May 2, 2013
Iceland: Viking Rune (Photo credit: vicmontol)
The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.
- George Soros
I wrote a small comment yesterday about a news article that I read in Reuters, this article still comes up on top when you look for news about Iceland in Google. The title of the article is “Analysis: Iceland chooses lonely road back from economic segregation” by Balazs Koranyi. I am pretty sure Mr.Balazs Koranyi is standup gentleman and I don’t doubt his analysis is based on facts around what is going in Iceland because he writes for Reuters or atleast that is what one would think. The truth of the matter could not be far from it. I am sure Mr.Balazs Koranyi has never visited Iceland or met the people of Iceland. The article is based on quotes by some experts like “Investment Advisors”, “Former Bank managers” and “Economic Professors”, I don’t know these people but I would love to meet them to learn how they come to conclusion about something as complex as a country’s psyche because the article is about how Iceland is going to be lonely in its path to recovery given the current election results and the statements made by the leader of the political party which has been given the mandate to form the Government. Once again, I am not an expert and I usually remind myself to be humble when a part of my ego takes over trying to rationalize somethings that I observe and start making conclusions about them. The election results being one.
I believe that structural transformation of any economy even one as small as Iceland takes time. I have written a lot about this Structural transformation and I did not stop there I put my money, time and effort where my mouth is ie. I invested in startup companies in a space I believe can get Iceland out of the challenge of the Financial Crisis of 2008. Yesterday my bet was vindicated, the Software Company that we invested in CLARA (I wrote about it here and here) was acquired by Jive Software, a Nasdaq listed company in Silicon Valley. I will write a detailed post about the transaction later. There was a viral sharing and congratulations that was going on in Facebook. I am very pleased to see the result and it is even more sweeter when you read the analysis written by Mr.Balazs Koranyi.
My post yesterday on Facebook was
“While we are quietly creating value by Starting Companies like CLARA, GreenQloud, DataMarket, Meniga, Plain Vanilla, Mobilitus, ReKode… in Iceland mainstream talking heads are into pschyo-babble talk of economic isolation and what not. I am not sure who this Asgeir Jonsson is or Thorolfur Matthiasson but they are “investment advisors” and “Economic Professors”, they all should come to Startup Iceland and see how a country is reinventing itself out of a crisis.”
My invitation still stands, if you are a journalist or an expert or found this article searching about Iceland and Startups, come to Iceland, participate in Startup Iceland Conference, meet the young entrepreneurs who are changing the face of what Iceland is all about before you write about Economics of Iceland.
April 14, 2013
I was at the Seed Forum this year, but I could not participate for the whole day but I attended the cocktail hosted by the British Embassy in Iceland. It was fascinating to see the British Ambassador pitching to the startups to look at UK to locate or move their startups when they scale out of Iceland… he even went to the extent of saying moving to the US was not a good idea I am happy to see different countries pitching to startups and entrepreneurs in Iceland to move to their country, it is good for the Entrepreneur and it is good for the Startup Ecosystem that there is growth path out of Iceland. I got a good impression of all the teams that were pitching. I have written about why Startups should not be focused on raising money. I am going to repeat this until I turn blue, the focus of the startup should be to solve a really itching problem, win customers and raise capital from the customer first. As much as I support the initiatives like Seed Forum, I really believe that it muddles the real issue facing startups and entrepreneurs. The Seed Forum this year had a famous Icelandic Entrepreneur and Cofounder of Opera, Jon Von Tetchner, actually he lived and worked in Norway but he is Icelandic. He had a very good talk and Q&A session about being an Entrepreneur. His advice and the advice given by Brad Feld and every other entrepreneur who has walked through the fire of creating a company and successfully transitioning says the same thing – Delay taking money from Investors as much as you can. Sometimes it is not possible i.e if you need machines, or equipment or buildings you need Capital but with startups in Software you dont need any of that or Capital to get started… that is one of the reasons that I am so bullish on the fact that Software based companies that are building solutions on top of the new Infrastructure of Cloud Computing, Google, Apple, Amazon, Twitter, Facebook, LinkedIn, Pinterest etc will be able to bootstrap much better, faster and get through the valley of death without pledging your soul to the devil, no, not all investors are bad but there are different incentives if you are an investor vs if you are an entrepreneur.
In other news, Klak and Innovit merged into Klak Innovit… I am happy to see some movement in the Accelerator, Incubator and Institutions that help entrepreneurs collaborate and optimize in Iceland. Accelerators are a key ingredient in the Startup Community development and I believe Kristjan Kristjanson the new CEO of the merged organization has his heart in the right place. He also runs Startup Weekend, Startup Reykjavik and has been of great help to many startups since he started working with entrepreneurs in 2007-8 I think.
April 5, 2013
I was reading an article in the guardian titled “Microsoft threatened, as smartphones and tablets rise, Gartner warns” and another post by Fred Wilson/Christina about “Monopolies and Startups” both are connected to the theme of transformation that I have been referring to for sometime now. My colleague was telling me that someone asked him a question What about Surface? when they were discussing some device and technology choice, and his response was What about Surface? i.e who cares? That is the problem, when fringe products that are suppose to appeal to everyone usually does not appeal to anyone. Focus and niche strategy is the best way to launch a new product. It also goes back to the Innovators dilemma, on the new entrant. Microsoft is a new entrant in this space, and they should have acted like one instead they are acting like a big company they are which is sad to see because have many choices is good the consumer. In additino, the interesting part about these transformations is that everyone ignores it until it is too late. The Gartner report about the rise of Smartphones and Tablets is very interesting because few of us were seeing this before it has hit mainstream. IMHO, Microsoft lost out on this battle and Google has gained a huge advantage with their Chromebook, Android Ecosystem. This is the projection of Gartner and Fred Wilson actually wrote about this a while back. I believe the problem with the competition to the Android and iOS ecosystems should have been fought by Microsoft in a different way. They should have entered the low end market i.e a price point that works in large markets like India, China or Brazil or Latin America less that $150 like the Chromebook with their new operating system. The problem for Microsoft is that they want to be in the enterprise and the Enterprise IT is getting consumerized right in front of our eyes, Deloitte, one of the big 4 Accounting and Consulting firms allows their consultants now to bring their own device and they even subsidize a iPhone 5. I know because my wife just got a new iPhone and she DOES NOT like Apple products, but she now loves her new phone. I think it is a matter of time before the smartphone/tablet User Interface takes over the Laptop/Desktop. I think that is the inflection point that Gartner is alluding to. I think the biggest winner in this over the long haul is going to be Google, because they are very quietly innovating and coming up with Cloud based solutions that work seamlessly with their Android and Chromium ecosystems. Microsoft has found itself in a perfect storm, the assault by Apple in the high end devices and by Google, Amazon and many smaller startups in the lower end. To add insult to injury, enterprises are starting to see if they dont adapt their IT systems they will be left behind by their competitors so they are also looking for newer things that consumers are using. All the people who sell to the Enterprise continue to live in this dream world of yesterday. I have a strange feeling that in a couple of years, I will refer to this post to say I told you so. Consumers i.e employees in the enterprise will dictate what kind of software and device and infrastructure they want to run on rather than the IT department.
March 29, 2013
twitter fail image (Photo credit: Wikipedia)
I like Data as much as the next guy, but I am troubled by all the empty promises of big data. I think data is good but too much data is unwieldy and it becomes hard to separate the noise from signal. It does not matter how sophisticated our data sifting mechanism become it is still ugly. What worries me even more is our inherent ability to see patterns in tea leaves that could lead to hypothesis and theorizing based on Big Data. Nicholas Nassim Taleb in his book on Antifragility talks about this problem:
In business and economic decision making, reliance on data causes severe side effects – data is now plentiful thanks to connectivity, and the proportion of spuriousness in the data increases as one gets more immersed in it. A very rarely discussed property of data: it is toxic in large quantities- even in moderate quantities.
… noise and randomness can also use and take advantage of you, particularly when totally unnatural, as with the data you get on the Web or through the media.
The more frequently you look at data, the more noise you are disproportionally like to get (rather than the valuable part, called the signal); hence the higher the noise-to-signal ratio. And there is a confusion which is not psychological at all, but inherent in the data itself.
The world of Twitter and capturing every search by Google, we are fooling ourselves into believing that more data is better actually it is worse given the frequency of our observation. Maybe if we can spread the time variable out it could elicit some interesting dynamics. Anyways, it has been a lot of fun to read Antifragility the last couple of days… and fortunate to be in a place that is tranquil and peaceful, where inspiration is easy, all I have to do is look outside the window or walk out the door. I am in our summer house in Thingvellir, surrounded by mountains, lakes and glaciers and just pure nature, Icelandic Style.
Here is a troubling consequence of big data: Surveillance
March 5, 2013
I am the first one to reject the notion that Ideas don’t matter, but to a certain degree they do. Usually a problem drives one to think about how to solve the problem. I actually like this video that talks about this, by the author of the book Where Good Ideas come from? Steven Johnson. There is one element of the video that really appeals to me which is connecting with other people, sharing our thoughts and idea actually helps in formulating, incubating and birth of new ideas. It was the basis for me to found Startup Iceland – A Conference where Entrepreneurs from all over the world could meet in person, share ideas, thoughts and take away a great experience and do it a place like Iceland which is inspiring in its own right. I get inspired every time I leave my home and start running in the running trails. What if we could expand on this notion? Would it not be wonderful if we could have a retreat- a place to basically kick back and let our ideas run loose? well, that is the ultimate plan. My partners and I are also in the Hospitality business, ie. we build hotels, invest in hospitality technologies and run hotels as well. Our intention is to build this retreat in Iceland.
I think it is not a bad idea if I say so myself. Now we just need to Execute and make it happen. There are several insights in the video about Ideas. I have not read the book but I think Accelerators and Incubators that I have been writing about are the same things, they put a bunch of motivated, smart people in a single physical space and let them interact and solve different problem. That is the same reason I love Hackathons, and we are promoting the periodic hackathon events by GreenQloud.
March 4, 2013
Cover via Amazon
I usually get really worked up when I am speaking with some employees in a bank about Startups and Entrepreneurship, they immediately say that it is Risky. I always ask them could they please tell me why they believe Startups are risky? Their usual answer is well 90% of all startups fail, which is anecdotal evidence because there is no way anyone has documented all the startups in the world and calculated the failure rates. I have written a lot about how we as humans are wired to be fooled by statistics and we just underestimate the risks associated with many things. What is even fascinating is that those same people from the bank were still working in the bank when the entire financial system in Iceland collapsed. I think banks are bigger risks than startups, atleast with Startups you know the risk of failure will only wipe out what you invested, whereas with Banks it can wipe out the entire equity base of Iceland. No wonder, Warren Buffett called Banks sit of Weapons of Mass Destruction. The risk on banks are exasperated by leverage, were as Startups run on equity which means what you put in is what you loose if the company goes under. Typically Startups that I have been pounding the table on require very little capital to validate, build a Minimum Viable Product and get market traction.
I have written about the books that really changed my perspective on Risks and I have Nasim Nicholas Taleb to thank for. I listen to audio books all the time and I think this is the 100th time that I am listening to his classic book “Fooled By Randomness“. There are so many pearls of wisdom in that book that I discover something new every time I listen to it. The only positive aspect of risk taking is in the Startup world because a black swan event ie. the chance of finding a Google or Facebook or Twitter or Amazon is very low but when it does happen it usually results in such a positive impact I don’t know why not everyone invest a small portion of their investment egg in this asset class. The monstrous returns that are possible can only be achieved if one takes enough bets but the size of the bets are usually very small and thats the point of doing this.
February 26, 2013
The word Disruption has a negative context, the definition according to Dictionary.com is
||( tr ) to throw into turmoil or disorder
||( tr ) to interrupt the progress of (a movement, meeting, etc)
||to break or split (something) apart
(Photo credit: Wikipedia)
I feel the dictionaries do not do justice to the word. The use of the word Disrupt in the innovation context is more a positive one although it depends on which side of the table you are, are you an incumbent or a new entrant disrupting the established order. Disruption happens due to a number of reasons. I have written about it before, but what is fascinating is that all the things that we use today were disruptive technologies when they were introduced. Think of the Radio, TV, Video, CD Player, Automobile, Air travel etc they fundamentally changed how we perceive the service provided by these tools. I believe we are undergoing a major transformation in disruption, where business models are being disrupted.
Anyone can say what they want about Cloud Computing but it is truly disruptive in terms of the business model. The same is true for Mobile Commerce or for that matter Self Education. All these massive trends are in front of us and the change is not going to be like night and day but it is going to a gradual transition, where one day we wake up and see that 90% of us use Smart Phones not by using the keyboard but by giving voice instructions. I have been very impressed with how good Google Voice Recognition is on my Android. Fred Wilson wrote about it with the title “Simplicity, The Emerging UI and Machine Learning“.
The disruption occurs because of the ability of some entrant to see a new light to an accepted problem. I had a very interesting conversation with a buddy of mine who is in sales for very large network gear company, he was telling me about the conversation that he has with large organizations who basically dismiss the Cloud hype and how he disagreed with that argument. I agree with him, obviously I am biased because of my neck deep involvement in GreenQloud, where we were able to implement a small disruption in how you share and listen to music you own through our StorageQloud offering, it is so simple to do even my grandma can do it, mind you, she was a very very intelligent women. But the facts are facts… these technologies provide tremendous value to those who can embrace them and make the technology work for them, for those who are happy with the status quo it would look like a hype until that day when their competitors have moved over to this new technology and are eating their lunch in the marketplace… think Blockbuster vs. Netflix or Kodak vs. Digital Camera or Nokia vs. Apple, I can go on. You know who else is disrupting Volkswagon… I am sure you have seen this ad
November 15, 2012
The expansion of $100 through fractional-reserve banking with varying reserve requirements. Each curve approaches a limit. This limit is the value that the money multiplier calculates. (Photo credit: Wikipedia)
I think I know enough about banking to say that debt creates very little wealth or value. I have often wondered what makes banks better at accessing risk than anyone else. It is even scary to think that people who work for banks take risk with someone else’s money with the illusion that they understand the risk. Time and time again we trust the banks to do the right thing and it leads to bigger and bigger financial calamities, I have written about why I think this problem exists. The whole banking system is built around a ponzy scheme and it continues to give the privilege of creating money to private banks and hope they will spur the economic progress of the city, or state or country. It is romantic thought process but it is flawed from the outset. I believe the way out of this financial mess the world is in is through equity, i.e let Entrepreneurs lead! We had the dot com bubble and it left fantastic value after its collapse like the Internet, Google, Amazon, Ebay, Apple etc but I am not saying that is the only business we need to create all I am saying is give Entrepreneurship a chance. Let us cut the fractional reserve system that disproportionately allocates capital to “Risk-Free” assets which is an oxymoron because you cannot have Return without Risk associated with it. If someone is selling you “Risk-Free” drug, please ask why they are doing that. I believe Iceland has the opportunity to redefine how the Banking System can be restructured. Here is a link to a Paper by Jaromir Benes and Michael Kumhof from the IMF, with the title “The Chicago Plan Revisited“. The abstract of the paper is given below:
At the height of the Great Depression a number of leading U.S. economists advanced a
proposal for monetary reform that became known as the Chicago Plan. It envisaged the
separation of the monetary and credit functions of the banking system, by requiring 100%
reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this
plan: (1) Much better control of a major source of business cycle fluctuations, sudden
increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous
debt creation. We study these claims by embedding a comprehensive and carefully calibrated
model of the banking system in a DSGE model of the U.S. economy. We find support for all
four of Fisher’s claims. Furthermore, output gains approach 10 percent, and steady state
inflation can drop to zero without posing problems for the conduct of monetary policy.
One of my favorite authors, Nicholas Nassim Taleb has written a lot about it and we don’t need complicated models to explain the fallacy of Debt or Leverage on Securities (which includes Mortgages, Government Bonds etc). I blogged about it in my personal blog and I think it is about time we looked for a better way. I think the above plan can be implemented in Iceland. It could pave the way for defining the right way for financial systems to work in an economy. I am sure it is not simple but necessary to debate and review otherwise we will be stuck in this Ground Hogs Day of Leverage if we don’t change something about this system. I wanted to leave you with a couple of documentaries about Debt and leverage.
Overdose: The Next Financial Crisis
September 20, 2012
The world of software development is changing… there I have said it. Going with the thesis that “Software is going to Eat the World“, I believe it is important to give context to this notion. I started writing code a long time back, I am a closet geek i.e I like to make things and the command line does not scare me. I have seen the evolution of software development, adopted and been a pilgrim to a few religions only to learn that the market dictates which religious camp you should be part of. If you are with me so far then you understand what is going on in the software world. Lets continue on the context part, today everything that we do involves something to do with Software, you mobile phone, the car you drive, TV programs you are watching and how you get electricity into your home. Given the broad application of software, it is important to know that today the world of software is hyper connected i.e Software written in one environment talks to software written in another environment with small tweaks through what is called Application Programming Interfaces (API), the interoperability brings with it a huge network effects. This is not a universal phenomena because there are still those who believe that writing software that does not talk anyone who wants to talk to it is a viable business strategy, I think that camp is going to die… if you are working for a software company and your software product or service does not have an API, run to the hills because you will become the North Korea of the new world. I see you are still reading this post, which tells me that software is important to you, good.
I had interesting meetings with some software companies who still believe that they need to build walled gardens of applications that don’t interoperate with the external world through standard APIs. I pity those who think that way. In today’s world Open Transparant API is the currency because it expands your reach and product base and partnership. If your company’s value proposition is not tied to being open and interoperable, you are dead out of the door. The Open Source movement has spawned an army of software some that I use and would like to contribute to and others that I would not recommend to my mother. There is a wide chasm between what is usable and what is full of crap… that is the cost of open source, never the less the biggest value of open source is adoption and expanded ecosystems. Internetis the largest ecosystem we have today and it is evolving it is built on open source, standards based API.
This image was selected as a picture of the week on the Farsi Wikipedia for the 13th week, 2011. (Photo credit: Wikipedia)
Another new movement is the ability to have access to server environments at a negligible cost compared to what it was 10 years back. Today anyone can sign up with a Cloud Provider like Amazon Web Services or GreenQloud (disclaimer: I am the CEO of GreenQloud and the entire stack of software that runs on GreenQloud is built using Open Source software and the team has contributed a lot to the open source community through Cloud.com) and spawn a server environment, build an application and launch it on the internet and start selling it. All this has been made possible by Open Source software and Standard based API and the Internet. You don’t have to buy software you may still need to install some software in the server environment but for those who know what they are doing it is pretty straight forward. So, startups today when they say they need to buy Hardware ie. Server computers, it better have a compelling reason. Many of the standard services we use today are running in the Cloud, Google, Facebook, Twitter, Amazon, DropBox etc even Apple has a cloud offering called iCloud and Microsoft is following that strategy is launching their own versions of cloud services Office365.com, outlook.com, Skydrive etc to name a few. This new world is here to stay, there is no turning back, are there going to be hiccups along the way absolutely… I have no doubts but this hyper connected world with Services available through all the devices we carry and have on us is huge step forward. As we all like to say you have seen nothing yet!
June 21, 2012
Union Square Ventures just announced their investment in Duolingo.com. The company founder Luis Von Ahn is so smart and has a track record of really creating valuable solutions on the time people spending doing boring tasks on the internet. As Brad Feld says, the machines have taken over, they are just making us enter information about ourselves into them, they are being patient and eventually the machines will run the asylum. Luis invented CAPTCHA and re CAPTCHA two technologies on the internet that everyone who is reading this blog had to do many times while signing up for service or posting a link to Facebook or Google or Twitter or any of the Web Services that we use to let the machines know that we are human. What we all probably did not know is that this “data entry” is used to digitize all the books in the world! How cool is that? Here is the TED talk that Luis gave which explains how they did this, more importantly he explains subtly WHY he did this.
I believe this is incredibly smart investment by USV. The next frontier is language and sound, I have written about my investment thesis around sound and voice. The biggest problem we have with language is that machines don’t understand the semantics of translations and Luis is solving that using powerful motivators and incentives on the internet, the need of people to want to learn another language and making that affordable (read FREE) to everyone on the internet. Luis is nothing if not ambitious, but I have a feeling that he will be successful in translating the entire web. If you always wanted to learn another language and did not want to spend $500 to do it, Duolingo.com is the place to do it and BTW, you will be helping in translating the web which is 50% in english into a language that you are learning.
To Brad Burnham and the rest of the partners in USV, Congratulations! this ones a winner and keeper! you are really showing why USV is the top VC firm in the world.