Redshirt Burned

Peter Thiel’s CS183: Startup - Class 18 Notes Essay

Thu, 07 Jun 2012 15:01:42 -0700

Here is an essay version of my class notes. Errors and omissions are mine. Credit for good stuff is Peter’s. Thanks to Joel Cazares for helping proof this.

I. Traits of the Founder

Founders are important. People recognize this. Founders are often discussed. Many companies end up looking like founder’s cults. Let’s talk a bit about the anthropology and psychology of founders. Who are they, and why do they do what they do?

A. The PayPal Origin

PayPal’s founding team was six people. Four of them were born outside of the United States. Five of them were 23 or younger. Four of them built bombs when they were in high school. (Your lecturer was not among them.) Two of these bombmakers did so in communist countries: Max in the Soviet Union, Yu Pan in China. This was not what people normally did in those countries at that time.

The eccentricity didn’t stop there. Russ grew up in a trailer park and managed to escape to the one math and science magnet school in Illinois. Luke and Max had started crazy ventures at Illinois Urbana-Champaign. Max liked to talk about his crazy attributes (he claimed/claims to have 3 kidneys), perhaps even a little too much. His came to the U.S. as sort of a refugee weeks after the Soviet Union collapsed but before other countries were formed. So he liked to say that he was a citizen of no country. It made for incredibly complicated travel issues. Everybody decided that he couldn’t leave the country, since it wasn’t clear that he could get back in if he did.

Ken was somewhat more on the rational side of things. But then again, he took a 66% pay cut to come do PayPal instead of going into investment banking after graduating from Stanford. So there’s that.

One could go on and on with this. The main question is whether there is a connection—and if so what kind—between being a founder and having extreme traits.

B. Distributions

Many traits are normally distributed throughout the population. Suppose that all traits are aggregated on a normal distribution chart. On the left tail you’d have a list of negatively perceived traits, such as weakness, disagreeability, and poverty. On the right tail, you’d have traditionally positive traits such as strength, charisma, and wealth.

Where do founders fall? Certainly they seem to be a bit less average and a bit more extreme than normal. So maybe the founder distribution is a fat-tailed one:

But that radically understates things. We can push it further. Perhaps the founder distribution is, however strangely, an inverted normal distribution. Both tails are extremely fat. Perhaps founders are complex combinations of, e.g., extreme insiders and extreme outsiders at the same time. Our ideological narratives tend to isolate and reinforce just one side. But maybe those narratives don’t work for founders. Maybe the truth about founders comes from both sides.

Read More

NUads: Solving the TV ads Engagement Problem

Wed, 16 May 2012 11:32:00 -0700

NUads: Solving the TV ads Engagement Problem:

Since the creation of multimedia, there has always been a disconnect between the consumer/viewers and those who seek to reach out to them. Due to the fact that TV, publications, current gen multi-media as a whole is unilateral - ie interaction is one-way and content can only be pushed to viewers without having an established channel to gauge consumer interaction - advertisements, and all of the current technology that enables it, have been formulated to cater to a broad audience. Don Draper gives a glimpse of how adversing worked in the 60s and unfortunately, not much has changed since then. Sure we can now watch TV on 1080p displays as thin as a book, but consumers are still forced to sit in the living, follow the programming schedules set by the content creators, and are subjected to ineffective TV ads. We’ve seen tremendous advancements in the online adversiting industry. The social graph and new paradigms for privacy and openness have allowed for data driven, automated and targeted advertisements. Though devices that watch you as you watch TV are inherently creepy, the possibilities of enabling a new method of C2B interaction is one step towards providing a viable alternative to the current generation TV value chain.

The future of user interface design: understanding context & behavior | VentureBeat

Tue, 24 Jan 2012 13:17:11 -0800

The future of user interface design: understanding context & behavior | VentureBeat:

Great read on the importance of UI. Especially poignant was the mention of UI to prevail throughout the prod dev lifecycle - not just in design. As we continue to shift from GUI to NUI, there’s an underlying expectation of consumer to expect a product to be completely intuitive - from conception to execution.

took me some time to figure out what this was. pretty...

Tue, 24 Jan 2012 11:57:19 -0800

took me some time to figure out what this was. pretty breathtaking

fred-wilson:

this is amazing.

nevver:

Twitter Traffic

BI: What Startups Need To Know Before They Think About Their Exit

Fri, 20 Jan 2012 11:48:02 -0800

BI: What Startups Need To Know Before They Think About Their Exit :

A decent first crack at what startup / private companies should consider when considering an M&A exit but it doesn’t really paint a complete picture of how to think about M&A transactions. There is a reason why investment banks are paid exorbitant advisory fees to help companies navigate through deals - M&A can be incredibly complex. So in order to further facilitate the discussion, here are a few additional thoughts on M&A that I’d like to add on:

- Structure

Structure goes beyond Asset (specific assets, ie talent, technology, cash) vs Stock (the entire company). Important aspects include:

Consideration - the acquirer may be quoting a large all-up purchase price but how is it structured? Typically, purchase price is broken down by upfront and backend, with some portion allocated to be paid upon close and a backend component set to vest over 4-5 years as a retention mechanism.
Retention - Especially for acqui-hires, additional retention can be incremental to backend consideration. Retention can range from simple vesting based on continual employement to earnouts based off performance. Earnouts in theory are great (target and acquirer interests are allign), but in execution is a nightmare. Expect tons of disputes and potential legal battles for future earnout payments

- Taxes

Purchase price should typically include all aspects of valuation, and oftentimes taxes plays a significant role. Structure can be determined by tax implications (asset deals tend to be more favorable to the acquirer) so its important to understand why the acquirer is pushing for certain deal terms. Sometimes there are ways to unlock value for both parties if concessions are met

- Speed and simplicity is key

No one wants to be a part of a long drawn out M&A process. Although I wholeheartedly recommend ensuring that all of your interests are met, there’s very little value in negotiating every little term to oblivion. The best deal processes I’ve been a part of have had both sides be collaborative and open about key deal terms from the beginning.

To be clear, this post just scratches the surface of the nuances of M&A transactions. They are complex enough where it makes sense to enlist the help of someone who has had experience dealing with M&A, especially for a first time entrepreneur considering it as an exit. A deal lead who is familiar with the process and who knows how to best protect your interests can be the difference in a successful - or unsuccessful - M&A exit.

How Netflix went from DVDs to cloud-based video & where it’s headed next | VentureBeat

Mon, 05 Dec 2011 12:13:48 -0800

How Netflix went from DVDs to cloud-based video & where it’s headed next | VentureBeat:

Nothing earthshattering but it is striking to hear how Netflix decided pivot from a billion dollar industry at its peak to build out its streaming business. Always have respect for the visionaries who go against the grain to build a product or service that people don’t even know they need

How to win the content distribution wars

Mon, 21 Nov 2011 17:12:38 -0800

How to win the content distribution wars:

Online video seems to be the hottest topic and the latest nut that mature companies and startups alike are trying to crack. In my opinion, if you look past all of Netflix’s recent PR snafus, it is still best positioned to win outright. Here’s a breakdown of my thoughts:

1) Netflix is the original mass content video streamer

It was Reed Hastings and the Netflix team that realized that though they had the massive installed base built from the DVD by-mail business, the future was in on-demand. So they built a pilot service that enabled streaming content for unimpressive back catalogue titles. It wasn’t terribly impressive but the fact that Netflix provided online streaming on top of their DVD by-mail service frictionlessly allowed them to build up a loyal customer base.

2a) Content is key

What really put them over the top (and convinced me to become a sub) was their distribution agreement with Starz. Over time, Netflix managed to ink more distribution deals with content providers, and as they began to expand their content portfolio, the value prop became more attractive to their subscribers.

2b) Exclusive content will win the day

I see it prevalent in the traditional console gaming industry. It is the Halos and Gears of Wars that drive users to adopt a platform and in a similar industry that makes it difficult to technologically differentiate oneself from one’s competitors, the only mechanism to truly stand out is exclusive content.

So now its clear that exclusive content will win the day, but how do we know that Arrested Development is the right property to bring exclusive? It’s hard to answer this question objectively, but IMHO I can’t wait to watch new episodes of AD. There are only a handful of shows that I will watch over and over again and AD is definitely one of them. Looks like we’ll have to wait til 2013 to see an exclusive AD’s impact to Netflix’s subscriber count, but I am very optimistic on its ability to weather out its recent PR storm and come out on top of the content distribution wars.

Fred Wilson's Series on Business Arcanery - "Going Concern"

Mon, 21 Nov 2011 11:35:34 -0800

Fred Wilson's Series on Business Arcanery - "Going Concern":

An interesting look at business words that are often thrown around but is used differently from its original usage. Definitely an interesting topic and it just goes to show how different people internalize and use words differently. Scroll halfway down the comments to see my thoughts.