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In December 2017, the amount raised in ICOs nearly equaled the amount raised by Series A investments globally. The technology innovation catalyzed by Bitcoin and Blockchain is creating many multibillion dollar economies quickly. The ICO market today bears many similarities to the dotcom era. Startups can raise hundreds of millions of dollars on an idea. Twenty years ago, the idea had to be sketched on a napkin. Today, the protocol must be detailed in a white paper. But the ability to access huge amounts of capital at a similarly nascent stage is identical.

Below are 7 predictions about the startup software ecosystem. How many of them do you agree with?

1. The tax holiday for repatriation creates one of the most active M&A environments of the past ten years. The repatriation holiday is part of the new tax plan. It permit companies to bring US dollars held abroad (from software sales in other countries) back to the US at a lower tax rate than before. The scale is enormous. Apple could repatriate $252B, Cisco $65B, Google $55B. That cash could be used for dividends, share buy backs and acquisitions. Several landscape altering SaaS acquisitions will come to fruition because of cash availability from repatriation and because there are enough public SaaS companies at scale to add material revenue and market cap to buyers. Some ideas: Google buys Salesforce. Microsoft buys Workday. Oracle buys ServiceNow. There are now 5 publicly traded software companies worth more than $10B, and 19 companies worth between $2.5B and $10B.
2. The SaaS fundraising market remains ebullient through 2018 as vibrant M&A and an open IPO window trigger substantial liquidity for shareholders.
3. Machine learning fades as a buzzword. A while ago, I pulled up the Redpoint website from a decade ago, when the bios of the partners said things like “I invest in the internet.” Or five years ago, “I invest in mobile.” Just as those trends have become ubiquitous to be implicit, so will machine learning.
4. Blockchain in the enterprise takes the reign as the buzzword for 2018. Founders will look to apply the innovation of a distributed and decentralized-trust database in different parts of the ecosystem. In particular, blockchain applications will pop-up in inter-company applications or where network effects are important (payments, security, supply chain).
5. The classic open source strategy of the last fifteen years is abandoned because of the competitive threats from infrastructure-as-a-service (IaaS vendors). New licenses may emerge to create some barrier to entry or open source vendors keep proprietary a greater fraction of the code base.
6. GDPR becomes an important consideration in most SaaS companies product and sales teams as the European regulation changes lead generation practices and data retention/governance practices in Europe. Similar regulations will be adopted in other regions.
7. The industry pendulum switches from fragmentation to consolidation in products as well as companies. Businesses emerge that create opinionated stacks for different functional roles and simplify day-to-day tasks for knowledge workers.

I like writing these lists because they are very likely to be proven wrong in the fullness of time and looking back at them a few years later gives you a sense of what the world felt like back then. Have a great new year, everyone!

There’s a crisis in the scientific academic world. It’s called the Replication Crisis. Scientists have found that they cannot replicate the results published by many scientific studies. The same thing is happening in the world of business.

Over the last 15 years I’ve read several hundred business books, and I’ve written one. Across those 15 years, one of the most interesting is a book called The Management Myth, which traces the history of management science back to its less than solid origins. The book illuminates the history of scientific management and Taylorism, and supplies evidence that much the original data underpinning these theories was fabricated. I was curious if this was a broader trend, and it may be. I found other cases.

When negotiating your next fundraising round, should you talk valuation in premoney terms or postmoney terms? Premoney is the valuation before the investment, employee stock option pool (ESOP) expansion, debt-to-equity conversion and investment. Postmoney is the value of the business after all that.

As an investor, postmoney is simpler. Despite the improved simplicity, I don’t think the industry is going to move to postmoney anytime soon.

Why are postmoney conversations simpler? Because the valuation of the business is fixed. The value of the business doesn’t float from variables like pro-rata participation, ESOP expansion and debt-to-equity conversion.

A friend suggested that I read the Five Dysfunctions of a Team over the weekend. Though I’m passionate about business books, I rolled my eyes. I had seen this one on best seller lists for a long time, and never thought it would have much to offer. I admit my book-cover bias was wrong. The author has a counterintuitive assertion. Meetings shouldn’t be boring.

“Evidence from science suggests that business people must be insane to use brainstorming groups.” That’s a shocking statement. Adrian Furnham, a professor of organizational and applied psychology at University College London, said it. It turns out it’s completely true.

Participants in interactive brainstorming groups rated their performance quite favorably…[and] felt that interactive group brainstorming was more productive than individual brainstorming…However, actual performance data [showed] …interactive groups generated fewer distinct ideas.

How quickly do the fastest growing software companies build their teams? The answer is incredibly quickly. In fact, this data bolsters the notion that management team’s top priority is recruiting, especially after the business has reached product market fit and capitalized itself well.

Above, I’ve charted the headcount growth rate for 10 of the fastest growing software companies in recent history. I’ve normalized the years for when all the businesses were roughly at the same headcount - fewer than 50 people. This is a proxy for when the business established product market fit.

There’s a parallel between cryptoassets today and the British colonial period predating the US. In the late-1600s, colonies began to print their own money. Today, we’re seeing many startups coin their own money, creating an explosion in the number of new (crypto)currencies.

States printed colonial money to pay debts to citizens. During tax collection times, the state accepted citizens’ bills as payment and retired the bills from circulation. Citizens would pay each other with these bills. They could also exchange them across state lines, but not at 1:1. Each state’s bills had a different exchange rate.

I’m grateful for all the entrepreneurs who have spent time teaching me how to build their companies. Over these past few days, I have been reading the book Antifragile written by Nassim Taleb. In the book, he writes about many provocative things, but the one that sticks out with me this holiday is about innovation, and it harkens back to the original title of this blog that I started to write nearly 7 years ago: ex post facto.

In the eleventh episode of Masters of Scale, Reid Hoffman interviews Peter Thiel. The episode revolves around the idea that to truly succeed, a startup must not beat the competition, but break free of competition entirely. The episode has many great points, but the one that stood out most to me is the idea of false competition.

You could say that Coke and Pepsi compete very intensely, on the other hand you could say that there’s somehow quite differentiated from a brand so that in practice different people prefer Coke or prefer Pepsi and they’re actually is a much smaller set of people who view them as interchangeable products. And so, I think measuring how much actual competition is happening is not always a straightforward thing to do. transcript