Looking Out Towards 2017
2016 was a good but challenging year for me. It was a year in which I watched family members battle serious health issues, a year where I allowed myself to become distracted and reactive at home and at work, and one where my professional insecurities often got the better of me. But, like most challenges, they make us stronger and I’m extremely confident heading into 2017. Numerous investors have announced their predictions for 2017, notably Fred Wilson, Sam Gerstenzang, Rob Go, Glenn Solomon, among others. I’m not smart enough to play that game, but I did want to use my blog to both formalize for myself, and publicize to others, my focus in 2017.
The biggest mistakes I made in 2016 were not taking enough time for myself and allowing myself to become deeply reactive. There is no worse curse in venture than to be a reactive player; it is fundamentally impossible to be extraordinary if your days are prescribed by others.
Deeper, not taking enough time for oneself is a function of being overly reactive. When you allow your schedule to be determined by others, you are in effect conceding that your own thoughts, imagination, brainstorming, headspace are secondary. I don’t believe this to be true.
My 2017 is going to look different than 2016. I believe I am at the point in my career where I can de-prioritize my fears of missing great deals and instead focus on finding the right ones. To that end, I am going to take many fewer inbound meetings in 2017 and instead build a strong pipeline of outbound ones. I am going to chase relationships that I am passionate about, rather than the ones that are convenient or obvious.
I am going to spend less time on e-mail and more time learning, discussing and engaging. One thing I’ve done poorly in my venture career is not go deep enough into the weeds with entrepreneurs. As a writer, I am extremely enamored with stories and storytelling. The benefit of this is that it enables me to quickly parse out big, category defining ideas and hone in on them. The detriment is that I frequently focus too heavily on the vision and ignore the implausibilities and difficulties underlying the story.
2017 Investment Thoughts (not Theses)
Before getting into specifics, I think that 2017 is the year that many investors realize they need to begin learning new industries. Pure play mobile has hit crescendo and SaaS is so mature that we’re now funding SaaS to manage SaaS. In late 2012/early 2013 I decided I would learn everything I could about bitcoin. I mostly didn’t take a meeting for six weeks, but emerged from my cave slightly bearded, had taught myself to mine Bitcoin (and many alts), knew all the big personalities on Bitcointalk and became well written on the industry.
In 2017, I expect to do that again, hopefully twice, if I get my way in genomics and urbanization.
Here are some other areas I have opinions on:
Fintech: Over the past several years I’ve spent my energy becoming well versed in many disciplines of consumer internet from e-commerce to retail to marketplaces to bitcoin. For 2016 I put my mind to getting smart on the fintech sector – both consumer and enterprise facing – and we made two related investments over the course of the year: M1Finance and Sunbit.
I had de-prioritized fintech opportunities in 2015, believing that we were a relative late mover to the market and that many of the early winners from Lending Club to Avant to Wealthfront had strong platforms and balance sheets from which to move horizontally away from their core products into adjacent markets. Then, in early 2016 LendingClub experienced a fall from grace, it’s CEO stepped down, and the entire sector hunkered down into crisis mode. I love, love markets in chaos. The chaos reignited my interest in fintech – I was convinced there would be extraordinary opportunities overlooked as investors felt over-exposed. But what I learned in 2016 was that fintech, broadly, remains one of the largest disruptive opportunities of my generation, and I plan to hunt actively for winners in 2017.
E-Commerce: As a consumer, I love e-commerce. I love Amazon Prime. I love discovering new millennial brands from Everlane to Allbirds. And yet, over the course of 2016, albeit it kicking and screaming, I was forced to concede that – as one of my business school Professors taught me - “the internet… is a crappy place to have a store.”
The struggle with that statement is that the internet, in many cases, is actually a phenomenal place to acquire and retain customers. But many of the other capex costs can be prohibitive.
In 2017 I am likely to take a material step back from traditional commerce and d2c brand related opportunities while keeping an eye out for the rare few that are fundamentally recasting cost structures and/or reducing consumer friction by a factor of 10.
Crypto: This is arguably fintech, but in my opinion, the next generation of distributed applications – although tokenized – are often only tangentially related to anything financial. I continue to believe that distributed applications, most commonly “altcoins” represent an extraordinary opportunity. And while investing in crypto tokens is not something we have license to do at Chicago Ventures, it’s an area where I plan to spend much of my personal free attention and time (and would gladly meet any entrepreneurs building next gen distributed apps).
Reimagination of Cities: I spent much of 2015/2016 focused on the future of the home, reflected both in my piece Furnageddon – about how the furniture we live on is changing – and in our investment in Havenly. But as I dived deeper into urban living, meeting with several companies re-conceptualizing the types of spaces we live in, I began recognizing that technology is fundamentally changing the ways we act in our urban areas as well as their associated suburbs.
I saw a nice interview in Techcrunch with Niko Bonatsos at General Catalyst who had a similar observation, in Investing in the future of urbanization. The 2016 election reminded us that the country is a very diverse place, often with misunderstood needs and incentives. It will be a large focus of mine going into 2017.
Risk: The world is a risky place and humans are extraordinarily poor at managing and accommodating risk. We almost always defer to what’s habitual and easy. One of my favorite books that I read in 2016 was Michael Mauboussin’s The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing.
In 2016, we invested in Predata believing that geo-political instability was increasingly impacting the bottom of lines of many large institutions, from traditional corporates to finance houses. From my vantage point, I believe that consumers also want to increasing manage the perceived risks in their lives. One example of this from 2016 is a company called Point that allows consumers to hedge their investment in their homes by pulling 10% of the value out for liquidity, with no monthly payments. One of my professors Toby Moskowitz once said to me in business school, that “buying insurance is a poor financial decision, but we all purchase it because it’s fantastic from a covariance perspective.” I’ve long felt that should yield some interesting technology driven opportunities.
Betting Markets: Many of you know that my background is in the poker industry, initially as a professional and later as an operator. Online poker is probably a $5-10B market, but is contracting slightly year over year. Similarly, daily fantasy sports started 2016 as an exceptionally hot space, but it turns out it wasn’t a fundamentally great business model (see my article: “Game Over: Why Daily Fantasy Has Already Been Won.”)
Although DFS is unlikely to become the $100B industry that was predicted, betting markets are still amongst the most exciting markets to observe once they become liquid. Heck, the equity futures market is effectively the world’s largest betting market. I continue to believe eSports has an intriguing market in p2p betting and made an investment in multi-table gaming tournaments via Gunslinger.
Some other angles on p2p betting networks such as Quantopian/Quantiacs really excite me as does Numerai. There are also a lot of other areas of illiquidity that make really intriguing liquid markets – from owned assets to information. If you’re building anything in this area, I would love to chat.
I hope that’s helpful and wish everyone a happy and successful 2017. Thanks for reading.