   They go better when you Sweat The Hard Stuff.

Here’s an example.  A small energetic startup visited me the other day updating me about how well the development on their new web and Android apps was going.   “Cool, I said, but is that the problem?”

Their challenge is while the “progress” on development is directly proportional to effort and therefore gives satisfaction each day (“we got the login feature working!”), it will largely not affect their core challenge of customer retention & virality.   This is a “HARD STUFF” problem of an entirely different nature that requires all kinds of brainstorming, analysis, experimentation, surveys, imagination and throwing spaghetti at the wall that is not directly proportional to effort.   We batted ideas around for an hour, and found one breakthrough:   for their product, Facebook signups produce virality because of in-line picture sharing however Twitter signups don’t produce virality.   Eliminating Twitter signups was a step in improving virality.  A small advance, but real progress from working smart vs. working hard.

THIS IS HARD!   And worse, the HARD STUFF doesn’t feel like “progress” because many trials may fail and therefore feel unrewarding.   This is the nature of Before Product / Market Fit (BPMF), but when you are before BPMF, that HARD STUFF is all that matters.   Later in a startup’s life the HARD STUFF just changes nature like sales pipeline yield or whatever.

One of my partners at Startup Capital Ventures has a discipline of working on the hardest challenges or communications he has first thing in the morning.   This forces him to Sweat the Hard Stuff but also means his day gets more relaxing as it goes on because the hard stuff is behind him.

Sweat The Hard Stuff First

Can Crowdsourcing & Open Sourcing Save Sailboat Racing?

Those of you who know me know I like to race sailboats, but I’m not a “one design” kind of guy (where absolutely identical boats with identical sails & identical crew weights race together) because I don’t get to use any ingenuity, creativity or technology.  The problem is, outside one-design racing, yacht racing has failed.  I’m also a VC and love to figure out how new technologies can help solve complex problems. So here goes…

“Development-class” yacht racing holds great conceptual appeal for owners who want to tweak their own boats, yet these formerly large race boat populations have collapsed due to increasingly-rapid failure of rating rules.  (i.e. handicap systems where similar but non-identical boats race together.)  Over the past 80 years, each rule has lasted half as long as its predecessor – usually due to slow and / or dangerous boats, unmanageable costs and sometimes boats that are hopelessly uncompetitive even before they hit the water.

Inception: Rule: Duration
1930:  CCA/RORC:   40 years
1970:  IOR:  20 years
1990:  IMS (VPP):  10 years
2000: IRC/ORC (VPP):  5 years
HPR:  ??

As a result, development-class boat numbers have collapsed worldwide from Cowes Week to the Giraglia Cup or Key West Race Week, while there is a boom in One Design fleets.  (Key West now offers only one-design and PHRF)

What happened here?  (Moore’s Law backwards.)

This disaster is is the opposite of Moore’s Law of semiconductors where electronics performance doubles approximately every 18 months creating huge new markets, so the result should be no surprise.

The CCA and RORC racing rules were established in the 1930s and produced excellent racing & great boats through the 1960s.   However it failed to evolve to new high-performance materials such as fiberglass hulls, aluminum masts and dacron sails. (40 years.)

Classic IOR typeforming disfunction

The International Offshore Rule (IOR) was therefore introduced in 1970 and produced heavy and slow boats (how fun is that?) until Sparkman & Stephens figured out how to game the rule leading to “dangerously unmanageable boats” (S&S own words) downwind due to the exaggerated mid-boat beam and pinched-in sterns the rule favored.  IOR was modified numerous times resulting in boats becoming worthless in one year giving IOR its infamous nickname:  “Invest Or Retire.”   IOR was all but dead by 1990.  (20 years)

Merlin Surfing At 25 Knots

Meanwhile the Wizard of Santa Cruz (Bill Lee) and others were building planing “ultralights” like Merlin in the late 1970s and obliterating distance records like the Transpac by days.   As Bill Lee famously said, “fast is fun” but this fun would have to wait more than a decade because worldwide racing remained dominated by old-fashioned “leadmine” oriented rules.

IOR was replaced in the mid 1990s by International Measurement System (IMS), the first “black box” computer velocity-prediction program (VPP) rule where a secret (and evolving!) mathematical formula determined your rating.  Designers guessed at the optima and this produced some excellent all-around boats until Farr + Beneteau figured out the combination of high-freeboard + light keels were the way to game this design resulting in the popular Beneteau First 40.7 aptly nicknamed the Beachball.  Subsequently designers Botin-Carkeek extended that trend by ballast out of the keel and putting it in the bilge (reducing stability / safety and increasing weight) producing winning but slower and less safe boats.  That was the beginning of the end of IMS.   (10 years)

Beneteau 40.7 “Beachball”

Similarly secret VPP-based rules named IRC and ORC (and the failed ORR) replaced IMS in 2008.  These fixed some aspects of IMS producing both fast and fun boats, however the opacity of the rule resulted in limited adoption.  Anyone who purchased an IRC boat before Juan K. figured out that hard chines & twin rudders are the way to game this rule, had a suddenly worthless boat.  No surprise IRC is nearly moribund outside the UK.

Less than five years after IRC was founded, people realized these opaque rules are conceptual failures.   The optimistically named High Performance Rule (HPR – based on the successful TransPac 52 design principles) is a  far better-in-principle rule with published and calculable specs. but few are biting perhaps for a combination of expensive exotic-material & uncompromising pure-race boats only (i.e. no interiors) plus “rule fatigue.”

The exception is the evergreen Performance Handicapping Racing Fleet (PHRF – 1976) rule which allows handicapping across diverse fleets, as determined by the experience (and sometimes politics) of the local yacht racing authorities (YRA).  However, because of variabilities in locally prevailing winds and depths, PHRF ratings are local only.   (e.g. Los Angeles will not let you race with a San Francisco PHRF rating & vice versa.)  So unfortunately, PHRF does not scale.

With this history of declining adoption and litter of worthless boats, it is no surprise that new boat growth is in one-design classes from J/Boats, Melges, Open Sailing and others.

Yet there remains an undeniably exciting aspect of development-class racing where owners, crews, designers and builders participate in the development and evolution of their yachts.

Can crowdsourcing help yacht racing?

The roots of all these failures are that they are defined by a handful of mostly wise old guys at influential but cozy yacht clubs like the RORC or CCA who decide what is good for those of us who actually race.  To be fair, the CCA and RORC (and others) were instrumental in establishing the concept of rating rules and safety regs. but we have “been there, done that” too many times now.

So the question is how to define a new box rule with unprecedented input from owners, sailors and race managers?   I suggest crowd-sourcing + expert guidance (to ensure things don’t get too dangerous through either extreme designs or construction)  is the the only way.    There is precedent!  One crowd-sourced design / build has already occurred:  Sailing-Anarchy’s forums defining of the “Anarchy 30” in 2002 became the Flying Tiger 10 meter boat with Bob Perry’s experienced design work.  Over 100 have been built.

Online tools such as Poll Daddy can be used to determine preferences.  Community participation levels can result in higher “ranking” in inputs.  Participants can vote for “experts.”

So where to start?

I suggest a simple box-rule (e.g. boats must fit inside a dimensioned “box” that defines maximum length, beam, draft & air-draft) with several defined lengths that race in Level Classes (8 meters, 10, 12, 15, and 18 meters) with Cruiser, Cruiser-Racer (CR), Sport, and Grand-Prix divisions (permitting less or more use of exotic materials & professional crew) that allows participation by various price & performance points.  Safety and build-standards are the size-applicable CE / ISO 12215 standards to ensure boats are stable, safe and strong.

Popular features such as non-overlapping headsails (as demonstrated by the wildly successful Farr 40) and bowsprits (vs. conventional poles) reduce crew size and expense.  Construction material limits and annual sail limits help manage costs and are adjusted upwards as one evolves from Cruiser-Racer (CR) to Sport to Grand Prix levels.

I call this the Simple Fast Rule or SFR©.   Conceptually it looks like this.

Boat	L.O.A.	Safety / CE	Cruiser	C / R	Sport	Grand Prix
SFR 26	7.9M	B4/C5/D6		X	X
SFR 33	9.90M	A8/B8/C8/D10	X	X	X
SFR 40	11.90M	A12/B12/C12	X	X	X	X
SFR 45	13M	A12/B12/C12	X	X	X	X
SFR 50	14.90M	A12/B12/C14	X	X	X	X

In more detail here.

The remaining question is who’s up for the challenge?

Exploding Termsheets: A Bridge Too Far

Last night I posted a presentation on VC term sheets (The Good, The Bad & The Ugly) that I put together for Blue Startups Hawaii (an accelerator for which I am a mentor) on Slideshare.  I didn’t think much about it beyond “might as well post it in case anyone else is interested?”

This morning I woke up to an email from Slideshare noting the presentation was “being talked about on Linkedln more than anything else on SlideShare right now.”   “Cool!” I thought – but I guess I have a bunch of entrepreneur & VC pals on LinkedIn so maybe not too surprising” and went back to work.

Then at 4:04PM (PDT) I got another email from Slideshare noting the preso. “is being talked about on Facebook more than anything else on SlideShare right now.”   Seriously?  On Facebook?  So I checked and despite the fact that I have far fewer FB friends than LinkedIn (I’m a pretty boring guy) and FB isn’t usually a hotbed of business chatter, the humble VC Termsheet preso. handily beat out the Queen’s 60th Coronation Celebration and America’s Cup pix.

So there is clearly a vacuum of hard information on VC term sheets (& bridge notes) despite this being where the rubber meets the road on every deal.  There were nearly 4,000 VC equity investments last year in the US according to the NVCA – adding in bridges & and angel deals probably more than doubles that number.

SO WHAT ELSE IS OUT THERE?

The answer is pretty much zip except (a.) the NVCA model docs., a few term sheet generators from venture law firms which don’t help unless you already know what you want and (b.) Brad Feld & Jason Mandelson’s excellent book Venture Deals, Be Smarter Than Your Lawyer & VC.   (I highly recommend this book to all entrepreneurs who are serious about their ventures.)   There is also a chapter in Jeff Bussgang’s Mastering The VC Game (also great, and the only book that actually captures what VCs really do) but it’s somewhat limited by the nature of the book.

A BRIDGE TOO FAR…

OK, while we are on the topic, I have a beef with a fad in the bridge note department:  valuation caps which are investor-friendly (at the expense of entrepreneurs) and worse, present what is known as a “perverse incentive” to entrepreneurs which is less fun that it sounds for all involved.

For years, bridge notes with discounts to a future priced equity round were the mechanism which adjusted early investors pricing risk.   Entrepreneurs don’t know what milestones they will hit at these early stages, but burn rate usually gives a good proxy as to how long the cash will last.   Assume a bridge note discount of 30% and a six month runway.   That is a 60% annualized IRR to the priced round if the round comes in on the last (6th) month.  Higher if the round comes in sooner if the company beats its target milestones.   A 60% IRR!   Sure the company might bust but, for comparison sake, our early-stage fund Startup Capital is generating a 16% IRR which is above top quartile performance.

Now let’s look at a real (and painful) case with a capped bridge.   Company had accepted a $750K bridge with a 20% discount and a $2M cap. as pressed by angel investors.  The entrepreneurs blew past their milestones in 90 days with 7 figures in contracts achieving not only revenue, but profitability and more to come.   Let’s assume a Series A pre-money in such an instance would be around $15M with probably $3-5M invested.  (VCs get 20 – 28%) BUT in this case,  the note holders own 50% of the company with the cap + 20% discount.  The VCs need 20-30%, the entrepreneurs need adequate skin in the game (call it 20%) plus a 15% option pool for future employees.   The math simply does not work.

So to the VCs (a.) walk “because this deal has too much hair on it” (b.) try to negotiate down the (numerous) angel investors who were earlier congratulating themselves on the “steal of a deal” (right) they got or (c.) wash out the angels by taking half of the company in the round for $2M then issuing new stock to the entrepreneurs and future employees.   Clearly none are optimal and the company is hobbled in getting the financing it has earned and needs.

The alterntive is a cap. that is meaninglessly high to all involved so never comes into play – but why bother?

So, at the earliest stages, capped prices are either dysfunctional or meaningless because no one can forward-price the trajectory of a pre-seed startup.   The answer is don’t cap it – trust that the market will properly price the deal at the Series A, and accept a discount that will reasonably price your risk.