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General Commentary
September 11, 2016

Defying Gravity

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Market Snapshot

Indices Week YTD
GSV 300 1.80% 42.10%
S&P 500 0.70% 9.10%
Dow 0.60% 10.40%
NASDAQ 0.80% 16.40%
Russell 2000 1.40% 1.50%
MSCI P/E Fwd P/E/G
Valuations 25.8x 0.7x
GSV 300 17.6x 2.3x
S&P 500 Now YTD
I-Rates 2.17% -11.40%
10-Year Note 1.03% 102.00%
3-Month Bill - Current
Sentiment - 28.1-38.3
Bull-Bear - 0.97
Put-Call - 11.28
Vix Now YTD
Inflation $1 12.50%
Gold $47.86 -11.10%
Oil - Week
Mutual Funds - -$3.40
Fund Flows (bil) 00-09 09-Now
Growth-Value -34% 218%
Growth 87% 133%
Value

There’s no fight we cannot win. With you and I defying gravity, they’ll never bring us down!

— Glinda & Elphaba (Wicked)

So if you care to find me, look to the western sky. As someone told me lately, everyone deserves the chance to fly!

— Elphaba (Wicked)

This week, GSV is hosting the second annual Pioneer Summit (September 14-15) at GSVlabs in Silicon Valley. The Summit’s mission is to accelerate transformative ideas by bringing together visionary founders, investors, and leaders who revel in “defying gravity” and changing the world for good. (Disclosure: GSV owns shares in GSVlabs)

Our focus is on the industries of the future, which will be shaped by key themes, including Exponential Machines, Human Renaissance, Commerce Reimagined, a Sustainable World, and Moonshot Startups.

Key Themes of the 2016 Pioneer Summit

FEATURED PANELS AND TALKS AT THE PIONEER SUMMIT

2016 Global Silicon Valley Hall of Fame

Football lovers go to Canton to visit the Football Hall of Fame. Baseball greats are honored in Cooperstown. But if you are like us and are addicted to entrepreneurship and innovation, where do you go to celebrate the pioneers and mavericks of the Global Silicon Valley?

Part of our community’s core mission is to celebrate the leaders who have inspired generations of innovators and dreamers. That’s why we launched the Global Silicon Valley Hall of Fame at the inaugural Pioneer Summit in 2015, honoring Bill Campbell, Larry Sonsini, Diane Greene, Dick Kramlich, and Mike Homer (posthumously).

Inaugural Class: Global Silicon Valley Hall of Fame

Left to Right: Dick Kramlich, Diane Greene, Larry Sonsini, Bill Campbell.
Source: GSV

This year, we are inducting our second class of GSV Hall of Famers. This unique group includes the pioneers who have created, led and advised some of the most important technology companies in the world. The impact they have had on The Valley and the world is beyond measure. We look forward to the induction celebration at the 2016 Pioneer Summit on the evening of September 15th from 6-8pm and hope to see you there!

Carol Bartz, Fearless Builder

Before there was a Sheryl Sandberg or Susan Wojcicki, there was Carol Bartz. Carol served at the helm of two high-profile tech companies, Autodesk and Yahoo!, in addition to serving on the boards of numerous corporations, including Cisco. Carol turned Autodesk into the company that it is today. During her time as the CEO, annual revenue rose from $300 million to $1.5 billion.

Carol began her corporate career at 3M where she flourished amidst gender discrimination in a male-dominated workplace. After four years, Carol left 3M and rose to Silicon Valley stardom, first at Digital Equipment Corp, then at Sun Microsystems. Soon Autodesk came knocking and Carol began her 14-year tenure as CEO, transforming the company into the profitable, software leader it is today. After Autodesk, Carol was given the daunting task of taking over internet giant Yahoo! from its founder Jerry Yang in 2009. She served as CEO of Yahoo! until 2011. Carol is married to Bill Marr, a former executive at Data General and Sun Microsystems. They have three children: Bill, Meredith, and Layne.

Ken Coleman, Pioneering Mentor

Ken Coleman has long been a trailblazer in the Valley. Despite working in an industry notorious for being dominated by white male executives, Ken has held some of the most senior positions in Silicon Valley. He was notably the Executive Vice President of Sales, Service and Marketing of Silicon Graphics (where he hired Ben Horowitz as an intern), and is perhaps the most influential major African American leader in Silicon Valley.

Ken is Chairman of Saama Technologies, Inc., one of the largest pure-play analytics solutions and services companies in the Data Analytics market. He is currently a special advisor at Andreessen Horowitz, mentoring founders into CEOs and advising talented individuals on opportunities in Silicon Valley. He is also an advisor at Pinterest. In addition, he is a board member of CSAA Insurance, Entertainment Partners, and Procura.

Ken is noted by many in the Silicon Valley community not only as an important mentor to many leading CEOs and executives, but also a philanthropist, giving his time, knowledge and resources to people who have the most significant needs in the community.

Gordy Davidson, Confidant of Champions

Gordy Davidson is one of the most trusted advisors in Silicon Valley. His client list reads like a history of Silicon Valley: Apple, Cisco Systems, Oracle, Intuit, Electronic Arts, Macromedia, Facebook.

He has worked on over 50 public offerings and has represented boards of directors, audit committees and executives in numerous special investigations. He has also acted as lead counsel on over 100 mergers and acquisitions valued at more than $75 billion in the aggregate, including WhatsApp’s $19 billion sale to Facebook in 2012.

Gordy has spoken on current issues in IPOs at the Securities Regulation Institute and on corporate governance issues at the Stanford Directors College. He has lectured on venture capital investments at the Stanford Law School, the Stanford Business School and the Haas Business School. He has taught courses on deals and mergers & acquisitions at Stanford Law School, and chaired the Practising Law Institute programs on private placements and mergers & acquisitions of high technology companies. Gordy has also served on the boards of directors of non-profit organizations, including BayBio, Children’s Health Council and Pacific Community Ventures.

In Memory: Andy Grove (1936-2016), Legendary Leader

It is hard to describe the profound impact that Andy Grove had on the world, other than to say that Silicon Valley would probably not exist today without Andy’s leadership at Intel, which enabled almost everything built on its computing platform.

Andy, a co-founder and later CEO of Intel, was the visionary behind their shift from memory to processor chips, the slogan “Intel Inside,” and Intel’s dramatic growth. During his time as CEO, Intel’s market capitalization skyrocketed from $4 billion to $197 billion.

Andy overcame tremendous hardship to become the legend that he will always be remembered to be. He was born in Hungary where he survived a Fascist dictatorship, German occupation, the Nazi “Final Solution,” and a repressive communist regime. Andy escaped Hungary when he was 20 and eventually came to America.

He began as a busboy, but eventually earned both a Bachelor’s degree and PhD in chemical engineering from City College of New York and University of California, Berkeley, respectively. After earning his PhD, Andy worked for Fairchild Semiconductors where he met fellow Intel co-founders Robert Noyce and Gordon Moore.

After ending his tenure as CEO on Intel in 1998, Andy continued to be a pivotal figure in The Valley as chairman of Intel’s board until 2004, a lecturer at Stanford University, and through his philanthropy with UCSF, International Rescue Committee, and more. His untimely passing this April sent shockwaves throughout the Valley. He was a legend, a mentor, and a friend to generations of technologists and innovators.

Everything seemed to be going well and then previously “dovish” Fed Governor Eric Rosengren remarked that he thought rates should be OK to move up. No sooner than you could say “irrational exuberance,” stocks swooned, having their worst week since Brexit. For the week, the S&P 500 fell 2.4%, the NASDAQ dropped 2.3%, and the GSV 300 fell 0.4%.

World Indices

Source: Yahoo Finance, GSViQ

Apple came out with its new iPhone last week. Copying the Samsung Galaxy, it is now waterproof. Another feature that will give many juice starved iPhone users cheer is longer-lasting battery. Missing from the new phone is a headphone jack and any real excitement. Apple shares fell over 4% for the week.

In other news, Chipotle received an endorsement of sorts, with activist investor Bill Ackman disclosing that he owned 9.9% of the company’s shares. Ackman said Chipotle was a great brand and undervalued. Tesla received $300 million from Deutsche Bank to help finance the purchase of new cars.

The World is starved for growth and interest rates remain very low, making growth companies especially attractive. We remain BULLISH and look at the Market volatility as a friend of the long term investor.

Bubblin'

by Luben Pampoulov

Disrupting Goliath

In Technology, disruption happens quietly — first in the back, with only few people recognizing the threat. But soon comes a breaking point, and suddenly disruption becomes very evident. The incumbent is struggling to respond, and is seeing its World turning upside down. Before they can blink, customers are leaving, revenues are declining, and margins are getting squeezed.

The iPhone killing the Blackberry was one of the most evident cases in recent history, showing the incumbent’s (Research in Motion) blindness and lack of innovation. When Steve Jobs first showed the iPhone, every child could tell what was gonna happen with Blackberrys. And within a few years, they were gone.

iPhone Killing Blackberry

Uber and Lyft putting the Taxi industry on its head, and Airbnb doing the same to Hotels, are other great examples of modern times. (Disclosure: GSV owns shares in Lyft).

Facebook has been a disruptive power for many years. Launching as a college-only network, it quickly expanded and killed off MySpace – the once largest social network in the World. It’s been impressive to watch Mark Zuckerberg over the past 12 years. With incredibly smart and successful acquisition of Instagram and WhatsApp, he has managed to stay ahead of competition for the past 8 years.

But suddenly Facebook is being disrupted itself. Seemingly untouchable, and still growing strong, Facebook had built out a very strong position as the leader in the social media space. Strong user growth driving robust revenue growth has kept FB as one of the top growth stocks, even at a $360+ billion valuation. But one metric has started to lag lately — personal content engagement!

Increasingly, Facebook users are just reporting news stories, trending videos, or anything and everything funny and interesting on the net. It’s become like a utility, where people go on a daily basis. But Facebook has also become somewhat unappealing. One major reason for this shift has been the disruption done by Snapchat! (Disclosure: GSV owns shares in Snapchat).

Started as an ephemeral photo sharing app, Snapchat has been innovating with the speed of light. Today it is a major broadcasting platform, enabling users to create and broadcast their own daily “reality show”, and is catching enormous amounts of time of Millennials. People who have yet to use Snapchat, still don’t know or understand what Snapchat is… Meanwhile, almost every kid and Millennial engages with Snapchat on a daily basis.

In less than two years since launching Stories, Snapchat’s daily video view count has exploded, even topping that of Facebook. Snapchat had 10 billion daily video views in April, and we estimate that this number has grown to around 14 billion today. Facebook last reported it hit 8 billion daily video views late last year, and has since not shared any update.

Snapchat Daily Video Views (Billions)

Source: Company announcements, GSV internal estimates

Mark Zuckerberg has been aware of Snapchat’s threat for a long time, and he tried to acquire the company once. In late 2013, he offered Evan Spiegel $3 billion, but was rejected. Ever since, Facebook has been trying to copy and recreate Snapchat internally or via acquisitions — not once, not twice, and even not three times. It’s hard to count the many times Facebook tried to clone Snapchat, and the latest push with Instagram Stories is their twelfth try!!

Facebook’s Wannabe Attempts To Clone Snapchat

Source: Facebook and Instagram announcements

It has been incredibly impressive that Evan Spiegel has managed to stay ahead of the curve, despite all these attacks. In what seem to be a pathetic chase, Facebook has yet to find something that would have a competitive impact on Snapchat. This year, Snapchat’s user growth has been accelerating, with incredibly strong engagement metrics. And as for Facebook — as users focus is beginning to shift, Disruption is knocking on the door. 

Pioneer Notes

by Li Jiang

A Man and His Bots

This post was written by former summer analyst Rahul Singireddy and originally appeared on his Medium account. It has been reposted here with permission.

Josh Browder

Roaring into the public spotlight after his chatbot saved people in London millions of dollars in parking tickets, Stanford rising sophomore Josh Browder continues to pursue his passions in consumer and human rights, combining the technology and connections of Silicon Valley with a worldview that looks well beyond it.

With his curly brown hair, thick spectacles, love for country music, and tendency to apologize for ranting when giving minimalist responses, Josh Browder does not talk for the sake of talking. During his pitch to the student entrepreneur program Summer@Highland which he is now a part of, he spoke for two of the allotted five minutes he was given in a half tucked collared shirt, jeans, and dress shoes. There was no showmanship, no appraisal of market size, and when answering questions, each response was a sentence long only if it could not be answered with a yes or no. He was immediately accepted.

In contrast to many of the incredibly talented computer science students that are his peers, Josh does not do things for the money, for the peer acceptance, or as a piece to some overarching goal-orientated ambition. He does things because he wants to, and if he wants to, you can be sure as hell that he will be doing it, regardless of what his parents, society, or the government thinks.

Born and raised in London and an immigrant to the concentric bubble known as Silicon Valley, Josh is well aware of the disconnect between the Valley and the rest of the world. The mix of 78-degree weather, Moore’s Law, mobile penetration, and Uber drivers pitching you their biotech startup has created a tunnel-visioned utopia. As Carnegie Mellon scrambles to replenish the ranks of its AI academia, in a time where AI researchers are treated as celebrities and sucked into corporations for branding purposes (and handsomely rewarded), Silicon Valley’s software may not yet be eating the world, but it sure is biting off as much as it can chew.

In a matter-of-fact British accent, Josh gave his view of the future: “I absolutely think AI will destroy jobs. Truck driving employs 3.5 million people in America and when there are driverless trucks how are the jobs going to be replaced. There will be the unemployed masses, lacking the skills to have a proper job, and then a small minority of founders and venture capitalists with hundreds of billions of dollars in cumulative wealth. And if there’s any sort of democracy left in 30 or 40 years, the masses will push for a basic income.”

So much of Silicon Valley is about solving the problems of Silicon Valley that the side-impacts of its hyper growth technologies are rarely considered. This is why SF startups seem to cater solely to the needs of 20-somethings looking to replace their mother’s tender loving care with smartphone apps, and why newly-unemployed masses in London and the US push towards more radical agendas.

Josh, however, is different. When he was 13, Josh began an obsession with iPhone development, teaching himself the basics of iOS development through YouTube tutorials. He was a fan of the UK sandwich chain Pret A Manger, so he coded up a location finder app for the store. When there were only around 50,000 apps on the App Store, his app shot to the top ten in the Food and Drink category.

Josh used the chain’s graphics in blatant copyright violation, so Pret A Manger demanded he take it down. Josh refused, and rather than get into a PR battle with a 13-year-old, Pret a Manger bought the app from him. Josh, smiling, said of the incident, “That was a lot of money for a 13-year-old — I got the biggest MacBook I could get.”

The teenage wizard app developer trope is all too common, but from there Josh transitioned to looking at the intersection of human rights and technology. He was inspired in part by his father, Bill Browder, a wizard hedge fund manager who made a name for himself exposing corrupt companies in Russia before transitioning to human rights advocacy (Bill Browder’s full story is quite incredible, detailed in his book Red Noticewhich I highly recommend.)

At 15, Josh cold emailed the top 20 human rights organizations offering his help free of charge. Seven took him up on the offer, including Freedom House, one of the oldest human rights organizations in the US. Each had a specific project, and Josh did everything from overcoming Chinese censorship in publishing human rights reports to building an app that trained lawyers in African countries. By 16, Josh was a force to be reckoned with, a thoughtful, stubborn, highly talented developer with a worldview radically more mature than his peers.

So when he received over a dozen parking tickets his mother refused to pay for, Josh saw it as an overstepping of the local government’s boundaries, picking on citizens to generate money. So began DoNotPay, Josh’s most high-profile accomplishment.

A chatbot constructed well before the chatbot craze over the past couple months, DoNotPay guides its users through simple questions about the nature of their ticket before constructing and sending an appeal, free of charge. The site has appealed over 150,000 tickets and saved its users a cumulative $4.2 million (USD) at a 43% conversion rate.

The project took shape in part due to Josh’s obsession with chatbots, which began when he was teaching himself BASIC and built a bot in the language. Unlike the recent CNN and Facebook bots, often built using chatbot creation software and managed by social media teams, DoNotPay is far more complex, integrating machine learning that Josh taught himself from YouTube tutorials.

At first, Josh attempted to have the bot recognize any number of ways of saying the same statement, plugging in thousands of potential queries. After recognizing how inefficient this was, however, Josh looked into Bayesian classification at the recommendation of his paternal grandparents, who are mathematicians at Princeton. He created a simple Bayesian classification algorithm, and the bot could now recognize responses with increasing accuracy.

From there, DoNotPay follows a decision tree, with each detail from the user treated as a variable. These variables are then put into an appeal, which sometimes includes relevant evidence like Google Street View images. Though based in London, Josh is testing a prototype version in New York as well.

Every government agency in the UK remotely tied to parking tickets has registered for the site with their gov.uk emails. And with the site’s rise in popularity has come constant media attention, with every publication from BBC to the Daily Mail spinning some version of Josh’s narrative. During his freshman year at Stanford, Josh would juggle the constant demands of the US and UK press. And with every month came a new angle from a different publication — for some he was the angsty teenager looking to end parking tickets forever, for others he was a case study in the rise of robot lawyers.

Investors took notice as well, like venture capitalist and LinkedIn founder Reid Hoffman, who Josh met with at Bucks in Woodside. As of yet, however, Josh is not interested in significant funding. “I think there’s lots of pressure to drop out and speed things up,” he said. “I asked Reid what I should do and he said if you want to do this for the next ten years you should drop out, otherwise don’t. And parking tickets are not that glamorous of an industry. If it’s like some massive legal company maybe, but at the moment it’s just parking tickets so as much traction as it’s gotten, I don’t think I want to drop out.”

In parallel to DoNotPay, Josh has been working on additional projects in the consumer and human rights space. One project is a flight delay compensation tool that lets airline passengers earn refunds if their flights are delayed. Another is a service that lets HIV positive patients have proof of their disclosure to sexual partners.

“I think there’s so much discrimination against HIV patients in the legal system,” Josh said. “When you’re an HIV patient, you have to disclose to your sexual partners or it can be as serious as murder. The problem is disclosure is a he-said she-said kind of thing. And in those cases when they go to court, the judges are, in my opinion, slightly biased against HIV patients because people have all sorts of prejudices against those with HIV.”

Josh took this nuanced opinion and combined it with the blockchain, the public ledger where all bitcoin transactions are recorded. The website asks the user for the number of a sexual partner, sending that partner a text. The partner then clicks a button acknowledging their awareness, and the record of the text is added to the blockchain. The scope of the project is incredibly narrow and specific for the amount of time Josh spent learning a new technology, but Josh was passionate in his description: “I think that if that could save just like ten people prison time it would be worth it.”

Josh’s main project this summer as part of Summer@Highland will be a chatbot to help Syrian refugees from getting deported. “About 75 percent of asylum cases are approved,” he said. “The problem is that something like 10,000 people get deported for missing the deadline, not filing a claim at all, absconding from their hearing, etc.. The reason they do that I think is lack of knowledge. The solution, and maybe it’s far fetched, is a chatbot that speaks to them in their language. Because they’re all eligible, they come from Syria, there’s a war going on there.”

With the pressures of rigorous academia, the similarities between peers, the opportunity to make $30,000 with one internship, and the at times suffocating presence of venture money, most Stanford students, and especially technical ones, forget about the world outside of the Valley. Josh has yet to, and the world has smiled back.

Market Update

Week ending September 11, 2016

World Indices

America Index 9/20/2017 YTD Week
U.S. GSV 300 107.4 42.1% 1.8%
NYSE 11812.0 6.8% 1.0%
Dow 21813.7 10.4% 0.6%
NASDAQ 6265.6 16.4% 0.8%
NASDAQ-100 5822.5 19.7% 0.5%
Russell 2000 1377.5 1.5% 1.4%
S&P 500 2443.1 9.1% 0.7%
Brazil Bovespa 71073.7 18.0% 3.4%
Mexico IPC 51373.2 12.6% 0.6%
Canada S&P TSX 15056.0 (1.5%) 0.7%
Euro-Asia Index 9/20/2017 YTD Week
China SSE 3331.5 7.3% 1.9%
Heng Seng 27848.2 26.6% 3.0%
Singapore Straits Times 3259.6 13.1% 0.2%
Indonesia JKSE 5915.4 11.7% 0.4%
Japan Nikkei 225 19452.6 1.8% (0.1%)
India Sensex 31596.1 18.7% 0.2%
Russia RTS 1979.1 (11.4%) 2.5%
France CAC 40 5104.3 5.0% (0.2%)
Germany DAX 12167.9 6.0% 0.0%
U.K. FTSE 100 7401.5 3.6% 1.1%



U.S. Indices Snapshot

Valuation P/E Est. P/E/G Price/Sales
LTM NTM Growth LTM NTM LTM NTM
S&P 500 24.2x 17.6x 7.60% 3.2x 2.3x 2.4x 2.1x
NASDAQ 25.2x 17.5x 7.90% 3.2x 2.2x 2.6x 2.2x
Russell 2000 24.7x 17.6x 6.30% 3.9x 2.8x 1.9x 1.6x
GSV 300 50.6x 25.8x 38.40% 1.3x 0.7x 5.5x 4.0x

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