Building a Business for the Long Term

Vibrant culture driven by shared values separates the best companies from the rest. Without clearly stated values, a “company” is just a temporary group of people, not a sustainable organization. Working together over the past 10 years, we’ve identified a set of four core values that define Loup Ventures:

  • Intelligent Intensity
  • Radical Honesty
  • Intentional Generosity
  • Contrarian Curiosity

Intelligent Intensity

It’s easy to work hard and hard to work smart, but optimal to work hard and smart. Hard work only matters if its focused on the right things. Otherwise it’s just busyness.

We make sure we’re working hard and smart on the right things in three ways:

  • We track metrics important to our success. What gets measured improves. This is not groundbreaking. Even bad businesses track metrics.
  • We track quality in those metrics. This is more unique and measures whether we’re working on the right things. An example is tracking followup meetings with companies as a measure of deal flow quality. In interest of our time and the time of potential investments, we don’t have follow up just for the sake of follow up. If you only track measurements of output, not quality, beware the true value of that output. The hardest part of tracking quality is finding the correct metrics beyond subjective measures that can easily fall to human misjudgment.
  • We measure our metrics by value/time. This is the crux of working smart. What is our output, as measured by the quantity and quality metrics, in how much time? The higher this number, the smarter we’re working.

We strive to be 80% right in 20% of the time. No decision, estimate, or conclusion can ever be 100% right because, in the time it would take to be certain of something, the world would change and alter the correctness of the decision. Intelligent intensity combines focused hard work and speed with a rejection of commitment bias, which means we’re comfortable with updating our conclusions on the fly. As the saying goes, when the facts change, we change our minds.

Radical Honesty

Since we only have three partners, it’s easy for us to force “disagree and commit” as Jeff Bezos recommended in his most recent Amazon Shareholder’s Letter; however, we do have, and welcome, open disagreement in conjunction with our simple majority rule.

Without disagreement, there is no discussion. Without discussion, there is no strategy. Without strategy, we cannot be successful as a venture firm. We’ve debated and disagreed on everything from our media strategy, to the audience for our content, to how much we should spend on travel and more. We embrace constructive disagreement as a healthy part of running a good company.

When we do disagree, we get over it fast. Holding grudges holds us back as partners. More importantly, when we disagree and the “winning” side ends up being wrong, we all own the decision and get over it fast. Owning mistakes, even when out of your control, leads to learning and improvement.

Another application of radical honesty is that we try to give insightful feedback to entrepreneurs. Like most venture firms, we only invest in 1-2% of potential investments we see, which means we say no a lot. We do our best to give companies that don’t fit our criteria some quick feedback as to why. We hope this feedback helps the companies work through potential issues we perceive, informed by the scores of deals we see every month. It’s hard to hear critical feedback about something you’re passionate about and dedicating your life to building, and that means it can be scary for us to give it. We hurt when investors tell us no, too. But radical honesty in feedback is important because we want to see as many AI, robotics, VR, and AR companies succeed as possible, whether we’re involved or not. Feedback makes us all better, no matter how hard it is to hear.

Intentional Generosity

We believe in the power of generosity — the ability of one person to unexpectedly delight another. Our work is too often performed in a context where generosity isn’t practiced. And when this value is missing, companies, and the experiences they create for their customers, often fail to unexpectedly delight.

Generosity can be an incredibly powerful business tool. Internally, it generates a virtuous cycle of colleagues supporting each other, which yields better work through true collaboration. A simple example: our team plays a running game of who can pay for lunch before the others pull out their credit cards. But this extends to delegating tasks, getting work done, and even compensation. Externally, the value of generosity impacts how we interact with all our stakeholders, going above and beyond to offer more than is expected.

But this is not generosity for generosity’s sake. Intentional generosity is a tool that should be smartly wielded to the advantage of not just the recipient, but the provider as well. It’s mutually beneficial.

Contrarian Curiosity

If you do things the way everyone else does, expect the same results. We want to achieve uncommon results, which means we need to think for ourselves and see things differently.

We strive to be contrarian when contrarianism is warranted, not just for the sake of being contrarian. When the herd is right, we’re fine to follow, but we always question while we follow. We always make sure to see the other side. When the herd is wrong, we diverge to form our own path, led by curiosity. We try to remain open, fascinated, and optimistic in everything we do.

Some of our views are commonplace, like the importance of AR and AI in the near term, but some of our views aren’t as well accepted. One is our belief in the potential of VR to be the biggest technological development ever, although it will take several decades. Another is our broader inclusion of AR to include devices beyond smartphones and headmounted hardware. We see hearables and even apparel as critical parts of AR. Yet another is our feeling that the majority of American jobs are at risk of automation over the next 30 years, which may be sooner than most.

Living Out Our Values

Language brings culture to life and integrates the values of an organization into the day-to-day. Over the last 10 years, a set of “rules” has emerged that brings the Loup Ventures culture to life. These rules are the vocabulary of our culture. They serve as guides for our behavior. They help make complex concepts easy to communicate. When we invoke a rule, we just get it. Even though these are mostly valuable internally, we thought we’d share:

  • Rule #1: Walk through walls (Never give up)
  • Rule #2: Drive for the gate (Never give up)
  • Rule #3: Get over it (Take ownership of mistakes and move on quickly)
  • Rule #4: Publish or perish (Constantly fuel the brand)
  • Rule #5: Be transparent (Information is free and public)
  • Rule #6: Work quickly (Be 80% right in 20% of the time spent)
  • Rule #7: Revenue/time (Work smart)
  • Rule #8: Skate to where the puck is going (Embrace the future)

Our shared values were, by definition, things that the three of us were doing before we started working with one another. The more time we spent together, the more clearly the values emerged, and our set of rules bring those values to life. Culture, values and language must be an organic outgrowth of the founders of any company, and they should act as guiding principles for how you run your business and who you hire. We want to build Loup Ventures for the long term and our values lay the groundwork for us to do so.

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.

Facebook Pushes Further Into AR

In an interview with Recode following Facebook’s F8 conference, Mark Zuckerberg laid out his rationale for Facebook’s big bet on augmented reality:

“Think about how many of the things you use [that] don’t actually need to be physical. You want to play a board game? You snap your fingers, and here’s the board game. You want to watch TV? You don’t need a physical hardware TV, you buy a one-dollar app ‘TV’ and put it on the wall.” – Mark Zuckerberg

To push towards this future – and in an attempt to own the underlying technology – Facebook launched its “Camera Effects Platform,” an open platform for developers to build AR-features and lenses for the Facebook in-app camera. Zuckerberg also confirmed to Recode that Facebook is building “AR hardware” and shared his thoughts on the future of AR and VR; among them:

  • There will be demand for separate VR and AR products in the future.
  • The technology doesn’t yet exist to create the AR glasses that industry leaders are envisioning.
  • Building VR products today will help build the AR products of the future.
  • AR will be a bigger business than VR.

Our take: AR will enhance the smartphone, then replace it. It’s consensus that AR will be bigger than VR over at least the next 10 years — and we agree. AR will enhance the smartphone, then replace it in that time frame. But if you look out further than that, perhaps 30+ years, the immersiveness of VR has the potential to be so good that it rivals base reality. This will require advances in both artificial intelligence and neuroscience, not just digital enhancement. If VR can create alternate worlds as rich as the real one, we think the opportunity would surpass anything humans have created to date.

Facebook gets it, and they are investing accordingly. In fact, the biggest players in the space will collectively spend over $51B on R&D in 2017, of which we estimate $4B will be AR-related spend.

From Google’s work on Glass (2013) and Tango (2014) to Microsoft’s investment in Hololens to Apple’s uncharacteristically vocal pursuit of AR as a core technology, the biggest players are determined not to miss out on the next dominant computing platform and the AR technology underneath it. In fact, in our assessment, Facebook lags behind other incumbents including Google, Apple and Microsoft. But they’ve got a foothold in social and, today, AR is expanding through social – the most forward-thinking AR application is Snapchat. Everyone else is following fast and F8 is a clear indicator that Facebook is doubling down on AR in the race to own the OS of the future.

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.

Apple’s Dream Car: Hardware + Software

Friday’s news of Apple’s permit to test self-driving cars in California should not have come as much of a surprise given the poorly kept secret of Project Titan. But the permit begs the question of whether Apple is building a car or just building software for a car.

Apple’s overarching philosophy has been to own both the hardware and software to create superior product experiences. Typically, this means owning the technology stack from end to end for a given product; for example, Mac + macOS, iPod + iTunes, and iPhone + iOS; however, sometimes the company stops short of owning the entire experience. The Apple TV requires a third-party television panel, although we would argue that is the equivalent of plugging your Mac into a third-party monitor. Once the Apple TV is engaged, the experience is all Apple. Unlike a television, a car is not just a dumb panel. Modern vehicles require a tremendous amount of sensors and other electronics that monitor the exterior and interior. In an ideal world, Apple’s car project would involve the company building the actual automobile, combining hardware and software. In reality, the complexity of designing and manufacturing a vehicle may push the company to integrate deeply with an automotive partner or partners in an effort more similar to the Apple TV  — plugging Apple’s technology into an existing product.

From a software standpoint, building an automotive product beyond CarPlay is a no-brainer.  Apple has one of the better stacks of necessary components to build a great car OS:

  • Entertainment: iTunes/Apple Music
  • Assistance/Voice: Siri
  • Navigation/Local: Apple Maps
  • Image Processing/Recognition (Autonomous Driving): iPhone Camera
  • Security: Touch ID
  • Third-party Software: App Store (potential for OTA software updates)

Despite the obvious software advantages, the auto market poses challenges that Apple may not be able to overcome on the hardware side, i.e. building the car end-to-end. First and foremost, Apple would likely need to find a manufacturing partner because it is not a manufacturing company, but a design company. Foxconn and other manufacturing partners build iPhones, iPads, and Macs to Apple’s specs. A company like Magna Steyr may be a capable of building a car to Apple’s design specs. Aside from finding a partner, we note that the typical automotive design process takes 5-7 years. Even on an accelerated time table, Apple is likely multiple years away from a completed hardware design for a car. Finally, Tesla and Google have a multi-year lead on Apple in developing autonomous vehicle capabilities, including the associated testing mileage. We see autonomous driving capabilities as a key factor in auto desirability over the next five years.

Apple is almost certainly exploring how it could build an entire car, but as we learned the hard way with an Apple television, exploration does not mean a product comes to market. Apple is the best connected device maker in the world and the car is the biggest connected device in the world. There is a natural fit in the self-driving car market if Apple can figure out how to get past the challenges of making the hardware.

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.

Can Anyone Catch Alexa?

Amazon’s third-party developer strategy has Alexa looking like the Gingerbread Man of digital assistants. After taking over CES in January with multiple Alexa-enable devices, there’s been little pause in Alexa skills and device-enabled growth. As of this writing, we count more than 12,000 Alexa skills (apps) and roughly 100 manufacturers with integrated Alexa IP across multiple smart home categories. And yesterday, Amazon opened its Echo voice processing IP to third party developers, extending Alexa’s lead in smart devices. Given our belief that natural language processing is one of a few core technologies that will enable the screen-less future of computing, we think it’s important to track the pace of the key players in the field.

Source: Amazon

Skills growth impressive, but getting the basics right remains the key for scale.

One measure of Alexa’s increasing utility is the growth in skills that can be downloaded to Echo devices. In just the last 3 months, nearly 5,000 skills have been added to Alexa’s repertoire, which now tops 12,000. Roughly a third of Alexa’s skills are knowledge-based – from education apps like the Old Farmer’s Almanac to trivia categories like Lesser Known Star Wars Facts. Other growth categories include health and fitness with skills like answers to common medical questions and workout suggestions. In addition, nearly 100 smart home skills are available today, an important catalyst for scaling the Alexa-enabled device ecosystem. It’s too early to tell how much scalable utility these skills bring to Alexa usage, particularly the nearly 500 knowledge/trivia skills categories. There is a fun-factor with a lot of these skills and voice access is seamless relative to paging through dozens of apps on your phone. However, Alexa needs to get better at answering basic information-related queries, which we believe will produce sustained utility and growth in Alexa-enabled devices. In a recent test, we found the Echo answered only 41% of information queries correctly.

We found the Echo answered only 41% of information queries correctly.

Device integration pacing well ahead of Google Home.

We count close to 100 manufacturers across several categories that are compatible with Alexa IP today. Smart home coverage, perhaps the most seamless hands free utility Alexa offers, continues to grow – from lighting to locks to thermostat control. Included on this list is Google’s own Nest device, a collaboration that began early last year; however, the relationship has been anything but seamless as a preponderance of Nest skill reviews suggest. We wonder if after a year of collaboration, whether Alexa and Google will ever nest together. Contrasting Echo’s ~100 smart home partners with Google Home, we find a much shorter list. Only around two dozen device manufacturers are integrated with Google’s Assistant IP. Amazon has taken advantage of Echo’s head start on Google Home by pushing integration across many manufacturers and platforms. Google Home will likely follow, but has a long road ahead.

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Apple’s Glucose Monitor Better Delivered via AirPods Than the Watch

Media reports suggest Apple is aggressively pursuing the creation of a non-invasive blood glucose monitor. The most obvious device to leverage this monitor may seem to be the Apple Watch; however, as we wrote two weeks ago, we think that, long term, AirPods are a more important product for Apple than the Apple Watch, because biological data available in the ear is much richer than the data available from the wrist. This makes AirPods a better candidate to be Apple’s glucose monitoring solution in the future.

Source: Apple

A recent study on wrist-worn heart rate monitors, including the Apple Watch, suggests that they offer spotty accuracy at best. The study showed that the Polar M7 chest-worn monitor has a 99% correlation coefficient to an electrocardiogram when measuring heart rate, the industry standard.  The Apple Watch had the next highest coefficient at 91%, with the study noting that the accuracy decreased as exercise levels increased. While 91% accuracy may be acceptable for recreational heart rate monitoring, it’s not acceptable for blood glucose monitoring.

In a separate study, scientists tested the use of an ear-based sensor to calculate VO2 max during exercise. The study showed that the ear-based sensor had a 98% correlation coefficient to an electrocardiogram when measuring heart rate, nearly the same as the Polar M7 monitor. We believe that movement of the wrist during activity is a key factor in reducing accurate biological readings, a problem that impacts ear-based wearables significantly less. We also believe that the ear offers the possibility to collect better data, which the aforementioned study seems to confirm, and richer data, because of the semi-internal nature of the ear canal, proximity to the brain, and greater blood flow in the area.

If Apple does use AirPods to monitor glucose via the ear, they wouldn’t be the first company to try it. Integrity Applications sells a product called GlucoTrack, which uses an ear-clip device to monitor ultrasonic, electromagnetic, and thermal data to produce a blood glucose reading. Apple may be able to incorporate similar functionality into AirPods, creating a multifunction device.

Transforming medicine has long been a focus at Apple, particularly under Tim Cook. The company pioneered ResearchKit to drive forward medical research through rich patient data. Apple also created CareKit to enable developers to create better applications that help users manage their health. Developing solutions for a condition like diabetes, which affects millions of people around the world, is a next logical step. We think that step happens at the ear, not the wrist.

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.