How Venture Capitalists Don’t Really Play the Role We Believe

In this must-read Harvard Business Review article ‘Six Myths About Venture Capitalists‘, Diane Mulcahy shows that Venture Capitalists (VC) don’t really play the role that conventional knowledge would expect.

Diane Mulcahy is also famous for being a Venture Capitalist herself and having written a well-known report (‘We Have Met the Ennemy… and He is Us’ accessible here in pdf)showing that Venture Capitalist’s return on investment is quite abysmal.

So what are those 6 myths?

  • Venture Capital Is the Primary Source of Start-Up Funding
  • VCs Take a Big Risk When They Invest in Your Start-Up
  • Most VCs Offer Great Advice and Mentoring
  • VCs Generate Spectacular Returns
  • In VC, Bigger Is Better
  • VCs Are Innovators

Basically it appears that VCs encounter the paradox of being institutions that deal with something very fluid and unstable, startup companies. And obviously their constraints as institutions do not really allow them to provide the kind of support and value that startup would need. And VC does not scale well: it works best as a “cottage industry” – personally I can that ‘craftsmanship’.

The most interesting part is how little VCs actually contribute to the funding of young companies overall – less than 1% apparently. Still they seem to make the US startup scene quite dynamic, but behind the hype, the situations isn’t so rosy.

Venture Capital is only one solution for funding a fast-growing company, and it may not be the best or most adapted. And there’s too much hype and money to make it work as good as it should.

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How to visualize global commerce

This site by Harvard University – Atlas of Economic Complexity – provides a unique data visualization portal for international commerce. It is possible to visualize trade between countries and dig into the data in an incredibly interactive manner.

It not only provides a view of the current export / import of each country, but also provides a view over time which allows to see how the weight of each product type changes with time.

I encourage you to spend some time going through those numbers. Once can realize up to what level international trade is developed and every country trades with every other country. The world is open and international exchanges are the lifeblood of the economy. We are not any more in the 19th century where each country was more or less self-standing even if already at that time, international trade was the source of wealth for multiple industries!

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How We Should Not Skimp Little Luxuries

This post ‘Little Luxuries‘ by Steve Pavlina has resonated with me. His point is that we should not skimp on little luxuries because the emotional cost of doing to is much greater than the benefit of not spending for it – and the risk to remain in a scarcity mindset.

Fancy coffee: a luxury?

“If you took all the money you spend on luxury lattes each year and saved it instead, you’d have a little bit more money but a less luxurious life. But you’d also risk getting more entrenched in a scarcity mindset because scaling back your lifestyle just to save a little extra money is mostly a waste of thought.”

He warns us: “Self-discipline is a limited resource. Save it for the big stuff that matters. Don’t squander it on fussing over how you handle minor expenses.”

The point he makes about the fact that this behavior of avoiding little luxuries actually stems from a scarcity mindset is quite enlightening. And the solution is rather to take the opposite view, using those little luxuries of money and time to expand one’s universe: “Instead of worrying about small expenses, think about making interesting contributions to people’s lives. Explore different ways to creatively express yourself. Take some interesting risks.” It is an investment to get out of the scarcity mindset.

So, grant yourself little luxuries as an exercise to get rid of the scarcity mindset – and leverage on it to expand your horizons!

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How We Should Start Before We Are Ready

Have a glimpse at this clever post by Austin Kleon ‘Start before you think you’re ready‘. Of course that post is about writing but that can apply to any creative field.

He starts by a quote from Stephen Arrigan: “I think that when it comes to writing books, you have to start before you are ready, because you will always feel like you are never ready. I find that as you write the book, the road ahead becomes clearer; before that, the road ahead is just a distraction“.

The point Austin Kleon makes is that it is often more comfortable and exciting doing research rather than writing. But then when writing the road becomes clearer as to what really needs to be researched, so we should not wait too much before starting to write.

I find that this applies to any creative field, including entrepreneurship. In creative fields, some research is good, too much research is procrastination because we don’t know what to look for before we start. Interesting lesson!

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How Freedom of Speech is not Freedom of Reach

I am impressed by this talk by Sacha Baron Cohen about online hate on YouTube (and this link for the full transcript). And he is pretty blunt about today’s issues: “All this hate and violence is being facilitated by a handful of internet companies that amount to the greatest propaganda machine in history.”

He observes that “Today around the world, demagogues appeal to our worst instincts. Conspiracy theories once confined to the fringe are going mainstream. It’s as if the Age of Reason—the era of evidential argument—is ending, and now knowledge is delegitimized and scientific consensus is dismissed. Democracy, which depends on shared truths, is in retreat, and autocracy, which depends on shared lies, is on the march. Hate crimes are surging, as are murderous attacks on religious and ethnic minorities.“

“Freedom of speech is not freedom of reach.” Freedom of speech, Sacha Baron Cohen argues, should not and cannot be taken as an excuse by the Marc Zuckerbergs of this world. He observes however that the GAFA are reluctant to act beyond some lip service because their entire business model is at stake. Fact-checking content before it gets posted should be the way. But it will obviously cost more than pay a few hundred people in developing countries try to administer the site content.

I am deeply admirative of this speech, which is really worth reading, and the way someone like Sacha Baron Cohen provides an insightful view into some of the Fourth Revolution’s issues. Kudos.

As a great conclusion, “Voltaire was right, “those who can make you believe absurdities, can make you commit atrocities.”” Let’s do something about it!

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How Fake Reviews Are Another Bane of E-shops

I discovered in this paper ‘Her Amazon Purchases Are Real. The Reviews Are Fake‘ how there is an industry setup to generate fake reviews on Amazon. This must be an issue for all e-commerce websites and creates another challenge for those sites to regulate and banish.

The setup is actually quite clever: a consumer really purchases the items, comments positively on them one week or so later, so that the review seems legitimate. Only that she gets reimbursed on her purchases separately and whatever she writes it is a 5-star review. This in turn, pops the item up the search results on the site, resulting in more sales – and thanks to Amazon reach, an added profit that is probably many times the investment in the fake purchase of the item in the first place: “a high ranking in a search can be worth tens of thousands of dollars in monthly revenue“!

Having some family and friends write gleaming reviews on Amazon is an old trick to promote one’s stuff, or at least try to make it visible. But in that case it seems that the practice has taken industrial proportions. Up to the point where I wonder what truthfulness should be given to those reviews on e-commerce sites!

Amazon and other e-commerce sites will soon need to do something. This may not be as damaging as fake political ads, but on the long time this has the potential to severely erode people’s confidence in those sites.

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Indications of Monopoly Behavior by the GAFA

Following on the previous post ‘How Increased Monopolies Could Explain Low Interest Rates‘, this post by Seth Godin about Google ‘The Google tax‘ provides another interesting perspective.

Seth Godin notes that usage of Google creates a double whammy taxation for people and companies that try to sell through this portal (that is, anyone who tries to have an internet presence). First, companies will have to pay for adds to be more visible than actual search results, increasing their visibility. Second, and much less visible, search results are prioritized according to a certain algorithm that constantly changes. Staying on top of SEO (Search Engine Optimisation) costs a lot of money, having to go through specialists to permanently update one’s website to keep it visible to the world.

The point Seth Godin makes is that on the internet there is so much difference between being listed first and listed second that it is worth paying the money to remain first. And Google – and more generally all those portals that live off advertising like Facebook or Twitter – are geared to get a lot of that investment. This in effect amounts to a tax on the economy that is conveniently captured by those service providers which are in monopolistic positions thanks to the same rule: the number one gets most of the value and traffic!

Contrary to monopolies in the industrial age, which were backed by large assets, it won’t be easy to dismantle those. However it is worth doing in the long term – at some stage, this global tax will not be accepted anymore by the world.

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How Increased Monopolies Could Explain Low Interest Rates

In this interesting post ‘How Monopolies Broke the Federal Reserve‘ the author expresses the opinion that the current world of low interest rates is a direct consequence of the emergence of large monopolies in the current global economy (after having however qualified this view by the fact that economists are good to explain the past and terrible to explain the present!).

The point that is made is that interest rates are low because people don’t know what to do with all their liquidity: “Thanks to ever-increasing wealth concentration and meager growth across the developed world, you have some people sitting on incredible piles of cash and a shortage of people with robust opportunities to borrow and use that cash.” It’s a savings glut!

However beyond this explanation what is offered in the post is that it is not that there is nothing worth inventing anymore, but that any worthwhile innovation is captured – and the value is kept – by a few giant concerns. “The economy has become a giant kill zone. In venture capital circles, the term “kill zone” has become quite popular to describe the phenomenon of having no places to profitably invest“.

There are signs that the GAFA of this world are eating, devouring the value of startup companies and not really allow them to grow and prosper. Could the increasing power of monopolies be limiting innovation and creating a situation where new upstarts can develop? And is the consequence low interest rates?

While I am not entirely convinced, it is still a view useful to ponder!

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How Connections is Far More Important Than Likes

Valeria Maltoni reminds us in her post ‘There’s no ROI in Likes. The ROI is in Connection‘ that connections are quite more important than social network likes. It’s worth reminding ourselves from time to time!

“You don’t get connection from status. You get it by enlivening each other other, making people stronger through engagement. Status may give you self-esteem, but alone it does not create change“

The post is quite interesting to read as it recounts an actual experiment performed on a social network (LinkedIn).

Indeed change depends on strong connections. Social capital accrues in actual physical networks. Think about how often you have transformed virtual connections to physical connections (in my case, not impossible but quite rare). And the value that can be created by a physical face-to-face in terms of possibilities.

Let’s do more physical connections and less likes!

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How to Simply Understand Machine Learning

I love this simple introduction to machine learning described in ‘Taking Stealing To The Next Level: Baseball And Machine Learning‘ and the YouTube video ‘I used machine learning to hack baseball‘. In a simple mundane context (secret signals players exchange during baseball games), the power of machine learning is demonstrated in a very simple educational manner. I encourage you to watch!

Even myself having no clue about baseball and discovering there are secret signs exchanged during the game managed to understand the AI approach to this problem, so don’t fear if you know nothing about this game.

One interesting point here is of course that AI can be applied to many interesting problems in our daily lives to give us breakthrough insights into many aspects that repeat sufficiently to provide a sufficiently broad set of data points. However as the example shows, AI will provide reasonable answers even after a reasonable sample.

We are probably just starting to identify all the mundane applications that AI could have!

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How to Boost Your Creativity by Relating with Other Creative People

This excellent New York Times article ‘How to Be Creative‘ provides many hints to boost our creativity.

Some steps are discussed:

  • Give yourself permission to tap into your thoughts, dreams and imaginations
  • Feel confident
  • Foster creativity through parenting
  • allow yourself to be imperfect

The special recommendation about fostering creativity through parenting is though-provoking. It means to emulate children’s unbounded creativity of course. It also has an interesting component around fostering creativity by relating to other creative people.

And I think this is the key: being creative alone has limitations. Creativity in a group of creative people – if possible of diverse origins and creative orientations – is the way to be effectively creative, and create something real.

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How We Need to Overcome the Fear of Unfulfillment of our Lives

In this excellent short post ‘Scared of success?’ the Gapingvoid culture design group addressed the link between fear and achievement. We are fearful to start something new. And when we don’t then we wonder why, and it creates even more fear: to have forego our lives doing nothing worthwhile.

The straightforward issue is that “Out of fear may come comfort, but also out of fear often comes a sense of unfulfillment. You spend your whole life being scared, then wonder why you haven’t created anything“

And I find the next reverse issue even more interesting: “more poignantly, you spend whole life not creating anything, and then you wonder why you’re so scared all the time“

The fear of unfulfillment, of not having lived at the expected level, of not having impressed on the world our talents, whatever they are, may be one of the most fundamental human fears. Let’s not just face it passively, let’s go explore new things and be creative!

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