We are excited to announce our investment in Accion Systems this morning alongside a syndicate of some of our favorite co-investors. This is our 2nd investment in a New Space company after we led the Series A round for Spire last spring.
Accion is commercializing a new ion-based propulsion system for spacecraft. We were introduced to co-founder and CEO, Natalya Brikner by our friends at Undercurrent, who share our passion for new space technologies.
Electric propulsion is the next big thing in small satellites. In order for cubesat constellations to achieve their maximum useful life, operators need to be able to manipulate the spacecraft beyond what is possible with simple reaction wheels. Propulsion systems that use combustible fuels are not allowed on the ride shares that cubesats depend on, so a new type of propulsion system is needed. There is also a lot of discussion in the industry about regulatory standards that would require a deorbit mechanism on cubesats (in part to deal with the space junk problem). The Accion Systems products are a logical solution.
The core technology has been under development at MIT for 10 years. It produces a tiny unit of thrust, about the size of a penny. While I am not a physicist, my layman’s understanding is that these engines convert a cheap, non-volatile plasma into streams of ions that can impart thrust. The Gen 1 products are sufficient to move a 3Kg Cubesat and extend its useful life. The Gen 2 systems should be able to impart considerably more thrust and will be useful for larger satellites. The systems are already being manufactured reliably and they have had hundreds of hours of ground tests. With nearly 1,000 cubesats being launched every year and considerable demand for propulsion for both large and small satellites, we think Accion has a terrific addressable market opportunity.
As much as we love the technology here, it was the team’s pragmatism about the company building process and their strong commercial instincts that really persuaded us. Natalya and her co-founder, Louis Perna, have given a lot of thought to how to build a strong, high performance culture that can last for the long term.
We are delighted to welcome Natalya, Louis, and the team at Accion Systems to the RRE portfolio and we look forward to working with them in the years ahead.
We are excited to announce our investment in Accion Systems this morning alongside a syndicate of some of our favorite co-investors. This is our 2nd investment in a New Space company after we led the Series A round for Spire last spring.
Launched in 2007, OnDeck is the technology powered Main Street lender that has fundamentally changed how small businesses access capital.
OnDeck’s innovative technology platform leverages electronic information including online banking and merchant processing data to identify the creditworthiness of small businesses in minutes, while traditional lenders typically take days or even weeks.
To date, OnDeck has deployed more than $1.5 billion in capital to tens of thousands of businesses across 700 different industries. The company was recently named #11 on Forbes’ 100 Most Promising Companies in America list and was listed on the Inc. 500/5000 for a third year in a row.
Here’s a simple, functional topology of entrepreneur-investor relationships:
- First — and worst: The Wasteful Relationship. Such a relationship is time-consuming, degrading, and distracting.
- Second: The Neutral Relationship. You get capital, and not much else.
- Third: The Minor Value Relationship. You get capital and occasional help on specific issues.
- Fourth: The Deep Value Relationship. The inspiring partnerships that truly move the lever for you as an entrepreneur and for your company.
As an entrepreneur, you should aggressively avoid Wasteful Relationships, turn Neutral Relationships into Minor Value Relationships, optimize your Minor Value Relationships, and use Deep Value Relationships to catapult you up and to the right.
Optimizing your Minor Value Relationships means getting the help you actually need when you need it, without wasting anyone’s time. Every reasonable investor will happily provide specific support (recruiting, intros, strategy, UX reviews, etc) when asked. Skill-in-action here looks like diligence, shamelessness, and specificity in the asking. It also means (gently) holding your investors accountable for the things you ask of them and they promise to deliver. Pretty straightforward; do it.
Building Deep Value Relationships with your investors is a more difficult and important attainment. Cultivating such a partnership means expanding Minor Value Relationships and also, counterintuitively, flirting with the dreaded Wasteful Relationship. A dangerous path.
Why is this? Because deep value cannot be created without confronting the really hard, mission-critical questions; it’s in this confrontation that you arrive at your most ambitious visions, and solve your company’s most fundamental strategic dilemmas. And while working through those questions with an investor can be amazing, it can also easily degrade. To use a Buddhist metaphor: extreme waste is, ironically, the near enemy of extreme support.
My advice: Risk the danger. Find at least one or two investors who are up to the task of engaging with you on the most fundamental and most difficult questions.
When you’re running a company—no matter how gutsy and transparent you are—you are often subtly sheltered from these questions or incentivized not to ask them head-on. This challenge is present for entrepreneurs fast-tracking to failure, catapulting over the Green Monster with runners on all bases, and everything in between. A person you can trust as a collaborator on these questions in ways that are actually helpful and not just pestering, egoically-charged, or strategically banal is pure gold.
And for the investor, engaging with entrepreneurs around their mission-critical questions is not only the best way to make good on their investment but, I imagine (this is an entrepreneur’s conjecture), also the most fulfilling aspect of the work. It’s the tangible, grounding, hands-dirty antidote to the peculiarly passenger-nature of the job.
So, entrepreneurs and investors alike should aspire to turn their relationship into a sort of on-demand resource for action-focused, 100% relevant, deeply respectful, relentlessly realistic dialogue.
So, what—from an entrepreneur’s real-deal, in-it, let’s skip the bullshit perspective—do the fundamental questions that generate such dialogue look like?
The short answer is: it completely depends on the company. So, in lieu of a thorough list, I’m going to share a series of questions that I’ve recently seen generating rich, fruitful dialogue in conversations with early-stage tech companies. These questions are largely extensible across company stage, industry, etc.
- Do people really love your product or do they just like it a lot? Nearly every failed startup is liked by tons of people. If you are still in the “like” stage, are you 100% focused on relentlessly iterating towards something that so decisively solves a market need or human longing that your product becomes truly beloved?
- Is your product development process (ideation, design, data management and analysis, roadmapping, engineering, testing, etc.) humming? In a shocking number of companies, product development is a nest of dysfunction. This isn’t necessarily a deal breaker, but when you nail your processes you unlock huge productivity.
Market & Growth
- Is the market that loves your product (not the market that just likes or is intrigued by it) really big enough to build a great business?
- Of your near-term and long-term growth strategies, which are real and proven, which are experimental and hopeful, and which are slightly (if excusably…we all need to dream) delusional? How are you determining and killing what’s delusional? Are you taking enough growth risks?
- What are your true LTV / CAC dynamics? Unit economics so often seem straightforward on the pretty ROI slide, but become extremely complex when you drill a few layers down (actuals v projected // segmenting by channel and demo // two-sided marketplace and long-terms SaaS complexities // changes in viral dynamics over time // percentage-based v absolute growth metrics // churn prediction algorithms // cohort-based changes including seasonality and other variants // etc.)
- Are you genuinely differentiated? Incremental improvements on an existing product, no matter how huge the market, usually mean that you are commoditizing something and fast tracking to price reduction, fiercely expensive competition, and a long slog. It can work, but it’s tough. (I bear this scar.) How are you cultivating in yourself hunger for radical differentiation (in product but also in growth strategy, company culture, etc.), despite the fears such independence and risk naturally inspire?
Execution & Team
- Are you spending enough time on branding, story, and vision — both internally and externally? When you really understand your brand (which is usually just an emotionally and strategically intelligent articulation of your vision) you have added to your army a drummer boy, a flag bearer, a cartographer, and a fortune teller. Seems obvious, but even in really successful companies it can be very hard to really know, feel, and stay maniacally focused on the truly important single thing you are building.
- Do you have a clear sense of where you have pure execution risk and where you face more fundamental creative risks? Examples of creative risks include having not yet found true product-market-fit, a scalable growth strategy, a scalable sales model, or effective monetization tactics. Almost every company has both types of risks, and each type calls for a very different approach; so understanding what’s what, tackling your risks accordingly, and not putting the cart before the horse is essential.
- Do you have a complete, intuitive, nearly paranoid understanding of all critical data inside your company?
- Do you have A+ talent where you need it? Are you properly prioritizing the task of finding the very best people? Are you ready to fire the people who are mediocre or detractive? Are you staying open (i.e. confident) enough to seek out the help you need to become a top 1% leader (yes, every leadership team needs help to fulfill their calling)? Are you doing what you need for yourself to sustain the drive it’s going to take to go all the way? And, perhaps most importantly, do you truly believe in what you are making?
…and so on, you get the idea. I imagine that as I spend more time on the investor side of the table (I just recently began at RRE) my questions will evolve. What I’m sure won’t change is my conviction that it is deeply valuable for every entrepreneur to consistently talk through the really hard, mission-critical questions with people who are rooting for but not beholden to them.
Find me @schildkrout
On Monday, the guys at CoreOS announced Rocket, a command-line tool for working with App Container, the company's own container image format, runtime and discovery mechanism. It was the first major competitive blow levied against Docker. The news within the news was that Rocket’s format and runtime promises to be completely open, which is in contrast to the approach Docker has taken, having shown consternation around publishing or agreeing on a spec /standard around their container technology.
Docker co-founder and CTO, Solomon Hykes, responded with a Tweetstorm, ending with this tweet:
Docker, Inc. finds itself in the always thorny position of a company balancing its responsibilities as the steward of an open source project and as a profit-making entity. Invariably as Docker guides the community towards its one version of a universal truth and builds out a fully-featured enterprise management stack, some devs will get left behind – that’s simply the cost of doing business for a company behind an open source project as opposed to one that’s commercializing a foundation-led project, say like Cloudera has done with Hadoop or Red Hat with Linux. Clearly, CoreOS saw an opportunity to pounce, and I’m sure we’ll see more vendors come to market with competing container technologies.
If we’re to chart out how this evolves, the closest analog is the virtualization market. VMware was the clear winner as it was first to successfully commercialize its hypervisor technology, taking the ESX – which actually had its roots in open source – and building a full management stack around it which became vSphere. VMware came to dominate the market with Xen (Citrix), KVM and Microsoft picking up relative scraps.
The hypervisor helped commoditize the OS and physical infrastructure, giving way to the cloud-based architectures we have today. Similarly now, we’re in the midst of another platform shift. Docker offers a higher level of abstraction, taking the OS, virtual machine, physical machine and infrastructure provider, and commoditizing it all. The difference this time around is that in concert with a platform shift (VMs to containers), we're also seeing an architectural shift in the way applications are built (evolving from monoliths to systems that are distributed, highly available and modular). Martin Fowler provides a fantastic overview of distributed systems and micro-services architecture here.
The thing is, building, running and scaling distributed applications is HARD and wholly requires a re-thinking of the tools and systems we’ve had in the place for the last decade, with underlying container technology serving as the modular component for others to build on. We are now re-answering questions like how do you manage networking, persistence, storage in these highly distributed environments? And hence why we’re seeing the emergence of new platforms and tools like Mesos, Kubernetes, etcd, Weave, Flocker, etc.
So what’s really at stake isn’t just domination in one portion of the stack – the underlying container technology – but rather a whole a new stack in and of itself: an integrated offering to manage all aspects of running and building containers in a cluster. And that’s why announcements like yesterday’s really really matter.
How the Developer has become the Organization's Most Influential Power Broker
[Last Tuesday RRE made public our investment in Bowery, a company that we believe is doing to developer environments what Dropbox did to file storage and sync. When I joined RRE I promised to blog about some themes, trends and companies I’m most excited about, so I figured given last week’s announcement, now would be as good a time as ever to get the first one out, so here goes…]
In 2003 Nicholas Carr published a piece in the Harvard Business Review which famously promulgated IT doesn’t matter. Carr predicted that as we leave a world defined by scarcity of IT resources and enter one where “the core functions of IT – data storage, data processing, and data transport – have become available and affordable to all,” technology will cease being a source of competitive advantage for businesses altogether. Many at the time believed Carr was forecasting the death of IT in the enterprise.
Sure enough, it took maybe 5-7 years to get to Carr’s dystopian reality as cloud, open source and mobile crushed barriers to innovation, distribution and adoption of IT. However, a funny thing has happened: instead of IT ceasing to matter it has become table stakes. With ubiquitous access to infrastructure, software and software development tools in particular, we’re seeing software eat the world.
As technology has shifted from enabler of business process, to enabler of product or service, to the very product or service itself, we’ve seen IT transform from a cost center that is adjunct to core business to a profit center that is its lifeblood.
It was during this transformation that the power dynamic within the workplace flipped from the c-suite to the basement; from the employees clad in Armani suits with tie clips to those wearing hoodies with sandals. Consequently, we’ve seen the developer become the most prized resource in the modern organization, and it is this trend that lends itself to an enormous investment opportunity.
Devs as the Go-to-Market
Developers are your innovators and early adopters; they are the gatekeepers for new technologies and often decide which new tech succeeds and which fails either directly or indirectly (look no further than iOS and Windows – win the developer, win the platform war). Appropriately they have become the most powerful distribution channel for IT in the enterprise.
Devs often become catalysts for social communities which help spread new products and technologies organically, and their API-driven tools create the potential for powerful two-sided platforms. There are network effects to be taken advantage of here.
Moreover, the trend towards DevOps (and now BizDevOps) – characterized by the convergence of software development cycles and IT operations (and all business activities) – has effectively blurred the line between developer and sysadmin (and pretty much every other employee). Those tools which shrink developer time-to-value (aka time-to-code written) and offer frictionless onboarding, often multiply through the organization. From Splunk and Logentries, to Puppet and Chef, to New Relic, to Mongo, to Datadog, we’re seeing the emergence of companies at every layer of the stack who succeed by winning the heart and mind of the developer.
Devs as the End-Market
There’s been a lot of talk about a renaissance in the dev tool market and it makes perfect sense: as dev teams become an organizational profit center the tools that make them more productive become that much more valuable.
The dev tool market is constantly evolving, but ultimately can be broken down into three categories which delineate the development lifecycle: writing code, testing code and running code. Within each of these segments we’re seeing companies who are fundamentally changing the way applications are built and shipped.
Tools from vendors like GitHub, Slack and upstarts like Bowery are helping devs write, manage and collaborate around code. Trends around continuous delivery and integration have compressed release cycles and made companies more agile and responsive to customers thanks to companies like CircleCI, Rainforest, and CodeClimate. Finally, the toolkit to ship and run code at scale is being reconstructed with the developer in mind. Infrastructure is becoming more open, more programmable and thus more developer-friendly. Products and platforms such as Docker and Digital Ocean are rethinking operations and infrastructure altogether with the developer at the center. Companies like Flynn are even further on the bleeding edge, trying to wholly productize the role of ops teams. All of this implies that devs don’t have to mess with config files or worry about provisioning servers and databases and can just focus on their code, knowing their app will run and scale in any environment.
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We’ve heard incessantly for the last several years about how the enterprise is being consumerized; how business apps are all about beautiful UX/UI, how BYOD and BYOA have broken down the corporate perimeter and how the procurer of IT is the end-user. What we haven’t heard much about is how the developer has become the biggest power broker in this new paradigm.
As venture capitalists, we have the privilege of partnering with exceptional entrepreneurs solving exceptional problems. Innovations come in all shapes and sizes and it’s our responsibility to be open to opportunities in whatever form they present themselves. RRE Ventures has invested in over 200 companies over the last 20 years across a broad range of sectors. We typically get excited when we see a combination of a brilliant team, a fast growing market, and novel technology that addresses established trends.
But sometimes you only get two out of three of those ingredients to start with. And while we can help recruit a strong team, and a strong team can create truly innovative products, neither of those matter if the market does not develop. This is probably the most common reason that venture investors pass on opportunities - a lack of confidence in the addressable market. But sometimes, you have to look past the market that exists today - and imagine the market that could be…
At RRE, sometimes we do what others say is crazy. And sometimes a great new company emerges. We would like to tell a few such stories about startups that ultimately became successful RRE companies because they were a little weird. Each of these entrepreneurs looked at things differently, believed things that most others didn’t believe, produced a better product, presented it in a creative way, and opened up new demand in a previously uninteresting market.
In 2010 our team began to hear about the innovative things happening at NYC Resistor, a hacker collective. Bre Pettis and his co-founders were reimagining the essential components for 3D printing in ways that would make it vastly more accessible to consumers. And the community was rooting for them, as evidenced by the vast library of open source 3D designs on Thingiverse. In a period when we were hearing a lot about incremental advertising technology and the latest derivative social networking application, Bre and his team stood out. They were fearless entrepreneurs with a big idea. They wanted to change human behavior, and bring rapid prototyping to the desktop and our homes the same way personal computing and the Internet had revolutionized the economy two decades before. Many people thought the idea was a fad, just an expensive toy no one would buy (especially because you had to put it together yourself). After all, the 3D printing market in 2010 was dominated by machines costing $20,000 or more and tools accessible only to CAD designers. But we saw the extraordinary organic demand for those first MakerBot printers and we realized that this product was enabling the creation of a new, fast growing market in the shadow of this old one.
MakerBot was acquired for $604 million less than two years after our initial investment.
In 2004 we made an initial investment in a company called Index Development Partners. The company was publicly traded, though it had no discernible business, and was on the verge of being delisted. The principal founder, Jono Steinberg, was well known to RRE though, and he thought deeply about how mutual fund management was starting to change. Jono and his team had assembled substantial intellectual property (IP) to define fundamentally weighted indices that would allow an investor to make very focused fund selections. They planned to launch a family of funds based on this IP. They faced the challenge of getting these novel products through SEC registration and building distribution for them in a market dominated by well established brands. Index Development Partners was an unusual venture deal: an investment in a failed public company building a new financial services business. Certainly the mutual fund market was unremarkable in 2004 from a venture capital standpoint. But the founders of the company that became Wisdom Tree had a clear vision of the future - one in which consumers might forego active fund management and the associated fees in favor of simple, index based products. The Wisdom Tree team worked tenaciously to create the reality in which they would be successful and uncovered massive latent demand. And a new high-growth market emerged such that Wisdom Tree’s 2010 fund launch was the largest in the history of the New York Stock Exchange.
Ten years later, Wisdom Tree has $35 billion in assets under management.
In 2010 the media industry was well into its current period of turmoil. Legacy media companies had begun to see subscription revenues collapse and online display advertising was already a weak business, getting weaker. There were lots of new media companies producing engaging content, but with very little revenue to show for it. This was not just an uninteresting legacy market, this was an industry collapsing. BuzzFeed started with a simple idea: understand and make things that people like to share. BuzzFeed’s founder, Jonah Peretti, had a remarkable history of identifying and creating content that people were willing to share – and he was building the tools to track and understand that sharing. When RRE invested in BuzzFeed, it wasn’t clear what sort of a business would emerge from this - there was no revenue and only the vague idea that advertisers would pay to have their ads ride along with content as it was shared. But Jonah recognized that a fundamental shift was happening – people were increasingly interested in discovering the news stories and content that their friends were reading and excited about. That’s when BuzzFeed started experimenting with content sponsored by brands that was funny and engaging. With the company’s deep analytic capabilities, brands could now understand how their advertising was being watched and shared. This was a far cry from “impressions.” Thus the sponsored content business was born, a new form of brand advertising and a rapidly growing market where none had existed before.
Today BuzzFeed reaches 150 million monthly visitors around the world.
RRE recently made a similarly audacious investment. Peter Platzer is a former CERN research scientist and hedge fund manager turned space enthusiast. Peter went from drawing concepts on a napkin to having his first satellite in space in under 12-months and, in the process, launched a company called Spire. Spire is a big data company powered by small satellites focused, not on satellite imagery, but on other remote sensing capabilities. By placing cheap, nano-satellites into Low Earth Orbit, Spire aims to provide high-frequency Automatic Identification System (AIS) data to track vessels and assets on the open ocean, as well as to monitor piracy, illegal fishing, maritime security, and even geopolitical conflicts in places like the South China Sea. Spire also fills an upcoming gap in the US national weather data set caused by the end-of-life of certain government weather satellites. And Spire solves this problem at a significant cost savings for the American taxpayer.
Now, tracking vessels and cloud formations is not exactly new stuff. These markets exist today and they are, frankly, relatively unremarkable. That is partly because there has been relatively little innovation in support of these applications until now.
As the Spire team builds its constellation of Nanosatellites, they are creating a future in which weather data remains cheap and accessible, in which highly precise asset tracking becomes possible on the open ocean, in which higher frequency AIS improves maritime security, and in which manufacturers always know where their products are, even when they’re inside containers on the open ocean. We believe great products in these areas can unlock substantial latent demand and spawn a new, high-growth market that rapidly eclipses the old one.
Whether it’s MakerBot, Wisdom Tree, BuzzFeed or Spire, the commonality in each of these companies is a tenacious founding team with a relatively unique point of view, and the capabilities to bring real innovation to the task of creating a new market. Markets don’t coalesce around ideas; great entrepreneurs create the conditions in which their vision can become reality.