Simplicity Series: Augmented Reality

Last week we wrote about simplicity as a driving force behind the world’s biggest technology offerings. We’re extending our thoughts on simplicity into a series that explores the necessity of simplicity in frontier technology. First, we’ll dive into AR.

Simplicity for AR in 2018 must start with a question: “What does AR do?” Not in the literal sense. We all know it overlays digital information on the real world. What the question needs to answer is what undeniable and unduplicable benefit AR confers to its users. What can only AR do?

The smartphone put a powerful computer in your pocket that lets you work and play from everywhere. Apple makes the smartphone so simple anyone can pick it up and start working and playing instantly.

What can only AR do?

The Internet connected you with the world’s information. Google sorts it for you. Amazon lets you buy things you find.

What can only AR do?

The answer isn’t that it puts a computer with the world’s information in your eye. That’s only marginally better, maybe not even, than what we have now. Marginally better is fine as an emerging feature on smartphones today, but it won’t drive mass adoption of AR wearables that people wear all day long.

The problem is more obvious when asked what the killer use case of AR is. To be clearer, a use case the average consumer could engage in every day. It’s not envisioning a new couch in your living room or getting step-by-step instructions or doing facial/object recognition. AR doesn’t have the advantage of email, messaging, and web browsing as the smartphone inherited from the Internet. Because AR is a true paradigm shift in how we interface with computers, we need to rethink communication, information collection, and information consumption specifically for AR. That hasn’t happened in a meaningful way yet.

Our tone here is tough, but only because we think the AR space has been taking a pass at answering this hard existential question in favor of experimentation with hopes that customers figure it out for them. We remain bullish on the future of AR and think the answer to our core question here might have something to do with the relative “nearness” of information it creates. To elaborate, we’ve evolved from a limited keyboard-style interface to a touch interface to a mixed reality interface that might incorporate gestures, thoughts, voice, etc. Interacting with information is becoming much closer to how we interact with the real world. This answer isn’t perfect, but we think it’s in the right direction.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Thoughts on Closing Loup Ventures Fund I

We’ve got a long way to go, but we’re excited to report our early progress towards building a leading investment platform pioneering frontier technology. In late December, we closed on Loup Ventures Fund I, a $25 million multi-stage venture capital fund focused on investing in frontier technology companies.

Now, Loup Ventures’ mission is a shared one.

We’re honored to work for the team of limited partners that invested in LVI. We’re grateful for their belief in us as we build something from the ground up. That trust has given us a deeper level of respect for the opportunity ahead of us: to create a portfolio of entrepreneurs we believe in.

Thanks also to everyone that’s been willing to connect with us as new VCs and support us on that journey. We’re looking forward to returning the favor and paying it forward.

Every VC Should Have to Raise a Fund At Least Once. We liken raising a venture fund without a traditional VC track record to raising a seed round as a first-time founder. We had to sell investors on our team and our vision vs what we’ve done in the past. Asking someone to write you a check to do something you’ve never done before is incredibly hard. The weight of that responsibility does not sit lightly with us. Hopefully it doesn’t sit lightly with any other investor or entrepreneur that’s gotten the same vote of confidence. Our experience of raising money has given us an intimate understanding of what it’s like to sit on the other side of the table and be the ones asking. We try to be respectful of this process by moving quickly and giving clear feedback about whether we are interested in investing or not.

Finding Product Market Fit. Much like new companies, new venture funds need to find product market fit, too. We started Loup Ventures as a research-driven venture fund, publishing regular analysis on frontier tech. Some of our approach has resonated really well. Some of it hasn’t. We’ve tried to take the feedback from the market on what is and isn’t valuable and use it to inform our strategy. We plan on being around for a long time. The only way to do that is to keep iterating to make sure we’re providing value to all of our key stakeholders.

Raising Money is an Achievement, But Not the Achievement. While we’re appreciative of the congratulations we’ve gotten on raising the fund, that’s only the first step for us. Success for us isn’t raising money or even an exit in our portfolio, it’s building a team that consistently backs transformative frontier technology companies to generate great returns for our LPs. That achievement will take much more time than it took to raise Fund I, but we’re looking forward to the journey.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

What a Venture Win Looks Like

We met with a prospective LP recently to talk about investing in a specific company. This LP had a successful business career in a traditional industry where operating profits are the bar, so he had a hard time getting his head around how to value a business based on more abstract concepts like daily active users, platform engagement, and IP. To that end, he posed a simple question, “What has to happen for us to win in this investment?” A simple, but powerful question. It forced us to reflect on our experience as public market analysts and now VCs about why tech companies have liquidity events. We concluded that nearly every tech company that we’ve seen exit does so based on the promise of profit, not actual profit. There are rare exceptions like Google, Facebook, and Alibaba who were operationally profitable at their IPOs. It’s no coincidence that those companies also happen to be some of the best performing, and now biggest, public stocks of the past decade. But most exited tech companies, whether via acquisition or even IPO, do not generate an operating profit. Most don’t even generate an EBITDA profit. We analyzed 20 tech IPOs from 2017 to put some data to our observations. We found that 75% of those companies did not generate a net profit in 2016, a year prior to IPO. 65% are not expected to generate a net profit in 2017 based on consensus estimates (only 17 companies have 2017 estimates), and 67% are not expected to generate a net profit in 2018 (18 companies have 2018 estimates). Much like venture investors, growth seems to be the more important near-term metric. Of the IPO companies for which we found data, they grew an average of 78% in 2016 and are estimated to grow 46% in 2017 and 35% in 2018. But what does this really mean about a win for venture investors? In lieu of net profit, public market investors are looking at growth to help them build a case for profit tomorrow. A small survey of buy side investors from earlier this year corroborates this. When we asked 12 buy side investors to rank tech IPO traits including short-term profitability, short-term growth, long-term profitability, long-term growth, and visibility of revenue, long-term profitability ranked first, followed by long-term revenue growth. Even for exits that happen through acquisition, profitability factors heavily. When a Google or an Apple or a Facebook buys a company, it’s preceded by a careful analysis of what the expected return of the investment may be. That return may be very short-term in nature, or it may be long term. When Apple bought Beats, they were buying a music platform that they could quickly leverage into its own streaming service. Apple Music launched two and a half years ago (one year after the Beats acquisition) and now has 30 million subscribers. That business generates a run rate on the order of $3.5 billion per year gross, which should net enough to quickly pay for the $3 billion purchase of Beats. A similar calculus is possible for YouTube or DoubleClick or Instagram even WhatsApp, although the last still needs time to come to fruition. We’re sharing this because it’s easy to get hung up on user growth, media mentions, and other startup vanity metrics. Wins require profitability, or at least the potential of it. It’s something both VCs and companies should both remind themselves of frequently.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Underappreciated Beauty of Simplicity in Tech

Simplicity is underappreciated. In many things. But most obviously right now in our world of consumer technology.

Simplicity is a requirement of mass adoption. Look at the iPhone, Google, Amazon, and Uber as examples: The iPhone never shipped with a manual. Turn it on. Press the screen with your finger. It just works. Google gives you a box with two buttons. Type what you’re looking for and hit enter. There’s your answer. Amazon lets you order anything you can imagine. Even with one click. Then it shows up on your doorstep a few days later. Even sooner with Prime. Uber: I’m here. Take me there. Ok, done.

None of these products has a learning curve. They’re dead simple to use and they just work. You can make similar arguments for Facebook, Twitter, and Airbnb. Probably not Snapchat, and perhaps that is their biggest weakness.

This isn’t to say that simple products don’t have extremely complex technical underpinnings. Almost no iPhone or Google user has any conception of the software that enables their seamless technology experiences. The part they touch makes the technology disappear.

In this new wave of innovation, technology seems to be embracing itself. Tech is cool. Tech is sexy. And it feels like we’re trying less to hide tech with ease of use. With a friendly, non-tech face. That’s a mistake. In the consumer world, AI, robotics, VR, AR, even cryptocurrency, none of these will see mass adoption without the same simplicity employed by the incumbent giants.

Simplicity is also underappreciated in investing. It’s easy to overthink things and build reasons why something can buck the reality of otherwise. We’re trying to employ the concept of simplicity in our investments. We’re not afraid to invest in complex tech, but when we do, we make sure the tech hides behind a friendly front that’s simple enough for mass adoption.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Value Chain: Intentional Generosity Starts with Gratitude

This note is the first in a series of four that detail Loup Ventures’ core values. These values drive how we operate, who we hire, and ultimately, what we look for in founders. We believe that vibrant culture driven by shared values separates the best companies from the rest. We meet with hundreds of startups a year and one of the common gaps that we see is a lack of focus on culture building. In an effort to bring our values to life, we’re sharing them in our Value Chain series.

We believe in the power of generosity – both as a means of fostering a positive environment for team members to do their best work, and as a powerful business tool that generates a virtuous cycle for stakeholders.

The Golden Rule. Treat others the way you want to be treated. By giving more than you receive, you place your faith in the fact that others will return the favor. Generosity, however, is not quid pro quo – rather, each generous action pays into a culture that you hope will benefit you indirectly. So, if you want to be treated generously, act that way toward everyone – including bosses, employees, investors, co-workers, and partners.

Internally, intentional generosity creates a virtuous cycle of supporting one another, and yields better work through true collaboration. The byproduct is a positive environment of abundance – not scarcity – maximizing everyone’s benefit rather than defending individual territory.

This plays out at Loup Ventures in a powerful way: compensation. As a startup venture fund, our operating budget doesn’t support a big team. But our research-driven strategy requires lots of hard work. So, we’ve all committed to below-market pay near-term in hopes of above-market returns long-term. This is basic risk-reward, but the risk is also mitigated by the choice to be generous with each other in terms of time, learning, and development, not just foregone wages.

Externally, we try to live out the same generosity across all stakeholders. While we only invest in 1% of the startups we meet, many of the no’s have a continued relationship with us as we look for unique ways we can help them. Remember, however, that intentional generosity is also a tool – and the continued relationship could benefit us down the road if and when we get another opportunity to invest.

It feels better to give than to receive. Too many people have this backwards. The satisfaction of giving is much greater than receiving. Giving is accompanied by a sense of accomplishment and fulfillment because, put simply, you have something to give. While giving is more rewarding, the model does not work unless you also receive generously. And part of being a generous person is receiving generously. The combination of giving and receiving fosters a culture of abundance over scarcity – an abundance of teamwork, support, and thoughtfulness – We think it’s a better way to work.

To Our Readers: Thank You. If you’ve read this far, we appreciate your interest in our work. Giving and receiving generously starts with the daily practice of generosity and gratitude. We’re grateful for your support, your interest in our work, and your role in getting Loup Ventures off the ground in 2017.

We’re grateful for your support, your interest in our work, and your role in getting Loup Ventures off the ground in 2017.

You’ve been helpful beyond measure and we hope you’ve found our insights to be helpful, too. Happy Thanksgiving.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.