Category Archives: Insights

May I Have Your Attention, Please?

The currency of the media business is attention.
So where are we spending it?

(This post originally appeared on Medium.)

The currency of the media business is attention. Those who have it have been granted your permission to speak to you, entertain you, inspire you, inform you or just plain piss you off. Each time we make a choice to play a game, read some email, scroll through a feed, snack on a video or swipe left or right, we are making or breaking the future of a media company. As a VC, I have to make bets on where the world is going. So, in order to evaluate media-oriented companies, I follow the attention.

Over the past ten years, thanks to the rise of social networks and smartphones, there has been a meaningful shift of attention away from legacy media properties like the nightly TV news, print newspapers and magazines, and onto consumer internet platforms like Facebook and YouTube. This shift has been particularly dramatic among teens and millennials. I believe the media habits of digital natives are predictive of what the future holds for most of us. Growing up with a supercomputer in your pocket connected to most of the world’s population and knowledge has created an irreversible pattern of behavior unlikely to revert to the ways of previous generations. Let’s take a look at some of the numbers.

timespent2

The chart above shows the growth of mobile devices and the decline of print and radio. Television, even when the numbers include DVR time-shifted and on-demand viewing, has fallen back down to its 2008 levels. Since there are only twenty-four hours in a day, it is helpful to look at this on a share basis.

timespentpercent

But this data is for all age groups. Let’s take a closer look at millennial attention.

MilltimespentTVSo, no surprise that millennials use mobile devices more and watch less TV. You can see in the chart at the left that traditional TV viewing is declining for most age groups, but for people under age 24 it has completely fallen off a cliff. The idea that this behavior will reverse itself as digital natives age sounds like wishful thinking at best.

Attention Apocalypse

With mobile completely eating our attention, what do we do while on these devices? How do we divide our attention?

mobiletime.001First, we spend 86% of mobile time in-app. The idea that the mobile web is a credible channel through which to reach consumers is largely disproven at this point. We spend a third of our time on gaming and another third of our time on social networks and messaging apps. This helps explain Facebook’s aggressive M&A strategy around properties like Instagram and WhatsApp and also helps explain Google’s weakened position as a result of our shift to mobile. Without YouTube and Google Maps, one might argue their properties are of decreasing relevance.

Topapps.001

Concentrating on social and messaging has allowed Facebook to completely dominate mobile. In fact, nine out of the top 10 apps globally last year were social apps or messaging platforms.

The killer-app of the mobile generation is the platform for self-expression and communication. Given this, it is baffling that none of the traditional media companies have invested in, built or acquired any of the hundreds of global properties which have hoovered our attention away from their legacy properties. In fact, the audience sizes being drawn to these new platforms are massively dwarfing audience sizes of traditional media properties. You wouldn’t know that from reading the “media” sections of The New York Times and The Wall Street Journal, who still produce thousands of stories discussing the rise and fall of cable TV programs and chronicling the comings and goings of journalists from one print property to another. Yet they comfortably ignore YouTube celebrities, Viners and Twitch broadcasters with much larger audiences. Hola Soy German, for example, has a larger audience than the NBA Finals and the World Series, but has barely been mentioned once in the NYT. Neither have ever mentioned Nightblue3 who has more than 100M views on Twitch.

To help put this into perspective, I put the following chart together, comparing the relative audience sizes of traditional media, online media and social platforms. Note that I cropped the largest eight so you can see the relative size of the tail. The red bars indicate social properties where the content is largely provided by the community, or in my parlance, platforms for self-expression and communication.

Audience JPG.001

Social and mobile have fundamentally altered attention. Platforms for self-expression and communication are the largest and most important media companies of the millenial age, dominating share of attention and engagement for young people. And the behavior of the young is predictive of the future. Facebook, YouTube, Twitch, Tumblr, Snapchat, Reddit, WhatsApp, Instagram, Vine and YouNow were all catalyzed by teen use first, and later spread to older age groups. If you want to know which companies to bet on, just follow the attention.

David Pakman is a VC at Venrock, investing in pioneering early stage internet companies like Dollar Shave Club and YouNow. He is the former CEO of eMusic, co-founder of music locker pioneer MyPlay, and co-creator of Apple’s Music Group. Sources for this data: Alexa, eMarketer, Nielsen, Temkin Group, Statista, SNL Kagan, Experian, BLS.gov, MarketingCharts, Forrester, CrowdTap, Ipsos, Inmobi, Deloitte, Veronis Suhler, comScore, IAB, Flurry Analytics, AppAnnie, NetMarketShare and Simmons National Consumer Studies. Special thanks to Nurzhas Makishev for compiling and triangulating the data.

Source: http://www.pakman.com

Lyra Health: Tackling Behavioral Healthcare

By Bob Kocher and Bryan Roberts

Chances are, you or someone you love has faced a behavioral health issue that required help from a professional. Many of you, though too few given nearly 70% of people in need go undiagnosed and untreated, then found yourself attempting to navigate the system to identify the clinicians and services to match your needs, only to encounter a fragmented maze of information that is not specific, actionable, or up-to-date. With 50 million Americans suffering from behavioral health conditions – anxiety, depression, substance abuse – this is a massive problem. A massive problem that also leads to needless medical costs and complications for patients with untreated behavioral health conditions.

Today, Lyra Health emerged from stealth mode, with seed funding from Venrock. This company lies at the intersection of two of our favorite things: killer teams and large, difficult problems. Led by David Ebersman, Lyra is bringing together terrific talent from Castlight and LinkedIn to transform behavioral health to better serve patients, help patients get better faster, and to learn from the experiences and outcomes of each patient to benefit future patients.

Health IT has been booming recently with much of the focus on lowering healthcare costs by helping patients with chronic diseases get better medical care. Unfortunately, over 35% of these patients also suffer from behavioral health issues, which materially impedes the efficacy of their medical care, while dramatically increasing the associated costs. Working on improving behavioral health for them, as well as the millions of others who suffer from primary mental health issues, will improve health in these patients and spare billions in costs.

Lyra is going to change how people access and participate in their behavioral healthcare. The company will use software and service to bring the best solution to those in need. With each encounter, Lyra will get better at matching patients to providers, learning which approaches work most effectively, and when to intervene if patients are not improving. Like many of our other health IT investments – Athenahealth, Aledade, Doctor on Demand, Castlight, Grand Rounds, Stride Health, Zenefits – Venrock is lucky to partner with amazing entrepreneurs at the company’s formative stages in order to create a product and service that can help so many people.


Source: http://bobkocher.org

Lyra Health: Tackling Behavioral Healthcare

By Bob Kocher and Bryan Roberts

Chances are, you or someone you love has faced a behavioral health issue that required help from a professional. Many of you, though too few given nearly 70% of people in need go undiagnosed and untreated, then found yourself attempting to navigate the system to identify the clinicians and services to match your needs, only to encounter a fragmented maze of information that is not specific, actionable, or up-to-date. With 50 million Americans suffering from behavioral health conditions – anxiety, depression, substance abuse – this is a massive problem. A massive problem that also leads to needless medical costs and complications for patients with untreated behavioral health conditions.

Today, Lyra Health emerged from stealth mode, with seed funding from Venrock. This company lies at the intersection of two of our favorite things: killer teams and large, difficult problems. Led by David Ebersman, Lyra is bringing together terrific talent from Castlight and LinkedIn to transform behavioral health to better serve patients, help patients get better faster, and to learn from the experiences and outcomes of each patient to benefit future patients.

Health IT has been booming recently with much of the focus on lowering healthcare costs by helping patients with chronic diseases get better medical care. Unfortunately, over 35% of these patients also suffer from behavioral health issues, which materially impedes the efficacy of their medical care, while dramatically increasing the associated costs. Working on improving behavioral health for them, as well as the millions of others who suffer from primary mental health issues, will improve health in these patients and spare billions in costs.

Lyra is going to change how people access and participate in their behavioral healthcare. The company will use software and service to bring the best solution to those in need. With each encounter, Lyra will get better at matching patients to providers, learning which approaches work most effectively, and when to intervene if patients are not improving. Like many of our other health IT investments – Athenahealth, Aledade, Doctor on Demand, Castlight, Grand Rounds, Stride Health, Zenefits – Venrock is lucky to partner with amazing entrepreneurs at the company’s formative stages in order to create a product and service that can help so many people.

 

 

 

 

 

The Future Of Medicine — Where Investors Are Putting Their Money

This article was first published in Forbes. It is co-authored by Nikhil Sahni, Bob Kocher and David Cutler.

The way physicians practice medicine is changing, and investors are betting that this trend will accelerate. In the past few years, venture capital money has moved from an almost-exclusive focus on developing new therapies to a portfolio that now includes healthcare information technology (HCIT) and services companies. The intent of this strategy is to alter fundamentally the nature of medical care provision, focusing on improved physician care, increased labor productivity, and reduced use of hospitals and other facilities. The combined impact of these changes for physicians and the facilities in which they practice could be profound.

How early stage investing works

While healthcare investments follow the same general capital process as other industries – a Series A after demonstrating an initial vision for a product, and a Series B/C to scale the business – the use of capital varies widely by type of business. For example, a consumer technology company such as Facebook, the capital required is generally less than for a heavy R&D endeavor such as a life sciences company. For a HCIT or services company, the capital required is closer to a Facebook scale than a life sciences investment.

The time to market also differs based on the type of company. A life sciences company has a much longer investment period than a HCIT or services company. This results in more “risk capital” than “growth capital” for life sciences companies in order to finance the long product development cycle before the product earns significant revenue. For a company, risk capital is much more expensive than growth capital in terms of required returns.

Flow of money

We analyzed the last decade of seed, Series A, and Series B investment rounds for US-based healthcare companies (Figure 1). From 2003 to 2013, $39.9 billion of capital was invested across 2,732 healthcare companies in 4,467 deals. We grouped the data into two categories: devices and therapeutics (pharmaceuticals and biotechnology); and HCIT and services.

tableagainIn 2003, devices and therapeutics made up 85% of deals and 87% of capital invested in healthcare, leaving a small proportion to HCIT and services. Over the next half decade, the proportion made up by devices and therapeutics increased even as more overall dollars flowed in. By 2008, only 6% of healthcare venture capital was invested in HCIT and services companies.

In 2008, the economic and political landscape changed. Starting with the Great Recession and continuing through the HITECH Act and the Affordable Care Act (ACA), an emphasis intensified on reducing costs and practicing more efficiently, which corresponded with a shift in investment strategies towards healthcare IT and care delivery models that improve productivity. Between 2008 and 2013, the share of capital invested in devices and therapeutics fell by 10 percentage points. For HCIT and services companies, in contrast, annual capital invested grew by 150%, and the number of deals increased by 157%. The share of venture capital dollars in HCIT and services more than doubled between 2008 and 2013, reaching $660 billion invested in 2013.

What type of companies receive investment

These investment trends portend significant changes for how physicians practice. Table 1 summarizes a view of HCIT and services: there are three stakeholders in the system—consumers, payers and providers, and IT can be delineated into enterprise software and apps (services are generally grouped as a whole).moretableThe investments across this table generally reflect one of three strategies: physician practice enablers, physician substitutes and high-cost facility cost savers. Physician practice enablers are often enterprise apps and services that aim to increase physician productivity. This includes companies such as Kyruus in the upper right box, an HCIT company which improves the clinical appropriateness and capacity utilization of referral and scheduling workflows, and Aledade in the bottom right box, a services company which provides tools and services to help providers become successful ACOs. These companies are not looking to replace physicians, but rather believe providing physicians with the right tools about scheduling and administrative needs will improve productivity.

Physician substitutes companies are focused on taking certain tasks out of physician’s hands. Many apps fall into this category such as sensors to aid in the diagnosis, management and treatment of disease, ranging from Omada for type 2 diabetes prevention, HealthLoop for monitoring pain control and complications for patients after surgery, Cell Scope for ear infections and DermoScreen for melanoma screening. Companies in this group believe that, depending on the algorithms, replacing or reducing the use of physicians has the potential to be more evidence-based, lower cost and more convenient for the patient.

High-cost facility cost savers are focused not on the physician, but reducing the use of facilities like hospitals, post-acute facilities, and emergency departments. Companies in this space include capitated physician groups like CareMore and Iora Health, high-touch primary care models like One Medical, video telemedicine services like Doctor on Demand, transparency tools like Castlight and start-up health plans like Oscar which include tools like video telemedicine and transparency into their benefit design. Companies in this group believe that better primary and preventive care coupled with the use of technology will reduce the use of high-cost facilities or shift care to higher value providers and facilities. Investing in these types of companies is attractive in part because they are synergistic with new payment models and health benefit designs that reward cost savings.

What this means for physicians

It is natural, indeed inevitable, that tight budgets and concerns about quality in healthcare will lead to investment in new business models. Productivity in healthcare is notoriously low, and we have examples of technology innovation successfully improving productivity in other sectors.

To the extent that early adopters of new HCIT tools and services models gain market share or perform better economically, these innovations will spread. Furthermore, they are likely to spread more rapidly than evidence-based medicine or care guidelines have since the economic incentives are more potent. As these innovations spread, the roles of physicians, other clinicians and healthcare administrators will change. In some cases, the change will be disruptive, as some roles and responsibilities will be marginalized or eliminated entirely. But that need not be the case for all providers. Indeed, physicians are in a relatively good place compared to institutional providers such as hospitals and home healthcare. While some venture capital money is focused on replacing physicians with less expensive technologies, a good deal is focused on enhancing the reach of physicians. This is not true for hospitals and other facilities, which are invariably a target for cost savings.

Of course, it is too early to know how any of these bets will pay off. Still, tracking the flow of early-stage venture capital money can help reveal the trends that are occurring in healthcare and allow physicians time to prepare and adapt. Knowledge of this type of investment can also help predict the implications and duration of major policy changes, such as the ACA. If venture capital is any guide, physicians should prepare for an era of greater change, faster and cheaper technology adoption, and wide-scale practice transformation.


Source: http://bobkocher.org

White lions of big-data security

rare white lions

There are fewer than 300 white lions living on the planet.* To say they are rare and exceptional is an understatement.

Today, people with the multi-disciplinary skills necessary for advanced information security are almost as rare as white lions. In just the areas of threat discovery and breach detection, IT security teams need folks who are knowledgeable in network & host security, threat intel, forensic analysis, and big-data science.

Finding this diverse knowledge set within a group of IT security professionals is rare. Places like Aetna, Bank of America, Facebook, Google, and Netflix have many of these exceptional skills in-house. However, ‘productizing’ security knowledge and operating skills is extremely difficult.

venn diagram big data security

During the past 6-8 years, considered the first phase of big-data security, a few specialized consulting firms found success providing security skills as professional services. As an example, Palantir built a fast-growing consulting business – now privately valued at $14B USD – by essentially offering “white lions” for hire. These highly sought after consultants command eye-popping rates of $1,000-$3,000 per hour.

What do clients get for those consulting rates? From what I’ve seen, they get help exploring some important questions as described below.

Important big-data security questions:

  • Can analytics and elastic search software deliver faster and human-interpretable security insights?
  • Can big-data clusters like Hadoop process massive amounts of machine-generated data to expose anomalous and potentially malicious threat patterns?
  • Can advanced network forensics, combined with log data, be processed with machine learning algorithms to provide new insights that security information and event managers (SIEMs) do not address?

The good news is that the answer to all these questions is an emphatic YES.

The industry benefits from having both consultants and early users of big-data experiment and blaze new trails using rapid prototyping and custom code delivery. Already, a select group of deep-pocketed companies have proven to themselves that new approaches using big-data analytics can help tackle some of the toughest problems in threat detection. However, those same companies are now fatigued by the outrageous cost of adding new security features and capabilities. Plus, they carry the burden of maintaining bespoke software stacks often stitched together by outsiders who have moved on to other projects. And good luck to the companies without deep pockets, but who still need advanced IT security.

Customers have figured out that big-data works for security but the lack of high-quality products in this area is a barrier for broader adoption. As a result, IT security teams of all sizes have begun the DIY (do-it-yourself) approach because so few choices are available in the market.

The first few steps commonly taken with roll-your-own big-data security:

  1. Leverage log data from their legacy SIEM or Splunk environment (machine generated data sources)
  2. Leverage network packets from various port taps or network sensors (live traffic data sources)
  3. Deploy a Hadoop cluster using Cloudera or HortonWorks (scale-out data processing engine)
  4. Add some 3rd party sources for cross-checking known malware or bad actors (additional verification)
  5. Add ElasticSearch for faster indexing and an analytics package for visualization (human interpretable UX)

This is a good starting point, but still only the tip of the iceberg.

Further, do IT teams really want to maintain this complexity themselves? To me, this is like an IT department rolling their own firewall, IPS, router, or database. Yes, it can be done but is this the best use of IT and security resources?

As a security industry, we have graduated from the phase of drive-by software consultants selling to first-time customers of big data. We are beginning the next phase of threat discovery: where cohesive products built by innovative engineering teams step forward. When these new security products emerge, organizations will experience faster feature innovation, improve their ability to discover high-priority threats, and reduce the need to seek out those rare “white lions” for hire. Rolling your own big-data security stack might be the best approach for some set of customers. My guess is that the bulk of the industry will want to use their in-house talent for higher value initiatives. Those companies will wisely leverage off-the-shelf software that works as advertised, and the best product teams are likely to come out on top.

With that in mind, I am keen to watch Niara and several other new startups in this emerging category of big-data threat discovery. My firm Venrock has been fortunate enough to lead Niara’s recent $20M funding alongside existing investors NEA, Index Ventures, and Aruba’s CEO Dominic Orr. The security world will soon learn more about the innovative products coming from this special team of “white lions” at Niara.

Exciting times ahead for the security industry.

*Global White Lion Protection Trust – see question #17

The post White lions of big-data security appeared first on Doug Dooley.

Source: http://www.dougdooley.com

Here is what Jay-Z should have launched with Tidal

“The transition from CDs to digital hasn’t worked well for the music industry. Sales are down and too many people listen to music without paying for it. We think that is because digital music is too expensive for the value it delivers. For too long, music has been both too expensive for fans and doesn’t produce enough money for artists. We wanted to completely change the game. So we did. 

We, the sixteen superstar artists on this stage, used our incredible power and leverage over the music industry to demand completely new economics from the labels and publishers. So today, we are launching Tidal5. For $5 a month, you get music streaming of 20 million songs to any device. And to help artists, we are introducing the same economics as the iTunes and Google Play stores into music. 70% of all Tidal5 revenue will go to the artists and 30% will be split among the operations of the service and to the labels and publishers. 

We wanted to find a way to attract more buyers into digital music and we knew the only way to do that was to get prices much lower. That’s a gift to our fans. But we also needed to get way more money into the hands of the artists. And we did that too. We used our power for good. And we hope you enjoy it. 

Huzza.”

Source: http://www.pakman.com

The Inevitable Evolution of Online Sharing — Live Video Conversations

It’s been an incredibly exciting few weeks as the world comes to hear more about the latest category of social sharing — live mobile video. (Disclosure: we have been bullish on this space since our investment last year in YouNow.) Given that we have had the pleasure of observing this phenomenon for a bit, I thought I would share a few thoughts.

It’s Not Broadcasting, it’s a conversation

Many people are calling these live video feeds “broadcasts” which presume they are one-to-many and are one-way. The internet has taught us that all media must be participatory now. We all have an expectation that we are not just observers, but that our voices as viewers must be part of the content itself. From likes to comments, the web is built on the “post-respond” engagement model. For any of these apps to be successful, they must engender engagement. And to be engaging, the viewer must be a participant in some way. In YouNow “broadcasts”, the chatting audience is as much a part of the content as the “broadcaster”. This is what leads to successful long-term engagement.

utility vs. platform

Meerkat launched as a livestreaming utility built atop the Twitter network. Like Bit.ly and Twitpic before it, Meerkat itself is not a platform. One does not browse Meerkat to find content, one waits for announcements in the Twitter stream. If they are useful, utilities for social networks very quickly get absorbed into the platform as a core function, leaving no room for third parties. We saw that with link shortening and image hosting, and now we are seeing it with Periscope.

However, much like YouNow, Periscope is more of a network. It uses your existing Twitter graph to build your Periscope graph, but ultimately users will prune and grow their Periscope graph to look very differently than their Twitter follow graph. The Periscope app includes some (limited) forms of content browsing. I expect, given what happened to Meerkat, and with the very talented Josh Ellman as a board member, they will quickly move in the platform direction. Platforms are much more valuable and more sustainable than utilities.

native media format

All successful social networks have a native content form to them in which users become expert. There is a form to a great Facebook post (baby and party pics), a great Tweet (witty observation and link to interesting news), a great Instagram pic (beach and sky pics with awesome filters), a Vine vid (successful loop), etc. So too with live video streams. We can see it on YouNow, as users become expert at creating engaging performances and successfully interact with (and involve) their audiences. I expect we will see the same with Periscope streams (just not yet. Give it time.)

I really think the promise of these products is in creating more conversations between creator and consumer, rather than being millions of new cameras for livecasting the world. It’s tempting to think of this in terms of crowd-sourced news-gathering, which is a compelling use case, for sure. But the web has taught us that social media must be interactive to be successful. Sure, it will be supercool to watch Mario Batalli cook in his kitchen. But that’s the TV model. Unless he personally interacts with his audience (and is really good at it), I don’t think it is web native enough to work. So I suspect the winning formats for all of these products are the ones which are most participatory.

Source: http://www.pakman.com

Dataminr and the Science of Real-Time Information Discovery

Today Dataminr announced a $130m round of financing from a group of leading financial institutions and prominent financial thought leaders including John Mack, Vikram Pandit, Tom Glocer and Noam Gottesman.  

A number of friends have asked me about the company and what I find most interesting about it. This seemed like a good opportunity to highlight a few thoughts. 

What I find most interesting about Dataminr is that in addition to building a business, it is pioneering a new science. The science is real-time information discovery, and it involves sifting through the ever-growing tidal wave of real-time public data to identify and determine the significance of breaking events by their nascent digital signatures, as they happen. Sometimes these events are well-wrapped, for example by someone witnessing an event and tweeting about it, with others providing corroboration. Sometimes they aren’t, with algorithms figuring out what is happening by seeing thousands of facets of something larger. The company has a deep strategic partnership with Twitter that makes this kind of discovery possible. 

This new science is, without a doubt, very cool. It enables one to discover news before its news and market-moving information before markets move. It provides a kind of X-ray vision of what is going on in the world in real-time with a filter for what is significant, and to whom. All on the basis of publicly available data.

In a period of five months, Dataminr has become the real-time wire service used almost universally by major news organizations, beating out the next best service by over an hour and discovering troves of unknown unknowns that would never have otherwise come to light. It has become adopted by the lion’s share of leading financial institutions to have access to the frontier of breaking information in real time.  

What’s also interesting is how Dataminr will change the world. In my view most industries that rely on real-time information — an ever-increasing number — will be influenced by it, and some will be transformed by it.  The wave of change began in the fields of finance, news and public safety, and I think will move quickly to risk management, security and PR. And undoubtedly to other verticals in ways that are difficult to predict. I am particularly excited about what the company and its technology can do to help save lives in the fields of public safety and humanitarian assistance.  

Dataminr is in the early days of a long journey, but it is already impacting the world in significant ways, and it’s exciting to be a part of.

Source: http://www.nickbeim.com

Are Venture Capitalists Biased Against Female Entrepreneurs?

In her article Taking a Hammer to the Silicon Ceiling, Amanda Bennett hits on a real problem in the venture industry where spoken and unspoken biases have a significant impact: it is harder for women to raise money than it is for men. However hopeful one’s outlook, this is an uncomfortable and inescapable truth that the industry should acknowledge.

What’s the reason for it? I’ve been in the venture business for 14 years, and rarely, but sometimes, I’ve seen it come from unabashed bias about women’s ability to do as good a job as men. Generally this relates to the subject of women already having or potentially having children. I’ve heard people remark: “Wouldn’t that be a big distraction for the company, and how could they possibly be as productive as men in those circumstances?” This particular kind of bias is rarely expressed in a public manner but certainly affects the thinking of some. The good news is that as younger generations of investors assume more prominent roles in the industry, I think it will substantially diminish.

More often, I’ve seen the challenges female entrepreneurs face in raising money result from a bias that is rooted in the primary way venture capitalists make decisions, which is through pattern recognition. In a private conversation, a successful west coast venture capitalist expressed the issue to a friend of mine in a backward-looking empirical fashion that was an attempt to be unbiased: “look at the numbers – most successful startups are started by men in their 20’s and 30’s; the number of successful startups founded by women is much smaller.” Yes, but most startups in any historical timeframe were started by men in their 20’s and 30’s. This doesn’t speak to the likelihood of women succeeding, particularly since a significantly larger number of women are starting companies today than in the past.

Social scientists call this logical flaw selecting on your dependent variable: determining that A is a principal cause of B by looking only at cases of B. Used as the primary lens for evaluating new investment opportunities in venture capital, it creates all sorts of intellectual distortions and inertia and is the principal reason most venture capitalists are late to promising new trends and only jump on board when there is a significant pattern of success. I think this is the cause of the biggest challenge that female entrepreneurs face in raising money. Most venture capitalists have not internalized the success of female entrepreneurs to a sufficient degree to have it influence their intuitive pattern recognition, partly due to what they perceive as a lack of a large enough n and partly no doubt due to the fact that they have not worked with female entrepreneurs directly. It was also the cause of challenges that entrepreneurs faced in raising money in a variety of pioneering new fields, from personal computers to the internet to digital animation. Success by entrepreneurs in these fields was not yet a large enough historical pattern to influence investors’ thinking.

I believe this is changing. When I look at the number of female entrepreneurs who have built successful companies over the past 20 years or are doing so today, a significant historical pattern is definitely emerging. This group is comprised of some very impressive people, all the more so since they’ve had to clear higher bars than their male counterparts. Some of their companies are already significant successes, and others are on their way. A very partial set of examples that come to mind include Judy Falkner (Epic Systems), Diane Greene (VMWare), Julia Hartz (EventBrite), Jilliene Helman (Realty Mogul), Elisabeth Holmes (Theranos), Sheila Marcelo (Care.com), Natalie Massenet (Net-a-Porter), Alexis Maybank and Alexandra Wilkis Wilson (Gilt Groupe), Miriam Naficy (Minted), Alison Pincus and Susan Feldman (One King’s Lane), Kim Popovits (Genomic Health), Victoria Ransom (Wildfire), Clara Shih (Hearsay Social), Adi Tatarko (Houzz) and Anne Wokcicki (23andMe). And many dozens of others. If one does not see a pattern there, I think it may be due to lack of awareness of the facts.

I personally believe that the magnitude of success of these entrepreneurs and their peers is precisely what will finally move the needle for the silent majority of venture capitalists stuck on historical pattern recognition, for they will represent a significant historical pattern that one would ignore only at one’s peril. It’s only when venture capitalists fear they will miss out on something big that their behavior will ultimately change. Remember all those venture capitalists who thought that it would be challenging to make money on the internet, or in social media or on mobile? Those debates have been definitively won and lost, and today everyone invests in these areas. I think that those harboring concerns about investing in female entrepreneurs, even if they won’t say so directly, will ultimately abandon those concerns in the face of significant and increasing data relating to their success.

There is another bias that Bennett mentions in her article, one that creates disadvantages for female entrepreneurs but advantages for female venture capitalists: that the venture capital industry as a whole, given that it is primarily comprised of men, is slow to recognize opportunities in female-dominated industries. The first people to see big new opportunities in female-dominated industries are generally women, and many male venture capitalists may never catch on. This can lead to a particularly significant adverse selection problem for venture firms in today’s internet world, where social media and ecommerce, to name two major fields, are both dominated by female users. I believe the large number of successful ecommerce and media startups focused primarily on female users — from Pinterest and Houzz to the Honest Company and Net-a-Porter — has now become an historical pattern of sufficient scale that it will help increase the numbers of women in the venture industry going forward (although the industry moves slowly), since they will likely be better able to spot these opportunities than their male counterparts. And this will certainly help female entrepreneurs.

For all the problems that the venture industry has with investing in female entrepreneurs, there are some investors who do care and who do support female entrepreneurs in a significant way. And often this works out particularly well for them given the biases mentioned above. In her article, Bennett asks “would a man have seen what Sheila Marcelo saw: the need for a way to connect caregivers with those who need child, elder and pet care?” Certainly much less clearly than Sheila did, but yes, there was one. I invested in Sheila the day the company was founded based on my belief in her and in her vision. I invested in Alexis Maybank and Alexandra Wilkis Wilson in the very early days of the Gilt Groupe for similar reasons. I am close to investing in my fifth female founder. I invested in these entrepreneurs primarily because they were extraordinary individuals with big ideas who understood their industries and customers extremely well, and sometimes this understanding related to the fact that they were women. I’m very glad I made these investments and look forward to investing in more female entrepreneurs in the future.

I believe that in the long term, markets do tend to be efficient, and the success of these and other female entrepreneurs will ultimately erase the regrettable biases that female entrepreneurs have to fight against today.

Full disclosure: Beyond investing in female entrepreneurs, I actually married one (in a field very different from my own). She has been the greatest source of insight and learning for me on this subject.  

Source: http://www.nickbeim.com

Why Are There So Few Black Investors?

Today, some of the world’s most respected and successful figures are those in the tech industry. They include entrepreneurs who have developed innovative products and launched industry-changing companies. An important segment of people who provide capital and (hopefully) assistance to these entrepreneurs are venture capitalists. While the technology sector continues to thrive, it suffers from a lack of diversity, which limits innovation.

African-Americans are Under-Represented in the Good Ol’ Boys Club

The Venture Capital industry in the US (and thus, in turn, Silicon Valley) is made up of nearly all white males. In fact, the National Venture Capital Association (NVCA), the trade group for the industry, has recently acknowledged the lack of diversity in the industry and has recently formed a task force to help tackle the problem. However, even the task force lacks diversity, with 7 of its 11 members being white males and none of the remaining four members being a person of color. Furthermore, a number of tech companies have released their diversity stats, revealing that roughly 2% of the employees at Google, Facebook, Pinterest, LinkedIn and Yahoo are black.

In my quest to determine the true diversity statistics within the Venture Capital industry, I conducted a study of over 200 firms composed of roughly 2,000 investors investigating the current number of black investors working in Venture Capital in the United States. I included only full-time investment team members, so I did not include EIR’s, Venture Partners, accelerators, or incubators. The results demonstrated that the diversity stats are eerily similar, if not worse, than that of the aforementioned tech companies, comprising 1.5%. You can find the data that I have pulled together here — Venture Capital Diversity Stats.

To dive a bit deeper, many of the more visible funds and, by extension, visible investors tend to be those at venture funds with a fund size of $100M+. The stats look even bleaker here with less than 1% of investors being African-American, and only one of which is a woman. Since we love discussing unicorns in the tech world, it is clear that female African-American venture investors are the “real” unicorns. In light of this data, I’m hopeful that there are additional African-Americans in the venture community that were not captured in my study, however, this wish may be inconsequential, as it is clear that there are nonetheless far too few.

A Technology Bias May be the Culprit

With venture capital often functioning as an “old-boys” club (where financiers mostly give to people who are within their network — friends, colleagues, college alumni, etc.), most African-American entrepreneurs lack connections to investors who have access to funds. Other issues that have led to the lack of black entrepreneurs and overall lack of diversity in the tech industry include, but are not limited to, few African-Americans who are studying STEM education and a lack of publicly visible role models for young African-Americans. Despite these obstacles, there is still plenty we can all do to ensure that tech careers are seen as a viable career path. While one would hope that the lack of black venture capitalists would not have any correlation with the presence of black entrepreneurs in Silicon Valley, this is not the case. Instead, there appears to be quite the correlation to the lack of African-Americans in the tech industry today as there is among venture investors.

Finding Ways to Diversify

Despite the bleak statistics, there are, fortunately, a number of individuals and organizations who are trying to improve diversity in Silicon Valley (and across the United States). Code2040 is an organization that I am involved in that connects undergraduate computer science majors with internships at Silicon Valley-based startups, with the goal of increasing minority representation within the tech community.

Other important initiatives to support the career growth of African-Americans who have been able to successfully enter the tech community include developing or growing a black or minority investment community and expanding the network of people whom existing venture capitalists recognize, know and fund. This community could help create more entrepreneurs, resulting in more successful black-led companies who can then go on to fund and help other African-Americans start their own businesses. My close friend Charles Hudson and I have started one such community called Stealth Mode, which hosts quarterly events to bring together African-Americans within the tech community. Please reach out to me if you would like to join our community or learn how you can help the organization grow.

The lack of diversity is clearly a significant issue in Silicon Valley that needs to be addressed, and one that I care very deeply about as one of the few black faces within the industry. I would love to hear other people’s thoughts on the matter and discover more ways to improve the status quo of the venture capital and tech communities.

Source: http://ker.by