We live and work in a period of unremitting and accelerating change. At Social Starts, we work hard to keep the constancy of change front of mind as we consider how we can best invest. To that end, every six months, we gather together to examine what is going on in the world around us. We look not only at investment factors like numbers of deals and exits and valuation trends, but also at macro factors like social and cultural shifts.
The result is a set of investment focus areas, each with its own thesis, that will form the heart of our investment activity for the upcoming half-year. We base these not on where we have been and what we have done but purely on where we feel the world of human beings is going and how we can best extract value from that now.
Here are our focus areas for January-June 2017:
EXPERIENCES AND CONTENT When Social Starts began, this area was called Media. Most of us began our careers in Media. But we abandoned that definition almost two years ago and focused on Content. The difference was a shift from looking backward toward traditional media models and economics toward a purely mobile focus with no emphasis on ad models or anything traditional.
Now, we believe Experiences are the key. All content is becoming simply components where companies and consumers can create experiences together. The definition of content is also broadening to include AR, VR and to a surprising degree audio interactions.
We define Experiences as any array of content, provided through any medium, the way in which that information is presented, as well as any tools used to create and distribute that information, whose purpose is to deliver a rich sense, digitally, of being among people, places and activities.
We will focus investments on cross-platform experiences in mobile and IoT, created using word, image or video, with an emphasis on video. We also focus on voice interfaces, tools for voice content management and distribution (to drive audio experiences). We also focus on VR/AR creation, finding and management tools (to drive the early expansion of immersive experiences). We will actively seek and evaluate individual Experiences, but will invest only where we see a strong path to revenue via lasting distribution advantages and a stellar, experienced team. A key differentiator for any Experience will be its ability to become a vertically integrated commerce brand or its impact in another of our focus areas.
BLOCKCHAIN BEYOND CURRENCY We believe the world-wide network is moving toward becoming, essentially, one huge computer. All of our devices—not only computers and phones, but cars, small household appliances, large industrial equipment, even our bodies—will be peripherals for that world spanning computer. This computer, operating at vast scale and ultra-high speed, will compel a new generation of control software. This control layer will need to be able to grab, move, and secure the ownership and rules for small bits of information. This information might be words, small programming routines, images, elements of video and audio, financial transactions or other, as yet unimagined components. We see the blockchain as the initial expression for this essential control layer.
Our focus is on the blockchain as a means for establishing ownership and flow outside crypto-currency. We will seek great companies bringing the blockchain to content, health information, experiences, consumer transactions and the world of work.
COMMERCE We believe all commerce today—including in-store retail—is impacted by digital, especially mobile. We also see advances in IoT and material science allowing for products that couldn’t even exist in the past.
Our Commerce focus will be on what we are calling Digitally Integrated Vertical Brands. These brands leverage new advances in technology to either create and market new products or transform the creation and distribution of traditional products.
We seek, in particular, founders who have previous experience building strong brands or deep domain expertise, on their own or through their senior team. We seek products that can scale quickly to profitability and market leadership. We prefer products with margins that are high and distribution and/or tech advantages that are substantial and protectable.
WORK PLATFORMS Work platforms are the systems and technologies that support the changing structure of how people work globally, from how they find work all the way through the cycle of starting to find work again. Our perspective on this area derives from these truths:
- Talent, not employer, has primacy
- Massive expenditures are being undertaken on finding, training and retaining highly skilled workers
- Changes in work will have a profound impact on the current education system
- Training the current workforce is essential and must be done cost effectively
- Connected everything is a massive security risk in the world of work
We believe there are more jobs than skilled workers, so demand for highly skilled labor will significantly increase worldwide; while all other categories will move to on-demand systems and then robotics. As a result, we will seek work platforms that drive these trends and whose revenue is derived from companies, not from workers.
IOT SOFTWARE STACK The Internet of Things—the universe of networks of internet-connected devices or all sizes and stripes, able to collect and exchange data--will bring tens of billions of new devices onto the worldwide network. This will shift the fundamental experience of the network. To date, value on the network has come from making it possible for humans to have substantive interactions with other humans at a distance that previously were only possible close at hand. With the IoT, that will shift to devices having interactions with other devices on behalf of humans at a distance. Humans, increasingly will become directly involved only at the initiation and end points of these interactions.
In order to function, the IoT will require a radically altered software stack, which we call the Internet of Flows (IoF). Security, session management, programming frameworks, transactions, ownership, bots, and AIs will all be managed by the IoF.
At Social Starts, we focus on the IoF. We recognize that, by its nature, the IoT requires hardware in order to derive and interact with information from the real world and to communicate with humans, but as investors we are only interested in hardware as a facilitation for the IoF; this hardware must be so simple and inexpensive that manufacturing yields and complexities cannot have a material impact on a company’s margins or capital requirements.
We believe value will hew closely to profit potential in the early IoF. As a result, our focus will be primarily on companies whose revenue derives from corporations, not consumers. We will actively avoid IoF in smart cities and other applications where the customer is a government entity, school system or others who have massive budget constraints.
We believe the highest impact areas for the IoF in the near term will be in support of the IoT in Industrial, Healthcare and Connect Car applications. These will be our primary foci for investment. We will, however, explore companies in the IoF broadly and be open to unexpected developments in this highly volatile space. We are especially interested in exploring the potential for Amazon Alexa and Google Home to become primary drivers for the IoF.