DEA’s Reading Digest (11/10/2019)
14 min readNov 18, 2019
A. Interesting ideas
- No player is ever hitting the ball well all of the time. Literally nobody. If you want to be a great hitter, you have to work at it. The best hitters think about their swing, are constantly working on improvements, train regularly, and take a lot of swings (see No one is batting 1000).
- Focusing on addressing important uncertainties, instead of purely building a product (see Building something vs. proving something).
- Finding ways to leverage QR codes (see Remember QR codes? They’re more powerful than you think).
- Figuring our new X for Y comparison (see Is your startup idea taken? — and why we love X for Y startups).
- Finding ways to stretch our LTV (see Every startup is a bank — or wants to be).
- Leveraging automated actions to improve consumer outcomes (see Fintech can save us from ourselves).
- Partnering w/ Uber Eats re their business intelligence services for restaurants (see Uber is entering the ads business).
- Taking in data from a wide variety of sources, including sensors, satellites, drones and weather stations, and then turning that into actionable intelligence for farmers, using AI and machine learning (see Microsoft Azure gets into ag tech with the preview of FarmBeats).
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B. Stories, strategies & expert opinions
*No one is batting 1000
- Like many players, our daughter isn’t always happy with her hitting game. We sometimes discuss the concept of batting average* — aka the percentage of base hits a player gets out of total at bats — to help her remember that swinging and missing is just part of the game.
- The tech ecosystem can sometimes feel like an echo chamber in which founders and investors throw around phrases like “the numbers are insane”, “we’re f*ing crushing it”, “our round was crazy oversubscribed”, or “they are killing it.”
- This hyperbole can create a perception that everyone around us is batting 1000, and amplify feelings of stress, inadequacy and imposter syndrome.
- If it’s helpful, remember: no player is ever hitting the ball well all of the time. Literally nobody.
- The best players in the history of softball and baseball have only succeeded 30–40% of the time.
- To keep this analogy going — if you want to be a great hitter, you have to work at it. From what I’ve read, the best hitters think about their swing, are constantly working on improvements, train regularly, and take a lot of swings.
*Building something vs. proving something
- One of the biggest rookie mistakes I see among founders pursuing seed rounds is that they’ve spent too much time building something vs. proving something.
- In most cases, the two most important things to prove early on are 1) that the founders can attract A+ talent and 2) that there are signals of market demand for their product.
- You get almost no credit for doing things that are hard but inevitable, and tons of credit for doing things that address important uncertainties. And the ultimate uncertainties for a seed stage company are around talent and customer demand.
- Although this seems obvious, you’d be surprised how many early stage companies immediately invest too much time and energy to build a product that doesn’t really prove anything. And to do that, founders either spend way too much money on a third party dev shop, or hire a “lead engineer” that is capable, but not really a star.
The Passion Economy and the future of work, by Li Jin
- In the past decade, on-demand marketplaces in the “Uber for X” era established turnkey ways for people to make money. Workers could easily monetize their time in specific, narrow services like food delivery, parking, or transportation. These marketplaces automated the matching of supply and demand, as well as pricing, to enhance liquidity.
- Though these platforms provided a path to self-employment for millions of people, they also homogenized the variety between service workers, prioritizing consistency and efficiency.
- New digital platforms enable people to earn a livelihood in a way that highlights their individuality. These platforms give providers greater ability to build customer relationships, increased support in growing their businesses, and better tools for differentiating themselves from the competition.
- These new platforms share a few commonalities:
- They’re accessible to everyone, not only existing businesses and professionals
- They view individuality as a feature, not a bug
- They focus on digital products and virtual services
- They provide holistic tools to grow and operate a business
- They open doors to new forms of work
- Marketplaces are entirely plug and play, meaning providers can sign up and start earning revenue with minimal set-up. The strength of a marketplace’s two-sided network effect is directly correlated to the value it provides as an intermediary between supply and demand.
- By contrast, SaaS platforms require creators to work independently to acquire customers. Such platforms might help with distribution — providing tools for marketing, managing customer relationships, and attribution — but users are largely responsible for growing their own businesses.
- Marketplaces bring value for creators looking to be discovered and attract customers over time. SaaS tools often make sense for more established creators who already have a customer base. In response to this dynamic, many startups are building SaaS platforms that aim to poach large creators from existing marketplaces.
*Remember QR codes? They’re more powerful than you think
- China’s mobile payment ecosystem, the largest in the world, is built upon QR codes. But that technology extends far beyond shopping to ease friction throughout daily life.
- Camera-based solutions like QR codes (or facial recognition, for that matter) can make traditionally clunky user experiences seamless and intuitive. QR codes connect our online identity to the offline world, allowing users to essentially log in to physical locations — and bring their data with them.
- Here are 16 ways China is using QR codes:
- Meet and flirt online at bars
- Tip bar staff and musicians
- Track your food from farm to grocer
- Score virtually-free product samples
- Charge your phone on the go
- Speed up the lunch line at smart cafeterias
- Minimize waste in public restrooms
- Close the loop with offline advertising. QR codes make offline advertising transactable and measurable. By simply scanning a code, users are prompted to complete a purchase, download an app, or watch videos. As a result, QR codes are ubiquitous on billboards, in and on buses and subway cars, across residential staircases, and inside elevators.
- Book fitness classes
- Squeeze in a workout at capsule gyms
- Monitor your health with free smart scales
- Order food and beer on trains
- Rent a bike, hassle-free
- Scan and shop anywhere
- Ride buses and subways with digital public transportation cards
- Spend while abroad
*Is your startup idea taken? — and why we love X for Y startups
People love describing startups as “X for Y” — why?
- “X for Y” comparisons are popular! This is a really common format to describe startup ideas because it accomplishes a couple things all at once: First, it positions you against something successful. Second, it both conveys a lot of information and also doesn’t. Third, it makes it easy for the people passionate about what you’re doing — your employees, investors, and customers — to spread the news about what you’re doing.
The “X for Y” companies that have worked
- Interestingly, although you’d think that this strategy would lead to derivative/uninspired ideas, in practice they have worked.
- YouTube was originally “Flickr for video”
- Glassdoor was “TripAdvisor for jobs”
- Airbnb was “eBay for space”
- Baidu was “Google for China”
So which “X for Y” companies will work in the future?
- In broad strokes, all the “X for Y” ideas end up falling on a spectrum of:
- [Successful product] for [vertical segment] on side…
- … to [Successful product] for [new category] on the other
Watch out for broken metaphors
- Broken metaphors happen when something that’s meant for an investor pitch becomes ingrained in the product itself.
*Every startup is a bank — or wants to be
- Speaking of which, why is every fintech or finservices startup becoming a bank? Partially because they can, partially because it can be lucrative and partially because, we found out, it’s a way to juice customers that they’ve already paid to acquire. Want to make your CAC expenses look more efficient? Stretch out that LTV!
*Fintech can save us from ourselves
- It’s a well-known fact that people act irrationally when it comes to money. Relatedly, it’s exceptionally tough to change consumers’ behavior around their finances. One of the most common areas we see this pattern is the difficulty consumers have in saving money.
- The personal finance app Digit automatically and invisibly saves money for users. By analyzing your spending habits, the tool dynamically calculates the amount the user can afford to part with without materially impacting his or her weekly cash flow needs. That “unmissed” money is transferred into a Digit savings account.
- This tactic works because it removes consumer choice from the equation entirely. If consumers aren’t making decisions, then they can’t make bad ones.
- The logical extension of this is the concept of “self driving money,” in which consumers are not only automatically refinanced into the credit cards, loans, and mortgages with the most favorable terms, they are also offered products with characteristics match their own irrational behavior.
- Automated finance is less about the ability to decrease paperwork and prices, and more about the ability to impact our choices and cognitive biases at scale.
- Through a mechanism called a prize-linked savings, consumers are offered a chance at a jackpot each time they put away money in their own account. This “no-lose lottery,” incentivizes people to save in the short term. The outcomes have been promising. When Walmart implemented a prize-linked savings program attached to its MoneyCard (a reloadable prepaid card) in 2016, users saved more than $2 billion in just over two years, a 38 percent increase, on average.
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C. Startups & market trends
Goldman Sachs leads $50M round for credit card platform Deserve
- Deserve, a credit card startup helping young people establish themselves, as well as a cloud-based credit card platform for businesses, has raised $50 million in a new round of Series C funding led by Goldman Sachs.
- “Card as a Service” (CaaS) platform, which helps businesses, brands and others tailor credit card products to their own unique customer bases.
- Deserve’s turnkey, cloud-based and API-based Deserve Credit Platform promises partners the ability to set up a program in as fast as 90 days, instead of the typical 18 to 24 months.
- Since its August 2018 fundraising round, Deserve has partnered with clients like Sallie Mae, the New Jersey Institute of Technology and Honor Society to help them launch credit cards designed for their specific audiences. Its overall platform today serves more than 100,000 consumers.
- The funding brings Deserve’s total raise to date to around $100 million.
- Deserve is a team of 60, but it aims to grow to 100 over the next six months.
*Microsoft Azure gets into ag tech with the preview of FarmBeats
- The idea behind FarmBeats is to take in data from a wide variety of sources, including sensors, satellites, drones and weather stations, and then turn that into actionable intelligence for farmers, using AI and machine learning.
- In addition, FarmBeats also wants to be somewhat of a platform for developers who can then build their own applications on top of this data that the platform aggregates and evaluates.
Ebury nabs £350M for foreign exchange and currency services for SMEs, Santander takes 50.1% stake
- Ebury, which provides foreign exchange, money transfer and other currency services to small and medium businesses and their banking partners, has picked up £350 million (about $452 million) led by Spanish banking giant Santander. With the deal, Madrid-based Santander will become a majority shareholder at 50.1% but notes that Ebury will continue to operate as an independent entity.
- Founded in 2009, it has to date raised $134 million.
- “Small and medium-sized businesses are a major engine of growth around the world, creating new jobs and contributing up to 60% of total employment and up to 40% of national GDP in emerging economies.”
Stealth fintech startup Digits raises $10.5 million Series A from Benchmark and others
- Stealth fintech startup Digits has raised a $10.5 million round of Series A funding.
- It leverages APIs, classification algorithms and machine learning techniques to provide a real-time view into a business’ finances, proactively alert you to what’s important and allow you to deep dive into your data to better understand what’s driving your business.
- Though Digits hasn’t publicly launched — the product is in invite-only status for now — it already has live customers and is seeing more than $1.5 billion in transactions processing on its platform.
*Uber is entering the ads business
- Uber will become an ad platform, selling space inside its Eats app to restaurants hoping to lure in more food delivery orders.
- Selling ads could help it improve margins on Eats, where it only takes 10.7% of gross bookings as adjusted net revenue because it pays out so much to restaurants and drivers.
- TechCrunch was the first to discover a prototype of Eats ads in December, called Specials, where restaurants could get featured placement in the app in exchange for offering a discount.
- Ads also could serve as a wedge for Uber to move deeper into business intelligence services for restaurants. It could apply its data on food delivery demand to help kitchens to optimize prices, allocate staff and improve menus.
- To save its share price, Uber’s best bet is to find new streams of cash it doesn’t have to share with drivers or restaurants.
*WhatsApp’s latest feature, Catalogs, caters to small businesses skipping the web for mobile
- The Facebook- owned company is today introducing to the WhatsApp Business app a new “catalogs” feature that will allow the businesses to showcase and share their products and services to potential customers, who can browse photos, view prices and read product descriptions to help inform their purchase decisions.
- These catalogs effectively serve as a mobile storefront on WhatsApp — and one that can be operated without the need for a web page at all. Instead, the business owner simply visits the new Catalog option in their app’s settings and uploads photos of whatever it is they’re selling and fill out the details, which can optionally include a product or service code (e.g. a SKU), if need be.
- The catalogs are particularly appealing to WhatsApp’s customer based in emerging markets, where much of users’ online activity is taking place inside apps instead of on the wider web.
- WhatsApp says the new feature is available to businesses using the WhatsApp Business app on both Android and iPhone in Brazil, Germany, India, Indonesia, Mexico, the U.K. and the U.S., for the time being.
Real estate fintech platform Immo Investment Technologies raises €11M Series A
- Immo Investment Technologies, a London-based fintech startup that purchase homes on behalf of buy-to-let investors, has closed €11 million in Series A funding.
- In addition, the company is disclosing that it has raised more than €60 million in real estate “buyer capital.”
- It will use the buyer capital to fund the acquisition of properties — targeting private individuals who want to sell their property quickly. It then refurbishes these properties and puts them on the rental market as part of a fully managed package, therefore returning a predictable yield to investors.
- Immo says it has already evaluated more than 10,000 for-sale apartments in the launch city of Hamburg. It claims its technology can accurately predict property sales prices, as well as current and future rental income prices.
- “Immo buys residential properties directly from consumers on behalf of professional investors, thereby helping consumers sell their home in a fast, reliable, transparent and convenient way and providing investors with desired residential asset exposure at scale.”
- “With Immo, consumers go through one viewing, receive an offer within 24 hours and then sell to us without any agency fees and free of worries about financing risks or changing minds.”
- “Immo’s C2B model — buying from consumers, selling to investors — is in our view superior to the C2C model [of] buying from consumers, [and] selling to consumers,” adds Zappel. One reason is that Immo is able to operate a “balance sheet light” model, in which properties don’t sit on its balance sheet and therefore is arguably less exposed than some other “iBuyer” models.
- Immo generates revenue from investors that pay the startup a fee for sourcing, assessing and acquiring property assets. In addition, the company receives a subscription fee for ongoing portfolio management.
*African logistics startup Lori Systems raises Series A led by Chinese investors
- African on-demand trucking logistics company Lori Systems has raised a Series A round led by Chinese investors Hillhouse Capital and Crystal Stream Capital.
- Founded in Kenya in 2016, the company provides mobile-based on-demand trucking logistics services through an Uber-like network of drivers and merchant partners. Lori Systems has operations in East Africa in Kenya and Uganda.
Alibaba to invest $3.3B to bump its stake in logistics unit Cainiao
- Alibaba is doubling down on its logistics affiliate Cainiao, two years after acquiring a majority stake in the firm. The Chinese giant said today it would invest an additional 23.3 billion yuan (about $3.33 billion) to raise its equity in Cainiao to 63% (from 51%).
Uber’s losses top $1 billion, trumping better than expected revenues
- Better than expected revenues couldn’t divert investor attention from the fact that Uber still managed to lose more than $1 billion in the most recent quarter as the company’s stock fell in after-hours trading.
- Revenue grew to $3.8 billion, up from $2.9 billion in the year-ago period, representing a 30% boost. But even as Uber’s core business shows signs of stabilizing and its core markets continue to show growth, its other business units appear to be hemorrhaging cash at increasingly high rates.
- “Rides Adjusted EBITDA is up 52% year-over-year and now more than covers our corporate overhead. Revenue growth and take rates in our Eats business also accelerated nicely.
- Uber has taken a number of steps to correct its course and put the company on a path to profitability, which Khosrowshahi says should happen in the next two years.
- In October, the company announced the last of three rounds of sweeping layoffs at the company that saw 1,185 staffers lose their jobs.
- “We want to be the operating system for your everyday life…A one-click gateway to everything that Uber can offer you.”
