Zeitgeist

Zeit·geist = spirit, essence of a particular time

A collection of food-for-thought posts and articles on technology, business, leadership and management. 

The $Billion StartUp-Unicorn Trend Is Going Global

CNBC's edited version of this article is here.Published 5th of May, covering for eMerge Americas event in Miami 2015.

Go somewhere wild and remote – a forest, a desert, moorland or prairie.

Take nothing that with you: Wear no scent but your own. Let your thoughts be your own. Stand and listen, let the atmosphere permeate you. Forget the trivial concerns of human existence and feel what matters: the life around you; the movement of the air; the warm of the ground.

Feel, and Believe.

In such a way might you sense the a presence at once bold and timid; ancient and youthful; full of wisdom and naive as a child. Acknowledge that you have been noticed by a Wonder. 

You have found the Unicorn

i2XMHaY

Unicorns, the whole venture capital industry is chasing them, not just the usual suspects, VCs, PE firms, but literally everybody else including 8 million accredited investors in US. $1bn start up valuations just became the new norm.

Every new start up, in their quest for funding, needs now to allude to this mythical animal as a mean to raise money.

Where do Unicorns come from?

Unicorns, a.k.a $1bn Start Ups, are rare, very rare. Let’s have a look at what we know about them, this will lead us eventually to the place they come from, the land of Unicorns:

In United States, immigrants generally have a greater propensity to launch new high-tech businesses.

This is a validated pattern and there is extensive research and of evidence around it (see papers from the national bureau of economic research here and Duke’s America's New Immigrant Entrepreneurs here 

As of April this year, 24 out of the 54 unicorn start ups valued over $1bn are founded by an immigrant according to Dow Jones VentureSource.

That’s just under half of all of them. This pattern is consistent with previous reports, showing 46% of America's top venture-funded companies had at least one immigrant founder in 2011.

According to Vivek Wadhwa’s research at Duke, an astonishing 25% of all engineering and technology companies established between 1995 and 2005 where founded by immigrants (an estimated 52% of all in Silicon Valley), in turn, responsible for wealth creation in excess of $52 bn and just under 450.000 jobs at that time.

Not surprisingly, 7 out of the 10 most valuable and recognizable brands in the world were launched by immigrants or second generation immigrants.

These include Apple, AT&T, Google, General Electric, IBM, McDonalds or Marlboro.

Creating a unicorn-like company from the ground up is a daunting task, even if your product or service is highly desired by the masses or exponentially disruptive, the amount of work you need to put into it is overwhelming. It comes with huge trade offs, personal commitments and sweat, real sweat.

Venture capital knows this very well. We like to say:

We bet on the jockey not on the horse” which is absolutely crucial at early stages of the Start Up.

In simple terms, from an investment perspective, the entrepreneur is the pivotal element to mitigate the different risks arising throughout the evolution of the company.

mischa-richter-i-would-like-to-thank-my-owners-my-trainer-my-jockey-and-everyone-in-m-new-yorker-cartoon

Two factors enter into play here: the inner motivation and the capacity for hard work of an entrepreneur

Emotions are the engine behind everything we do. If you are a true entrepreneur wholeheartedly committed to your project, investors will notice by the way you show up your emotions.

Emotional behavior gives them confidence you are going to stay through the different stages of your venture, even if you run out of money.

Believe it or not, this is more important than your start up revenue projections.

(see here)

Immigrants are hard workers by definition. Many have been raised in challenging economies (or their parents did), constrained in resources and possibilities, trained throughout life to do more with less. They’re self made, determined, don’t give anything for granted and they strive to succeed, every day.

These are the exact qualities we look in entrepreneurs, given the Start Up world is a constrained environment, with very limited in resources, by its own nature.

Actually, creativity and genius are driven by constraints, those two qualities come from a real burning need driving our intellect to work harder. There's correlation between constraint and innovation.

Remote not working? no prob, just get an RC car

The opposite situation is abundance and complacency, or corporate legacy, a greenfield for start up disruption.

Sequoia Capital is undoubtedly one of the most successful Venture Capital firms ever. A company formed by immigrants with Spartan rules and an attitude for perfectionism, backing up early stage companies and nurturing them to skyrocket in IPOs.

Sequoia’s children are the likes of Google, LinkedIn, Cisco, Yahoo, Oracle, Instagram, Paypal and even Apple. Their motto reads:

The creative spirits. The underdogs. The resolute. The determined. The indefatigable. The defiant. The outsiders. The independent thinkers. The fighters. The true believers.

These are the people who have imagined, started, organized and built Sequoia-backed companies that collectively are now worth over 20 percent of the total value of the NASDAQ stock exchange.

These are the kind of people we work with today. They are extremely rare. We're ecstatic when they choose Sequoia Capital as their business partner.

No wonder the majority of the entrepreneurs behind public tech giants in US are 1st or 2nd generation immigrants as well.

KPCB Internet trends 2014

 

New lands for Unicorns

Venture capital as a resource to grow companies is much easier to find in North America, no debate. New start ups and entrepreneurs are born with this in mind and they start their journey to the north as early as in the early days of idea stage.

Immigrants come to US from East and South, those in technology primarily from the East, so far. However, new kids are coming to town, with a 163 percent increase in population between 2010 and 2050, the U.S. Hispanic community will account for one-third of this country, according to U.S. Census data,

(CNBC article)

And something else has been happening down there in South America during the last decade.

Latin America’s GDP will reach an estimated US$15.14 trillion by 2025, rendering it one of the most important global markets in the world. Not only is it on track to become a leading destination for investments, but it is also likely to be essential source of capital for global corporations.

Frost & Sullivan indicates a number of tendencies and developments. Latin America’s middle class is growing, and urbanization is up. More and more Latin Americans are getting connected, and infrastructure spending is on the rise.

2324

Latin America will have 1.3 billion connections by 2016, including mobile phones, tablets and other M2M (machine-to-machine) devices, with increased broadband penetration and 4G as major factors in the region’s connectivity growth.

It’s precisely in emerging markets with lower legacy barriers where disruption and more rapid adoption of new technologies happens. We have seen this movie before, for well over a decade, where mobile technologies, wireless and smartphones were spreading faster than in mature countries (link) as other access mechanisms (legacy) were less of a barrier.

Start ups are surging in South America, aiming at its 200M+ population. Start Up Peru, Start Up Chile, Incubar in Argentina, iNNpulsa in Colombia or Telefonica’s cross atlantic Wayra acceleratior are literally thriving.

Seeding investments in the region have multiplied from 2010 to 2014.

Intel Capital, Axon Partners, Kaszek Ventures or Accel Partners are among the most active investors in the new promised land of Unicorns, with investments gravitating to Brazil in a major part.

Telefonica’s Wayra initiative alone has screened nearly 27.000 projects in less than 30 months of operations, with 438 start ups receiving seeding investments from the Telco giant. Of those invested, another $74M came additionally from 3rd parties in average rounds exceeding half a million dollars per project.

south_america   CB Editorial   Tableau Public

Despite the increasing activity from entrepreneurs and investments, many of these companies (and some Unicorns with them) will end up migrating to the land of opportunity, North America, seeking to close more capital intensive financing rounds beyond series A.

A new hunting plot for Unicorns

All above data indicates we are poised to see new Unicorns coming from the South. If you want to hunt the next unicorn, a good place to be will be eMerge Americas, a major tech event happening 1-5 of May, in Miami.

Don’t miss the Startup Showcase and, go and see Luis Mayendia, CEO and co-founder at MyPark, who knows, we may have the Uber of Parking on stage this year.

@efernandez

Dedicated to Roberto .... and, before you ask... before you ask

The Hitchhiker Guide to A.I.

Warning: this is a long article, almost 1500 words long.
A lighter, friendly edited version was published by CNBC 
on Friday, 27th of March, 2015. You can find it here.

'If there is Artificial Intelligence then we won’t need to think’ said my recently-turned-ten daughter, on our way driving her to a piano lesson.

She left me speechless while I was trying, in vain, to remove from my mind a sticky image from the movie ‘The Hitchhiker guide to the Galaxy’. A supercomputer called ‘Deep Thought’ which, after 7,5 million years of calculations rendered the answer to the Ultimate Question of Life, the Universe and Everything, or, namely, the number 42.

Quirky cult movies aside, the impact of artificial intelligence is immense, and the implications phenomenal.

Deep_Thought

An utopian-dystopian future:

Artificial Intelligence (A.I.) is on the hype again. There are dystopian, terminator-like views backed up with warnings from renowned scientists, Stephen Hawking to start with. Even Tesla and SpaceX founder Elon Musk appeared on CNBC’s ‘Closing Bell’ cautioning about the potential risks of this technology.

On the other side, Jeff Hawkins, scientist and serial entrepreneur (Palm, Handspring), founder of the Redwood Center for Theoretical Neuroscience, vehemently argues the Terminator is not coming. His company, Numenta, is reverse-engineering the human neocortex for AI purposes.

But, while an eventual life extinction event comes, we have families to care about and businesses to run so, what is this technology going to do to us in the short term and more importantly, as a CEO, what should I do about it?

noteworthy: this draft spun off another great post from Peter J. Simons on the topic, see here 'How Artificial Intelligence can boost Corporate Innovation'

Business impact, artificial intelligence today:

Firstly, for business purposes, we should think of Artificial Intelligence as a natural evolution of technology, enabling yet another disruption wave in markets, though, arguably this time, a much bigger one than the internet was.

Keeping over-hype and human destiny aside, CEOs and management at companies can think of AI as yet another technology disruption. An enormous, multipronged and pervasive one, like digitization and the internet was in the 90’s, or mobility and the smartphones were a decade ago.

First we had data and Databases (i.e Oracle, MySQL), then, back in the 80’s we combined data and infrastructure (Ethernet, Networks, TCP/IP). The Web was a first big data-base (HTML, HTTP), indexed by Google in the 90’s.

Fast forward to the new millennium, dawn of the modern Big Data (Hadoop, Cloudera, Palantir) and built on top, Analytics, thriving and striving to find meaningful insights and patterns in data through Algorithms.

These all evolving ultimately into predictive analytics and Machine Learning (also referred as intelligent applications and Artificial Intelligence).

And here we go, we all witnesses of a new era of Artificial Intelligence now ready for prime time.

(Machine learning is considered actually a branch of artificial intelligence, the other being computational logic & planning.)

 

datasciencebasedontrafficdatafinal 150217170119 conversion gate01.pdf

Embedded and in many cases unnoticed, today there are already thousands of narrow artificial intelligence applications in areas such as:

·         Natural Language Processing      (virtual assistants; i.e Siri)

·         Finance                                         (stock trading, credit score analysis)

·         Toys and games                            (from Furby to Aibo)

·         Publishing & writing                     (i.e computer generated news)

·         Robotics, Genetics, Research, Law, Transportation

Another way to size up intuitively the potential of AI technology is to look at its effects today, starting from those deriving from the good ‘old’ predictive analytics methods:

Using marketing analytics, Target got to know a teenage girl was pregnant before her own father did, isn’t it creepy?

 

According to Marissa Mayer credit card companies can predict a divorce two years before it happens with 98% accuracy, based solely on your purchase decisions.

High Frequency Trading, enabled by AI algorithms, caused the US stock market crash of 2010 in which the Dow Jones plunged 9% (1.000 points) within minutes. It was the biggest one-day point decline in the history of the Dow Jones. In that year an estimated 70% of all equity trading volume was done by machines.

data6

Companies in general can utilize analytics to predict customer sentiment (a.k.a. V.O.C. or Voice Of Customer). By analyzing unstructured data, from internal sources, databases, CRM as well as data from social networks and public sources, an organization can choose when to intervene and interact directly with customers. All to improve consumer engagement and brand perceptions.

Moreover, machine learning is now in a rapid democratization process. Google Prediction API for instance lets you build your own smart applications for sentiment analysis and purchase prediction, all from the cloud.

Ahead of Google APIs and IBM Watson, the most advanced AI developments today are coming from what is called deep reinforcement learning. Demis Hassabis’ Deep Mind group at Google is at the forefront of this research and the results are impressive:

Super-Breakout-2011-08-10-09-50-33-63[1]_0

Remember the old classic Atari games from the 80s? we were dragged into endless hours of fun and play to master Pong, Breakout or Space Invaders, right?. Now, an AI machine with no other input than raw pixels and a reinforcement learning algorithm is capable of over performing the most expert of human players.

In the future nearly everything connected to the internet will use a form of a machine learning algorithm in order to perform its mission.

And Yes, over the course of the following years and decades, A.I. will enable disruptions of the same and bigger magnitude than the internet did. Exciting times ahead for venture capitalists.

What Shall I do as a CEO?

In a simple visual flowchart:

A-CEOs-beginners-guide-to-AI

You may expect more and more Everything as a Service, from sourcing talent to getting probabilistic predictions of the sales of your products. Your company needs to keep up with the times, embrace new services, AI based technologies and benefit from them.

Similarly to what happened a decade ago, when enterprise mobility entered the strategic roadmap of all major corporations, AI enabled technologies will become an integral part of the strategy planning process in a near future.

You may think AI is not there, not in a conspicuous way at least, think twice, does your marketing people hire research or customer insights reports? most likely your contractors are using big data analytics to deliver their conclusions to you. Is your competitor doing so in-house? That may indicate they can react and move faster in decision making and eventually interact rapidly and more decisively with (your) customers.

In essence, you need to map out existing internal and external resources of your company and check if they are using any of these big data, analytics and AI related technologies and tools.

See here for detail, courtesy of Jose Luis Martinez Fernandez PhD & CTO at Daedalus S.A. an analytics and predictive technology company.

Plain simple, to monitor AI readiness of your company, first, earmark a tech champion in your management team (if there isn’t one already, the CIO promoted to CDO or CMO will do for the time being), and task her/him to screen out if any of these referred tools or technologies are used either internally or externally. If the answer is a hard no internally, run a supplier & partner appraisal to understand how far AI is from the core of your business.

Give yourself a 1 to 10 score in the lows and start pushing the company to embark in the AI journey (in the same you probably told your management team to start using mobiles, tablets or smartphones at some point in the past).

Finally, think ahead and innovate, if you don’t have internal resources to do it, partner with corporate innovation advisors, launch your own company sponsored start-up incubator, or even a venture fund with a focus on the specific AI enabling technologies, that you have identified as relevant and disruptive to your business. Many of these innovation mechanisms are already one-click away, in the cloud.

Finally, if, like me, you are interested in human intelligence as much as in AI, read on ‘Outliers: from totally dumb to the world genius directory in 48hrs’ (work in progress, to be posted later) and test yourself against the machine to get to know your IQ online, who knows, you could make it to the World Genius Directory.

 

 

Dedicated to Juan Antonio Jimenez, school mate, college & university pal, business partner and life time best friends.

Thanks to:

Martina Fernandez - inspiration & purpose - My daughter

Peter J. Simons - lateral thinking - Strategy Consultant, CEO, investment banker & friend

Jose Luis Martinez Fernandez - Technology Expert - PhD, CTO at Daedalus. 

Eric Rosenbaum - edition, curation - CNBC

Ed Fernandez is an early stage venture capitalist and board advisor to Daedalus S.A, a data analytics and predictive technology company. He is also a member of the CNBC-YPO Chief Executive Network. He can be reached in real time at @efernandez

About Daedalus - Wikipedia: http://en.wikipedia.org/wiki/User:Daedalus,_S.A./sandbox

Entrepreneurs & the Founder's Trap

Forbidden Planet is one of the greatest Sci-Fi films of the 50’s. This movie depicted a military crew travelling in a starship of human creation for the first time. The plot of the story develops on a far distance planet where the characters fight invisible monsters of extraordinary power. For those of you of a certain age, you may recall a frightening 7-foot tall Robby the Robot, this is his movie.

Read More