Friday, October 03, 2014

Alfidi Capital Debut Visit to SVIEF 2014

I attended the annual SVIEF conclave last week down in Silicon Valley, and it had a big Chinese flavor.  It wasn't quite wonton flavor, but there you go.  I delayed writing about it for a week because I was busy at Oracle OpenWorld this week.  These things run together, you know.  Here comes a blast of my wisdom.  Some of you will not be able to handle the intensity.

The standard introductions from local politicians were notable for the mention of the EB-5 and EB-6 immigration visa programs.  The EB-5 immigrant investor visa is for people who want to invest at least a million bucks here in the States.  The EB-6 startup visa has been languishing in Congress for some time and is not yet a legal reality.  I did not hear anyone mention the E-2 investor visa, which makes sense because China is not on the approved list and this was a China-centric conference.  The US needs rich people to bring their cash here since rich Americans would rather buy yachts than invest.  Plenty of investors from Canada, Australia, New Zealand, and Switzerland should know those programs exist for them to bring their hard currency here in the event of US hyperinflation.

I only have one thing to say about the Chinese Consul General's appearance at SVIEF.  The People's Republic of China has declared a strategic goal of encouraging Chinese intellectuals and entrepreneurs to return to China.  Every policy the Chinese government crafts to send Chinese academics here leads directly to technology transfer from our country to theirs, by any means necessary.  This is clearly a matter of national security.  Washington must pay attention.

Cleantech investment guru Ira Ehrenpreis gave a keynote on energy innovation.  I liked the dude's graph showing how low-risk project finance and high-risk VC money still can't bridge a "valley of death" for unfunded energy concepts.  I know a startup that is working on a solution to bridge that valley right now, but that's all I'm going to say for now.  Crowdfunding can probably bridge some of that gap in small amounts.  Ira's lurid descriptions of extreme weather were good fear generators for a cleantech sales pitch even though they were out of any data context.  All of his stats assuming continued growth in energy set up his main point about China as a renewable energy growth market, but it sure took him a long time to get there.  He loves grid storage but I think most VCs know little about material science in batteries.

Ira's speech was full of anecdotes, name-dropping, brand-name logos, and pedigreed universities.  It was like a tech tent revival with little hard data.  Give him credit for helping build Tesla Motors, but be prepared to take credit away if that company can't find a market larger than rich people who want green subsidies.  Tesla's upper limit on gross revenue is defined by its market size (the number of urban, high-income drivers who can pay a higher price point for a car with limited range), the continuance of green rebates, and a very specialized supply chain (lithium, graphite, and cobalt).  Good luck scaling up to produce for the middle class if even one of those three pillars is challenged.

The other keynote from Dr. Steven Chu was somewhat interesting.  I did not expect him to mention his failed tenure as US Secretary of Energy.  He was probably the smartest guy to ever lead the DOE but his lack of focus showed in the department's failure to identify the most promising areas for research.  The unfortunate scandals over DOE-backed loans to failed cleantech companies showed the policy limits of picking winning companies instead of picking winning tech.

Dr. Chu mentioned some early mentoring relationships that inspired him to build ARPA-E on the concepts he learned at Bell Labs.  He inspired me to construct an equation for greatness as a function of proteges who become better than their mentors.  Here it is . . . the Alfidi greatness function . . .

f(G) = (P x P)(M)

where . . .
G = greatness
P x P = square of protege's value
M = mentor's value

Do you see how easy this genius stuff is?  Well, it's easy for me because I'm a genius.  I hope Dr. Chu would agree.  Dr. Chu also said solar's cheapness below some "power law" bankrupted many companies.  He may have meant Swanson's Law for the solar learning curve but he didn't say it, nor did he give any indication that US manufacturers can learn from it to make their PV panels cheaper.  He couldn't just come out and say that China's dumping of cheap subsidized solar components on the market helped bankrupt US companies, or that failed companies like Solyndra were incompetent, or that DOE officials were too dumb to get their funding priorities straight.

Dr. Chu loves "systems integration" but ignores its Big Data component.  I can totally understand how a policymaker can miss that given the tendency toward data-free analysis in Washington, DC.  Here's something else we can't afford to miss.  The on-board computer in a modern car constantly draws power from its battery.  Battery life may now become dramatically shorter, requiring serious innovation.  I want cleantech fans to discuss their plan of action for that problem besides praising Tesla's Gigafactory.

Steve Wozniak had a conversation with Steve Westly and got a free drone as a gift.  I wouldn't give free stuff to a billionaire but that's just me.  The Woz is a big thinker who excels at pushing divergent concepts.  Entrepreneurs who are serious about growing a huge enterprise are just different that way.  Woz's big lesson was to pilot lots of little money-making concepts.  Scale up the one you like the best.

Woz's enthusiasm for small, powerful tech is at odds with how most humans use tech.  Most people will keep taking selfies and listening to music no matter how powerful their smartphones become.  Real innovations will still come from high-IQ people, not ordinary schmucks playing with their phones.  I am convinced that people with IQs below the population's median should not try to innovate.  Big Data can tell us which combinations of IQ and MBTI produce the most and best innovators.  Let's collect the data on innovators' intellects and personalities before we make more malinvestments in small-scale tech.

I'm not getting off my soapbox about how Woz inspired me at SVIEF.  He is a lifelong hacker, tinkerer, and maker.  He likes 3D printing's potential to make new things, but he underestimates the human predilection for normalcy.  I'm certain most humans will use 3D printing the way they use smartphones, not to do new things but to make the same things they always use.

My final observation about Woz is that no matter what questions the moderators asks him, he takes off and builds three or four related concepts into that question.  That's how he succeeded in business, folks.  Entrepreneurs set an agenda and drive it with a powerful personality.

Tim Draper spoke before the startup pitches kicked off.  The organizers were disorganized and made him wait.  He did not get impatient at all; instead he maintained his bearing and chatted up some folks in the audience while the show got its act together.  I've seen Tim in action before and he remains humble and personable.  Every VC should act that way.

Tim disappointed me by sharing his fondness for Bitcoin.  I'll give him credit for paying attention to the fin-tech space but he's looking at the wrong tech if he thinks a blockchain is a currency.  He bought Silk Road's Bitcoin from the government to help capitalize his own Bitcoin startup ecosystem.  The dude lost me when he said Bitcoin transactions are secure, and have no fees or friction.  I just LOL at people who predict this thing is going to be some supervalued supercurrency.

Tim also wants to disrupt education with Draper University.  One urban survival tactic on his curriculum is for candidates to go from Silicon Valley to San Francisco and get any job offer at all in hand within a few hours.  I object to the ethics of deceiving a potential employer just to secure a paper job offer, because turning it down the next day throws that employer's enterprise into further short-term turmoil.  Yeah, Tim, that's disruptive alright.  I guess it's okay for rich people to teach rich kids to prank small businesses hiring short-term manual labor, because those will be the targets of Draper University's time-sensitive job seekers.

I finally got fed up with Tim Draper when he went off on his Six Californias initiative, which has thankfully failed to qualify for the ballot.  His analogies with pro-growth liberalization in Asian economies made no sense.  If California is so anti-business, why not push for liberalization in Sacramento instead of breaking up the state into six enclaves that must then liberalize on their own?  Some new proto-states may not go for Singapore-style reforms without prompts from Sacramento.  Come on, dude.

I wasn't done with the Bitcoin stuff at SVIEF.  I attended a panel discussion of Internet finance and Bitcoin.  Let's just say that the former has been working fine for twenty years, and the latter will never work.  The panelist dudes (yes, they were all male) were totally confusing currency with investment securities, claiming Bitcoin is both.  They were just plain ignorant.  Do these pro-China people even know that the Chinese government hates Bitcoin?  Aside from its questionable legal status, even the panelists admit that Chinese vendors use Bitcoin as nothing more than a marketing gimmick.  More gimmicks called "appcoins" are the next evolution of this stupidity.  Even dumber is the virtual listing of appcoin startups that will go public without an IPO, or something like that.  It's hard to describe the thought process behind such inanity without sinking to a child's level of ideation.  Tim Draper said something similar in his talk about such listings allowing early investors to cash out their stakes in secondary markets without paying IPO-related fees.  Yeah, right.  The portals that make that work now don't accept Bitcoin but do accept SEC and FINRA regulation.  The rule of law protects investors; Bitcoin protects no one.

I spent very little time with the panels on cloud and Big Data.  They had nothing new to say.  No one on those panels mentioned Cloudonomics or the data supply chain.  I will listen to experts but I have enough expertise myself to know when to cut my losses.  I was getting pretty disappointed at the inanity substituting for critical thinking from quite a few of these people.  I did learn that "online to offline commerce," or O2O, is a cute buzzword.

I always sit through the VC panels at conferences and this one had a VC investment forum specifically addressing capital for the mobile Internet.  I could find no evidence on the Web of their quoted "Zuckerberg rule" that human data doubles every year.  One dude thought Chinese companies would keep investing in Silicon Valley.  Wanna know why?  I'll bet it's because their state-owned enterprises (SOEs) use that cover to acquire our tech.  Someone finally admitted that the US and China have radically different competitive landscapes.  Well, duh!  The US has the rule of law and China has the rule of Party oligarchs.

The VC panel said something that made my head spin:  "The Series A raise should reflect 18 months of cash needed in a worst-case scenario.  Especially in this obvious bubble."  I was disappointed that they think the purpose of an A-round is to survive until the B-round rather than immediately scale up the company to profitability.  Maybe it's VC greed to keep participating in future rounds, dilute away founders, and raise their exit multiples with subsequent valuations going higher in each inflated funding.  I'm very cynical.  They did offer some helpful tips to audience members, like seeking out VCs who invest specifically in the sector, location, and stage of one's startup so time isn't wasted chasing the wrong investors.  I would offer that crowdfunding portals can narrow the search to those VCs that will consider an investment.

The conference was primarily focused on Chinese-American entrepreneurs but they welcomed me anyway.  I welcomed the chance to see some hot Chinese-American women, who invariably have really nice legs and hips.  One hot woman manning an expo booth had the hottest idea I saw that day.  Her company would 3D print a custom bra insert from a tablet scan of a woman's chest.  Wow.  I sure wanted to see her demonstrate the tech but she assured me it worked.  I don't know if I'll return to SVIEF next year but I do hope more women, both Chinese and American, scan their goods into a tablet and share them with the world.  Sharing is caring.